<PAGE>
Registration No. 333-24865
As filed with the Securities and Exchange Commission on January 7, 1998
_________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________________
MEDICAL RESOURCES, INC.
Delaware 13-3584552
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Lawrence Ramaekers
Acting Chief Executive Officer
155 State Street, 155 State Street,
Hackensack, New Jersey 07601 Hackensack, New Jersey 07601
(201) 488-6230 (201) 488-6230
(Address, including zip code and (Address, including zip code and
telephone number, including area telephone number, including area
code, of registrant's principal code, of agent for service)
executive offices)
__________________________
Copies of communications to:
PETER DIIORIO, ESQ.
Werbel & Carnelutti
A Professional Corporation
711 Fifth Avenue
New York, New York 10022
(212) 832-8300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /x /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<PAGE>
Pursuant to Rule 429 under the Securities Act, the form of Prospectus
included herein also relates to the securities registered under the Registrant's
Registration Statement on Form S-2 (file No. 333-4056) declared effective on
April 29, 1996, is intended for use therewith, and constitutes a post-effective
amendment thereto.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class of Offering Aggregate Amount of
Securities Amount to be Price Per Offering Registration
to be Registered Registered Unit (2) Price (2) Fee (2)
----------------- -------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stock, 1,455,520(1) $10.63 $15,472,177 $ 5,335(1)
$.01 par value shares
7,003,087 $9.3125 $65,216,248 $19,763
shares(3)(4)(5)
(6)
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</TABLE>
(1) $13,396 has previously been paid in connection with this filing. Insofar as
the number of shares of Common Stock proposed to be registered hereunder
has been reduced, no additional filing fee need be made.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(3) A total of 7,003,087 shares of Common Stock are being added to this
Registration Statement by this Amendment No. 3 and, therefore, are shown
separately in this table.
(4) The shares of Common Stock which may be offered pursuant to this
Registration Statement include 5,459,732 shares of Common Stock issuable
upon conversion or otherwise issued in respect of 18,000 shares of the
Company's Series C Convertible Preferred Stock, including 1,167,000 shares
of Common Stock issuable pursuant to the exercise of warrants issued or
issuable to the holder of such Preferred Stock and other shares of Common
Stock which may be issuable to the holder of such Preferred Stock pursuant
to agreements with the holders of the Preferred Stock. For purposes of
estimating the number of shares of Common Stock to be included in this
Registration Statement, the Company calculated 200% of the number of shares
of Common Stock issuable in connection with the conversion of the Company's
Series C Convertible Preferred Stock (based on a conversion price of $8.50
which is 100% of the average of the daily closing bid prices of the Common
Stock reported on the Nasdaq National Market for the five consecutive
trading days ending on the fifth trading day preceding January 2, 1998). In
addition to the shares set forth in the table, the amount to be registered
includes an indeterminate number of shares issuable upon conversion of or
in respect of the Series C Convertible Preferred Stock, as such number may
be adjusted as a result of stock splits, stock dividends and antidilution
provisions (including floating rate conversion prices) in accordance with
Rule 416 under the Securities Act.
(5) The shares of Common Stock which may be offered pursuant to this
Registration Statement also include 597,260 shares of Common Stock issuable
upon conversion of an aggregate of $5,450,000 of convertible promissory
notes issued by the Company in connection with acquisitions. For purpose of
estimating the number of shares of Common Stock to be included in this
Registration Statement, the Company calculated the number of shares
issuable upon conversion of such notes as of January 2, 1998 (based on a
conversion price of $9.125 which is 100% of the average of the daily
closing prices of the Common Stock reported on the Nasdaq National Market
for the five consecutive trading days preceding January 2, 1998). In
addition to the shares set forth in the table, the amount to be registered
includes an indeterminate amount of shares issuable upon conversion of such
promissory notes, as such number may be adjusted as a result of stock
splits, stock dividends and antidilution provisions (including floating
rate conversion prices) in accordance with Rule 416 under the Securities
Act.
(6) The shares of Common Stock which may be offered pursuant to this
Registration Statement also include 561,424 shares of Common Stock which
may be issuable pursuant to the potential exercise of certain purchase
price protection remedies included in certain acquisition agreements
entered into by the Company. For purpose of estimating the number of shares
of Common Stock to be included in this Registration Statement, the Company
calculated 125% of the number of shares issuable upon the exercise of such
remedies as of January 2, 1998 (based upon a market price of $9.125 which
is 100% of the average of the daily closing prices of the Common Stock
reported on the Nasdaq National Market for the five consecutive trading
days preceding January 2, 1998).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 7, 1998
Prospectus
----------
8,458,607 SHARES
MEDICAL RESOURCES, INC.
COMMON STOCK
($.01 PAR VALUE)
The shares offered hereby (the "Shares") consist of 8,458,607
shares of common stock, par value $.01 per share (the "Common Stock"), of
Medical Resources, Inc., a Delaware corporation (the "Company"). The
Shares may be offered from time to time by certain stockholders (the
"Selling Stockholders") identified herein. See "Selling Stockholders."
The Company will not receive any part of the proceeds from the sales of
the Shares. All expenses of registration incurred in connection herewith
are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by the Selling
Stockholders.
The Selling Stockholders have not advised the Company of any
specific plans for the distribution of the Shares covered by this
Prospectus, but it is anticipated that the Shares will be sold from time
to time primarily in transactions (which may include block transactions)
on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System at the market price then prevailing or at prices
related to prevailing prices, although sales may also be made in
negotiated transactions at negotiated prices or otherwise. See "Plan of
Distribution."
The Company's Common Stock is traded and quoted on the Nasdaq
National Market under the symbol MRII. On January 2, 1998, the closing
sale price of the Common Stock was $9.44 per share.
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6-14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY __, 1998
<PAGE>
No dealer, salesperson or other person has been authorized to
give any information or to make any representations, other than those
contained or incorporated by reference in this Prospectus, in connection
with the offering contained herein and, if given or made, such
information must not be relied upon as having been authorized by the
Company or the Selling Stockholders. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and information statements filed by
the Company may be inspected and copied at the Public Reference Section
of the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington D.C. 20549 at prescribed rates. The Commission maintains a
Web site that contains reports, proxy and information statements and
other information regarding the Company; the address of such site is
http://www.sec.gov.
The Company has filed with the Commission a Registration
Statement on Form S-3 (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information
set forth in the Registration Statement certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Copies of the Registration Statement, including all exhibits thereto, may
be obtained from the Commission's principal office in Washington D.C.
upon payment of the fees prescribed by the Commission or may be examined
without charge at the offices of the Commission as described above.
The Company's securities are quoted on the Nasdaq National
Market. Reports and other information about the Company may be inspected
at the offices maintained by the National Association of Securities
Dealers, Inc., NASDAQ Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the
Company with the Commission are incorporated by reference in this
Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended on Form 10-K/A filed on April 8, 1997,
Form 10-K/A filed on June 27, 1997, Form 10-K/A filed on September
3, 1997 and Form 10-K/A filed on January 7, 1998, which contains
consolidated financial statements of the Company and certain other
information regarding the Company.
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended.
1. March 31, 1997, as amended on Form 10-Q/A filed on September 3,
1997 and January 7, 1998;
2. June 30, 1997 as amended on Form 10-Q/A filed on September 3,
1997 and January 7, 1998; and
3. September 30, 1997, as amended on Form 10-Q/A filed on December
29, 1997.
(c) The Company's Current Reports on Form 8-K:
1. Dated February 5, 1997 and filed on February 11, 1997;
2. Dated February 5, 1997 and filed on February 12, 1997;
3. Dated February 20, 1997 and filed on March 4, 1997;
4. Dated April 3, 1997 and filed April 4, 1997;
5. Dated May 30, 1997 and filed June 16, 1997, as amended
on Forms 8-K/A filed on August 13, 1997 and January 7,
1998;
6. Dated June 26, 1997 and filed July 2, 1997;
7. Dated June 30, 1997 and filed July 9, 1997;
8. Dated July 21, 1997 and filed July 24, 1997;
9. Dated January 9, 1996 and filed on January 24, 1996, as
amended on Forms 8-K/A filed on March 19, 1996, June 27, 1997
and September 3, 1997;
10. Dated April 30, 1996 and filed on May 5, 1996, as amended on
Forms 8-K/A filed on July 19, 1996, June 27, 1997 and
September 3, 1997;
11. Dated August 30, 1996 and filed on September 13, 1996, as
amended on Forms 8-K/A filed on June 27, 1997 and
September 3, 1997;
12. Dated November 5, 1997 and filed on November 10, 1997; and
13. Dated December 4, 1997 and filed December 11, 1997, as amended
on Form 8-K/A filed on December 23, 1997.
(d) The Company's Registration Statement on Form 10 filed under the
Exchange Act, File No. 0-20440, which contains a description of the
Company's Common Stock.
(e) The description of certain rights attaching to the Common Stock to
purchase Series C Junior Participating Preferred Stock contained in
the Company's Registration Statement on Form 8-A, filed with the
Commission on September 13, 1996.
(f) All other reports pursuant to Section 13(a) or 15(d) of the Exchange
Act since the end of the Company's fiscal year ended December 31,
1996.
Each document filed subsequent to the date of this Prospectus
by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which
deregisters all securities remaining unsold, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
the filing of such reports and documents. Any statement contained in a
document, all or a portion of which is incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained or incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all such
documents which are incorporated herein by reference (other than exhibits
to such documents unless such exhibits are specifically incorporated by
reference into the documents that this Prospectus incorporates). Written
or oral requests for copies should be directed to: Investor Relations,
Medical Resources, Inc., 155 State Street, Hackensack, New Jersey, 07601,
telephone number: 201/488-6230.
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<PAGE>
THE COMPANY
The Company specializes in the operation and management of
diagnostic imaging centers. The Company currently operates 101 outpatient
diagnostic imaging centers located in the Northeast (58), Southeast (25),
the Midwest (13) and California (5), and provides network management
services to managed care organizations. The Company is rapidly growing
and has increased the number of diagnostic imaging centers it operates
from 11 at December 31, 1995 to 101 at October 6, 1997 through
acquisitions, including 18 imaging centers resulting from the Company's
acquisition on August 30, 1996 of NMR of America, Inc. (the "NMR
Acquisition"). In addition, through the Per Diem and Travel Nursing
divisions of its wholly-owned subsidiary, StarMed Staffing, Inc.
("StarMed"), the Company provides temporary healthcare staffing to acute
and sub-acute care facilities nationwide.
The Company's diagnostic imaging centers provide diagnostic
imaging services to patients referred by physicians in a comfortable,
service-oriented environment located mainly in an outpatient setting. Of
the Company's 101 centers, 87 provide magnetic resonance imaging, which
accounts for a majority of the Company's imaging revenues. Many of the
Company's centers also provide some or all of the following services:
computerized tomography, ultrasound, nuclear medicine, general radiology
and fluoroscopy and mammography.
At each of the Company's centers, all medical services are
performed exclusively by physician groups (the "Physician Group" or the
"Interpreting Physician"), generally consisting of radiologists, with
whom the Company enters into independent contractor agreements. Pursuant
to these agreements, the Company, among other duties, provides to the
Physician Group the diagnostic imaging facility and equipment, performs
all marketing and administrative functions at the centers and is
responsible for the maintenance and servicing of the equipment and
leasehold improvements. The Physician Group is solely responsible for,
and has complete and exclusive control over, all medical and professional
services performed at the centers, including, most importantly, the
interpretation of diagnostic images, as well as the supervision of
technicians, and medical related quality assurance and communications
with referring physicians. Insofar as the Physician Group has complete
and exclusive control over the medical services performed at the centers,
including the manner in which medical services are performed, the
assignment of individual physicians to center duties and the hours that
physicians are to be present at the center, the Company believes that the
Interpreting Physicians who perform medical services at the centers are
independent contractors. In addition, Interpreting Physician Groups which
furnish professional services at the centers generally have their own
medical practices and, in most instances, perform medical services at
non-Company related facilities. The Company's employees do not perform
professional medical services at the centers. Consequently, the Company
does not believe that it engages in the practice of medicine in
jurisdictions which prohibit or permit the corporate practice of
medicine. The Company performs only administrative and technical services
and does not exercise any control over the practice of medicine by
physicians at the centers or employ physicians to provide medical
services. The Company is aware of three Interpreting Physicians who own a
nominal percentage of three limited partnerships that are managed and
partially owned by the Company.
As part of its administrative responsibilities under the terms
of the Interpreting Physician agreements, the Company is responsible for
the administrative aspects of billing and collection functions at the
centers. Certain third-party payor sources of the Company, such as
Medicare, insurance companies and managed care providers, require that
they receive a single or "global" billing statement for the imaging
services provided at the Company's centers. Consequently, billing is done
in the name of the Physician Group because such billings include a
medical component. The Physician Group grants a power of attorney to the
Company authorizing the Company to establish bank accounts using the
Physician Group's name related to that center's collection activities and
to access such accounts. In states where permitted by law, such as
Florida, the Company generally renders bills in the center's name. In
such circumstances, the Physician Group has no access to associated
collections.
The Company recognizes revenue under its agreements with
Interpreting Physicians in one of three ways: (1) the Company receives a
technical fee for each diagnostic imaging procedure performed at the
center, the amount of which is fixed based upon the type of the procedure
performed; (2) the Company pays the Interpreting Physician Group a fixed
percentage of fees collected at the center, based upon the specific
diagnostic imaging procedures performed; or, (3) the Company receives
from an affiliated physician association a fee for the use of the
premises, a fee per procedure for acting as billing and collection agent
for the affiliated physician association and for administrative and
technical services performed at the centers and the affiliated physician
association pays the interpreting physician group based upon a percentage
of the cash collected at the center. All of such amounts and the basis
for payments are negotiated between the Physician Group and the Company.
The fees received or retained by the Company under the three types of
agreements with Interpreting Physicians described above, expressed as a
percentage of the global fee for the imaging services provided, range
from 75% to 89% for the agreements described in item (1), 80% to 88% for
the agreements described in item (2) and 80% to 89% for the agreements
described in item (3). The agreements generally have terms ranging from
one to ten years.
The Company has a successful record of acquiring imaging
centers and integrating and improving their operations. Since the
beginning of 1996, the Company has acquired 90 imaging centers through 27
acquisitions. When the Company acquires an imaging center, the Company
acquires assets relating to the provision of technical, financial,
administrative and marketing services which support the provision of
medical services performed by the Interpreting
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<PAGE>
Physicians. Such assets typically include equipment, furnishings,
supplies, tradenames of the center, books and records, contractual rights
with respect to leases and other agreements and, in most instances,
accounts receivable. Other than with respect to such accounts receivable
for services performed by the acquired company, the Company does not
acquire any rights with respect to or have any direct relationship, with
patients. Patients have relationships with referral sources who are the
primary or specialty care physicians for such patients. These physicians
refer their patients to diagnostic imaging centers which may include the
Company's centers where Interpreting Physicians, under independent
contractor agreements, provide professional medical services. The
Company's acquired imaging centers do not constitute either a radiology,
primary care or specialty care medical practice. In connection with an
acquisition of a center, the Company will generally enter into an
agreement, as described above, with an interpreting physician group for
that physician group as an independent contractor to perform medical
services at the center.
The Company was incorporated in Delaware in August 1990 and has
its principal executive offices at 155 State Street, Hackensack, New
Jersey 07601 (telephone no.: (201) 488-6230). Prior to the Company's
incorporation, the Company's operations, which commenced in 1979, were
conducted by subsidiary corporations.
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<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated
by reference in this Prospectus, prospective investors should carefully
consider the following matters in evaluating the Company and its business
before purchasing the shares of Common Stock offered hereby.
ACQUISITION STRATEGY; MANAGEMENT OF GROWTH
One of the Company's key objectives is to continue to acquire
diagnostic imaging centers and temporary healthcare staffing businesses
and integrate them into the Company's operations. Successfully
accomplishing this goal depends upon a number of factors, including the
Company's ability to find suitable acquisition candidates, negotiate
acquisitions on acceptable terms, obtain necessary financing on
acceptable terms, retain key personnel of the acquired entities, hire and
train other competent managers, and effectively and profitably integrate
the operations of the acquired businesses into the Company's existing
operations. The process of integrating acquired businesses may require a
significant amount of resources and management attention which will
temporarily detract from attention to the day-to-day business of the
Company and may be prolonged due to unforeseen circumstances. The
Company's ability to manage its growth effectively will require it to
continue to improve its operational, financial and management information
systems and controls, and to attract, retain, motivate and manage
employees effectively. The failure of the Company to manage growth in
its business effectively would have a material adverse effect on its
results of operations. Future acquisitions may be financed through the
incurrence of additional indebtedness or the issuance of equity
securities. The issuance by the Company of additional Common Stock in
connection with acquisitions could be dilutive to Company stockholders.
In addition, because the Common Stock has experienced significant market
price fluctuations recently, sellers of acquisition targets may be
hesitant to accept shares of Common Stock in payment of all or portions
of the purchase price of centers unless they are provided with suitable
price protection rights. The grant and ultimate exercise of any such
rights could result in material expenditures by the Company. See "Effects
of Grant of Purchase Price Remedies and Earnout Rights to Sellers of
Acquired Centers." Competition for suitable acquisition candidates is
expected to be intense and, in addition to local hospital and physician
groups, to include regional and national diagnostic imaging service
companies, regional and national staffing companies and other medical
services companies, many of which have greater financial resources than
the Company.
RECENT LITIGATION
As described below under "Recent Developments", the Company and
its officers and directors have been named as defendants in several
actions filed in state and federal court arising out of the events
described below and in the Company's Current Report on Form 8-K filed by
the Company on November 10, 1997, involving, among other matters,
allegations against the Company's practices regarding related-party
transactions and securities fraud. As the cases are still in their
preliminary stages, their outcomes cannot presently be determined.
A decision adverse to the Company in these cases could have a material
adverse effect on the Company, its cash flow, financial condition and
results of operation. In addition, the Company may incur substantial
legal and other expenses in connection with the defense of these cases
which could have a material adverse effect on the Company's results of
operation. The Company cannot currently estimate the amount or timing of
such expenses or the time frame in which these cases will ultimately be
resolved.
EFFECTS OF GRANT OF REPURCHASE AND PURCHASE PRICE REMEDIES AND EARNOUT
RIGHTS TO SELLERS OF ACQUIRED CENTERS
In connection with certain of the Company's 1997 acquisitions
in which the Company issued shares of its Common Stock as partial
consideration therefor, the Company granted rights to have such shares
registered for resale pursuant to the federal securities laws. In
connection with certain of such acquisitions, the Company has granted
specific remedies to the sellers in the event the registration statement
covering the relevant shares is not declared effective by the Securities
and Exchange Commission within an agreed-upon period of time, including
the right to require the Company to repurchase the shares issued to such
seller. In the event the Company is unable to register such shares by the
required dates, the Company would become obligated to repurchase such
shares issued in connection with such acquisition if seller exercises the
repurchase rights which are in effect at the time. As of January 5, 1998,
the Company may be required, upon the election of the relevant sellers,
to repurchase up to approximately $4.22 million of its Common Stock
issued in connection with such acquisitions. Of such $4.22 million,
certain sellers have elected to have $3.55 million of Common Stock
repurchased by the Company. As of January 5, 1998, the Company was
negotiating with such sellers concerning such repurchase
obligations.
In addition, in connection with certain of such acquisitions,
the Company has agreed with the sellers in such acquisitions to pay (in
additional shares and/or cash) to the sellers an amount equal to the
shortfall in the value of the issued shares in the event the market value
of such shares at the relevant effective date of the registration
statement is less than the market value of such shares as of the closing
of the acquisition or, in other cases, as of the execution of the
relevant acquisition agreement. Based upon the closing sales price of the
Company's Common Stock on January 2, 1998 ($9.44 per share), such
shortfall would be approximately $5.68 million, which amount may be
reduced by up to $4.22 million to the extent certain sellers exercise
their repurchase rights referred to above. This registration statement
covers the shares of Common Stock issued in connection with certain of
such acquisitions.
In addition, in connection with certain of the Company's
acquisitions, the Company has agreed with the relevant sellers that all
or a portion of the consideration for such acquisitions will be paid on a
contingent basis based upon the profitability, revenues or other
financial criteria of the acquired business during an agreed-upon
measurement period following the closing of the acquisition (usually, one
to three years). The specific terms of such contingent consideration
differs for each acquisition. In connection with certain acquisitions,
the Company and the relevant sellers have agreed to a maximum amount of
contingent consideration and in other cases the parties have agreed that
any payment of such contingent consideration may be paid in cash or
shares of Common Stock, or a combination of both.
Although the Company possesses the option, in certain of such
cases, to pay certain of such amounts in shares of Common Stock, payment
of significant cash funds to sellers in the event such remedies or
earnout provisions are triggered could have a material adverse effect on
the Company's cash flow and financial condition. In addition, the Company
may be required to finance all or a portion of any such cash payments
from third-party sources. No assurance can be given that such capital
will be available on terms acceptable to the Company. In addition, the
issuance by the Company of shares of Common Stock in payment of any such
owed amounts could be dilutive to the Company's stockholders.
DEVELOPMENT OF NEW CENTERS
Although the primary focus of the Company's growth strategy is
on acquisitions of existing centers rather than developing new centers,
the Company may also, from time to time, pursue the development of new
centers. Developing new centers entails the same risks as establishing a
new business. The likelihood of success of a newly developed center must
therefore be considered in light of the initial development and operating
complexities, expenses, difficulties, and delays frequently encountered
by a new business and the competitive environment in which the new
business will operate. In addition, new centers may incur significant
operating losses during their initial operations, which could materially
adversely affect the Company's operating results and financial condition.
LIMITATIONS AND DELAYS IN REIMBURSEMENT
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Third-party payors, including Medicare, Medicaid, managed
care/HMO providers and certain commercial payors have taken extensive
steps to contain or reduce the costs of healthcare. In certain areas,
the payors are subject to regulations which limit the amount of payments.
Discussions within the Federal government regarding national healthcare
reform are emphasizing containment of healthcare costs. In addition,
certain managed care organizations have negotiated capitated payment
arrangements for imaging services. Under capitation, diagnostic imaging
service providers are compensated using a fixed rate per member of the
managed care organization regardless of the total cost, including the
numbers of procedures performed, of rendering diagnostic services to the
members. Services provided under these contracts are expected to become
an increasingly significant part of the Company's business. The inability
of the Company to properly manage the administration of capitated
contracts could materially adversely effect the Company. Although
patients are ultimately responsible for payment for services rendered,
substantially all of the Company's imaging centers' revenues are derived
from third-party payors. Successful reduction of reimbursement amounts
and rates, changes in services covered, delays or denials of
reimbursement claims, negotiated or discounted pricing and other similar
measures could materially adversely affect the Company's respective
imaging centers' revenues, profitability and cash flow.
The Company's management believes that reimbursement rates will
continue to decline due to factors such as the expansion of managed care
providers and continued national healthcare reform efforts. The Company
enters into contractual arrangements with managed care organizations
which, due to the size of their membership, are able to command reduced
rates for services. These agreements are expected to increase the number
of procedures performed due to the additional referrals from these
managed care arrangements. However, there can be no assurance that the
increased volume of procedures associated with these contractual
arrangements will offset the reduction in reimbursement rate per
procedure.
PERSONAL INJURY RECEIVABLES
---------------------------
A significant percentage of the Company's net service revenues
from imaging centers are derived by providing imaging services to
individuals involved in personal injury claims, mainly involving
automobile accidents. Due to the greater complexity in processing
receivables relating to personal injury claims with automobile insurance
carriers, such receivables typically require a longer period of time to
collect, compared to the Company's other receivables and, in the
experience of the Company, incur a higher bad debt expense.
While the collection process employed by the Company may vary
from jurisdiction to jurisdiction, the processing of a typical personal
injury claim generally commences with the Company obtaining and verifying
automobile, primary health, and secondary health insurance information at
the time services are rendered. The Company then generates and sends a
bill to the automobile insurance carrier, which under state law,
typically has an extended period of time (usually up to 105 days) to
accept or reject a claim. The amount of documentation required by the
automobile insurance carriers to support a claim is substantially in
excess of what most other payors require and carriers frequently request
additional information after the initial submission of a claim. If the
individual is subject to a co-payment or deductible under the automobile
insurance policy or has no automobile insurance coverage, the Company
will generally bill the individual's primary and secondary health
policies for the uncovered balance. The automobile insurance carrier may
reject coverage or fail to accept a claim within the statutory time limit
on the basis of, among other reasons, the failure to provide complete
documentation. In such circumstances, the Company generally pursues
arbitration, which typically takes up to 90 days for a judgment, to
collect from the carrier.
Insurance carriers will generally pay the non-deductible or
non-co-pay portion of the charge. The Company will then look to the
individual for collection of the remaining receivable. Although the
Company bills promptly after providing services and typically requests
payment upon receipt of invoice, the Company generally defers aggressive
collection efforts for the remaining balance until the personal injury
individual's claim is resolved in court, which frequently takes longer
than a year and may take as long as two or three years. Consequently, the
Company's practice is to obtain a Letter of Protection from the
individual and the individual's legal counsel, under which the individual
confirms in writing his or her obligation to pay the outstanding balance
regardless of the outcome of any settlement or judgment of the Claim.
Consequently, the Company's services with respect to the personal injury
claim are not contingent. If the settlement or judgment proceeds received
by the individual are insufficient to cover the individual's obligation
to the Company, the Company either (i) accepts a reduced amount in full
satisfaction of the individual's outstanding obligation, or (ii)
commences collection proceedings, which may ultimately result in the
Company taking legal action to enforce its collection rights against the
individual regarding all uncollected accounts.
As a result of the foregoing, the average age of receivables
relating to personal injury claims is greater than for non-personal
injury claim receivables. At December 31, 1996, of an aggregate of
$50,247,000 gross receivables, approximately $43,122,000, $4,104,000 and
$3,021,000 were outstanding for less than one year, from one to two years
and over two years, respectively. Of an aggregate of $13,426,000 of gross
personal injury receivables at December 31, 1996, approximately
$9,331,000, $2,128,000 and $1,967,000 were outstanding for less than one
year, from one to two years and over two years, respectively.
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Significant delays in the collection or the inability to collect
receivables relating to personal injury claims or the refusal of
insurance companies to pay the higher reimbursement rates typically
associated with personal injury claims could have a material adverse
effect on the Company's diagnostic imaging operations.
RESTRICTIONS IMPOSED BY GOVERNMENT REGULATION
The healthcare industry is highly regulated. The ownership,
construction, operation, expansion and acquisition of outpatient
diagnostic imaging centers are subject to various federal and state laws,
regulations and approvals concerning such matters as physician referrals,
licensing of facilities and personnel, and Certificates of Need and other
required certificates for certain types of healthcare facilities and
major medical equipment. Among other penalties, violations of these laws
can result in the shutdown of a company's facilities and loss of Medicare
and Medicaid reimbursement for patient services. The Federal Anti-
Kickback Act of 1977, as amended (the "Anti-Kickback Act") prohibits the
offer, payment, solicitation or receipt of any form of remuneration in
return for referring Medicare or Medicaid patients or purchasing,
leasing, ordering or arranging for any item or service that is covered by
Medicare or Medicaid. The law provides several penalties for engaging in
prohibited acts, including criminal sanctions and exclusion from the
Medicare and Medicaid programs. Although the Company does not believe
that it is operating in violation of this law, the scope of the law
remains somewhat unclear and there is no assurance that the Company would
prevail in its position. In addition, in 1991 and subsequently, the
Office of the Inspector General of the Department of Health and Human
Services promulgated "safe harbor" regulations specifying activities that
will be protected from criminal and civil investigation and prosecution
under the Anti-Kickback Act. The Office of the Inspector General has
stated that failure to satisfy the conditions of an applicable "safe
harbor" does not necessarily indicate that the arrangement in question
violates the Anti-Kickback Act, but means that the arrangement is not
among those that the "safe harbor" regulations protect from criminal and
civil investigation and prosecution under that law. The finding of a
violation must still be determined based upon the precise language of the
Anti-Kickback Act.
The Federal Omnibus Budget Reconciliation Act of 1989, as
amended by the Federal Omnibus Budget Reconciliation Act of 1993,
contains provisions that, unless an exception applies, restrict
physicians from making referrals to, among others, providers of MR and
other radiological services for services to be rendered to Medicare or
Medicaid patients in which the physicians have a "financial relationship"
or an ownership interest or with which they have a compensation
arrangement (the so-called "Stark Law"). The Stark Law provides
exceptions for certain types of employment and contractual relationships.
The Company believes that it is in compliance with the Stark Law, but
there is no assurance that the Company will prevail in its position if
challenged.
The State of Florida also enacted in 1992 an anti-kickback
statute substantially similar in scope to the Anti-Kickback Act.
Although the Company does not believe that it is
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operating in violation of this law, as with its Federal counterpart, the
scope of the Florida law remains unclear and there is no assurance that
the Company would prevail in its position.
The States of Florida, Illinois, New Jersey, New York, Maryland
and Pennsylvania in which the Company currently operates centers have
enacted laws that restrict or prohibit physicians from referring patients
to healthcare facilities in which such physicians have a financial
interest. Although the Company does not believe that these laws will
have a material adverse effect on its operations in these states, there
is no assurance that these laws will not be interpreted or applied in
such a way as to create such a material adverse effect, or that these
states, or other states in which the Company does business, will not
adopt similar or more restrictive laws or regulations that could have
such a material adverse effect.
All states where the Company has imaging centers have enacted
Certificate of Need laws to facilitate healthcare planning by placing
limitations on the purchase of certain major medical equipment and
certain other capital expenditures. These statutes, together with their
implementing regulations, could limit the Company's ability to acquire
new imaging facilities and imaging equipment or expand or replace its
equipment at existing centers, and no assurances can be given that the
required regulatory approvals for any future acquisitions, expansions or
replacements will be granted to the Company.
The Company continues to review all aspects of its operations
and believes that it complies in all material respects with applicable
provisions of the Anti-Kickback Act, the Stark Law and applicable state
laws governing fraud and abuse as well as licensing and certification,
although because of the broad and sometimes vague nature of these laws
and requirements, there can be no assurance that an enforcement action
will not be brought against the Company or that the Company will not be
found to be in violation of one or more of these regulatory provisions.
Further, there can be no assurance that new laws or regulations will not
be enacted, or existing laws or regulations interpreted or applied in the
future in such a way as to have a material adverse impact on the Company,
or that Federal or state governments will not impose additional
restrictions upon all or a portion of the Company's activities, which
might adversely affect the Company's business.
CORPORATE PRACTICE OF MEDICINE AND FEE SPLITTING
The Company presently operates imaging centers in New York, New
Jersey, Pennsylvania, Maryland, Massachusetts, Ohio, Illinois, Florida,
California and Arkansas. The laws of many states prohibit unlicensed,
non-physician-owned entities or corporations (such as the Company) from
performing medical services, or in certain instances, physicians from
splitting fees with non-physicians, such as the Company. The Company does
not believe that it engages in the unlicensed practice of medicine or the
delivery of medical services in any state where it is prohibited, and is
generally not licensed to practice medicine in states which permit such
licensure. Professional medical services, such as the interpretation of
MRI scans, are separately provided by licensed interpreting physicians,
as independent contractors, pursuant to agreements with the Company. At
each of the Company's centers, all medical services are performed
exclusively by Physician Groups, generally consisting exclusively of
radiologists, with whom the Company enters into independent contractor
agreements. Pursuant to these agreements, the Company, among other
duties, provides to the Physician Group the diagnostic imaging facility
and equipment, performs all marketing and administrative functions at the
centers and is responsible for the maintenance and servicing of the
equipment and leasehold improvements. The Physician Group is solely
responsible for, and has complete and exclusive control over, all medical
and professional services performed at the centers, including, most
importantly, the interpretation of diagnostic images as well as the
supervision of technicians, and medical related quality assurance and
communications with referring physicians. The Company's employees do not
perform professional medical services at the centers. Consequently, the
Company does not believe that it engages in the practice of medicine in
jurisdictions which prohibit or permit the corporate practice of
medicine. The Company performs only administrative and technical services
and does not exercise control over the practice of medicine by physicians
at the centers or employ physicians to provide medical services.
In many jurisdictions, however, the laws restricting the
corporate practice of medicine and fee-splitting have been
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subject to limited judicial and regulatory interpretation and, therefore,
there is no assurance that, upon review, some of the Company's activities
would not be found to be in violation of such laws. If such a claim were
successfully asserted against it, the Company could be subject to civil
and criminal penalties. Imposition of civil or criminal penalties against
the Company could have a material adverse effect on its operations and
financial condition.
POTENTIAL ADVERSE EFFECT OF CAPITATION CONTRACTS
Some third-party payors seek to provide incentives to reduce
utilization of healthcare services by their enrollees by paying a fixed
capitation fee to healthcare providers for patients covered by their
plans or programs. Capitation contracts typically provide for payment to
a healthcare provider of a fixed fee per month on a per member basis for
certain designated healthcare procedures, without regard to the amount or
scope of services actually rendered. Because the obligations to perform
services are not related to the amount of the payments, it is possible
that either the cost or the value of the services performed by the
healthcare provider may significantly exceed the fees received, and there
may be a significant period between the time the services are rendered
and payment is received. Because the risk of loss is borne, at least in
part, by the healthcare provider and not the third-party payor, it is
possible that the healthcare provider may sustain a significant loss on
the performance of services pursuant to a capitation contract.
Approximately 2% of the Company's revenues in 1996 were derived from
capitation contracts. While the Company carefully analyzes the potential
risks of capitation arrangements, there can be no assurances that any
capitation contracts which the Company is a party or which it may enter
into in the future will not generate significant losses to the Company.
In addition, certain types of capitation agreements, may be
deemed a form of risk contracting. Many states limit the extent to which
any person that is not appropriately licensed in the state, can engage in
risk contracting, which involves the assumption of a financial risk with
respect to providing services to a patient. If the fees received by the
Company are less than the cost of providing the services, the Company may
be deemed to be acting as a de facto insurer. In some states, only
certain entities, such as insurance companies, HMO providers and
independent practice associations, are permitted to contract for the
financial risk of patient care. In such states, risk contracting in
certain cases has been deemed to be engaging in the business of
insurance. The Company believes that it is not in violation of any
restrictions on risk bearing or engaging in the business of insurance.
If the Company is held to be unlawfully engaged in the business of
insurance, such a finding could result in civil or criminal penalties or
require the restructuring of some or all of the Company's operations,
which could have a material adverse effect upon the Company's business.
SIGNIFICANT LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS
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The Company has significant outstanding debt, including
capitalized lease obligations relating to equipment at its centers. The
Company has financed the acquisition of substantially all of the
diagnostic imaging equipment used at its centers (typically with terms
ranging from five to seven years) from lenders and lessors, with the
equipment and other assets serving as collateral for the loans. A
significant portion of the Company's assets have been pledged as
collateral for its capitalized lease obligations, as well as other
indebtedness. In certain cases, the center leasing the equipment and the
subsidiary which operates the center are the only obligors under the
capitalized leases. A default under an equipment lease or certain other
indebtedness of the Company could materially adversely affect the
operations of the Company. See "Recent Developments."
COMPETITION; RELIANCE ON REFERRALS
The outpatient diagnostic imaging industry is highly
competitive. Competition focuses primarily on attracting physician
referrals, including referrals through relationships with managed care
organizations, at the local market level. The Company believes that
principal competitors in each of its markets are hospitals and
independent or management company owned imaging centers, some of which
are owned with physician investors. Some of these competitors have
greater financial and other resources than the Company. Principal
competitive factors include facility location, type and quality of
equipment, quality and timeliness of test results, ability to develop and
maintain relationships with referring physicians, convenience of
scheduling and availability of patient appointment times and the pricing
of services. These factors impact the referring physician's decision to
direct a patient to an imaging center. Competition for physician
referrals can also be affected by the ownership or affiliation of
competing centers or hospitals, with certain of the Company's competitors
having historically derived a significant portion of their revenues from
referrals by physicians who are also investors and have a financial
interest in, or are otherwise affiliated with, the competing center or
hospital. In addition, managed care has affected the availability of
referrals by approving only a certain number of centers in a given
geographic region. The competitive environment which the Company faces
results in lower patient volume or an adverse change in payor mix.
MR systems compete with a variety of other scanning
technologies which are available in physicians offices, hospitals and
other diagnostic imaging centers. Competition with other imaging
modalities is generally based on the nature of the medical procedure to
be performed and the condition of the patient. The use of MR imaging as a
diagnostic tool continues to gain both professional and public acceptance
as MR imaging and diagnostic techniques improve, equipment software is
enhanced and attention is directed to MR's diagnostic successes. The
Company's performance is dependent upon physician and patient confidence
in the superiority of its MR imaging and service over other competing
modalities and systems.
There are a number of manufacturers of MR imaging systems.
These manufacturers' marketing efforts can be expected to stimulate
others, including hospitals, to purchase and install the MR systems.
Periodically, manufacturers introduce innovations or newly designed MR
systems with enhanced features. Therefore, the Company encounters strong
competition from other MR diagnostic systems with innovative or enhanced
features installed in the areas where the Company has installed its MR
systems, as well as strong competition in its endeavors to acquire new
locations.
The temporary healthcare staffing business is also very
competitive. StarMed competes for clients' business with other providers
of travel nurse temporary staffing and with other staffing companies that
provide per diem staffing services. StarMed also competes for the
limited number of available qualified staff. StarMed competes with
several companies which are larger and may possess greater financial and
other resources.
DEPENDENCE ON QUALIFIED INTERPRETING PHYSICIANS
The Company's strategy of maintaining the high quality of its
services is dependent upon its ability to obtain and maintain
arrangements with qualified Interpreting Physicians at each of its
centers. No assurance can be given that the Company's contractual
arrangements with Interpreting Physician groups at each of the Company's
centers can be maintained on terms advantageous to the Company. No
assurance can be given that the Interpreting Physicians with whom the
Company has contracts will perform satisfactorily or continue to practice
in the
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markets served by its imaging centers. In addition, with respect to the
acquired centers, there can be no assurance that arrangements can be
entered into with Interpreting Physicians on acceptable terms or that
such physicians will be successful in such centers. The Company's success
is significantly dependent on the ability of these physicians to attract
patient referrals, thereby enabling the Company's centers to operate
profitably. Agreements with Interpreting Physicians generally range from
one to ten years and permit termination only for cause. Many agreements
prohibit the Interpreting Physician from performing professional
interpreting services for a competitor within a defined geographic
distance from the Company's center which may vary depending upon the
relevant demographics and density of the immediate region. Such
restrictive covenants are customarily in effect from one to five years
following the termination of the agreements. The inability of these
physicians to attract sufficient referrals, the termination of their
agreements with the Company or the inability of the Company to enforce
the restrictive covenants contained in the agreements could have a
material adverse effect on the Company's financial condition and
operating results.
TECHNOLOGICAL OBSOLESCENCE
There have been rapid technological advancements made in the
software and, to a lesser extent, hardware in the diagnostic imaging
industry. Although the Company believes that its equipment can generally
be upgraded as necessary, the development of new technologies or
refinements of existing technologies might make existing equipment
technologically or economically obsolete. If such obsolescence were to
occur, the Company may be compelled to acquire new equipment, which could
have a material adverse effect on its financial condition, results from
operations and cash flow. In addition, certain of the Company's centers
compete against local centers which contain more advanced imaging
equipment or provide additional modalities.
MALPRACTICE LIABILITY CLAIMS AND INSURANCE
Although the Company provides administrative, financial and
technical services and is not engaged in the practice of medicine, the
diagnostic imaging and temporary staffing businesses entail the risk of
professional liability claims. Consequently, the Company may be named as
a co-defendant in medical malpractice claims. The Company's exposure to
such liability is reduced for its imaging centers because Interpreting
Physicians are required to purchase and carry their own medical
malpractice insurance. Similarly, the Company's nursing personnel perform
services in accordance with treatments prescribed by third-party
Physicians or under hospital supervision. Nevertheless, the Company
maintains general liability insurance and professional liability
insurance for both its diagnostic imaging business and its temporary
staffing business in amounts deemed adequate by management of the
Company. The Company is subject to one claim seeking $12.5 million in
damages, which is in excess of the Company's insurance coverage of
$1,000,000 per incident, as well as six additional lawsuits which do not
specify the amount sought to be recovered. Adverse determinations against
the Company with respect to all such claims or the filing of malpractice
claims against the Company in the future could have a material adverse
effect on the Company's financial condition, results of operations and
cash flow.
LOSSES FROM CERTAIN CENTERS
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Certain centers of which the Company has acquired since January 1996
have generated losses. With respect to these centers, the Company has
utilized, and, in most circumstances, will continue to utilize, working
capital to fund the operations of such centers. The Company cannot
determine if or when such centers will become profitable, or if or when
the centers will generate positive operating cash flows. In the event
that the Company determines to close any such center, the Company would
expect to incur a loss in connection with such closure.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends and has no present
plans to pay cash dividends to its stockholders and, for the foreseeable
future, intends to retain all of its earnings, if any, for use in its
business. The declaration of any future dividends by the Company is
within the discretion of its Board of Directors and will be dependent on
the earnings, financial condition and capital requirements of the
Company, as well as any other factors deemed relevant by its Board of
Directors.
CERTAIN ANTI-TAKEOVER MEASURES
Certain provisions of the Company's Certificate of
Incorporation, as well as Delaware corporate law and the Company's
Stockholder Rights Plan (the "Rights Plan"), may be deemed to have anti-
takeover effects and may delay, defer or prevent a takeover attempt that
a stockholder might consider in its best interest. Such provisions also
may adversely affect prevailing market prices for the Common Stock.
Certain of such provisions allow the Company's Board of Directors to
issue, without additional stockholder approval, preferred stock having
rights senior to those of the Common Stock. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits the Company from engaging in a
"business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became
an interested stockholder, unless the business combination is approved in
a prescribed matter. In September 1996, the Company adopted the Rights
Plan, pursuant to which holders of the Common Stock received a
distribution of rights to purchase additional shares of Common Stock,
which rights become exercisable upon the occurrence of certain events.
Although the Rights Plan was adopted by the Company to give its Board of
Directors significantly more time to properly consider and to respond to
an acquisition proposal, it could have the effect of discouraging or
hindering an unsolicited offer to acquire the Company at effective
valuations which are above the current market capitalization of the
Company.
VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been and may continue
to be volatile. Recently, the stock market in general and the shares of
healthcare and diagnostic imaging services companies in particular have
experienced significant price fluctuations. These broad market and
industry fluctuations may adversely affect the market price of the Common
Stock. Factors such as quarterly fluctuations in results of operations,
the timing and terms of future acquisitions and general conditions in the
healthcare industry may have a significant impact on the market price of
the Common Stock.
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SALES BY SELLING STOCKHOLDERS; POTENTIAL FOR DILUTION
All of the Shares being offered hereby are offered solely by
the Selling Stockholders who are not restricted as to the prices at which
they may sell the Shares. Shares sold below the then current level at
which the shares of Common Stock are trading may adversely affect the
market price of the Common Stock.
As of January 2, 1998, 18,000 shares of the Company's
Series C Convertible Preferred Stock (the "Preferred Stock") were issued
and outstanding. Each share of the Preferred Stock is convertible into
such number of shares of Common Stock as is determined by dividing the
stated value ($1,000) of each share of Preferred Stock plus 3% per annum
from the closing date to the conversion date by the then current
conversion price (which is determined by reference to the then current
market price). If converted on January 2, 1998, the Preferred Stock
would have been convertible into approximately 2,146,366 shares of Common
Stock. Depending on market conditions at the time of conversion, the
number of shares issuable could prove to be significantly greater in the
event of a decrease in the trading price of the Common Stock. In
addition, on December 30, 1997, the Company issued to the holder of the
Preferred Stock five-year warrants to purchase 817,000 shares of Common
Stock at an exercise price of $11.51 per share in lieu of $630,000 in
fees owing to such holder pursuant to the terms of the Preferred Stock
because the shares of Common Stock underlying the Preferred Stock were
not registered by October 31, 1997, and in consideration of certain other
rights. Purchasers of Common Stock could therefore experience substantial
dilution upon conversion of the Preferred Stock and the exercise of such
warrants. The shares of Preferred Stock are not registered and may be
sold only if registered under the Act or sold in accordance with an
applicable exemption from registration, such as Rule 144. The shares of
Common Stock into which the Preferred Stock may be converted and the
shares underlying such warrants are being registered pursuant to the
Registration Statement of which this Prospectus is a part.
RECENT DEVELOPMENTS
Acquisitions
------------
The Company has a successful record of acquiring imaging
centers and integrating and improving their operations. Since the
beginning of 1996, the Company has acquired 90 imaging centers through 27
acquisitions. When the Company acquires an imaging center, the Company
does not acquire any medical practice assets. The Company acquires assets
relating to the provision of technical, financial, administrative and
marketing services which support the provision of medical services
performed by the interpreting physicians. Such assets typically include
equipment, furnishings, supplies, tradenames of the center, books and
records, contractual rights with respect to leases and other agreements
and, in most instances, accounts receivable (related to services provided
by the predecessor entity). The Company does not acquire patient lists or
any rights with respect to or have any relationship with patients. In
connection with an acquisition of a center, the Company will generally
enter into an agreement, as described above, with an Interpreting
Physician or Physician Group for that Physician or Physician Group as an
independent contractor to perform medical services at the center.
Since December 31, 1996, the Company has acquired 62 centers in
21 separate transactions. Of the 62 centers, 50 are wholly-owned by the
Company and the Company owns from 5% to 75% of the equity of the other 10
centers. For the centers, the Company paid an aggregate of $62,433,000 in
cash, issued 1,342,941 shares of Company Common Stock (all of which have
registration rights) and became obligated for up to $8,755,000 in note
payable transactions. Eight acquisitions also included contingent earn-
out provisions which may obligate the Company to pay additional payments
to the former owners based upon the future earnings or cash flows of a
particular center or group of centers. The Company does not believe that
the aggregate contingent earn-out payments that it may be required to
make under its acquisition agreements will be material. In addition, the
Company does not believe that any single such acquisition was material or
is deemed to be "significant" within the meaning of Regulation S-X
promulgated under the Exchange Act.
Financing Transactions
----------------------
On February 20, 1997, the Company completed a $52,000,000
private placement of Senior Notes (the "Notes") to a group of insurance
companies. The Notes bear interest at an
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annual rate of 7.77%, are subject to equal annual sinking fund payments
commencing in February 2001 and have a final maturity in February 2005.
The terms of the agreement pursuant to which the Notes were issued
contain, among other provisions, certain financial covenants, including
net worth and debt covenants, and certain dividend limitations. In
addition, the Notes are collateralized by the guaranty of certain of the
Company's subsidiaries and the pledge of certain partnership interests.
In June 1997, the Company issued an additional $26,000,000 principal
amount of Notes, $20,000,000 of which bears interest at an annual rate of
8.10% and $6,000,000 of which bears interest at an annual rate of 8.01%.
Other than the interest rate, these Notes have terms identical to the
Notes issued in February 1997.
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On July 21, 1997, the Company completed a private placement of
$18,000,000 of a newly designated Series C Convertible Preferred Stock to
an institutional investor. The Preferred Stock was sold pursuant to an
exemption from the registration requirements of the Act. The Preferred
Stock is convertible at its stated value plus 3% per annum from the
closing date to the conversion date. The Preferred Stock is convertible
from time to time into the Company's Common Stock at a price equal to the
lesser of (i) an amount equal to 100% of the average of the closing bid
prices of the Company's Common Stock for the five consecutive trading
days ending on the fifth trading day preceding a notice of conversion and
(ii) $20.70. The Preferred Stock is redeemable under certain conditions
at the option of the Company. The Company has agreed to file the
Registration Statement under the Act of which this Prospectus forms a
part covering the shares of Common Stock issuable upon conversion of the
Preferred Stock issued in the private placement. Because shares of Common
Stock underlying the Preferred Stock were not registered with the SEC by
October 31, 1997, the holder of the Preferred Stock is entitled to a fee
equal to 1.5% of the aggregate purchase price of the Preferred Stock for
the first 30 days following such date and a fee equal to 2.0% of the
aggregate purchase price of the Preferred Stock for successive 30-day
periods (or pro rate portions thereof) until the underlying shares are so
registered. Pursuant to an amendment to the terms of the Preferred Stock
entered into on December 29, 1997 (the "Amendment"), the Company agreed
with the holder of the Preferred Stock, among other things, to issue to
such holder on December 30, 1997 five-year warrants to purchase 817,000
shares of Common Stock at an exercise price of $11.51 per share in lieu
of $630,000 in fees owing to such holder for the months of November and
December 1997 and to reduce the fee for the month of January 1998 to 1.5%
of the aggregate purchase price of the Preferred Stock, payable in cash
or additional warrants. Pursuant to the terms of such warrants, in
certain circumstances, the Company possesses the right to increase the
exercise price of such warrants and call such warrants and the holder
possesses the right to require the Company to repurchase such warrants.
Subject to certain limitations, the Company may require the conversion of
all the outstanding Preferred Stock beginning 270 days following the date
such registration statement is declared effective by the Commission.
On December 29, 1997, the Company entered into a $15 million
credit facility with DVI Financial Services Inc. (the "Facility"). The
Facility provides for two advances to the Company, one for $8 million,
the proceeds of which will be used for general corporate purposes
including acquisitions, and the other for $7 million. Each advance is
repayable in 60 equal monthly installments. The first advance of $8
million under the Facility was made to the Company on December 31, 1997.
The second advance may be requested by the Company between January 31,
1998 and March 31, 1998 upon the presentation and satisfactory review by
the lender of internally prepared financial statements for the fourth
quarter of 1997 to the lender and will be made upon the approval by the
lender of the use of proceeds thereof. The Facility provides for a final
maturity date of December 29, 2002 and permits the lender at any time on
or after December 29, 1999 to require the Company to prepay any amounts
then outstanding under the Facility. Amounts borrowed under the credit
facility will bear interest at 10.25% per annum. In consideration for
making the Facility available to the Company, the lender received
warrants to purchase an aggregate of 100,000 shares of Common Stock at an
exercise price based upon 110% of the average market prices over a period
prior to the issuance of the warrants. In the event that the lender
refuses to make the second advance, warrants to purchase 46,667 shares of
Common Stock will be cancelled.
OTHER
-----
In October 1997, members of the Company's management
communicated to the Board that certain Company stockholders had
questioned them regarding the manner in which related-party transactions
are scrutinized by the Company and its Board. Management stated that it
shared the concerns of these stockholders and had engaged counsel to
conduct a review of such transactions.
In order to address and satisfy the concerns management had
communicated, the Company authorized a review of its practices regarding
related-party transactions, as well as the fairness of all such
transactions and the adequacy of the disclosure of the same, including
but not limited to transactions as to which fees already had been paid
and warrants and options to purchase shares had been issued, and public
disclosure had been made in prior periods. The review also was to seek to
develop recommendations as to what changes, if any, should be made to the
Company's procedures regarding related-party transactions.
As set forth in the Company's prior public filings, 712 Advisory
Services, Inc. ("712 Advisory"), a company affiliated with Mr. Gary
Siegler, the Chairman of the Board of the Company (the "Chairman"), has
provided financial advisory services to the Company on a regular basis,
including in connection with financings and acquisitions. All services
rendered by, and fees paid to 712 Advisory through September 30, 1997 are
disclosed in the Company's quarterly and annual public filings.
To oversee this review, the Board formed a committee of the
Board of Directors (the "Committee") consisting of directors who are not
officers, directors, employees, stockholders or otherwise affiliates of
712 Advisory. The Committee retained, on behalf of the Company, outside
counsel with which neither the Company nor any of its directors has or
had any current or prior relationship, to assist and advise the Committee
in the conduct of the review. The Chairman, on behalf of 712 Advisory,
expressed its position as to the propriety of the related-party
transactions and fees, but nevertheless advised the Committee that 712
Advisory would return to the Company any sums that the Committee deemed
improper. Thereafter, in response to expressions of dissatisfaction with
the Committee and its ongoing review, as well as disclosure related
thereto, by certain members of management who questioned, among other
things, the Committee's ability to conduct an independent review, the
Board determined, and the Company announced, that it was seeking to add
to the Board two new independent directors. The new directors, who would
retain other independent counsel of their choice, would assume ultimate
responsibility for the review. The Company's Chairman and 712 Advisory
thereafter restated that although they believe that all related-party
transactions and financial advisory fees are and were proper, they
nevertheless had agreed to abide by the findings of the Company's
independent review and to return to the Company any sums that the
Committee deemed improper. As described further below, two new directors,
Peter J. Powers and D. Gordon Strickland, have assumed responsibility for
such review and have retained independent counsel to assist them.
The Company is a party to Note Purchase Agreements pursuant to
which the Company issued the Notes (the "Note Agreements"). The Note
Agreements provide that the Company may not engage in any transaction
with any affiliate, except in the ordinary course of business and upon
commercially reasonable terms which are no less favorable to it than
those which might be obtained at arms' length with a non-affiliate. If it
is determined by the Committee that any of the foregoing related-party
transactions were not entered into in compliance with such covenant, the
Company believes that it has the ability to cure any default resulting
therefrom within thirty days' of the date on which a senior officer of
the Company obtains knowledge of the default. If 712 Advisory returns any
sums ultimately deemed by the Committee to be improper, the Company
believes that the defaults, if any, would be cured. Accordingly, the
Company does not believe that a default of this covenant in connection
with the related-party transactions referred to above will have a
material adverse effect on the Company.
On November 2, 1997, Lawrence Ramaekers was appointed as the
Acting Chief Executive Officer of the Company and the Company retained
Jay Alix & Associates to provide interim management services.
-16-
<PAGE>
On November 5, 1997, ZP Investments, Inc., ZP Investments,
Inc., Wyoming Valley Physicians Imaging Center, L.P., Camp Hill
Physicians Imaging Center, L.P., Wexford Radiology, P.C., Sanoy Medical
Group, Ltd., Reading Open Imaging, P.A., Yonas Zegeye, M.D., and Hirut
Seleshi, parties who had agreed to sell to the Company five related
imaging centers located in Pennsylvania, brought action in the Court of
Chancery of the State of Delaware, New Castle County, against the Company
and five recently formed subsidiaries of the Company, seeking specific
performance of the acquisition agreements and unspecified breach of
contract damages. The plaintiffs alleged that the Company and the
subsidiaries failed to consummate the acquisition in accordance with the
terms of the acquisitions agreements. The aggregate purchase price for
the acquisitions is $8.4 million in cash and $5.6 million payable in
shares of Company Common Stock based upon the average price for the five
business days preceding September 21, 1997 (approximately 320,000
shares). Pursuant to the acquisition agreement, the shares of Common
Stock issued in connection with such acquisition are subject to price
protection of the issuance price compared to the market price at
effectiveness of the registration statement. The Company has settled such
action by agreeing to purchase the centers for $1 million in cash, a
promissory note for $7.4 million, plus interest, $5.6 million payable in
shares of Company Common Stock, and the payment of certain fees. The
closing of such acquisition is subject to several conditions, including
obtaining the approval of the bankruptcy court which has jurisdiction
over the bankruptcy of the joint stockholders of the selling entities.
There can be no assurance that such conditions will be satisfied and that
such closing will occur.
On November 7, 1997, William D. Farrell resigned from his
position as President and Chief Operating Officer of the Company and as
Director. On that same date, Gary I. Fields resigned from his position as
Senior Vice President and General Counsel.
On November 7, 1997, William D. Farrell and Gary I. Fields, the
Company's former President and Chief Operating Officer and the Company's
former Senior Vice President and General Counsel, respectively, filed a
Complaint in the Superior Court of New Jersey, Law Division, Essex
County, against the Company and the members of the Company's Board of
Directors, claiming retaliatory discharge under the New Jersey
Conscientious Employee Protection Act and breach of contract. The
plaintiffs allege that they were constructively terminated as a result of
their objection to certain related-party transactions, the purported
failure of the defendants to adequately disclose the circumstances
surrounding such transactions, and the Company's public issuance of
alleged false and misleading accounts concerning or relating to such
related-party transactions. The plaintiffs seek unspecified compensatory
and punitive damages, interests and costs and reinstatement of the
plaintiffs to their positions with the Company. The Company intends to
defend vigorously against the allegations.
On November 8, 1997, Dennis T. Currier was appointed as the
Chief Financial Officer of the Company. Mr. Currier replaced John P.
O'Malley III, who was removed from his position as Executive Vice
President and Chief Financial Officer on that date.
On November 12, 1997, Mr. Gerald Broder, who claims to be a
Company stockholder, filed a derivative suit in the Court of Chancery of
the State of Delaware, New Castle County, naming the Company and Stephen
M. Davis, Gary L. Fuhrman, John H.Josephson, Neil H. Koffler, and Gary N.
Siegler as defendants. The complaint alleges that members of the
Company's Board of Directors breached their fiduciary duties owed to the
Company and its stockholders by allegedly engaging in self-dealing
transactions that caused the Company financial harm. The complaint seeks
injunctive relief directing such directors to account to the Company for
its damages and their profits from the wrongs complained of therein,
enjoining them from continuing to engage in self-dealing transactions
harmful to the Company and its shareholders,
17
<PAGE>
and awarding plaintiff the costs and expenses incurred in bringing the
lawsuit. The Company intends to defend vigorously against the
allegations.
On November 14, 1997, Mr. O'Malley filed a complaint in
the Superior Court of New Jersey, Law Division, Essex County, against the
Company and Gary N. Siegler, Neil H. Koffler, Stephen M. Davis, Gary L.
Fuhrman, John H. Josephson and Lawrence Ramaekers, as defendants,
claiming retaliatory discharge under the New Jersey Conscientious
Employee Protection Act and defamation. Mr. O'Malley alleges that the
Company terminated his employment in retaliation for voicing the concerns
of shareholders and senior management regarding related-party
transactions and because the Company did not want to make full and
adequate disclosure of the facts and circumstances surrounding such
transactions. In addition, the plaintiff alleges that the Company
published false and defamatory statements about him. Mr. O'Malley seeks
unspecified compensatory and punitive damages, interest and costs of
bringing the action. The Company intends to defend vigorously against the
allegations.
Between November 14, 1997 and December 12, 1997, five class
action lawsuits were filed in the United States District Court for the
District of New Jersey against the Company and certain of the Company's
Directors and/or Officers. On November 14, 1997, Joan D. Ferrari, who
claims to be a Company stockholder, filed a lawsuit on behalf of all
persons who purchased Common Stock during the period between May 15, 1997
and November 7, 1997. The Ferrari complaint names as defendants the
Company and Gary N. Siegler, Stephen M. Davis, Gary L. Fuhrman, John H.
Josephson and Neil H. Koffler. On November 18, 1997, Tri-Masonry Company,
who claims to be a Company stockholder, filed a complaint on behalf of
all persons who purchased Common Stock during the period between March
19, 1997 and November 10, 1997. On November 19, 1997, Yaakov Prager, who
claims to be a Company stockholder, filed a complaint on behalf of all
persons who purchased Common Stock during the period between May 16, 1997
and November 10, 1997. The Tri-Masonry and Prager complaints name as
defendants the Company, William D. Farrell, John P. O'Malley and Gary N.
Siegler. On November 20, 1997, Albert Schonert, who claims to be
a Company stockholder, filed a complaint on behalf of all persons who
purchased Common Stock during the period between May 15, 1997 and
November 7, 1997. The Schonert complaint names as defendants the Company
and Gary N. Siegler, Stephen M. Davis, Gary L. Fuhrman, John H.
Josephson, Neil H. Koffler and William D. Farrell. On December 12, 1997,
Anne Benjamin, Scott L. Benjamin, Maxine Benjamin, Donald Benjamin and
Andrew M. Schreiber, who claim to be Company stockholders, filed a
complaint on behalf of all persons who purchased Common Stock during the
period between March 31, 1997 and November 10, 1997. The Benjamin
complaint names as defendants the Company and Gary N. Siegler, John P.
O'Malley and William D. Farrell.
The complaints assert that the Company and the named defendants
violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934,
alleging that the Company omitted and/or misrepresented material
information in its public filings, including that the Company failed to
disclose that it had entered into acquisitions that were not in the best
interest of the Company, that it had paid unreasonable and unearned
acquisition and financial advisory fees to related parties, and that it
concealed or failed to disclose adverse material information about the
Company. The complaints each seek unspecified compensatory damages, with
interest, and the costs and expenses incurred in bringing the action. The
Company intends to defend vigorously against the allegations.
The legal proceedings described above are in their preliminary
stages. Although the Company believes it has meritorious defenses to all
claims against it, the Company is unable to predict with any certainty
the ultimate outcome of these proceedings. See "Risk Factors - Recent
Litigation."
On December 4, 1997, Coopers & Lybrand LLP ("Coopers & Lybrand")
resigned as auditor of the Company.
The Company has engaged Ernst & Young, LLP ("Ernst & Young") to
audit the financial statements of the Company. The Company engaged Ernst
& Young on December 8, 1997. Ernst & Young had previously served as the
Company's independent auditors for the fiscal years ended December 31,
1994 and 1995.
Effective December 8, 1997, D. Gordon Strickland and Peter J.
Powers were appointed to the Board of Directors of the Company and
serve as the members of the Committee to examine the related-party
transactions.
Mr. Strickland, age 51, was President and Chief Executive
Officer of Kerr Group, Inc., a plastic packaging company, from 1996 to
September 1997. From 1986 to 1996, he served as Senior Vice President,
Finance and Chief Financial Officer of Kerr Group.
Mr. Powers, age 53, is the Chairman of High View Capital,
which serves as a parent company to High View Horizon, a joint venture
with Horizon Asset Management, a financial research firm. Prior to
joining High View, Mr. Powers served as the First Deputy Mayor of New
York City under Mayor Rudolph Giuliani and oversaw the day-to-day
operations of City government.
On December 9, 1997, the Company issued a press release
announcing the appointment of the two independent directors, the
resignation of Coopers & Lybrand and the appointment of Ernst & Young and
on December 11, 1997, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission with respect to those events.
The Committee has engaged the law firm of Kaye, Scholer,
Fierman, Hays & Handler to advise and assist its examination. The
Committee has commenced its examination of the related-party
transactions.
In connection with the disclosures relating to the related-party
transactions referenced above, the U.S. Attorney for the District of New
Jersey has commenced an investigation and, in this regard, the Company's
former auditors have been subpoenaed for information. The Company has
also received an inquiry from the SEC, but no formal proceedings have
been commenced by the SEC. The Company is cooperating fully with these
authorities.
On each of November 10, 1997 and December 11, 1997, the Company
filed a Current Report on Form 8-K with the Securities and Exchange
Commission detailing certain of the events described above. The foregoing
description is qualified in its entirety by reference to such Forms 8-
K, as amended.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders.
SELLING STOCKHOLDERS
The Shares offered hereby consist of (i) 116,666 outstanding
shares of Common Stock which were issued upon conversion of certain convertible
debentures sold by the Company in a February 1996 private placement, (ii) 50,000
shares of Common Stock which were issued upon conversion of certain convertible
debentures sold by the Company in a June 1995 private placement, (iii) up to
2,134,949 shares of Common Stock issued in connection with the Company's
acquisitions in 1997, (iv) approximately 2,146,366 shares issuable upon
conversion of the Preferred Stock (based upon the conversion price existing as
of January 2, 1998), (v) approximately 597,260 shares issuable upon the
conversion of $5,450,000 in aggregate principal amount of convertible promissory
notes (based upon the conversion price existing as of January 2, 1998) issued in
connection with certain of the Company's acquisitions in 1997 (the "Convertible
Notes") and (vi) 1,267,000 shares of Common Stock issuable pursuant to the
exercise of warrants issued or issuable to certain Selling Stockholders. See
"Recent Developments."
The following table sets forth as of January 1, 1998,
information regarding the beneficial ownership of the Company's Common Stock
held by each Selling Stockholder who may sell the Shares pursuant to this
Prospectus as of such date, the number of Shares pursuant to this Prospectus as
of such date, the number of Shares offered hereunder by each such Selling
Stockholder and the net ownership of shares of Common Stock, if all such Shares
so offered are sold by each Selling Stockholder.
18
<PAGE>
<TABLE>
<CAPTION>
TOTAL NUMBER
OF
SHARES TO BE
OFFERED FOR
SHARES OWNED SELLING
PRIOR TO THIS STOCKHOLDER'S TOTAL SHARES TO BE OWNED UPON
NAME OF SELLING STOCKHOLDER OFFERING/(1)/ ACCOUNT/(2)/ COMPLETION OF THIS OFFERING/(2)/
- --------------------------- ------------- ------------- --------------------------------
NUMBER PERCENT
--------------------- -----------
<S> <C> <C> <C> <C>
Siegler, Collery & Co. 12,500 12,500 0 0%
Profit Sharing Plan
The SC Fundamental
Value Fund, L.P. 401,690 65,000 336,690 1.5%
SC Fundamental Value BVI, Ltd. 195,710 35,000 160,710 *
Gary L. Fuhrman/(3)/ 177,591/(4)/ 41,666 135,925/(4)/ *
Peter M. Collery/(5)/ 3,042,002/(6)//(7)/ 6,250 3,035,752/(6)//(7)/ 13.3%
Gary N. Siegler/(8)/ 4,648,117/(6)//(9)/ 6,250 4,641,867/(6)//(9)/ 19.3%
NMR Associates 1983-I, Ltd. 18,868 18,868 0 0%
The Magnet of Palm Beach, Ltd. 56,670 82,191(10) 0 0%
Grove Diagnostic Imaging Center, Inc. 44,016 44,016 0 0%
Americare Imaging Centers, Inc. 228,571 228,571 0 0%
Accessible MRI of Baltimore County 119,166 205,480(10) 0 0%
Inc.
John Wisdo 5,958 5,958 0 0%
Christine T. Rawski 5,958 5,958 0 0%
Darryl Johnson 9,930 9,930 0 0%
Robert J. Maskulyak 19,860 19,860 0 0%
Lynne A. Fox 49,651 49,651 0 0%
Robert D. Baca 79,441 79,441 0 0%
James M. Domesek 226,406 226,406 0 0%
Robert Wasserman 5,000 5,000 0 0%
Robert Kupchak 37,539 92,369(10) 0 0%
Mark Novick 89,753 205,479(10) 0 0%
Dennis Rossi 26,178 59,931(10) 0 0%
Art Taylor 17,652 40,412(10) 0 0%
Eliezer Offenbacher 13,089 29,966(10) 0 0%
Aldonna McCarthy 5,684 13,013(10) 0 0%
Ronald W. Ash 116,639 116,639 0 0%
Sandra Lowson 20,583 20,583 0 0%
Bronx MRI Associates 44,021 102,740(10) 0 0%
Queens MRI Associates 58,694 136,986(10) 0 0%
Vascular Services, Inc. 7,337 17,124(10) 0 0%
National Medical Development, Inc. 43,415 94,931(10) 0 0%
RGC International Investors, LDC/(11)/ 3,313,366 3,313,366 0 0%
PresGar Imaging, LLC/(12)/ 160,832 160,832 0 0%
PresGar Medical Imaging, Inc./(12)/ 160,832 160,832 0 0%
Radiology Partners, Inc./(12)/ 26,757 26,757 0 0%
Drs. Sheer, Ahearn &
Associates, Inc./(12)/ 30,487 30,487 0 0%
Oaktree Radiology, P.A./(12)/ 26,572 26,572 0 0%
Regional Imaging
Consultants Corp. /(12)/ 109,589 109,589 0 0%
Grajo Imaging, Inc./(12)/ 69,589 69,589 0 0%
Advance Radiology - Imaging
Services of Trumbull, Inc./(12)/ 12,602 12,602 0 0%
Parvez Shirazi 8,780 8,780 0 0%
David L. Condra 51,617 51,617 0 0%
Sirrom Investments, Inc. 55,549 55,549 0 0%
The MRI Center of
Jacksonville, Inc. 107,500 107,500 0 0%
DVI Financial
Services Inc. 100,000(13) 100,000(13) 0 0%
</TABLE>
- ---------------------------------
* Less than 1 percent.
/(1)/ Except as otherwise noted, all shares or rights to these shares are
beneficially owned and sole voting and investment power is held by
the party named.
/(2)/ Assumes that none of the Selling Stockholders sells shares of Common
Stock not being offered hereunder or purchases additional shares of
Common Stock.
-19-
<PAGE>
/(3)/ Mr. Fuhrman is a Director of the Company and is a Director and
Senior Vice President of Arnhold and S. Bleichroder, Inc. ("ASB").
ASB acted as financial advisor to the Company in connection with the
private placements of the Company's 11% Convertible Subordinated
Debentures due 2000, 10.5% Convertible Subordinated Debentures due
2001 and Preferred Stock in May 1995, February 1996 and July 1997,
respectively.
/(4)/ Includes 101,000 shares underlying outstanding options which are
exercisable immediately or within 60 days.
/(5)/ Mr. Collery is a former Director of the Company.
/(6)/ Messrs. Siegler and Collery are the trustees of the Siegler, Collery
& Co. Profit Sharing Plan and are controlling shareholders of the
general partner and investment manager of SC Fundamental Value Fund,
L.P. and SC Fundamental Value BVI, Ltd., respectively. In addition,
Messrs. Siegler and Collery may be deemed to control other entities
which beneficially own shares of the Company's Common Stock. All
such shares are included in such number.
/(7)/ Includes 51,000 shares underlying outstanding options which are
exercisable immediately or within 60 days.
/(8)/ Mr. Siegler is Chairman of the Board of Directors of the Company.
/(9)/ Includes 608,666 shares underlying outstanding options which are
exercisable immediately or within 60 days and 795,000 shares
underlying outstanding warrants which Mr. Siegler is deemed to
beneficially own.
/(10/ The number of shares set forth in the table represents an estimate
of the number of shares of Common Stock to be offered by such
Selling Stockholders. Such Selling Stockholders are parties to
certain acquisition agreements with the Company, in which the
Company has agreed to pay (in additional shares and/or cash) to the
Selling Stockholders an amount equal to the shortfall in the market
value of the shares issued to such Selling Stockholders at the
closings of the relevant acquisitions in the event the market value
of such shares at the relevant effective date of this Registration
Statement is less than the market value of such shares as of the
closing of the acquisition or, in other cases, as of the execution
of the relevant acquisition agreement. The actual number of shares
of Common Stock issuable pursuant to such provisions is
indeterminate and is subject to adjustment depending on the future
market price of the Common Stock. The actual number of shares of
Common Stock offered hereby, and included in the Registration
Statement of which this Prospectus is a part, include such
additional number of shares of Common Stock as may be issued or
issuable pursuant to such provisions. For purpose of estimating the
number of shares of Common Stock to be included in this Registration
Statement, the Company calculated 125% of the number of shares
issuable upon the exercise of such remedies as of January 2, 1998
(based upon a market price of $9.125 which is 100% of the average
of the daily closing prices of the Common Stock reported on the
Nasdaq National Market for the five consecutive trading days
preceding January 2, 1998).
/(11)/ The number of shares set forth in the table represents an estimate
of the number of shares of Common Stock to be offered by such
Selling Stockholder upon conversion of, or issued in respect of, the
Preferred Stock held by such Selling Stockholder, including
1,167,000 shares of Common Stock issuable pursuant to the exercise
of warrants issued or issuable to the holder of such Preferred Stock
and other shares of Common Stock which may be issuable to the holder
of such Preferred Stock pursuant to the terms of the Preferred
Stock. The actual number of shares of Common Stock issuable upon
conversion of, or issued in respect of, Preferred Stock is
indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot
be predicted by the Company at this time, including, among other
factors, the future market price of the Common Stock. The actual
number of shares of Common Stock offered hereby, and included in the
Registration Statement of which this Prospectus is a part, includes
such additional number of shares of Common Stock as may be issued or
issuable upon conversion of the Preferred Stock by reason of the
floating rate conversion price mechanism or other adjustment
mechanisms described therein, or by reason of any stock split, stock
dividend or similar transaction involving the Common Stock, in order
to prevent dilution, in accordance with Rule 416 under the Act.
Pursuant to the terms of the Preferred Stock, if the Preferred Stock
had been actually converted on January 2, 1998 the conversion price
would have been $8.50 (100% of the average of the daily closing bid
prices of the Common Stock for the five consecutive trading days
ending on the fifth trading day immediately preceding such date) at
which price the Preferred Stock would have been converted into
approximately 2,146,366 shares of Common Stock. Pursuant to the
terms of the Preferred Stock, the shares of Preferred Stock are
convertible by any holder only to the extent that the number of
shares of Common Stock thereby issuable, together with the number of
shares of Common Stock owned by such holder and its affiliates (but
not including shares of Common Stock underlying unconverted shares
of Preferred Stock), would not exceed 4.9% of the then outstanding
Common Stock as determined in accordance with Section 13(a) of the
Exchange Act. Accordingly, the number of shares of Common Stock set
forth in the table for this Selling Stockholder exceeds the number
of shares of Common Stock that this Selling Stockholder could own
beneficially at any given time through their ownership of the Series
C Preferred Stock. In that regard, beneficial ownership of this
Selling Stockholder set forth in the table is not determined in
accordance with Rule 13d-3 under the Exchange Act.
/(12)/ The number of shares set forth in the table represents an estimate
of the number of shares of Common Stock to be offered by such
Selling Stockholders upon conversion of the Convertible Notes held
by such Selling Stockholders. The actual number of shares of Common
Stock issuable upon conversion of the Convertible Notes is
indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot
be predicted by the Company at this time, including, among other
factors, the future market price of the Common Stock. The actual
number of shares of Common Stock offered hereby, and included in the
Registration Statement of which this Prospectus is a part, include
such additional number of shares of Common Stock as may be issued or
issuable upon conversion of the Convertible Notes by reason of the
floating rate conversion price mechanism, or by reason of any stock
split, stock dividend or similar transaction involving the Common
Stock, in order to prevent dilution, in accordance with Rule 416
under the Act. Pursuant to the terms of the Convertible Notes, if
the Convertible Notes had been actually converted on January 2,
1998 the conversion price would have been $9.125 (100% of the
average of the daily closing prices of the Common Stock reported on
the Nasdaq National Market for the five consecutive trading days
immediately preceding such date) at which price the Convertible
Notes would have been converted into approximately 597,260 aggregate
shares of Common Stock.
/(13)/ Represents shares of Common Stock issuable pursuant to warrants
issued or issuable to the Selling Stockholder.
-20-
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders, or their respective pledgees, donees,
transferees or other successors in interest, may sell some or all of the
Shares in one or more transactions (which may involve block transactions)
on the Nasdaq National Market or on such other market on which the Common
Stock may from time to time be trading, in privately negotiated
transactions, through the writing of options on the Shares, short sales
or any combination thereof. The sale price to the public may be the
market prevailing at the time of sale, a price related to such prevailing
market price or such other price as the Selling Stockholders determine
from time to time. The Shares may also be sold pursuant to Rule 144.
The Selling Stockholders, or their respective pledgees, donees,
tranferees or other successors in interest, may also sell the Shares
directly to market makers acting as principals and/or broker/dealers, who
may act as agent or acquire the Shares as principal. Any broker/dealer
participating in such transactions as agent may receive a commission from
the Selling Stockholders (and, if they act as agent for the purchaser of
such Shares, from such purchaser). Usual and customary brokerage fees
will be paid by the Selling Stockholders. Broker/dealers may agree with
the Selling Stockholders to sell a specified number of Shares at a
stipulated price per Share and, to the extent such broker/dealer is
unable to do so acting as agent for the Selling Stockholders, to purchase
as principal any unsold Shares at the price required to fulfill the
respective broker/dealer's commitment to the Selling Stockholders.
Broker/dealers who acquire Shares as principals may thereafter resell
such Shares from time to time in transactions (which may involve cross
and block transactions and which may involve sales to and through other
broker/dealers, including transactions of the nature described above) in
the over-the-counter market, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale or at negotiated prices, and
in connection which such resales may pay to or receive commissions from
the purchasers of such Shares. If applicable, the Selling Stockholders
also may have distributed or may distribute Shares to one or more of
their limited partners which are unaffiliated with the Company; such
limited partners may, in turn, distribute such shares as described above.
There can be no assurance that all or any of the Shares offered hereby
will be sold by the Selling Stockholders.
The Company is bearing all costs relating to the registration
of the Shares, provided that any commissions or other fees payable to
broker/dealers in connection with any sale of the Shares will be borne by
the Selling Stockholders or other party selling such Shares. The Company
has agreed to indemnify certain of the Selling Stockholders, or their
transferees or assignees, against certain liabilities, including
liabilities under the Act, or to contribute to payments the Selling
Stockholders, or their transferees or assignees, may be required to make
in respect thereof.
The Selling Stockholders must comply with the requirements of
the Act and the Exchange Act and the rules and regulations thereunder in
the offer and sale of the Shares. In particular, during such times as the
Selling Stockholders may be deemed to be engaged in a distribution of the
Common Stock, and therefore be deemed to be an underwriter under the Act,
it must comply with the Exchange Act, as amended, and will, among other
things:
(a) not engage in any stabilization activities in connection with
the Company's securities;
(b) furnish each broker/dealer through which Shares may be offered
such copies of this Prospectus, as amended from time to time,
as may be required by such broker/dealer; and
(c) not bid for or purchase any securities of the Company or
attempt to induce any person to purchase any securities of the
Company other than as permitted under the Exchange Act.
-21-
<PAGE>
LEGAL MATTERS
The validity of the shares of the Company's Common Stock
offered hereby will be passed upon for the Company by Werbel &
Carnelutti, A Professional Corporation, New York, New York.
EXPERTS
The consolidated balance sheet of the Company as of December
31, 1996 and the consolidated statement of operations, stockholders'
equity, and cash flows and the financial statement schedule listed in the
index at Item 14(a) for the year ended December 31, 1996, and
incorporated by reference in the Prospectus and Registration Statement,
have been incorporated in reliance on the report of Coopers & Lybrand
L.L.P., given on the authority of said firm as experts in accounting and
auditing.
The consolidated balance sheet of the Company as of December
31, 1995 and the related consolidated statements of operations, cash
flows and changes in stockholders' equity for the years ended December
31, 1995 and 1994 and the financial statement schedule listed in the
index at Item 14(a), incorporated by reference in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP,
independent certified public accountants as set forth in their report
thereon and incorporated by reference herein which, as to the year ended
December 31, 1994, is based in part on the reports of Dixon, Odom & Co.,
L.L.P., independent auditors, and Kempisty & Company, Certified Public
Accountants, P.C., independent auditors. The consolidated financial
statements referred to above are incorporated by reference herein in
reliance upon such reports given upon the authority of such firms as
experts in accounting and auditing.
The consolidated balance sheets of NMR of America, Inc. at
March 31, 1996 and 1995 and consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the
period ended March 31, 1996 and included in this Prospectus and
Registration Statement, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., given on the authority of said firm
as experts in accounting and auditing.
The financial statements of South Brevard Imaging, a division of
Melbourne Neurologic, P.A. at December 31, 1996 and for the year then
ended, incorporated by reference in this Prospectus and Registration
Statement have been audited by Mark J. Burger, P.A., independent
certified public accountants, as set forth in their report incorporated
by reference herein, and are incorporated by reference in reliance upon
such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of The Magnet of Palm Beach, Ltd. at
December 31, 1996 and for the year then ended, incorporated by reference
in this Prospectus and Registration Statement have been audited by Mark
J. Burger, P.A., independent certified public accountants, as set forth
in their report thereon incorporated by reference herein, and are
incorporated by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Accessible MRI of Montgomery County,
Inc. at September 30, 1996 and for the year then ended, incorporated by
reference in this Prospectus and Registration Statement have been audited
by Ellin & Tucker, Chartered Certified Public Accountants, independent
certified public accountants, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Accessible MRI of Baltimore County,
Inc. at September 30, 1996 and for the year then ended, incorporated by
reference in this Prospectus and Registration Statement have been audited
by Ellin & Tucker, Chartered Certified Public Accountants, independent
certified public accountant, as set forth in their report thereon
incorporated by reference herein, and are incorporated by reference in
reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Capstone Management Group, Inc. at
December 31, 1996 and for the year then ended, incorporated by reference
in this Prospectus and Registration Statement have been audited by Baca
Pieczkolon & Associates, independent certified public accountants, as set
forth in their report thereon incorporated by reference herein, and are
incorporated by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
-22-
<PAGE>
CERTAIN UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma combined financial statements include
an unaudited pro forma combined balance sheet of the Company (the "Unaudited Pro
Forma Combined Balance Sheet") as of December 31, 1996 and an unaudited pro
forma combined statement of operations for the nine months ended September 30,
1997 and the year ended December 31, 1996 (the "Unaudited Pro Forma Combined
Statement of Operations.") The Unaudited Pro Forma Combined Balance Sheet at
December 31, 1996 includes historical amounts for the Company adjusted to
reflect the private placements of the Notes and Preferred Stock ("1997
Financings") and assumes that the 1997 Financings were completed as of December
31, 1996. See "Recent Developments - Financing Transactions" for a description
of the Notes and Preferred Stock. No pro forma combined balance sheet has been
provided as of September 30, 1997 because the 1997 Financings were completed
prior to such date and are reflected in the Company's balance sheet included in
its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and
incorporated by reference herein. The Unaudited Pro Forma Combined Statement of
Operations for the year ended December 31, 1996 include historical amounts for
the Company and NMR adjusted to reflect the NMR Acquisition and the 1997
Financings and has been prepared on the basis that the NMR Acquisition and the
1997 Financings had occurred as of January 1, 1996. The Unaudited Pro Forma
Combined Statement of Operations for the nine months ended September 30, 1997
includes historical amounts for the Company to reflect the 1997 Financings and
has been prepared on the basis that the 1997 Financings had occurred as of
January 1, 1997.
These unaudited pro forma combined financial statements do not purport
to be indicative of the actual financial position or results of operations that
would have been achieved had the NMR Acquisition and the 1997 Financings been
consummated on January 1, 1997 or January 1, 1996, as the case may be, nor do
they purport to be indicative of future operating results or financial position
of other combined entity.
The following unaudited pro forma combined financial statements should
be read in conjunction with the historical consolidated financial statements and
related notes thereto of the Company and NMR included elsewhere or incorporated
by reference herein as certain data and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted.
-23-
<PAGE>
Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 1997
(in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Medical Medical
Resources, Inc. 1997 Resources, Inc.
For the Nine Financings and 1997
Months Ended Pro Forma Financings
September 30, 1997 Adjustments Combined
------------------ ----------- -------------
<S> <C> <C> <C>
Net service revenues $151,286 $ - $151,286
Imaging center and staffing operating costs:
Technical services payroll and related expenses 55,686 - 55,686
Medical Supplies 6,240 - 6,240
Diagnostic equipment maintenance 4,533 - 4,533
Independent contractor fees 4,294 - 4,294
Administrative expenses 15,319 - 15,319
Other costs 7,284 - 7,284
Provision for uncollectible accounts receivable 7,185 - 7,185
Corporate general and administrative 12,112 - 12,112
Depreciation and amortization 12,588 18 (w) 12,619
13 (x)
------------- ----------- -------------
Operating Income 26,045 (31) 26,014
Interest expense 5,419 673 (o) 7,142
1,050 (s)
------------- ----------- -------------
Income from continuing operations
before minority interest and taxes 20,626 (1,754) 18,872
Minority interest (500) - (500)
------------- ----------- -------------
Income from continuing operations
before income taxes 21,126 (1,754) 19,372
Income taxes 9,045 (684)(p) 8,361
------------- ----------- -------------
Income from continuing operations $12,081 $(1,070) 11,011
============= =========== =============
Earnings per share:
Primary $ 0.55 $ 0.50
============= =============
Fully diluted $ 0.52 $ 0.48
============= =============
Weighted average share outstanding
Primary 22,048 22,048
Fully diluted 23,084 23,084
</TABLE>
-24-
<PAGE>
MEDICAL RESOURCES, INC.
Unaudited Pro Forma Combined Balance Sheet
December 31, 1996
(in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION> Medical
Medical Resources
Resources 1997 and 1997
Year ended Financings Financings
December 31, Pro Forma Pro Forma
1996 Adjustments Combined
------------- --------------- ------------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $15,346 52,000 (i) $ 93,768
(887) (j)
(9,735) (k)
(5,675) (l)
26,000 (q)
(213) (r)
18,000 (t)
(1,068) (u)
Short-term investments 1,663 1,663
Restricted short-term investments 4,500 4,500
Accounts receivable, net 39,878 39,878
Other receivables 2,291 2,291
Prepaid expenses 3,715 3,715
Deferred tax assets, net 3,354 3,354
------------- --------------- ------------------
Total current assets 70,747 78,422 149,169
Medical diagnostic and office equipment, net 24,397 1,461 (k) 25,858
Goodwill, net 62,639 62,639
Other assets 3,171 887 (j) 4,271
213 (r)
Deferred tax assets, net 2,351 2,351
Restricted cash 1,045 1,045
Value of venture contracts 164 164
------------- --------------- ------------------
Total assets $ 164,514 $80,983 $ 245,497
============= =============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes and mortgage payable $ 6,729 $ 6,729
Current portion of obligations under capital
leases 5,991 5,991
Accounts payable and accrued expenses 13,070 13,070
Other current liabilities 117 117
Income taxes payable 2,064 2,064
------------- --------------- ------------------
Total current liabilities 27,971 - 27,971
Senior notes payable 52,000 (i) 78,000
26,000 (q)
Notes and mortage payable 12,638 (5,490) (l) 7,148
Obligations under capital leases 8,374 (8,274) (k) 100
Convertible debentures 6,988 6,988
Other long-term liabilities 2,159 2,159
------------- --------------- ------------------
Total liabilities 58,130 64,236 122,366
------------- --------------- ------------------
Common stock 186 186
Common stock to be issued 1,721 1,721
Preferred Stock - 18,000 (t) 16,932
(1,068) (u)
Additional paid-in capital 102,928 102,928
Unrealized appreciation of investments 26 26
Retained earnings/(deficit) 2,956 (185) (l) 2,771
Treasury stock, at cost (1,433) (1,433)
------------- --------------- ------------------
Total stockholders' equity 106,384 16,747 123,131
------------- --------------- ------------------
Total liabilities and stockholders' equity $ 164,514 $80,983 $ 245,497
============= =============== ==================
</TABLE>
-25-
<PAGE>
MEDICAL RESOURCES, INC.
Pro Forma Combined Statement of Operations
For the year Ended December 31, 1996
(in thousands, except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Medical NMR Medical
Resources Eight Months Resources 1997 MRI/NMR
Year ended Ended MRI/NMR and NMR Financings and 1997
December 31, August 30, Pro Forma Pro Forma Pro Forma Financings
1996 1996 Adjustments Combined Adjustments Combined
----------- ----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net service revenues $93,785 $19,070 ($47)(a) $112,808 $112,808
Imaging center and staffing operating costs:
Technical services payroll and related expenses 35,073 3,544 (71)(a) 38,546 38,546
Medical supplies 4,225 1,089 (61)(a) 5,253 5,253
Diagnostic equipment maintenance 3,273 919 4,192 4,192
Independent contractor fees 1,202 769 1,971 1,971
Administrative expenses 11,937 2,717 (33)(a) 14,621 14,621
Other costs 3,354 732 4,086 4,086
Provision for uncollectible accounts receivable 4,783 4,783 4,783
Corporate general and administrative 7,780 2,622 187 (b) 10,589 10,589
Depreciation and amortization 7,465 2,312 (13)(a) 10,204 487 (m) 10,691
(429)(c)
<> 1,175 (d)
(64)(e)
(242)(f)
----------- ----------- ----- --------- ------------ ----------
Operating income 14,693 4,366 (496) 18,563 (487) 18,076
Interest expense 2,968 1,153 (1)(a) 4,120 (1,376) (n) 8,885
4,040 (o)
2,101 (s)
Income (loss) from continuing operations ----------- ----------- ----- --------- ------------ ----------
before minority interest and income taxes 11,725 3,213 (495) 14,443 (5,252) 9,191
Minority interest 308 312 620 620
----------- ----------- ----- --------- ------------ ----------
Income (loss) from continuing operations
before income taxes 11,417 2,901 (495) 13,823 (5,252) 8,571
Income taxes 4,162 988 190 (g) 5,340 (2,048) (p) 3,292
----------- ----------- ----- --------- ------------ ----------
Income (loss) from continuing operations $7,255 $1,913 ($685) $8,483 ($3,204) 5,279
=========== =========== ===== ========= ============ ==========
Earnings per share:
Primary 0.62 0.58 $ 0.34
=========== ========= ==========
Fully diluted 0.59 0.56 $ 0.31
=========== ========= ==========
Weighted average shares outstanding
Primary 11,670 2,971 (h) 14,641 1,070 (v) 15,711
Fully diluted 12,903 2,971 (h) 15,874 1,070 (v) 16,944
</TABLE>
-26-
<PAGE>
Notes to Pro Forma Consolidated Financial Statements (unaudited)
(a) To eliminate the operations of NMR's Elgin center location which Medical
Resources closed effective October 1996. The unaudited historical
operating results of the center is as follows:
Net service revenue $ 47
Center operating costs:
Payroll and related expenses 71
Operating costs 61
Administrative expenses 33
Depreciation and amortization 13
--------------
Operating loss (132)
Interest expense 1
--------------
Net loss $ (131)
==============
(b) To reflect the increase in corporate and administrative expense resulting
from non-competition and consulting agreements entered into in connection
with the NMR Acquisition offset by the elimination of the related
historical compensation.
Executive compensation (1) $ (363)
Non competition and consulting (2) 550
-----------
Net increase in corporate general and administrative $ 187
===========
(1) Represents the elimination of certain historical
compensation as discussed above.
(2) Represents the expenses to be incurred during the
pro forma period relating to the non competition
and consulting agreements entered into in
connection with the NMR Acquisition.
(c) To eliminate amortization expense relating to NMR's historical goodwill, as
such amount was included in determining the NMR acquisition goodwill
described in note (d).
(d) To reflect the amortization of the approximate $35,286,000 of goodwill
that results from the NMR Acquistion using the straight line method over
20 years.
(e) To eliminate amortization expense relating to $830,000 of certain NMR's
intangible assets which were adjusted in determining the NMR Acquisition
goodwill described in note (d).
(f) To reflect the decrease in depreciation of fixed assets (not including
land) based upon adjustments to record the assets at the estimated fair
value as determined by independent appraisal, depreciated over an estimated
weighted average remaining useful life of eight years.
<TABLE>
<S> <C>
Adjustment to decrease fixed asets to independent appraisal of fair value $ (2,908)
Weighted average depreciable life (years) 8
-------------
Pro forma decrease in depreciation expense (364)
Eight months expense 8
-------------
Pro forma decrease in depreciation expense $ (242)
=============
</TABLE>
(g) To reflect pro forma income taxes calculated at statutory rates.
(h) To adjust weighted average shares outstanding for the shares issued in
conjunction with the NMR Acquisition.
-27-
<PAGE>
Notes to Pro Forma Consolidated Financial Statements
(i) To record the $52,000,000 private placement of Senior Notes.
(j) To record the costs associated with the private placement to be amortized
over 8 years which coincides with the term of the Senior Notes.
(k) To reflect the retirement of capital lease obligations. The Company retired
approximately $9,735,000 in capital lease obligations. The carrying value
of such obligations was approximately $8,274,000. The difference between
the amount used to retire capital lease obligations and the carrying value
of such obligations was approximately $1,461,000. In accordance with
Financial Accounting Standards Board Interpretation No. 26 - Accounting for
the Purchase of a Leased Asset by the Lessee During the Term of the
Lease", the book value of the related assets have been increased by this
amount.
(l) to reflect the retirement of notes and mortage payable. The Company retired
approximately $5,675,000 in notes and mortgage payable. The carrying value
of such notes and mortgage was $5,490,000. The difference between the
amount used to retire notes and mortgage payable and the carrying value of
such payables was approximately $185,000. Due to the immaterial level of
this amount, such amount has been expensed.
(m) To reflect the increase in amortization expense for the adjustment to the
book value of the assets which had been financed by capital leases (See
note(k)). This increase in the book value is being amortized over the
remaining useful life of the asset.
(n) To reflect the reduction in interest expense at historical rates
associated with debt obligations which were retired.
(o) To reflect the interest expense associated with the $52,000,000 Senior Note
placement at a rate of 7.77% per annum.
(p) To reflect pro forma income taxes calculated at statutory rates.
(q) To record the $26,000,000 private placement of additional Senior Notes.
(r) To record the costs associated with the $26,000,000 private placement to be
amortized over the term of the Senior Notes.
(s) To reflect the interest expense associated with the $26,000,000 Senior
Note placement at rates of 8.10% and 8.01% per annum.
(t) To record the $18,000,000 private placement of Series C Convertible
Preferred Stock.
(u) To record the costs associated with the $18,000,000 private placement of
Series C Convertible Preferred Stock.
(v) To adjust weighted average shares outstanding for the shares issued in
conjunction with the $18,000,000 private placement of Series C Convertible
Preferred Stock.
(w) To amortize the costs associated with the $52,000,000 Senior Note placement
for the months of January and February of 1997.
(x) To amortize the costs associated with the $26,000,000 Senior Note placement
for the 6 months ended June 30, 1997.
-28-
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
The Shareholders of NMR of America, Inc.
We have audited the accompanying consolidated balance sheets of NMR of America,
Inc., and Subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NMR of America,
Inc., and Subsidiaries as of March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
June 21, 1996
F-1
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<S> <C> <C> <C>
MARCH 31, MARCH 31, JUNE 30,
1995 1996 1996
(unaudited)
- ------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,966,804 $ 3,782,315 $ 2,072,925
Marketable securities 1,125,643 289,125
Short-term investments 886,609 663,660 2,022,405
Due from affiliated physician
associations and patient
receivables, net 9,498,268 14,182,008 14,946,978
Other current assets 903,373 1,442,394 1,301,461
- ------------------------------------------------------------------------
Total current assets 16,380,697 20,070,377 20,632,894
- ------------------------------------------------------------------------
Land, buildings and equipment 31,360,133 31,832,051 32,037,838
Less, accumulated depreciation
and amortization 19,580,504 17,381,581 18,030,369
- ------------------------------------------------------------------------
11,779,629 14,450,470 14,007,469
Long-term investments 192,000
Cost in excess of net assets
acquired 4,497,974 10,804,971 10,660,167
Deferred income taxes 1,099,000 109,000
Other assets 1,571,547 1,446,868 1,231,880
- ------------------------------------------------------------------------
Total assets $35,328,847 $47,073,686 $46,532,410
========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
MARCH 31, MARCH 31, JUNE 30,
1995 1996 1996
(unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses $ 3,098,931 $ 4,276,846 $ 4,448,686
Current installments on capital
lease obligation 286,263 612,985 604,644
Current installments on notes and
mortgage payable 2,769,098 4,911,031 4,591,221
- --------------------------------------------------------------------------------
Total current liabilities 6,154,292 9,800,862 9,644,551
- --------------------------------------------------------------------------------
Deferred tax liability 90,000
Convertible subordinated debt, net 2,056,417 1,975,752 1,890,835
Obligations under capital leases,
less current installments 481,518 1,152,455 1,009,479
Notes and mortgage payable,
less current installments 10,451,119 11,028,647 10,012,109
Minority interest in limited
partnerships 2,155,665 2,126,708 2,237,382
Commitments and contingencies
Shareholders' Equity:
Common Stock, $.01 par value;
authorized 30,000,000 shares,
5,416,967, 6,705,143 and 6,715,143
shares issued and outstanding at
March 31, 1995 and March 31 and
June 30, 1996, respectively 54,169 67,051 67,151
Additional paid-in capital 11,570,401 17,027,890 17,072,790
Unrealized gains and (losses) 14,208
Retained earnings 3,854,255 5,631,632 6,220,272
Less, 364,958 and 437,712 and
430,797 common shares in Treasury
at March 31, 1995 and March 31,
and June 30, 1996, respectively (1,463,197) (1,737,311) (1,712,159)
- --------------------------------------------------------------------------------
Shareholders' equity 14,029,836 20,989,262 21,648,054
- --------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $35,328,847 $47,073,686 $46,532,410
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
<TABLE>
<CAPTION>
Quarter Ended
Years Ended March 31, June 30,
1994 1995 1996 1996
(unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue, net $15,597,260 $17,987,824 $23,833,897 $7,263,367
- -------------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and related costs 3,957,626 4,780,025 6,442,710 1,788,463
Depreciation and amortization 2,545,108 2,951,400 3,093,616 796,530
Medical supplies and other
operating costs 5,186,883 6,048,762 8,834,668 2,776,614
Non-recurring write-down of
center equipment 560,091
Transaction costs 301,140
Other general and administrative 689,347 553,422 763,662 219,927
- -------------------------------------------------------------------------------------------
12,378,964 14,893,700 19,134,656 5,882,674
- -------------------------------------------------------------------------------------------
Operating income 3,218,296 3,094,124 4,699,241 1,380,693
Interest expense 824,420 1,186,811 1,677,698 447,048
Other income,net (130,694) (24,546) (122,805) (39,810)
- -------------------------------------------------------------------------------------------
Income before minority
interest and income taxes 2,524,570 1,931,859 3,144,348 973,455
Minority interest in income of
limited partnerships 1,049,070 527,663 410,550 120,815
- -------------------------------------------------------------------------------------------
Income before income taxes 1,475,500 1,404,196 2,733,798 852,640
Provision for (benefit from)
income taxes 108,000 (1,029,716) 956,421 264,000
- -------------------------------------------------------------------------------------------
Net income $ 1,367,500 $ 2,433,912 $ 1,777,377 $ 588,640
===========================================================================================
PER SHARE DATA:
PRIMARY:
Net income per share $ .29 $ .49 $ .30 $ .09
===========================================================================================
FULLY DILUTED:
Net income per share $ .29 $ .47 $ .30 $ .09
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Quarter Ended
Years Ended March 31, June 30,
1994 1995 1996 1996
(unaudited)
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $1,367,500 $ 2,433,912 $1,777,377 $ 588,640
- ----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,545,108 2,951,400 3,093,616 796,530
Minority interest in income of
limited partnerships 1,049,070 527,663 410,550 120,815
Deferred income taxes (1,099,000) 1,016,918 199,000
Equity in loss (income) from
unconsolidated partnership (53,067) 68,770 171,085
Contractor reimbursement for lost (91,620) (175,000)
revenues
(Gain) loss on disposition of
center assets 47,021 12,084 (62,443)
Non-recurring write-down of center
equipment 560,091
Proceeds from sale of marketable
securities - trading 411,270
Unrealized gain on
marketable securities (9,464)
Changes in assets and liabilities,
net of acquired centers:
Increase in amount due from
affiliated physician
associations and patient
receivables, net (2,196,385) (965,897) (3,546,074) (764,970)
Decrease (increase) in other
current assets 188,810 (130,104) 236,999 140,933
(Increase) decrease in
other assets 159,969 (92,931) 103,147 172,133
(Decrease) increase in accounts
payable and accrued expenses 531,966 (198,210) (80,001) 196,992
Decrease in other liabilities (222,079)
Other 14,483
- ----------------------------------------------------------------------------------------------------------------
Total adjustments 2,040,949 1,953,516 1,183,280 861,433
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating
activities 3,408,449 4,387,428 2,960,657 1,450,073
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
QUARTER
ENDED
YEARS ENDED MARCH 31, JUNE 30,
1994 1995 1996 1996
(unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing
activities:
<S> <C> <C> <C> <C>
Purchase of equipment ($ 338,080) ($1,705,020) ($1,411,389) ($ 205,787)
Purchase of short-term
investments (869,000) (2,814,660) (1,495,745)
Purchase of marketable
securities (1,201,839) (1,111,435) (300,000) (289,125)
Purchase of long-term
investments (192,000)
Purchase of limited
partnership interests (2,185,005) (48,800)
Acquisition of purchase
option (200,000)
Acquisition of centers,
net of cash acquired (325,000) (976,794) 371,905
Proceeds from sale of
marketable securities 600,000 205,000 1,435,438
Proceeds from sale of
short-term investments 3,070,449 329,000
Proceeds from disposition
of center assets 6,250
Other (11,014) (15,350) (2,716)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used
in) investing activities (3,660,938) (4,515,149) 159,743 (1,664,373)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing
activities:
Repayments of debt, including
capital lease obligations (1,587,922) (2,134,292) (3,669,129) (1,487,665)
Distributions to limited
partners (683,067) (135,656) (232,283) (7,425)
Proceeds from borrowing 2,319,500 2,617,683 912,686
Purchase of common stock
warrants (12,000)
Proceeds from stock
issuance and exercise of
stock options 27,812 36,844
Purchases of treasury stock (353,007)
- ------------------------------------------------------------------------------------------------------------------
Net cash (used in)
provided by
financing activities 36,511 375,547 (3,304,889) (1,495,090)
- ------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (215,978) 247,826 (184,489) (1,709,390)
Cash and cash equivalents
at April 1, 3,934,956 3,718,978 3,966,804 3,782,315
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at March 31,(or June 30) $ 3,718,978 $ 3,966,804 $ 3,782,315 $ 2,072,925
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NMR OF AMERICA, INC., AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
QUARTER ENDED
YEARS ENDED MARCH 31, JUNE 30,
1994 1995 1996 1996
(unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Income Taxes, net of refunds
totaling $46,052 in 1996,
$26,474 in 1995 and $155,676
in 1994 ($ 131,237) $ 69,345 ($ 13,320) $ 26,925
Interest 829,419 1,187,160 1,680,158 402,488
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Capital lease obligations incurred
for use of equipment 591,517
Capital lease obligations assumed
in connection with acquisition of centers 1,444,779
Notes payable obligation assumed in connection
with acquisition of center 1,475,000 1,982,617 4,690,296
Stock issued in connection with
acquisition of centers 487,500 500,000 5,224,320
Notes payable issued in
connection with acquisition of
center 435,000
Note payable obligation
incurred in connection with
acquisition of purchase option 593,000
Note payable obligation incurred in
connection with refinancing of Bel
Air, Maryland center debt 2,493,683
Additions to fixed assets included
in accounts payable and accrued
expenses 214,410
Conversion of subordinated debebtures
to common stock 111,999 123,000
Unrealized gain on marketable
securities available-for-sale 14,208
Contribution to 401(k) plan 10,061 36,098
Note payable incurred in connection
with financing annual insurance
premium 278,488
Note payable incurred in
connection with equipment upgrade
financing 60,000
Issuance of restricted
stock over two year vesting period 94,800
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
NMR of America, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at March 31, 1993 5,107,080 51,071 10,449,047
- ------------------------------------------------------------------------------
Purchase of warrants (12,000)
Issuance of common stock 150,000 1,500 486,000
Net income for fiscal 1994
- ------------------------------------------------------------------------------
Balances at March 31, 1994 5,257,080 52,571 10,923,047
- ------------------------------------------------------------------------------
Issuance of common stock 135,000 1,350 528,650
Conversion of subordinated
debentures to common stock 24,887 248 111,751
Exercise of employee
stock options 2,187
401(k) plan contributions 4,766
Unrealized gain on securities
held for sale
Net income for fiscal 1995
- ------------------------------------------------------------------------------
Balances at March 31, 1995 5,416,967 $ 54,169 $ 11,570,401
- ------------------------------------------------------------------------------
Purchase of common stock
Issuance of common stock 1,260,848 12,609 5,319,120
Conversion of subordinated
debentures to common stock 27,328 273 122,727
Exercise of employee
stock options 5,906
401(k) plan contributions 9,736
Unrealized gain on securities
held for sale
Net income for fiscal 1996
- ------------------------------------------------------------------------------
Balances at March 31, 1996 6,705,143 67,051 17,027,890
- ------------------------------------------------------------------------------
Conversion of subordinated
debentures to common stock 10,000 100 44,900
401(k) plan contributions
Net income for quarter ended
June 30, 1996
- ------------------------------------------------------------------------------
Balances at June 30, 1996 6,715,143 $ 67,151 $ 17,072,790
============================= ============ ============ ============
<CAPTION>
Unrealized Retained Total
Treasury Stock Gains Earnings Shareholders'
Shares Amount (losses) (Deficit) Equity
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1993 (377,326) (1,494,117) 52,843 9,058,844
- ----------------------------------------------------------------------------------
Purchase of warrants (12,000)
Issuance of common stock 487,500
Net income for fiscal 1994 1,367,500 1,367,500
- ----------------------------------------------------------------------------------
Balances at March 31, 1994 (377,326) (1,494,117) 0 1,420,343 10,901,844
- ----------------------------------------------------------------------------------
Issuance of common stock 530,000
Conversion of subordinated
debentures to common stock 111,999
Exercise of employee
stock options 10,250 25,625 27,812
401(k) plan contributions 2,118 5,295 10,061
Unrealized gain on securities
held for sale 14,208 14,208
Net income for fiscal 1995 2,433,912 2,433,912
- ----------------------------------------------------------------------------------
Balances at March 31, 1995 (364,958)($1,463,197) $14,208 $3,854,255 $14,029,836
- ----------------------------------------------------------------------------------
Purchase of common stock (99,650) (353,007) (353,007)
Issuance of common stock 5,331,729
Conversion of subordinated
debentures to common stock 123,000
Exercise of employee
stock options 12,375 30,938 36,844
401(k) plan contributions 14,521 47,955 57,691
Unrealized gain on securities
held for sale (14,208) (14,208)
Net income for fiscal 1996 1,777,377 1,777,377
- ----------------------------------------------------------------------------------
Balances at March 31, 1996 (437,712) (1,737,311) 0 5,631,632 20,989,262
- ----------------------------------------------------------------------------------
Conversion of subordinated
debentures to common stock 45,000
401(k) plan contributions 6,915 25,152 25,152
Net income for quarter ended
June 30, 1996 588,640 588,640
- ----------------------------------------------------------------------------------
Balances at June 30, 1996 (430,797)($1,712,159) $0 $6,220,272 $21,648,054
==================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. The Company and Its Significant Accounting Policies
The Company - NMR of America, Inc., and Subsidiaries (the "Company") is engaged
- -----------
in installing and maintaining imaging systems used for diagnostic purposes in
offices operated by private physicians.
Consolidation - The accompanying consolidated financial statements include the
- -------------
accounts of NMR of America, Inc., its wholly-owned subsidiaries and certain
limited partnerships in which the Company is a general partner. All material
intercompany balances and transactions have been eliminated. As general
partner, the Company is subject to all the liabilities of a general partner and
as of June 30, 1996, is entitled to share in partnership profits, losses and
distributable cash as follows:
Company Share of
Profits, Losses and
Partnership Distributions
----------- -------------
NMR Associates I (Union, New Jersey) 64%
MR Associates I (Philadelphia, Pennsylvania) 98%
MR Associates of Allentown (Allentown, Pennsylvania) 96%
MR Associates of Morristown (Morristown, New Jersey) 94%
MR Partners of Greenbelt (Seabrook, Maryland) 87%
MR Associates of Chicago (Chicago, Illinois) 87%
Garden State Imaging Partners (Marlton, New Jersey) 91%
Harford County Imaging Partners (Bel Air, Maryland) 63%
Accessible MRI (Chicago, Illinois) 80%
Golf MRI Center (Des Plaines, Illinois) 75%
Diagnostic Imaging Center (Des Plaines, Illinois) 75%
The Company owns a 100% interest in imaging centers located in Chicago, Elgin,
Libertyville, and Oak Lawn, Illinois as well as Cape Coral, Naples, Sarasota and
Titusville, Florida. The Company owns a 38% interest in an Austin, Texas
limited partnership, which is accounted for using the equity method (See Note
13). The Company is also paid a monthly management fee based on patient cash
collections and/or patient volume under management agreements with certain of
the partnerships.
During the second quarter of the fiscal year ended March 31, 1993, accumulated
losses, from inception, of the Company's Harford County, Maryland limited
partnership fully offset the capital contributed by its limited partners.
Accordingly, losses incurred in excess of such limited partnership capital have
been charged, in full, to the Company as general partner. Future profits, if
any, in the Harford County partnership will be allocated, in full, to the
Company as general partner until such profits equal the Company's excess share
of allocable losses. Thereafter, future profits and losses will be allocated in
accordance with the parties respective ownership interests.
F-9
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
Reclassification - Certain prior year items have been reclassified to conform to
- ----------------
the current year presentation.
Use of Estimates - The preparation of the consolidated financial statements in
- ----------------
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The most significant
estimates relate to contractual and other allowances, income taxes,
contingencies and the useful lives of equipment. Actual results could differ
from those estimates. In addition, healthcare industry reforms and
reimbursement practices will continue to impact the Company's operations.
Cash and Cash Equivalents - For financial statement purposes cash equivalents
- -------------------------
include short-term investments with an original maturity of ninety days or less.
At June 30 and March 31, 1996 and March 31, 1995, respectively, the Company had
investments in money market accounts and certificates of deposit of $333,523,
$1,792,251 and $729,759. Cash and cash equivalents includes $723,270, $571,477
and $1,673,598 as of June 30 and March 31, 1996 and March 31, 1995,
respectively, representing funds of the various partnerships.
Marketable Securities - The Company adopted effective April 1, 1994, Statement
- ---------------------
of Financial Accounting Standards No. 115, ("SFAS 115") "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 requires a more detailed
disclosure of debt and equity securities held for investment, the methods to be
used in determining fair value and when to record unrealized holding gains and
losses in earnings or in a separate component of shareholders' equity. Debt
securities for which the Company does not have the intent or the ability to hold
to maturity are classified as available-for-sale along with the Company's
investments in equity securities. Securities available for sale are carried at
fair value with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Any realized gains and losses are determined
on the specific identification method. In accordance with SFAS 115, prior year
financial statements have not been restated to reflect the change in accounting
method. The cumulative effect as a result of adopting SFAS 115 in fiscal 1995
was not material.
Property and Equipment - Property and equipment are being depreciated for
- ----------------------
financial accounting purposes using the straight-line method over their
respective estimated useful lives ranging from three to ten years. Leasehold
improvements are being amortized over the shorter of the useful life or the
remaining lease term, typically 10 years. Upon
F-10
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in the results of operations. Expenditures for
maintenance and repairs are charged to operations. Renewals and betterments are
capitalized.
Organizational Costs - The Company capitalizes costs associated with the
- --------------------
organization of the various limited partnerships and Company-owned centers.
Such costs are amortized on a straight-line basis over a five-year period
beginning with the commencement of operations at each location.
Cost in Excess of Net Assets Acquired - The excess of the purchase price over
- -------------------------------------
the fair market value of net assets acquired is being amortized using the
straight-line method over 20 years. As of June 30 and March 31, 1996 and March
31, 1995, accumulated amortization amounted to $839,923, $694,783 and $274,544,
respectively.
The Company periodically reviews goodwill to assess recoverability based upon
expectations of undiscounted cash flows and operating income of each
consolidated entity having a material goodwill balance. An impairment would be
recognized in operating results, based upon the difference between each
consolidated entities' respective undiscounted cash flows and the carrying value
of the related costs in excess of net assets acquired, if a permanent diminution
in value were to occur.
401(k) Plan - The Company maintains a 401(k) savings plan under which the
- -----------
Company matches one-half of employee contributions to purchase the Company's
common stock and one-quarter of employee contributions to purchase other plan
investments, up to 6% of qualified earnings and subject to Internal Revenue
Service limitations. Company matching contributions for fiscal 1996 have
utilized treasury stock. Plan expense amounted to $36,098 and $10,061 in fiscal
1996 and 1995, respectively.
Earnings Per Share - Earnings per share is computed on the basis of the weighted
- ------------------
average number of common shares outstanding and dilutive common stock
equivalents. Common stock equivalents consist of stock options and warrants.
For the year ended March 31, 1994, earnings per share is computed on the basis
of the weighted average number of common shares outstanding during each year as
the Company's common stock equivalents had an anti-dilutive effect. The shares
issued by the Company in connection with the purchases of Oak Lawn Imaging
Center, Golf MRI Center, Diagnostic Imaging Center, Morgan Medical Holdings,
Inc. and Central Diversey MRI Center were considered outstanding from the date
of acquisition.
F-11
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
The Convertible Subordinated Debentures are not common stock equivalents and are
not included in the calculation of primary earnings per share. The debentures
were also not assumed converted for purposes of calculating fully diluted
earnings per share for the year ended March 31, 1994, as such conversion would
have been antidilutive for such year.
The number of common shares used to compute primary and fully diluted net income
per share are as follows:
Quarter Ended
Fiscal Years Ended March 31, June 30,
1994 1995 1996 1996
--------- --------- --------- ---------
Primary 4,757,102 5,017,952 5,870,494 6,539,912
Fully Diluted 4,757,102 5,589,900 6,324,716 7,141,089
New Accounting Standards - Statement of Financial Accounting Standards No. 121
- ------------------------
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") is effective for the Company's year ending March
31, 1997. The Company believes that the adoption of SFAS 121 will not have a
material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting and Disclosure
of Stock-Based Compensation" ("SFAS 123") encourages but does not require
companies to recognize stock awards based on their fair value at the date of
grant. The Company currently follows, and expects to continue to follow, the
provisions of Accounting Principle Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"), and related interpretations to account for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. Although the
Company is permitted to continue to follow the provisions of APB 25 under SFAS
123, certain pro forma disclosure, to reflect the impact on reported earnings,
will be required beginning with the Company's fiscal year ending March 31, 1997,
as if the Company has accounted for its stock options in accordance with the
fair value method under SFAS 123.
2. Due from Affiliated Physician Associations
For consolidated centers which the Company developed, it has entered into
agreements with physicians engaging in business as professional associations
("Physicians") pursuant to which the Company maintains and operates imaging
systems in offices operated by the Physicians. The agreements have terms of up
to six years and are renewable at the option of the Company. The Physicians'
principal, Dr. David L. Bloom, is a
F-12
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
2. Due from Affiliated Physician Associations (continued)
director of the Company. Under the agreements, Physicians has agreed to be
obligated to contract for radiological services at the centers and to sublease
each facility. The Company is obligated to make necessary leasehold
improvements, provide furniture and fixtures and perform certain administrative
functions relating to the provision of technical aspects of the centers
operations for which Physicians pays a quarterly fee composed of a fixed sum
based on the cost of the respective imaging system installed, including the
related financing costs, a charge per invoice processed and a charge based upon
system usage for each Company-installed imaging system in operation. These fees,
net of a contractual allowance based upon Physicians ability to pay after
physicians have fulfilled their obligations under facility subleases and
radiological service contracts as set forth above, constitute the Company's
revenue, net for developed sites.
For consolidated centers which the Company has acquired, subsidiaries of the
Company have entered into agreements with unaffiliated professional corporations
to provide radiological services under Dr. Bloom's administration. Accordingly,
revenue, net for acquired centers consists of patient billings adjusted for
contractual and other allowances which have been negotiated with various third-
party payers. Fees paid to radiologists at these centers are reflected as a
component of medical supplies and other operating expense in the accompanying
statements of income.
Certain revenues are subject to audit and retroactive adjustment by third party
payers. The Company is aware of no pending audits or proposed adjustments and
no provisions for estimated retroactive adjustments have been provided.
3. Short-term Investments
Short-term investments at June 30 and March 31, 1996 are stated at cost plus
accrued interest and consist of certificates of deposit having original
maturities of greater than three months but not in excess of one year.
F-13
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
4. Marketable Securities
Marketable securities classified as available-for-sale are as follows:
Gross Fair
June 30, 1996 unrealized market
Cost gains value
--------- ---------- ---------
Available-For-Sale:
U.S. Government obligations $ 298,125 $ -- $ 298,125
========== ========== ==========
March 31, 1995
Available-For-Sale:
U.S. Government obligations $ 1,111,435 $ 14,208 $ 1,125,643
=========== =========== ===========
At March 31, 1995, all investments in debt securities had maturities of
less than one year.
5. Property and Equipment
Property and equipment stated at cost are set forth below:
March 31, June 30,
1995 1996 1996
- -------------------------------------------------------------------------------
Diagnostic equipment $19,260,564 $18,328,154 $18,408,355
Diagnostic equipment under capital
leases 1,402,367 2,272,367 2,272,367
Leasehold improvements 4,486,404 4,978,901 4,994,926
Leasehold improvements under capital
leases 210,000 210,000
Land and buildings 1,353,569 1,353,569 1,353,569
Equipment 3,600,164 3,766,268 3,874,203
Equipment under capital leases 290,000 290,000
Furniture and fixtures 616,519 632,792 634,418
Construction in progress 640,546 --- ---
- -------------------------------------------------------------------------------
$31,360,133 $31,832,051 $32,037,838
===============================================================================
Depreciation expense for the quarter ended June 30, 1996 and the years ended
March 31, 1996, 1995 and 1994 amounted to $648,788, $2,444,896, $2,527,773 and
$2,197,181, respectively.
Accumulated amortization relating to property and equipment under capital leases
at June 30, and March 31, 1996 and March 31, 1995 was $989,789, $881,674 and
$510,570, respectively.
F-14
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
5. Property and Equipment (continued)
The following is a schedule by fiscal year of the minimum future lease payments
under capital leases as of March 31, 1996:
Year ending March 31,
1997 $ 731,728
1998 601,886
1999 487,624
2000 176,043
2001 ---
thereafter ---
- --------------------------------------------------------------------------------
Total minimum lease payments 1,997,281
Less: amount representing
interest (imputed at an average
rate of 7.9%) 231,841
- --------------------------------------------------------------------------------
Present value of
minimum lease payments 1,765,440
Less current installments 612,985
- --------------------------------------------------------------------------------
Obligations under capital leases,
less current installments $1,152,455
================================================================================
6. Long-term Investments
Long-term investments at June 30 and March 31, 1996 are stated at cost plus
accrued interest and consist of certificates of deposit maturing in April and
May 1997.
7. Convertible Subordinated Debentures
In July 1986, the Company completed a public offering of 8% Convertible
Subordinated Debentures of $4,000,000 due 2001 and received $3,365,000, net of
underwriting discount and other expenses. The debentures are redeemable at a
declining premium after July 1988, contain a mandatory sinking fund provision
calculated to retire 90% of the debentures before maturity at a rate of 10% per
year commencing in July 1992, and are convertible into the Company's common
stock at any time prior to maturity at $4.50 per share. As of June 30, 1996,
$1,999,000 of the debentures have been converted into the Company's common
stock. Under the provisions of the indenture, the Company has not been required
to meet its sinking fund requirement as a result of the cumulative debenture
conversions and does not expect to make a sinking fund payment until July of
1997.
F-15
<PAGE>
NMR OF AMERICA, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. Notes and Mortgage Payable
Notes and mortgage payable consist of the following:
<TABLE>
<CAPTION>
March 31, March 31, June 30,
1995 1996 1996
--------------- --------------- -----------
<S> <C> <C> <C>
Mortgage payable to bank (A) $ 524,065 $ 517,169 $ 514,920
Allentown equipment note payable to bank (B) 1,980,952 1,561,907 1,371,428
Note payable for acquisition of limited
partnership interests (C) 1,861,835 1,029,343 800,555
Oak Lawn equipment note payable to bank (D) 1,334,594 1,218,476 1,184,805
Bel Air equipment note payable (E) 2,705,136 2,520,116 2,470,531
Notes payable from Morgan acquisition (F) 3,612,007 3,240,104
Notes payable from other acquisitions (G) 2,455,856 2,637,360 2,488,756
Other notes payable for equipment, equipment
upgrades and leasehold improvements (H) 2,357,779 2,843,300 2,532,231
- ---------------------------------------------------------------------------------------------------------
13,220,217 15,939,678 14,603,330
Total
Less, current installments 2,769,098 4,911,031 4,591,221
- ---------------------------------------------------------------------------------------------------------
Notes and mortgage payable less current
installments $ 10,451,119 $ 11,028,647 $ 10,012,109
=========================================================================================================
</TABLE>
(A) The Company has a thirty-year mortgage collateralized by the Union, New
Jersey imaging center land and building. The mortgage bears interest at a
variable rate, adjusted annually based on the one-year Treasury bill rate
plus 2.75% (8.5% at June 30, 1996) and matures October 2019. The current
monthly payments are $4,310, including interest.
(B) During the year ended March 31, 1992, the Company completed an upgrade at
its Allentown, Pennsylvania center which included both new imaging
equipment, related leasehold improvements and a five year prepaid equipment
maintenance agreement aggregating approximately $3,200,000. The Company
financed these amounts using a note payable (the "Note") over a five year
term which commenced in August 1992. The Note requires monthly installments
of $38,095 plus interest and a balloon payment of $952,395 due in July
1997. The Note bears interest at a variable rate equal to the bank's
prevailing prime rate plus one-half percent (8.75% at June 30, 1996),
however, the Note provides an option to fix the interest rate at any time
during the term. The Note is collateralized by substantially all of the
assets of the MR Associates of Allentown partnership. Effective for fiscal
1994, the Note's financial covenants were modified requiring the
Partnership to meet two debt coverage ratios, as defined, as of March 31 of
each fiscal year through the expiration of the Note.
F-16
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
(C) In March 1994, the Company financed the acquisition of limited partnership
interests using a $2,240,000 three year note payable which bears interest
at a rate of 8.9% and requires monthly payments of $49,830, including
interest through April 1995 and $83,378, including interest per month
thereafter. The note is collateralized by the imaging equipment and
receivables of certain of the limited partnerships in which additional
interests were acquired.
(D) In January 1994, the Company assumed a five year $1,475,000 note payable to
a bank which bears interest at a variable rate equal to the bank's
prevailing prime rate plus one percent (9.25% at June 30, 1996). Monthly
payments, including principal and interest, for the first three years of
the note are fixed at $20,000, and $45,894 thereafter. The note is
collateralized by substantially all of the equipment of the Oak Lawn
Imaging Center.
(E) In December 1994, the Company refinanced the imaging equipment and
leasehold improvement debt of its Bel Air, Maryland center with a remaining
principal balance of $2,493,683 as of the date of the refinancing. In
conjunction with the refinancing, the Company also financed the cost of
upgrades to its MR and nuclear medicine equipment with an aggregate cost of
$238,614. The Company incurred a prepayment penalty of $15,945 in
conjunction with the refinancing, which was included as a component of
other expense (income), net in the accompanying statement of income for the
year ended March 31, 1995. The note payable obligation, aggregating
$2,748,242 of principal is payable over a seven year term due January 2001,
bears interest at 11.25% and requires fixed monthly payments of $40,000,
including interest, during the first 24 months and $61,465, including
interest, for the remaining term. The note is collateralized by the related
imaging equipment.
(F) In September 1995, in connection debt with the acquisition of Morgan
Medical Holdings, Inc ("Morgan") the Company assumed Morgan's existing
equipment debt obligations, aggregating $4,018,574. These notes bear
interest at rates ranging from 7.36% to 11.5% and require monthly payments
ranging from $623 to $33,335, including interest. The notes are payable
over varying terms with the last note due in September 1999. One of the
notes restricts the Company's ability to pay dividends. The foregoing notes
are collateralized by the respective centers' imaging equipment.
(G) In January 1995, in connection with the acquisition of Golf MRI L.P. and
Diagnostic Imaging Center L.P. the Company consolidated and refinanced the
centers' existing equipment debt obligations,
F-17
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
aggregating $1,823,167, using a five year bank term note bearing interest
at a variable rate equal to the bank's prevailing prime rate plus one
percent (9.25% at June 30, 1996). The note requires monthly installments of
$37,708, including interest, and is due on March 31, 2000. In addition, the
Company assumed $34,450 of notes payable to former limited partners of
Diagnostic Imaging Center which bear interest at a rate of 10%, require
quarterly payments of $8,612 plus interest which were paid in December
1995, and a $125,000 two year note payable to the former general partner,
which does not bear interest. The Company financed $550,000 of the cash
portion of the acquisition price with a bank using a five year term note
bearing interest at a variable rate equal to the bank's prevailing prime
rate plus one percent (9.25% at June 30, 1996). The note requires monthly
installments of $11,721, including interest, and is due on March 31, 2000.
The note agreement requires the Company to meet certain financial ratios as
of March 31 of each year the agreement is in effect. The foregoing bank
notes are collateralized by the center's imaging equipment.
In January 1996, in connection with the acquisition of the assets of
Central Diversey MRI Center, Inc. the Company assumed a $631,784 note
payable bearing interest at 10% due September 1999. The note is
collateralized by cash deposits totaling $120,000 (included in other
assets) and the center's diagnostic equipment and requires monthly
installments of $16,894, including interest.
(H) Included in other debt obligations is $1,960,467, $2,091,274 and $1,312,046
at June 30 and March 31, 1996 and March 31, 1995, respectively, of various
notes payable relating to the purchase of equipment, equipment upgrades and
leasehold improvements. These notes bear interest at rates ranging from
8.9% to 11.8% and require monthly payments ranging from $1,106 to $18,082,
including interest. The notes are payable over varying terms of four and
five years with the last note due September 2000. The notes are primarily
collateralized by the related imaging equipment.
Included in other debt obligations is $571,764, $664,161 and $1,045,733 at
June 30 and March 31, 1996 and March 31, 1995, respectively of various
notes payable relating to the acquisition of the Des Plaines, Oak Lawn and
Libertyville, Illinois imaging centers and a purchase option related to the
general partner interest in MR Associates of Chicago. These notes bear
interest at rates ranging from 7.0% to 9.0%, and have varying terms of two
to five years. The payment
F-18
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
terms are primarily monthly and range from $3,554 to $13,294,
including interest.
As of June 30, 1996, the Company has $5,890,951 outstanding obligations with
certain financial institutions under agreements which include a material adverse
change in financial condition or other similar subjective acceleration clauses.
Aggregate maturities of the Company's notes and mortgage payable for
fiscal years 1997 through 2001 and thereafter are as follows: 1997 -
$4,911,031; 1998 - $4,763,865; 1999 - $3,459,298; 2000 - $1,684,933; 2001 -
$648,838; thereafter $471,713.
9. Shareholders' Equity
AUTHORIZED STOCK
The Board of Directors is authorized to issue, without further action by the
shareholders, 500,000 shares of preferred stock, par value $.05, and to fix and
alter the rights related to such stock. The Company has a Shareholders' Rights
Plan (described below) which may require the issuance of Series A Preferred
Stock, $.05 par value, in connection with the exercise of certain stock purchase
rights. At March 31, 1996, there were no shares of preferred stock issued or
outstanding.
On October 25, 1995 the Board of Directors authorized a common stock repurchase
program whereby the Company can purchase up to $1,000,000 of its outstanding
common stock from time to time in the open market. The shares will be held as
treasury shares for reissuance upon the exercise of employee stock options,
warrants and other convertible securities. The timing of purchases and the
number of shares purchased will depend upon prevailing market prices and other
market conditions. As of June 30, 1996 the Company's cumulative stock purchases,
net of reissuance of 46,529 shares, amounted to 430,797 shares with an
aggregated cost of $1,712,159.
SHAREHOLDERS' RIGHTS PLAN
Under the Shareholders' Rights Plan each outstanding share of the Company's
common stock has attached to it one stock purchase right.
These rights will continue to be represented by and trade with the
F-19
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
9. Shareholders' Equity (continued)
Company's common stock certificates unless and until certain takeover-related
events occur. Following such events, each right will become exercisable to
purchase one one-hundredth of a share of Series A Preferred Stock, par value
$.05, at an exercise price of $15 per one one-hundredth share subject to
adjustment. In the event any person acquires beneficial ownership of 15% or more
of the outstanding common shares, (i) each right will be exercisable, for a
sixty-day period following the announcement of such acquisition, to purchase the
Company's common stock or common stock equivalent having a market value equal to
two times the exercise price and (ii) prior to such exercise the Company's Board
of Directors, may, at its option exchange outstanding rights to shares of common
stock at an exchange ratio of one share for each right. The Shareholders' Rights
Plan further provides that if, after the occurrence of such an acquisition, the
Company is merged into any other corporation or 50% or more of the Company's
assets are sold, each right will be exercisable to purchase common shares of the
acquiring corporation having a market value equal to two times the exercise
price. The rights expire on December 23, 2002, and are subject to redemption by
the Company's Board of Directors at $.01 per right at any time prior to the
first date upon which they become exercisable to purchase common shares.
STOCK OPTIONS AND EMPLOYEE STOCK GRANTS
The Company maintains an Incentive Stock Option and Non-Statutory Option Plan
(the "Plan") for employees of the Company. Under the Plan, established in 1986,
up to 1,000,000 shares of common stock of the Company may be issued upon the
exercise of options to be granted during the ten-year term of the Plan. The
exercise price of options granted is equal to the fair market value of the
Company's common shares on the date of grant. Options with respect to 572,409
shares were outstanding at June 30, 1996, at an exercise price ranging from
$2.25 to $6.38 per share for terms of five and ten years. As of June 30, 1996,
options with respect to 218,475 shares were exercisable. During the quarter
ended June 30, 1996, no options were exercised.
In September 1995, the Company granted 10,000 unregistered shares of common
stock to each of its two officers. The shares vest ratably on a quarterly basis
over two years from the date of grant.
F-20
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
9. Shareholders' Equity (continued)
STOCK PURCHASE WARRANTS
As of June 30, 1996, the Company had granted warrants to purchase its common
stock with the following terms:
Number
of Exercise Expiration
shares price date
- ----------- -------- ------------------
50,000 $7.00 September 26, 1996
50,000 $8.00 September 26, 1996
50,000 $3.00 August 2, 1996
50,000 $3.50 August 2, 1996
100,000 $8.00 February 6, 1997
7,000 $5.00 March 30, 1997
75,000 $3.00 November 5, 1998
35,000 $3.00 January 20, 1999
25,000 $3.09 February 23, 1999
100,000 $3.92 May 18, 1999
25,000 $5.00 September 30, 1999
190,000 $6.38 December 18, 2001
- -----------
757,000
===========
In October 1994, the Company issued warrants to purchase 25,000 shares of the
Company's common stock at an exercise price of $5.00 per share to a radiology
group providing services to one of its centers. These warrants have a term of
five years and are exercisable from the date of grant.
In May 1994, the Company entered into an agreement with Ehrenkrantz King
Nussbaum, Inc. ("EKN") under which EKN will provide financial consulting
services to the Company for a term of two years. Pursuant to this agreement, EKN
received warrants to purchase 100,000 shares of the Company's common stock;
50,000 warrants with an exercise price of $3.00 per share and 50,000 warrants
with an exercise price of $3.50 per share. These warrants had an initial term of
two years and are exercisable from the date of grant. During May 1996, the
Company extended the term of the EKN financial consulting agreement and warrants
for a period of three months to August 2, 1996.
In January 1994, the Company entered into a three year administrative services
agreement with Radiology Business Management Inc. ("RBM") to provide office and
clerical services to the Oak Lawn Imaging Center, pursuant to which the Company
issued RBM warrants to purchase 35,000 shares of the Company's common stock at
an exercise price of $3.00 per share. These warrants have a term of five years
and are exercisable from the date of grant.
F-21
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
9. Shareholders' Equity (continued)
In connection with the Company's fiscal 1992 stock purchase warrant redemption
offer, the Company issued Strategic Growth International warrants to purchase
100,000 shares of the Company's common stock; 50,000 warrants with an exercise
price of $7.00 per share and 50,000 warrants with an exercise price of $8.00 per
share. These warrants have a term of five years and are exercisable from the
date of grant. In March 1992, the Company issued warrants to purchase 7,000
shares of common stock at an exercise price of $5.00 per share in connection
with the execution of a ground lease for one of its facilities. The warrants
have a term of five years and are exercisable from the date of grant.
In February 1992, the Company entered into an agreement with Seaboard
Securities, Inc. ("Seaboard") under which Seaboard will provide financial
consulting services for a term of three years. Pursuant to the agreement,
Seaboard received warrants to acquire 100,000 shares of the Company's common
stock at $8.00 per share. The warrants have a term of five years and vest as
services are provided. A member of the Company's board of directors is an
officer of Seaboard.
On December 19, 1991, the non-employee Directors of the Company were each
granted warrants to purchase 20,000 shares (an aggregate of 140,000 shares) of
common stock at $6.38 per share. These warrants have a term of ten years and
are exercisable from date of the grant.
On November 6, 1990, the Board of Directors granted an officer and director of
the Company warrants to acquire 75,000 shares of common stock at $3.00 per
share. The warrants vested over a three year period from the date of the grant
and have a term of eight years. During the year ended March 31, 1992, the
Company granted the same officer and director warrants to acquire 50,000 shares
of the Company's common stock with an exercise price of $6.38 per share. These
warrants are exercisable from date of grant and have a term of ten years.
In May 1989, the Company issued warrants to purchase 100,000 shares of common
stock at an exercise price of $3.92 per share to a non-employee director of the
Company. These warrants have a term of ten years and are exercisable from the
date of grant.
In February 1989, the Company issued warrants to purchase 25,000 shares of
common stock at an exercise price of $3.09 per share to a professional
corporation providing legal services to the Company. These warrants have a term
of ten years and are exercisable from the date of grant.
F-22
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
10. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income Taxes.",
which requires an asset and liability approach. The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial reporting
basis and tax basis of the Company's assets and liabilities.
As of March 31, 1996, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 2000, of
approximately $6,389,000, of which approximately $3,390,000 represent net
operating losses of acquired companies. Under Section 382 of the Internal
Revenue Code, the Company's acquired operating losses are subject to an annual
utilization limitation of approximately $520,000.
Any unutilized annual limitation may be carried forward to available future
carryforward years.
Future changes in the ownership of the Company could result in additional
limitations on the utilization of its net operating loss carryovers. The state
tax jurisdictions in which the Company operates do not permit the carryback of
net operating losses to prior years in which taxes were paid. Such state tax
net operating losses were utilized to reduce the Company's fiscal 1996, 1995 and
1994 state income tax liability. For Federal income tax purposes, the Company
also has investment and alternative minimum tax credits of $386,000 and $81,000,
respectively, of which approximately $74,000 represents investment tax credits
of an acquired company. The Company's investment tax credits begin to expire in
the year 1999 and are accounted for under the flow through method. Alternative
minimum tax credits do not expire.
F-23
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
10. Income Taxes (continued)
Significant components, tax effected, of the Company's deferred tax assets and
(liabilities) at March 31, 1996 and 1995 are as follows (in thousands):
March 31, March 31, June 30,
1995 1996 1996
---------- ---------- ---------
Deferred tax liabilities:
Fixed assets $(1,123) $(1,794) $(1,780)
Purchase option (273) (249) (244)
Cash to accrual basis -- (784) (784)
------- ------- -------
Deferred tax liabilities (1,396) (2,827) (2,808)
------- ------- -------
Deferred tax assets:
Net operating losses 1,527 2,332 2,116
Excess financial reporting
partnership losses 466 -- --
Tax credits 491 466 466
Accrued liabilities -- 82 80
Other 11 56 56
------- ------- -------
Deferred tax assets 2,495 2,936 2,718
Valuation allowance -- -- --
------- ------- -------
Net deferred tax asset $ 1,099 $ 109 $ (90)
======= ======= =======
The net decrease in the Company's valuation allowance on deferred tax assets
during the year ended March 31, 1995 totaled $1,304,000.
Components of the provision for (benefit from) income taxes are as follows:
March 31, March 31, March 31, June 30,
1994 1995 1996 1996
------------ ------------ --------- --------
Current:
Federal $ 12,000 $ 25,000 $ 10,000 $ 25,000
State 96,000 44,284 29,421 40,000
----------- ----------- -------- --------
108,000 69,284 39,421 65,000
----------- ----------- -------- --------
Deferred:
Federal --- (1,142,000) 847,000 184,000
State --- 43,000 70,000 15,000
----------- ----------- -------- --------
--- (1,099,000) 917,000 199,000
----------- ----------- -------- --------
$ 108,000 $(1,029,716) $ 956,421 $264,000
=========== =========== ======== ========
F-24
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
10. Income Taxes (continued)
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:
Years Ended March 31, June 30,
1994 1995 1996 1996
---- ---- ---- ----
Expected Federal income tax rate 34.0% 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 5.4% 6.2% 3.9% 3.9%
Net operating loss carryforwards (33.2%) (32.2%)
Recognition of net deferred tax asset (82.4%)
Other 1.1% 1.1% (2.9%) (6.9%)
------ ------ ---- ----
Effective income tax rate 7.3% (73.3%) 35.0% 31.0%
====== ====== ===== =====
11. Commitments and Contingencies
As of June 30, 1996, the Company has entered into noncancelable leases for
eighteen offices that have imaging systems in current operation as well as
operating leases for magnetic resonance imaging equipment installed in its
Philadelphia, Pennsylvania and Seabrook, Maryland imaging centers and computed
axial tomography equipment installed in the Seabrook, Maryland imaging center.
Ten of the offices are subleased to affiliated Physicians. The office leases are
generally for terms of five and ten years and include rent escalation clauses
generally tied to the consumer price index and contain provisions for additional
terms at the option of the tenant. By reason of the sublease arrangements, if
the respective Physicians should be unable to pay the rental on the site, the
Company would be contingently liable. As of June 30, 1996, the Company has
subleased the operating sites to the Physicians for the base rental as
stipulated in the original lease. For the quarter ended June 30, 1996 and the
years ended March 31, 1996, 1995 and 1994 the related sublease income has been
offset by the lease rent expense.
The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals. As of March 31, 1996, the aggregate future minimum lease
payments and sublease rentals are as follows:
Original
Year ended March 31, Leases Subleases Net
- ---------------------- ---------- ---------- ----------
1997 $2,146,015 $ 848,226 $1,297,789
1998 1,706,451 649,482 1,056,969
1999 1,118,892 529,929 588,963
2000 689,964 507,098 182,866
2001 459,330 322,617 136,713
thereafter 315,292 99,795 215,497
- ---------------------- ---------- ---------- ----------
$6,435,944 $2,957,147 $3,478,797
========== ========== ==========
F-25
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
11. Commitments and Contingencies (continued)
Effective May 31, 1993, the Company terminated its leases for corporate
headquarters in Morristown, New Jersey. The Company entered into a lease
agreement for new executive and administrative office space under a 66 month
lease which commenced on May 19, 1993. The base agreement contains two five
year renewal options. Corporate rent expense for the quarter ended June 30,
1996 and the years ended March 31, 1996, 1995 and 1994 amounted to $30,231,
$116,318, $114,035, and $123,061, respectively.
During August, 1993, the Board of Directors authorized the Company to guarantee
personal loans made by a bank to an officer of the Company for the purpose of
purchasing the Company's common stock in the open market. The guarantee was
provided to the bank in the form of certificates of deposit aggregating $75,000.
The shares of common stock purchased by the officer are pledged to the Company
as collateral for the continuing guarantee of the related loan.
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations, cash flows or financial condition.
12. Related Parties
During the quarter ended June 30, 1996 and the years ended March 31, 1996, 1995
and 1994, the Company, in accordance with the related partnership agreements,
allocated certain corporate overhead costs to the limited partnerships which
resulted in $1,845, $7,230, $7,865 and $19,982, respectively, of such costs
being attributed to the minority interests.
As of March 31, 1996, the Company has notes receivable from two former officers
of Morgan Medical Holdings, Inc. in the amounts of $315,625 and $35,366,
including accrued interest thereon, which are included as a component of other
current assets and other assets in the Company's March 31, 1996 balance sheet.
The notes bear interest at prime and are payable in eight equal semi-annual
principal installments, plus interest, commencing March 15, 1996. The notes are
collateralized by a pledge of the Company's common stock which is owned by the
individuals, one of whom now is an employee of the Company. Subsequent to March
31, 1996, the loan for $315,625 plus interest was paid in full.
The Company has a consulting agreement with a member of the Board of Directors.
The consulting agreement has a one year term expiring on December 31, 1996, and
provides compensation of $77,000 per annum.
F-26
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
13. Imaging Center Matters
During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the center's
existing magnetic resonance imaging equipment, which was installed in 1984. The
new system was installed during June 1995 and became operational in early July
1995. The project was completed for an aggregate cost of approximately $910,000,
which includes the cost of related leasehold improvements, diagnostic imaging
equipment and related upgrades. The Company financed the equipment and related
leasehold improvements in the form of a five year note payable.
The Company's Greenbelt, Maryland magnetic resonance imaging center facility
lease expired on January 31, 1995. The Company constructed a new center offering
both magnetic resonance and CT imaging which opened April 1995. The Company
financed the cost of equipment, totaling $918,750, using an operating lease and
financed the $672,546 cost of related leasehold improvements using a term note.
The Greenbelt lease required the Company to repair damage caused by the removal
of equipment at that location. In lieu of performing such repairs, the Company
paid $51,600 to obtain the landlord's full release from such obligations. This
amount is reflected in the fiscal 1995 statement of income as a component of
other income, net.
The Company's Austin, Texas center was closed during December 1995. The center
operated pursuant to a limited partnership agreement (the "Austin Partnership")
which was scheduled to expire on January 31, 1996, but was extended by the
governing board of the partnership for the purpose of liquidating and
distributing the remaining assets of the Austin Partnership. It is anticipated
that such liquidation will be completed during fiscal 1997 and will not have a
material impact on the results of operations or liquidity of the Company.
On May 15, 1996, effective January 1, 1996, the Company acquired the remaining
10% ownership interest in Oak Lawn Imaging Center which increased the Company's
ownership percentage to 100%. As consideration for the acquisition, the Company
issued 35,000 unregistered shares of its common stock.
F-27
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of unaudited quarterly consolidated financial
results for the years ended March 31:
(000's omitted, except for per share
amounts)
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------- ------- ------- -------
Revenue, net $4,771 $5,289 $6,754 $7,020
Operating income 771 1,068 1,378 1,544
Net income 238 355 554 630
Per fully diluted
common share (1):
Net income .05 .07 .09 .10
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr(2)
------- ------- ------- -------
Revenue, net $4,437 $4,299 $4,376 $4,875
Operating income 1,082 920 865 227
Net income 622 501 382 929
Per fully diluted
common share (1):
Net income .13 .10 .08 .18
(1) Quarterly income per fully diluted common share does not equal the
annual amount due to changes in the common and equivalent shares
outstanding.
(2) The Company's fourth quarter consolidated financial results include (i)
a non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 15) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note
10).
Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.
F-28
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
15. Acquisitions
Effective January 1, 1996, the Company completed its acquisition of
substantially all of the operating assets of Central Diversey MRI Center, Inc.
("CD MRI") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially
all of CD MRI's operating assets, which consist primarily of magnetic resonance
imaging equipment, related leasehold improvements, office equipment and deposits
on the MRI related equipment aggregating $120,000 which are pledged as
collateral therefor. In addition, NMR assumed certain trade accounts payable of
Central Diversey aggregating $90,000 and MRI related equipment debt, subject to
existing collateral, totaling approximately $632,000 of outstanding principal as
of January 1, 1996. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at the fair value
at the date of acquisition. The Company recorded $429,333 of excess cost over
fair value of the assets which is being amortized over twenty years on a
straight line basis.
On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, providing for the acquisition of Morgan Medical Holdings,
Inc. ("Morgan"). A definitive merger agreement was executed on April 11, 1995.
The transaction was approved by the shareholders of Morgan and the Company on
September 14, 1995 and became effective September 15, 1995. Morgan provides
diagnostic imaging equipment, facilities and management services to physicians
through four outpatient centers located in the Florida cities of Cape Coral,
Naples, Sarasota and Titusville. Pursuant to the terms of the acquisition,
Morgan shareholders received 1,195,848 shares of the Company's common stock in
the transaction. Under the terms of the merger agreement, the Company exercises
control over the voting rights of Morgan's largest shareholder for a period of
three years. The Company accounted for the transaction as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their fair
values at the date of acquisition. In conjunction with the transaction, the
Company recorded $6,356,132 of costs in excess of fair value which will be
amortized over twenty years on a straight line basis.
Effective January 1, 1995, the Company acquired, approximately 75% of the
general and limited partnership interests of Diagnostic Imaging Center, L.P.
("DIC") and Golf MRI Center, L.P. ("Golf MRI")(collectively the "Centers").
These limited partnerships collectively operate a multi-modality imaging center
located in Des Plaines, Illinois. As
F-29
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
15. Acquisitions (continued)
consideration for the acquisition, the Company paid $1,050,000 in cash and
issued 125,000 unregistered shares of the common stock of the Company and
assigned a fair value of $500,000. In conjunction with the acquisition, the
Company entered into agreements with the Center's radiologist to provide
radiologic and other administrative services to the Centers for three year
terms. In addition, the Company consolidated and refinanced the Centers'
existing debt obligations, aggregating $1,823,167. The acquisitions have been
accounted for as purchases and, accordingly, the acquired assets and liabilities
have been recorded at their fair value at the date of acquisition. The excess
of the cost over the fair value of the net assets acquired of $2,114,693 is
being amortized over twenty years on a straight line basis.
Effective January 1, 1995, the Company acquired the operations of a magnetic
resonance imaging center located in Libertyville, Illinois ("Libertyville"). As
consideration for the acquisition, the Company acquired certain of the seller's
assets and assumed certain liabilities. In addition, the Company agreed to pay
deferred consideration of up to $300,000 which was conditioned upon the center
achieving certain levels of revenue during calendar 1995 which were not attained
resulting in no additional consideration being payable. The acquisition has been
accounted for as a purchase and, accordingly, the acquired assets and
liabilities have been recorded at their fair value at the date of acquisition.
The excess of the cost over the fair value of the net assets acquired was not
material.
The Company's consolidated financial statements for the year ended March 31,
1996 include the results of operations of Morgan and CD MRI from the September
15, 1995 and January 1, 1996 effective dates of such transactions, respectively.
The Company's consolidated financial statements for the year ended March 31,
1995, do not include the results of operations of Morgan or CD MRI and include
the results of operations of Golf MRI, DIC and Libertyville ("Historical
Acquisitions") from the January 1, 1995 effective date of such transactions. The
following summarizes the unaudited proforma results of operations for the years
ended March 31, 1996 and 1995, assuming all of the foregoing acquisitions had
occurred on April 1, 1995 and 1994 (in thousands, except per share data):
F-30
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
15. Acquisitions (continued)
Fiscal 1996
------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------
Revenue, net $ 21,844 $ 26,435 $ 27,300
Operating income $ 3,903 $ 5,437 $ 5,773
Income before
income taxes $ 2,080 $ 3,189 $ 3,452
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 1,342 $ 2,033 $ 2,257
Fully diluted net
income per share $ .21 $ .31 $ .35
Fiscal 1995 (1)
--------------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- ------------
Revenue, net $20,707 $25,962 $26,550
Operating income $ 3,637 $ 5,336 $ 5,647
Income before
income taxes $ 1,673 $ 2,934 $ 3,086
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 2,716 $ 3,806 $ 3,936
Fully diluted net
income per share $ .51 $ .58 $ .60
(1) The Company's fiscal 1995 pro forma financial results include (i) a non-
recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 16) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note
10).
F-31
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
16. Asset Write-down
The Company's results of operations for the fourth quarter of fiscal 1995
includes a charge to expense of approximately $560,000 representing the
remaining net book value of the diagnostic imaging equipment of the Company's
Elgin, Illinois imaging center which are no longer believed to be recoverable
from the center's future operations. The center has operated at a loss since it
opened in May 1992. The impact of this charge on fiscal 1995 and fourth quarter
net income, net of the related tax benefit, was approximately ($338,000) or
($.06) per share. The Company intends to utilize the facility to perform
certain regional administrative functions and to perform limited diagnostic
imaging procedures at reduced staffing levels in the future.
17. Fair Value of Financial Instruments
The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
March 31, 1996
--------------------------
Carrying
Amount Fair Value
-------------- -----------
Assets:
Cash and cash equivalents $ 3,782,315 $ 3,782,315
Short-term investments 663,660 663,660
Long-term investments 192,000 192,000
Due from affiliated physician
associations and patient
receivables, net 14,182,008 14,182,008
Liabilities:
Notes payable $15,939,678 15,977,899
Capital lease obligations 1,765,440 1,765,541
Convertible debentures 1,975,752 1,849,578
The carrying amounts of cash and cash equivalents, short-term investments, long-
term investments and due from affiliated physician associations and patient
receivables, net are a reasonable estimate of their fair value. The fair value
of the Company's notes payable, capital lease obligations and convertible
debentures are based upon a discounted cash flow calculation utilizing rates
under which similar borrowing arrangements can be entered into.
F-32
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
18. Subsequent Event
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
the subject to the merger conditions set forth below. Medical Resources provides
diagnostic imaging equipment, facilities and management services to physicians
through nineteen outpatient centers located in New York, New Jersey and Florida.
Pursuant to the terms of the acquisition, 0.6875 shares of Medical Resources
common stock would be issued for each outstanding share of NMR. The merger is
subject to certain conditions including shareholder and regulatory approval and
certain third party consents. Senior management of the combined company would be
composed of the current executives of Medical Resources with NMR's current
executive officers, Joseph G. Dasti and John P. O'Malley III serving as
consultants to the combined company. The closing of the merger is anticipated to
occur in the third quarter of fiscal 1997, although there can be no assurance
that the transactions will be completed as contemplated or that it will occur
when anticipated.
In June 1996, the Company entered into a line of credit agreement with a lender
for an amount up to $4,000,000. Borrowing under the line of credit will bear
interest at a rate of one and one-half percent over the lender's prime rate and
will be collateralized by the Company's receivables.
F-33
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution *
-----------------------------------------------------
Securities and Exchange Commission registration fee $25,098
Accounting fees and expenses 10,000
Legal fees and expenses 12,000
Blue Sky fees and expenses 2,000
Miscellaneous 2,000
Total $ 51,098
=======
* All amounts are estimates other than the Commission's registration
fee. No portion of these expenses will be borne by the Selling
Stockholders.
Item 15. Indemnification of Directors and Officers
---------------------------------------------------
Section 145 of the General Corporation Law of the State of
Delaware ("DGCL") empowers the Company to, and the Certificate of
Incorporation of the Company provides that it shall, indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by any reason
of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; except that, in the case of an action or suit by or
in the right of the Company, no indemnification may be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of
his duty to the Company unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine that such person is fairly and reasonably entitled to indemnity
for such expenses which the Court of Chancery or such other court shall
deem proper.
II-1
<PAGE>
The Company's Certificate of Incorporation provides, pursuant
to Section 145 of the DGCL, for indemnification of officers, directors,
employees and agents of the Company and persons serving at the request of
the Company in such capacities within other business organizations
against certain losses, costs, liabilities and expenses incurred by
reason of their position with the Company or such other business
organizations.
Article Ninth of the Company's Certificate of Incorporation
limits a director's liability in accordance with Section 102(b) of the
DGCL. Specifically, Article Ninth provides that no director of the
Company shall be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit. Article
Ninth also provides that if the DGCL is further amended to authorize
corporate action further eliminating or limiting the personal liability
of directors, the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the DGCL.
In May 1997, the Company entered into an indemnification
agreement (the "Agreement" and collectively, the "Agreements") with
each member of the Company's Board of Directors (each, a "Member"). The
Agreements provide that each Member is indemnified to the fullest extent
permitted by Delaware law. In connection with any litigation for which a
Member is entitled to indemnification, the Agreement provides that the
Member may request that the Company make advances of fees and expenses
prior to the final disposition of such action as long as the Member signs
an undertaking to repay such amounts if it is ultimately determined that
the Member is not entitled to indemnification. If the Company does
not pay in full a claim for indemnification made by a Member, the Member
may recover all expenses (including attorney's fees and expenses) of
bringing such action, as well as the amount of such claim. In any event,
the Company is still required to make advance interim payments to the
Member prior to the final disposition of any such controversy. Pursuant
to the Agreements, each Member shall have the right to reasonably approve
the legal counsel selected by the Company to defend any action to which
the Member is involved and, in certain cases, to have separate counsel
represent the Member at the Company's expense.
ITEM 16. EXHIBITS.
-------------------
EXHIBIT
NUMBER DESCRIPTION
------ -----------------------------------
4.1 Company's Certificate of Incorporation, as amended to date.***
4.2 Certificate of Designations, Preferences and Rights of the
Company's Series C Convertible Preferred Stock.*
5.1 Opinion of Werbel & Carnelutti, a Professional Corporation/1/
23.1 Consent of Werbel & Carnelutti (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Dixon, Odom & Co., LLP.
23.4 Consent of Kempisty & Company, Certified Public Accountants,
P.C.
23.5 Consent of Coopers & Lybrand L.L.P.
23.6 Consent of Coopers & Lybrand, L.L.P.
23.7 Consent of Mark J. Burger, P.A.
23.8 Consent of Mark J. Burger, P.A.
23.9 Consent of Ellin & Tucker
23.10 Consent of Ellin & Tucker
23.11 Consent of Baca Pieczkolon & Associates
24.1 Power of Attorney (Reference is made to the signature page of
the Registration Statement).
99.1 Important Factors Regarding Forward-Looking Statements./1/
II-2
<PAGE>
99.2 Asset Purchase Agreement, dated as of January 16, 1997, between
Melbourne Neurologic, P.A., Thomas G. Hoffman, Scott L. Gold,
Eugene M. Shepherd, Melbourne Resources, Inc. and the
Company./1/
99.3 Asset Purchase Agreement, dated as of January 27, 1997, among
Dedicated Medical Imaging, San Clemente, Inc., Long Beach
Radiology Center, Ltd., Mr. Joseph Payne, San Clemente
Resources, Inc., Long Beach Resources, Inc. and the Company./1/
99.4 Asset Purchase Agreement, dated as of January 31, 1997, by and
among The MRI Center of Jacksonville Inc., Mr. Francis D.
Hussey, Jacksonville Resources, Inc. and the Company./1/
99.5 Stock Purchase Agreement, dated as of February 27, 1997, by and
among Advanced Diagnostic Imaging, Inc., Drew M. Netter,
William Lehn and the Company./1/
99.6 Asset Purchase Agreement, dated as of March 10, 1997, between
MRI of Palm Beach, Inc., The Magnet of Palm Beach, Ltd., West
Palm Beach Resources, Inc. and the Company./1/
99.7 Asset Purchase Agreement, dated as of March 14, 1997, between
Grove Diagnostic Imaging Center Inc., J. Kenneth Luke, J.M.
Venesky, Rancho Cucamonga Resources, Inc. and the Company./1/
99.8 Asset Purchase Agreement, dated as of May 7, 1997, among
Accessible MRI of Baltimore County, Inc., Accessible MRI of
Montgomery County, Inc., Ross H. Taber, Phyllis S. Taber,
Accessible Resources, Inc., and the Company./1/
99.9 Asset Purchase Agreement, dated as of May 9, 1997, between
Capstone Management Group, Inc., Albany MRI Management, Inc.,
Bensalem MRI Management, Inc., Syracuse MRI Management, Inc.,
James M. Domesek, M.D., Robert D. Baca, Lynne A. Fox, Robert
Maskulyak, Darryl Johnson, John Wisdo, Christine Rawski, MRI
Capstone Resources, Inc. and the Company.**
99.10 Asset Purchase Agreement, dated as of March 7, 1997 by and
among the Company, ATI Resources, Inc., ATI Centers, Inc.,
Americare Health Services Inc., John A. Bennet, M.D. and
Nancy D. Rocco./1/
99.11 Securities Purchase Agreement, dated as of July 21, 1997,
between the Company and RGC International Investors, LDC.*
99.12 Registration Rights Agreement, dated as of July 21, 1997,
between the Company and RGC International Investors, LDC.*
- ---------------------------
/1/ Previously filed.
* Incorporated by reference from the Company's Current Report on Form 8-K
dated July 21, 1997 filed with the Commission on July 24, 1997.
** Incorporated by reference from the Company's Current Report on Form 8-K
dated May 30, 1997 filed with the Commission on June 16, 1997.
*** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-48848).
II-3
<PAGE>
ITEM 17. UNDERTAKING.
----------------------
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities
Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in the Registration Statement; provided,
however, that the undertakings set forth in paragraphs (i)
and (ii) above do not apply if the information required to
be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") that are incorporated by reference in this
Registration Statement.
2. That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
---- ----
3. To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain
unsold at the termination of the offering.
4. That, for the purpose of determining any liability under
the Securities Act each filing of the registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the
II-4
<PAGE>
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
---- ----
offering thereof.
Insofar as indemnifications for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
15 above, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer, or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act, and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing Form S-3 and has duly
caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of
Hackensack, State of New Jersey on January 6, 1998.
MEDICAL RESOURCES, INC.
By: /s/ Lawrence Ramaekers
----------------------------------
Lawrence Ramaekers
Acting Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on January 6, 1998.
Signature Capacity in Which Signed
--------- ------------------------
/s/ Gary N. Siegler Chairman of the
--------------------- Board of Directors
Gary N. Siegler
<PAGE>
/s/ Neil H. Koffler Director
---------------------
Neil H. Koffler
/s/ Stephen M. Davis Director
---------------------
Stephen M. Davis
/s/ Gary Fuhrman Director
---------------------
Gary Fuhrman
/s/ John Josephson Director
---------------------
John Josephson
Director
---------------------
Peter J. Powers
Director
---------------------
D. Gordon Strickland
/s/ Lawrence Ramaekers Acting Chief Executive Officer (Principal
---------------------- Executive Officer)
Lawrence Ramaekers
/s/ Dennis T. Currier Chief Financial Officer
------------------------ (Principal Financial/Accounting
Dennis T. Currier Officer)
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3 No. 333-24865) of
Medical Resources, Inc. for the registration of 8,458,607 shares of its
common stock and to the incorporation by reference therein of our report
dated February 29, 1996, with respect to the consolidated financial
statements and schedule of Medical Resources, Inc. included in its Annual
Report (Form 10-K/A) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Tampa, Florida
January 5, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the references to our firm under the caption "Experts" in
the Amendment to the Registration Statement (Form S-3) and related
Prospectus of Medical Resources, Inc. for the registration of 8,458,607
shares of its common stock and to the incorporation by reference therein
of our reports dated February 21, 1995 with respect to the financial
statements of Kik Kin, L.P. for the years ended December 31, 1994 and
January 1, 1994.
/s/ DIXON, ODOM & CO., L.L.P.
Greensboro, North Carolina
December 12, 1997
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 9, 1996, which appears
in the annual report on Form 10-K/A of Medical Resources, Inc. for the
year ended December 31, 1996, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
/s/ KEMPISTY & COMPANY
Certified Public Accountants, PC.
New York, New York
December 12, 1997
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Medical Resources, Inc. on Form S-3 of our report dated
March 28, 1997, on our audit of the consolidated financial statements and
financial statement schedule of Medical Resources, Inc. and Subsidiaries
(the "Company") as of December 31, 1996 and for the year ended December
31, 1996, which report is included in the Company's Annual Report on
Form 10-K/A. We also consent to the reference to our firm under the
caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
January 5, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of Medical Resources,
Inc. on Form S-3 of our report dated June 21, 1996, on our audit of the
consolidated financial statements of NMR of America, Inc. and Subsidiaries
("NMR") as of March 31, 1996 and 1995 and for each of the three years in the
period ended March 31, 1996, which report is included in NMR's Annual Report on
Form 10-KSB/A. We also consent to the reference to our firm under the caption
"Experts".
/s/ Coopers & Lybrand
Parsippany, New Jersey
January 5, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to us under the heading "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Medical Resources,
Inc. and to the incorporation by reference therein of our report dated July 11,
1997, with respect to the financial statements of South Brevard Imaging, a
division of Melbourne Neurologic, P.A. at December 31, 1996, and for the year
then ended, included in Medical Resources, Inc.'s Amendment No. 2 of its Current
Report on Form 8-K/A filed with the Securities and Exchange Commission.
/s/ Mark J. Burger, P.A.
Mark J. Burger, P.A.
West Palm Beach, FL
December 10, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to us under the heading "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Medical Resources,
Inc. and to the incorporation by reference therein of our report dated July 25,
1997, with respect to the financial statements of The Magnet of Palm Beach,
Ltd., at December 31, 1996, and for the year then ended, included in Medical
Resources, Inc.'s Amendment No. 2 of its Current Report on Form 8-K/A filed with
the Securities and Exchange Commission.
/s/ Mark J. Burger, P.A.
Mark J. Burger, P.A.
West Palm Beach, FL
December 10, 1997
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Medical Resources Inc. (The Company) on Form S-3 of our report dated August 6,
1997, on our audit of the financial statements of Accessible MRI of Montgomery
County, Inc. as of September 30, 1996 and for the year ended September 30, 1996,
which report is included in the Company's Current Report on Form 8-K/A. We also
consent to the reference to our firm under the caption "Experts".
/s/ ELLIN & TUCKER, CHARTERED
ELLIN & TUCKER, CHARTERED
Certified Public Accountants
Baltimore, Maryland
December 12, 1997
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Medical Resources Inc. (The Company) on Form S-3 of our report dated August 6,
1997, on our audit of the financial statements of Accessible MRI of Baltimore
County, Inc. as of September 30, 1996 and for the year ended September 30, 1996,
which report is included in the Company's Current Report on Form 8-K/A. We also
consent to the reference to our firm under the caption "Experts".
/s/ ELLIN & TUCKER, CHARTERED
ELLIN & TUCKER, CHARTERED
Certified Public Accountants
Baltimore, Maryland
December 12, 1997
<PAGE>
Exhibit 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Medical Resources, Inc. on Form S-3 of our report dated August 1, 1997, on our
audit of the financial statements of Capstone Management Group, Inc. as of
December 31, 1996 and for the year ended December 31, 1996, which report is
included in Medical Resources, Inc. Current Report on Form 8-K/A. We also
consent to the reference to our firm under the caption "Experts".
/s/ Baca Pieczkolon & Associates
BACA PIECZKOLON & ASSOCIATES
Trevose, Pennsylvania
December 12, 1997
