<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-1
(Amendment No. 2)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE IMAGING CENTER, INC.
(Name of small business issuer in its charter)
Maryland 8011 52-2167391
----------------------------- ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
715 Williams Street
P. O. Box 1705
Cumberland, MD 21501-1705
Telephone: 301-759-3410
Telecopier: 301 759-3043
(Address and telephone number of principal executive offices)
715 Williams Street
Cumberland, MD 21501-1705
Please send copies of any communications to:
Gregory M. Burgee, Esq.
Miles & Stockbridge P.C.
Attorneys at Law
30 West Patrick Street
Frederick, Maryland 21701-6903
(Address of principal place of business or intended principal place of business)
F. Daniel Jackson, M.D., P.A.
715 Williams Street
Cumberland, MD 21501-1705
301-759-3410
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b)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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)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, check
the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of each class of Dollar Amount to Proposed maximum Proposed maximum Amount of
securities to be be registered offering price aggregate offering registration fee
registered per unit price
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<S> <C> <C> <C> <C>
Common Stock, $2,000,000 $2.00 $2,000,000 (1) $556.00
Class B Non-Voting
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</TABLE>
(1) Before deducting offering expenses estimated to be $178,340 in the
aggregate, comprised of the following: Securities and Exchange Commission
fees($556), State Divisions of Securities fees ($2,285), printing fees
($15,000), legal and accounting fees ($160,000), and escrow agent fees($500). If
all of the Shares being offered are not sold, the proceeds to the Company will
be reduced accordingly.
_________________________________________________________________
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 of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Part I. Narrative Information Required in Prospectus.
Disclosure alternative used (check one): Alternative 1 ____ ; Alternative 2
X
-----
All of the information required by Items 1 through 6 is included in the attached
Prospectus.
Part F/S--Financial Information Required in Prospectus.
Included in the attached Prospectus.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. We may+
+ not sell these securities until the registration statement filed with the +
+ Securities and Exchange Commission is effective. This prospectus is not an +
+ offer to sell these securities and it is not soliciting an offer to buy these+
+ securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
The Imaging Center, Inc.
715 Williams Street
Cumberland, Maryland 21501-1705
Telephone: 301-759-3410
Maximum of 1,000,000 Shares
Class B Non-Voting Common Stock
$2.00 per share
Information about this offering:
We are selling the shares through our officers as a direct participation
offering.
There is no public market for the shares.
The shares may be purchased in minimum lots of 100 and maximum lots of 1,000
shares.
This offering will commence upon the date of this prospectus and will continue
until ___________ 31, 2000. We may terminate this offering earlier.
This offering is contingent upon sale of at least 200,000 shares.
Until we sell the minimum number of shares, all funds tendered by prospective
investors will be deposited and held in a non-interest bearing escrow account.
If we terminate this offering without selling the minimum number of shares,
investor funds tendered will be returned without accrued interest or the
deduction of other fees.
<TABLE>
<CAPTION>
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Pricing Information
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Proceeds to Us
Number of Underwriting Price to (before deducting costs
Shares Sold Discounts Public and expenses)
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<S> <C> <C> <C> <C>
Per Share..................... 1 $0.00 $2.00 $ 2.00
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Minimum Offering.............. 200,000 $0.00 $2.00 $ 400,000
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Maximum Offering.............. 1,000,000 $0.00 $2.00 $2,000,000
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</TABLE>
_________________________________________________
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
_________________________________________________
______________, 2000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
SUMMARY........................................................................................................................ 1
Who We Are.................................................................................................................... 1
Description of Shares We Are Offering......................................................................................... 1
How We Expect to Use the Proceeds of this Offering............................................................................ 1
RISK FACTORS................................................................................................................... 1
Our Success Depends Upon Referrals from Dr. Jackson's Practice Group and Other Referral Sources.............................. 1
Our Ability to Generate Revenues Depends Upon Our Ability to Obtain and Retain Contracts with HMOs and
Other Healthcare Providers.................................................................................................... 2
Our Business is Heavily Regulated and This Regulation Could Affect Our Ability to Implement Our Business
Strategy and Our Profitability................................................................................................ 2
Upon Completion of This Offering, Our Ratio of Debt to Stockholder's Equity Will Be Significant............................... 2
Professional Liability Is an Inherent Risk of Our Business; Our Ability to Obtain Liability Insurance at Reasonable
Cost Affects Our Ability to Manage This Risk.................................................................................. 3
Dr. Jackson Owns or Controls All Voting Shares and Thereby Controls the Election of Directors and All
Decisions Regarding Our Operations and Facilities............................................................................. 3
There Is No Prior Market for the Shares....................................................................................... 3
The Price of the Offered Shares Bears No Relationship to Generally Accepted Valuation Criteria................................ 3
The Number of Shares We Are Offering and Future Price and Trading Levels May Make Resale of the Shares More
Difficult..................................................................................................................... 3
DILUTION....................................................................................................................... 4
PLAN OF DISTRIBUTION........................................................................................................... 5
USE OF PROCEEDS OF OFFERING.................................................................................................... 6
Sources and Uses of Proceeds of Offering....................................................................................... 6
Costs and Expenses of Offering................................................................................................. 6
THE IMAGING CENTER, INC........................................................................................................ 7
General....................................................................................................................... 7
Capitalization................................................................................................................ 7
Financial Statements.......................................................................................................... 8
Limitations on Liability of Officers and Directors............................................................................ 8
Investor Suitability.......................................................................................................... 9
Dividend Policy............................................................................................................... 9
BUSINESS....................................................................................................................... 9
General....................................................................................................................... 9
Market Area - Cumberland, Maryland, and Vicinity.............................................................................. 10
Competition................................................................................................................... 10
Marketing..................................................................................................................... 11
Operating History; Predecessor Entities....................................................................................... 11
Contracts and Relationships with Insurance Companies, HMO's and Other Payors.................................................. 13
Third Party Payors.......................................................................................................... 13
Risks Associated With Managed Care Contracts and Capitated Fee Arrangements................................................. 14
Current Debt; Future Capital Requirements..................................................................................... 15
Business Strategy............................................................................................................. 15
Possible Future Expansion of Facilities....................................................................................... 15
Information Management; Year 2000 Compliance.................................................................................. 15
Corporate Liability and Insurance............................................................................................. 15
Industry Background........................................................................................................... 16
Radiology..................................................................................................................... 16
Radiology................................................................................................................... 16
Trends In Radiology......................................................................................................... 17
Government Regulation and Supervision......................................................................................... 18
Licensing and Certification Laws.............................................................................................. 19
Fee-Splitting; Corporate Practice of Medicine; Payments for Referrals......................................................... 19
Physician Payment Systems..................................................................................................... 19
Medicare and Medicaid Fraud and Abuse......................................................................................... 20
Health Care Reform Initiatives................................................................................................ 21
Compliance Program............................................................................................................ 21
Insurance Laws and Regulations Applicable to Risk-Sharing Arrangements........................................................ 22
Quality Assurance Programs.................................................................................................... 22
FACILITIES AND EMPLOYEES....................................................................................................... 22
OUR MANAGEMENT................................................................................................................. 26
Directors, Executive Officers and Senior Management........................................................................... 26
Retirement Plan............................................................................................................... 27
EXECUTIVE COMPENSATION......................................................................................................... 27
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS......................................................................... 27
EXISTING AND POTENTIAL CONFLICT OF INTERESTS................................................................................... 27
DESCRIPTION OF COMMON STOCK.................................................................................................... 30
LEGAL PROCEEDINGS.............................................................................................................. 32
REPORTS TO INVESTORS........................................................................................................... 32
LEGAL MATTERS.................................................................................................................. 32
EXPERTS........................................................................................................................ 32
AVAILABLE INFORMATION ABOUT THE COMPANY........................................................................................ 32
</TABLE>
Appendices
A - Pro Forma Financial Statements of the Company
B - Audited Financial Statements for the Six Months Ended December 31, 1999
C - Interim Financial Statements for Six Months Ended June 30, 2000
D - Articles of Incorporation
i
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SUMMARY
Who We Are
The Imaging Center, Inc. is a Maryland corporation formed in May 1999 to
provide radiology and imaging services primarily to a practice group of
physicians specializing in radiology located in Cumberland, Maryland, which is
controlled by F. Daniel Jackson, M.D., our President and controlling
shareholder. Our income will come from fees paid by patients, their insurance
companies or medical service providers for services provided by Dr. Jackson's
practice group and us. We started operating on July 1, 1999. However, our
facilities and services are substantially identical to the facilities used and
services provided in connection with Dr. Jackson's practice group under the
trade name "The Imaging Center."
Description of Shares We Are Offering
We are offering up to 1,000,000 shares of our Class B Non-Voting common stock
to the public. These shares equal 10% of all authorized Class B Non-Voting
shares. Dr. Jackson, our President and controlling shareholder, owns or controls
90% of the Class B shares. Following the offering, purchasers of shares not
affiliated with us are expected to own 10% of the shares and Dr. Jackson is
expected to own or control 90% of the shares. Dr. Jackson owns all of the shares
of our Class A Voting common stock which have been issued. Dr. Jackson has
indicated that he will register some or all of this Class B Non-Voting Shares
following this offering in order to offer and sell those shares in a public
offering.
How We Expect to Use the Proceeds of this Offering
All proceeds of this offering will be used to pay for new equipment and the
expansion of our facilities.
================================================================================
Special Note to Physicians Contemplating Purchasing Shares
Maryland laws prohibit payments for patient referrals and referrals by a
physician to a provider of health care owned by the physician or a provider
which pays compensation to the physician. Physicians who refer patients to Dr.
Jackson's practice group or to us should obtain legal advice regarding these
prohibitions before purchasing our shares.
================================================================================
RISK FACTORS
You should consider carefully the factors described below in determining
whether to buy the shares, in addition to the other information contained in
this prospectus.
This investment involves a high degree of risk. You should not buy the shares
if you may need to sell your shares in the future. You should purchase shares
only if you can afford to lose your entire investment.
Our Success Depends Upon Referrals from Dr. Jackson's Practice Group and Other
Referral Sources
We have a limited operating history and our financial success will depend on
income we receive for the use of our facilities and services that we will
provide. Our success will depend in large part on continued usage of our
services and facilities by Dr. Jackson's practice group and referrals to Dr.
Jackson's practice group from other physicians, practice groups or healthcare
providers within the Cumberland, Maryland, area. Based upon previous
substantially identical operations of companies controlled by Dr. Jackson, his
practice group is expected to generate approximately 99% of our revenues.
1
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If other physicians, physician practice groups or healthcare providers
discontinue referring patients to Dr. Jackson's practice group, our ability to
make a profit would be adversely affected.
The death, retirement or disability of Dr. Jackson could adversely affect
referrals from his practice group and have an adverse impact upon our revenues
and operations. We do not maintain key man life or disability insurance with
respect to Dr. Jackson.
Our Ability to Generate Revenues Depends Upon Our Ability to Obtain and Retain
Contracts with HMOs and Other Healthcare Providers
Our success depends upon the ability of Dr. Jackson's practice group to obtain
and retain contracts with third-party payors, such as HMOs, insurance companies,
Medicare and other healthcare providers. While we and Dr. Jackson's practice
group intend to seek managed care contracts in competition with other physicians
or practice groups providing similar services, we cannot assure investors that
either of us will obtain or retain these contracts.
Obtaining and retaining these contracts is important to our success because,
in an effort to control costs, non-governmental health care payors such as
insurance companies have implemented cost containment programs which may limit
the ability of physicians to refer patients to our facilities. For example,
persons enrolled in prepaid health care plans, such as health maintenance
organizations, also known as HMOs, often are not free to choose where they
obtain medical care or services. Medical care or services may be provided
directly by the health plan or only through physicians or practice groups under
contract with the provider. Similarly, some insurance companies and self-insured
employers also require the use of specific physicians or practice groups by
those they insure. These "closed panel" systems are now common in the managed
healthcare environment. HMOs and other healthcare providers or insurers may also
create economic disincentives for referrals to physicians or practice groups
outside of the plan's designated panel of providers. The failure of Dr.
Jackson's practice group to obtain or retain these contracts may reduce the
amount of services we provide and our revenues could be reduced
accordingly.
Our Business is Heavily Regulated and This Regulation Could Affect Our Ability
to Implement Our Business Strategy and Our Profitability
Our operations and services are heavily regulated on the federal and state
level and this regulation may limit our ability to maintain or expand our
operations or services or to implement our business strategy successfully. In
particular, these regulations may limit our ability to
. adapt our operating or business structure to comply with legal
requirements which presently or may in the future affect relationships
with physicians, including prohibitions on fee splitting and referrals
to facilities in which physicians have a financial interest
. obtain regulatory approvals necessary for acquisition of additional
facilities and equipment or provision of additional services
. comply with applicable licensing requirements
. expand our facilities
Upon Completion of This Offering, Our Ratio of Debt to Stockholder's Equity Will
Be Significant
Upon completing this offering, our debt will be significant in relation to
stockholders' equity. Such debt will account for approximately 59.1% of our
total capitalization as of July 1, 2000.
2
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Professional Liability Is an Inherent Risk of Our Business; Our Ability to
Obtain Liability Insurance at Reasonable Cost Affects Our Ability to Manage This
Risk
Professional malpractice and other similar claims are an inherent risk of
providing medical services. While we intend to structure our relationships with
referring physicians in a manner that will not constitute the practice of
medicine, we cannot assure you that no claims, suits or complaints of medical
malpractice relating to services or products provided by Dr. Jackson's practice
group or other referring physicians will made against us. Because we operate and
manage the Imaging Center, professional liability claims or claims based upon
improper usage or calibration of equipment used in our business may be made
against us. No malpractice or other claims have been made against us.
Various factors affect the availability and cost of professional liability
insurance. Many of these factors are beyond our control. We cannot assure you
that adequate liability insurance will be available in the future at acceptable
cost. Increased insurance premiums may lead us to self-insure or use a higher
deductible. Such higher insurance costs or claims not covered by insurance could
affect our profitability.
Dr. Jackson Owns or Controls All Voting Shares and Thereby Controls the
Election of Directors and All Decisions Regarding Our Operations and Facilities
Dr. Jackson, our President and one of our directors, will own all of our
shares of Class A Voting common stock. As such, he controls the election of our
directors, and all decisions regarding our operations, facilities and future
development will be made solely by Dr. Jackson.
There Is No Prior Market for the Shares
Presently no public trading market for the shares exists. We cannot assure you
there will be an active trading market for the shares after this offering. The
relatively small number of shares available to the public may limit the market
in which the shares are traded and your ability to sell your shares to other
investors.
The Price of the Offered Shares Bears No Relationship to Generally Accepted
Valuation Criteria
We determined the initial public offering price of the offered shares
arbitrarily. This price bears no relationship to our assets, earnings, book
value, net tangible value or other generally accepted criteria for valuation of
investments. For this and other reasons, the market price for our shares may
decline below the initial price after this offering is completed.
The Number of Shares We Are Offering and Future Price and Trading Levels May
Make Resale of the Shares More Difficult
The small number of shares being offered to the public may limit the market in
which our shares are traded and your ability to sell your shares to other
investors. We may not be able to achieve our intention of eventually listing the
shares on a national or regional securities exchange or in some other market
which will provide easily accessible pricing information if our stock fails to
trade at certain volume levels and prices, depending upon the exchange or
market. As a result, it may be difficult for you to sell your shares to other
investors.
This prospectus contains forward-looking statements that include risks and
uncertainties. These statements describe our future business plans, use of
proceeds of this offering, projected capital expenditures, liquidity, possible
third-party payor arrangements, arrangements between us and referring
physicians, possible effects of changes in government regulation and managed
care and availability of insurance. These statements may be found under the
following headings: "Summary," "The Company," "Use of Proceeds of Offering,"
"Business," "Industry Background," "Risk Factors" and "Risk Factors Related to
Government Regulation" and elsewhere in this prospectus. Actual events or
results may differ
3
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materially from those discussed in these forward-looking statements. Any
differences may be caused by the risk factors and other factors described in
this prospectus. The "safe harbor" for forward-looking statements provided by
the Litigation Reform Act does not apply to initial public offerings.
No person is authorized to give any information or to make any representation
not contained in this prospectus. You should rely only upon the information
contained in this prospectus. You should not assume that we have authorized any
other information or representation not contained in this prospectus.
This prospectus is not an offer to sell or a solicitation of an offer to buy
any security other than the shares of Class B Non-Voting common stock. It is not
an offer to sell or a solicitation of an offer to buy any of the shares in any
jurisdiction where such offer or solicitation is unlawful.
The information contained in this prospectus may change after its date.
DILUTION
As of July 1, 2000, and before the offering of the shares of Class B Non-
Voting common stock under this prospectus, our stock had a net tangible book
value of $434,732 or $.05 per share of the 100 authorized and issued shares of
Class A Voting common stock and the 8,999,000 authorized and issued shares of
Class B Non-Voting common stock. For purposes of this discussion, "net tangible
book value" means total assets, excluding copyrights, patents, goodwill,
research and development costs and similar intangible items, minus total
liabilities and is based upon our historical balance sheet as of June 30, 2000,
contained in Appendix C. After giving effect to the sale of the shares offered
by this prospectus and the application of the proceeds from such sale, the net
tangible book value per share of all authorized and issued shares of Class A
Voting and Class B Non-Voting common stock as of July 1, 2000, would have been
$.244, representing an immediate increase of $.194 per share to stockholders and
an immediate dilution of $1.756 per share to persons purchasing the shares
offered by this prospectus at the offering price.
The following table illustrates the per share dilution:
<TABLE>
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<S> <C> <C>
Offering price per share $ 2.00
Net tangible book value per share before offering $.050
Increase per share attributable to payments by New Investors* $.194
Pro forma net tangible book value per share after offering $ .2440
Dilution to Investors $1.7560
* Before payment of fees and expenses of offering.
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</TABLE>
The following table sets forth as of July 1, 2000, the number of shares of
Class A Voting and Class B Non-Voting common stock purchased from us, the total
consideration we received and the average price per share paid by existing
shareholders and by the new investors purchasing shares offered by this
prospectus.
<TABLE>
<CAPTION>
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Shares Purchased Total Consideration Average Price
------------------------------------------------------------------------------------------------- Per Share
Number Percent Amount Percent
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<S> <C> <C> <C> <C> <C>
Existing Shareholders - Class A Shares 100 100% $ 2 100.0% $0.02
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Existing Shareholders - Class B Shares 8,999,000 90% 179,980 8.26% $0.02
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New Investors - Class B Shares 1,000,000 10% 2,000,000 91.74 $2.00
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Total - Class B Shares 9,999,000 100% $2,179,980 100.00%
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</TABLE>
After completion of this offering, we will have 900 unissued shares of Class A
Voting common stock and no unissued shares of Class B Non-Voting common stock
available for future issue and sale, assuming that all of the offered shares are
purchased. While we presently have no plans to issue additional shares of common
stock, we may in the future offer additional shares in either private placements
or
4
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public offerings for cash, property or other consideration or as a dividend
or in the form of a stock split. Any such offer of additional shares would
require an amendment to our Articles of Incorporation. The offer and sale of
additional shares of our common stock may result in a dilution of the public
offering price of the shares offered under this prospectus or a decrease in the
net tangible book value of shares, depending upon the offering price or
consideration received for such shares. Dr. Jackson, who is expected to own 90%
of the outstanding shares of Class B Non-Voting common stock, has indicated that
he will register with the SEC some or all of those shares following this
offering in order to offer and sell those shares in a public offering.
PLAN OF DISTRIBUTION
We are selling the shares as a direct participation offering by our President
or other officers, who will receive no commission or other compensation for
these sales. Since there is no underwriting agreement with any licensed broker
dealer, the success of the offering will depend upon the efforts of our
President and officers who may be engaged in selling the shares.
Our shares are being registered with the SEC and the securities commissioners
of the states of Maryland, West Virginia and Pennsylvania. Our shares will be
offered only to residents of those states. We may also sell to residents of
other states, but these sales must comply the legal requirements of those states
where the potential purchasers reside.
We may solicit interested investors through meetings with potential investors,
personal contact, notices, circulars, advertisements and letters which comply
with applicable law. All potential investors must receive a copy of this
prospectus and a copy of the Subscription Agreement. Investors wishing to
purchase shares must submit a completed Subscription Agreement to us at our
offices. Copies of this prospectus and the Subscription Agreement are available
at our offices at 715 Williams Street, Cumberland, Maryland 21501-1705,
telephone: 301-759-3410.
The shares will be offered in minimum lots of 100 shares, subject to a maximum
of 1,000 shares for each investor in order to maximize the number of
shareholders and satisfy requirements for listing upon a securities exchange or
other listing service. We may, however, waive the maximum limit.
The offering will commence upon the date of this prospectus and will continue
until _____________ 31, 2000, unless we terminate it sooner. This offering is
contingent upon acceptance of subscriptions for at least 200,000 shares by this
date. Until at least that many shares have been subscribed, all funds tendered
by prospective investors will be deposited and held in a non-interest bearing
escrow account with Farmers & Merchants Bank and Trust, Cumberland,
Maryland.
If subscriptions to purchase at least 200,000 shares have not been accepted by
___________ 31, 2000, we will terminate the offering and all funds tendered by
prospective investors will be promptly returned without accrued interest or the
deduction of other fees and all subscriptions received will be cancelled. If at
least 200,000 shares are sold by or before that date, we may accept the
subscriptions then received by us, release the purchase price of those shares
from escrow and issue the subscribed shares. At our option, we may continue to
attempt to sell the remaining unsold shares by _______________ 31, 2000.
Our directors and principal officers (other than our President) expect to
acquire a total of 5,000 shares in this offering. These shares will count
towards achieving the minimum offering amount of shares.
We reserve the right to withdraw or amend this offering before we accept any
subscriptions. We also reserve the right to reject any subscription in whole or
in part.
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USE OF PROCEEDS OF OFFERING
Sources and Uses of Proceeds of Offering
All of the Class B shares offered under this prospectus will be sold to the
public at the price of $2.00 per share. The net cash proceeds from the sale of
Class B shares offered to the public are described in the following table.
<TABLE>
<CAPTION>
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Number of Price to Proceeds to Company
Shares Sold Public (1) (2)
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<S> <C> <C> <C>
Per Share..................... 1 $2.00 $ 2.00
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Minimum Offering.............. 200,000 $2.00 $ 400,000
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Maximum Offering.............. 1,000,000 $2.00 $2,000,000
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</TABLE>
(1) No commissions or other compensation will be paid in connection with
the offer or sale of the shares.
(2) Before deducting costs and expenses of offering to be paid by us.
The amounts to be received from the sale of the shares to officers, directors
and persons affiliated with us and to persons not affiliated with us, assuming
all of the offered shares are sold, are summarized as follows:
<TABLE>
<CAPTION>
Type of Number of Price per Total
Purchasers Consideration Shares Share Consideration
<S> <C> <C> <C> <C>
Officers, Directors and Affiliates Cash 5,000 $2.00 $ 10,000
Unaffiliated Shareholders Cash 995,000 $2.00 1,990,000
==========
Total $2,000,000
</TABLE>
We expect to use the proceeds of the offering as described in the following
table.
<TABLE>
<CAPTION>
If Minimum Sold If Maximum Sold
(20%) (100%)
<S> <C> <C>
Total Proceeds $400,000 $2,000,000
Less: -0- -0-
Offering Expenses -0- -0-
Legal and Accounting -0- -0-
Printing and Advertising -0- -0-
Net Proceeds from Offering 400,000 2,000,000
Equipment 400,000 1,500,000
New Facilities -0- 500,000
-------- ----------
Total Uses of Net Proceeds $400,000 $2,000,000
======== ==========
</TABLE>
Costs and Expenses of Offering
The estimated costs and expenses of the offering are set forth in the
following table. These amounts will be paid from our general revenues and not
from proceeds of this offering.
6
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<TABLE>
<CAPTION>
Description Amount
<S> <C>
Commissions and Fees $ 0
Legal, Accounting and Professional Fees 160,000
Printing, Advertising (Estimated) 15,000
SEC and State Securities Commission Fees 2,840
Escrow Fees (Annual) 500
===================
Total $ 178,340
</TABLE>
THE IMAGING CENTER, INC.
General
We incorporated in May 1999 to provide technical radiology and imaging
services primarily to Dr. Jackson's practice group and commenced operations on
July 1, 1999. We manage and operate radiology and imaging equipment at the
facility of Dr. Jackson's practice group located at 715 Williams Street in
Cumberland, Maryland. We derive substantially all of our revenue from the
technical component of service fees paid by patients or their insurance
companies or medical service providers for professional and technical radiology
and imaging services provided by us and Dr. Jackson's practice group. Dr.
Jackson's practice group retains the professional component of these fees, as
determined by an agreement between us and Dr. Jackson's practice group.
We lease our radiology and imaging equipment from Value Healthcare, Inc.,
Imaging Associates of Cumberland, Inc. and General Electric Medical Systems.
Value Healthcare, Inc. and Imaging Associates of Cumberland, Inc. are controlled
by Dr. Jackson, our controlling shareholder, President and director. Our
equipment and operations are located in a building located at 715 Williams
Street, Cumberland, Maryland, known as "The Imaging Center", which we lease from
Imaging Associates of Cumberland, Inc., a corporation controlled by Dr. Jackson.
The building, facilities and equipment we currently lease are substantially
identical to the facilities and equipment previously operated in association
with Dr. Jackson's practice group under the trade name of "The Imaging Center"
at the same location. This building was renovated and opened in 1991 for use by
Dr. Jackson's practice group, and following additional renovations is now
approximately 11,000 square feet. This building includes a patient waiting area,
administrative offices, record storage space, examination and testing rooms, and
laboratory, darkroom and storage facilities. Under our leasing arrangement, we
occupy the entire building together with Dr. Jackson's practice group.
Capitalization
The following table describes our capitalization as of July 1, 2000, and as
adjusted to reflect the issuance and sale of the offered shares and application
of the net proceeds from sale of the shares.
<TABLE>
<CAPTION>
July 1, 2000
Actual As Adjusted
<S> <C> <C>
Short-term debt:
Short-term debt
Current portion of long-term debt and capital lease
obligations $ 740,641 $ 740,641
Total short-term debt 740,641 740,641
Long-term debt and capital lease obligations (net of current
maturities)* 2,784,391 2,784,391
Shares 179,982 2,179,982
Additional paid-in capital
Retained earnings (deficit) 254,750 254,750
Total Stockholders' equity (deficit) 434,732 2,434,732
Total Capitalization $ 3,959,764 $ 5,959,764
Number of Shares authorized: 10,000,000.
* Reflects leases entered into as of July 1, 2000.
</TABLE>
7
<PAGE>
Financial Statements
We have attached to this prospectus the following financial statements:
. Pro forma financial statements for calendar year 1998 and six month
statements for January 1, 1999 through June 30, 1999 (attached as
Appendix A).
These statements were prepared based upon historical financial
information provided to us by Dr. Jackson. The various items of
expense, income and other items have been retroactively allocated
between Dr. Jackson's practice group and us and do not represent
actual revenues, expenses or results of operations. However, we
believe these statements accurately reflect this information had the
present business arrangements between Dr. Jackson's practice group
and us existed during these periods.
. Audited financial statements for the six months ended December 31,
1999 (attached as Appendix B).
These statements are based upon our operations since we commenced
business on July 1, 1999, through the end of that year.
We did not meet our earnings projections contained in our initial
forecasted financial statements. We believe we did not meet these
projections due to the time spent in our creation and organization.
We have completed our organization and startup efforts and believe
our financial results for the next six months should be closer to our
original projections.
. Unaudited financial statements for the six months ended June 30, 2000
(attached as Appendix C).
Limitations on Liability of Officers and Directors
Our Articles of Incorporation provide for mandatory indemnification of our
officers and directors to the fullest extent permitted by Maryland law,
including some instances in which indemnification is otherwise discretionary
under Maryland law. The Articles of Incorporation contain provisions that
eliminate the personal liability of our directors for monetary damages resulting
from breaches of their fiduciary duty as directors, other than for acts or
omissions which involve intentional misconduct or a knowing violation of law,
payment of unlawful distributions, or for any transaction from which the
director derived an improper personal benefit. There are no indemnification
provisions for our directors, officers and controlling persons specifically
dealing with liability under the federal securities laws. We believe that these
provisions are essential to attracting and retaining qualified persons as
directors.
Under Maryland law, a director who successfully defends any proceeding is
entitled to recover his or her reasonable expenses incurred in connection with
the proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to this law or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission indemnification for these liabilities is
against public policy as expressed in this law and is, therefore, unenforceable.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought, and we are not aware of
any threatened litigation that may result in claims for indemnification by any
officer or director.
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<PAGE>
Investor Suitability
Purchase of the shares involves a high degree of risk suitable only for
persons who have no need for liquidity in their investment and who realize there
is a risk of losing their entire investment. Prospective investors are urged to
consult their own tax and financial counsel before purchasing our shares. In
addition to the general investment risks described throughout this prospectus,
prospective investors should carefully consider the risk factors described in
this prospectus.
Dividend Policy
We have never declared or paid dividends on our common stock. We expect
that future earnings, if any, will be retained to finance the growth and
development of our business and, accordingly, do not intend to declare or pay
any dividends on our common stock for the foreseeable future. The declaration,
payment and amount of dividends, if any, will be subject to the discretion of
our Board of Directors and will depend upon our future earnings, results of
operations, financial condition and capital requirements, among other factors.
If we borrow money in the future or enter into other financial arrangements, our
lenders may prohibit us from paying or restrict our ability to pay dividends.
BUSINESS
General
We provide technical services primarily to the two physicians who comprise
Dr. Jackson's practice group in their diagnostic and treatment practices,
including x-ray and fluoroscopy, magnetic resonance imaging, computed
tomography, mammography, ultrasound, and nuclear medicine, all of which are
described below in greater detail. Patients in need of these services are
typically referred to a diagnosing or treating physician by other referring
physicians or medical service providers or, on occasion, by the patient's self
referral. We provide the technical component of these services, such as, for
example, an x-ray or an image produced by ultrasound, magnetic resonance imaging
or other similar means. The diagnosing physician then analyzes these images and
a report prepared for use by other physicians or medical facilities. We also
provide the technical component of certain medical care rendered by and under
the supervision of a physician, such as treatment of hyperthyroidism, drainage
of cysts and abscesses, or biopsies of various organs. An agreement between Dr.
Jackson's practice group and us governs the extent and nature of the technical
services we provide. Under the terms of this agreement, we are precluded from
providing professional medical services.
The fees for diagnostic, imaging or treatment services are generally
divided into two components, a professional component, which compensates a
physician for diagnostic, treatment or supervisory services, and a technical
component which represents the cost of facilities, equipment and nonprofessional
personnel used in various procedures. We have established a schedule of fees for
such technical services based upon the Medicare physician's fee schedule. The
Medicare fee schedule is also adjusted for local economic conditions on an
annual basis. These technical service fees may be modified from time to time as
necessary to reflect the cost of new or replacement equipment, changes in
reimbursement payments from insurers or medical care providers, or other changes
in economic circumstances or requirements of law.
Allocation of Fees between the Imaging Center, Inc. and Dr. Jackson's
Practice Group. Although the professional and technical components of diagnostic
imaging services are sometimes billed and reimbursed separately, most third-
party payors reimburse these services as a single fee which includes both
professional and technical components. In most cases fee schedules are
determined unilaterally by the third-party payor (and, in the case of Medicare,
are set by regulation), and the provider of services has little opportunity, in
practice, to negotiate such fees. Professional fees (and single fee payments
which include both professional and technical components) are normally billed
solely through the professional
9
<PAGE>
provider, which, in our case, is Dr. Jackson's practice group. Hence, we depend
upon the contractual agreement with Dr. Jackson's practice group for most of our
revenue. If a particular payor requires that we bill it directly for the
technical component of services, we will do so and will be reimbursed separately
by that payor.
Normally, Dr. Jackson's practice group will perform billing and collections
for all services, including professional and technical components. Under this
agreement, we will be paid 70% of all fees received by Dr. Jackson's practice
group for our technical and imaging services provided to their patients under
the agreement. Payments will be made within 30 days after collections occur. We
are responsible for payment of the cost of all necessary imaging equipment,
supplies, technical personnel, office space and overhead expenses related to
provision of our services under the agreement. The agreement is for a term of
five years and is automatically renewable for successive five-year terms unless
terminated by either party at least 90 days before the expiration date. We may
enter into contracts with other entities in the future, but no other agreements
exist at the time of this offering.
We expect that Dr. Jackson's practice group and referrals to that group by
other physicians or healthcare providers will generate approximately 99% of our
business. Our facilities will also be available to provide the same technical
services to other diagnosing or treating physicians within our market area under
the same or a similar fee arrangement, but usage of these facilities by other
physicians is expected to be minimal. Since we receive a fixed percentage of the
collections of Dr. Jackson's practice group, any event that could adversely
affect Dr. Jackson's practice group would also adversely affect our revenues and
business.
Our business strategy is to emphasize quality service and maintain
operating efficiencies. Our ability to be profitable depends substantially upon
our ability to operate efficiently and in a cost-effective manner because the
payments we receive for our technical services represent a fixed percentage of
the fees to be billed by Dr. Jackson's practice group. Our revenues are
dependent upon the ability of Dr. Jackson's practice group to attract and retain
patients, to obtain and maintain contracts with insurance companies and
healthcare providers to provide services to their clients, and generally to
manage their professional practice. We have no right to control any of these
factors as they relate to Dr. Jackson's practice group. Since Dr. Jackson
controls both his practice group and us, he may renegotiate the terms of the fee
agreement at any time in a manner which could adversely affect our revenues and
business.
Market Area - Cumberland, Maryland, and Vicinity
We currently provide technical services to patients who live within
approximately 50 miles from our office in Cumberland, Maryland. Our market area
includes the City of Cumberland and Allegany County, Maryland, and parts of
Garrett and Washington Counties in western Maryland, parts of Mineral, Hampshire
and Grant Counties in northeastern West Virginia, and parts of Bedford and
Somerset Counties in southwestern Pennsylvania. Our business depends upon the
referral of patients in this area to Dr. Jackson's practice group primarily by
other physicians, physician practice groups or medical service providers. We do
not expect to significantly expand our existing market area in the future.
Competition
Our facilities compete with other local radiology and technical imaging
service providers, including for profit and non-profit hospitals and health
systems, in the market we serve. We believe that changes in governmental and
private reimbursement policies and other factors have resulted in increased
competition among providers of medical services to consumers and that cost,
accessibility, quality and scope of services provided are the principal factors
that affect competition. We cannot assure you that Dr. Jackson's practice group
and our facilities will be able to compete effectively in the markets we serve.
Our inability to compete in our market could adversely affect us.
Numerous hospitals and physicians' offices in our market area perform some
or many of the same imaging studies as The Imaging Center. Competition for
imaging studies is widespread.
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<PAGE>
The Western Maryland Health System is composed of two hospitals in
Cumberland, Maryland, a Sacred Heart Hospital Campus and a Memorial Hospital
Campus. The two hospitals merged over the past two years, and there is currently
a redistribution taking place of various clinical departments being centered at
each facility. Both hospitals currently have duplication of diagnostic imaging
services, including CT, angiography, interventional procedures, ultrasound,
nuclear medicine, mammography, x-rays, and fluoroscopy. Sacred Heart has the
only radiation therapy unit in the area.
Both hospitals have several walk-in clinics in the surrounding area,
several of which perform diagnostic x-rays on-site. In addition, Sacred Heart
operates The Seton Diagnostic Center adjacent to the hospital. This is an
outpatient imaging clinic which performs mammograms, x-rays, ultrasound and
nuclear medicine examinations.
Many local physicians' offices perform examinations in their offices,
particularly orthopedists who have x-ray machines, and obstetric-gynecology
physicians who have ultrasound machines.
A number of smaller hospitals are located in our market area, including
Memorial Hospital of Bedford County, Pennsylvania; Somerset Memorial Hospital in
Somerset, Pennsylvania; Meyersdale Community Hospital in Meyersdale,
Pennsylvania; Potomac Valley Hospital in Keyser, West Virginia; Hampshire
Memorial Hospital in Romney, West Virginia; Grant Memorial Hospital in
Petersburg, West Virginia; and Garrett Memorial Hospital in Oakland, Maryland.
These facilities offer x-rays, ultrasound, nuclear medicine, mammograms, and CT.
Somerset also has MRI capability.
The only other MRI facility in the immediate Cumberland area is The
Cumberland Regional MRI Center, on Winchester Road in LaVale, Maryland. This
center has a contract with the local hospitals, so virtually all inpatient MRI
examinations are sent to this facility.
A federal prison and a Maryland state prison are located in Cumberland.
Each has its own x-ray facility for inmates.
The Imaging Center Mobile X-Ray service is the only mobile service
operating directly from the immediate area. Precision X-Ray, located outside the
area, services several local nursing homes with a locally based technologist.
Marketing
We do not use extensive marketing programs to publicize our services. The
experience of our predecessors with mass marketing efforts indicated that such
programs were not very successful. Accordingly, we have no plans to undertake
any mass marketing or similar advertising programs.
Operating History; Predecessor Entities
Because we commenced operations on July 1, 1999, we have a very limited
operating history. We have, however, prepared and attached as Appendix A pro
forma historical financial statements for calendar year 1998 and the first six
months of 1999, [and as Appendix B pro forma financial projections for our
current fiscal year]. We have also attached as Appendix C audited financial
statements for the six months ended December 31, 1999. We have also attached as
Appendix D unaudited financial statements for the three months ended March 31,
2000.
Our facilities and services are substantially identical to the facilities
used and services provided in connection with Dr. Jackson's practice group under
the trade name "The Imaging Center" since 1991. "The Imaging Center" is the
trade name of F. Daniel Jackson, M.D., P.A., a medical practice group
specializing in diagnostic radiology.
The Imaging Center opened its doors to patients on October 1, 1990, at 50
Pershing Street in downtown Cumberland, Maryland. Original services offered were
film-screen mammography, diagnostic X-rays, and two machines for ultrasound
examinations. Services were offered from 8 A.M. to 6 P.M.,
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<PAGE>
Monday through Friday. The business remained at this site only fifteen months.
Patient volume quickly expanded, and more floor space was needed.
The center moved to a much larger, newly renovated site at 715 Williams Street
in Cumberland on December 26, 1991. Two new X-ray rooms were added, one with
tomography for intravenous pyelograms, the other room with fluoroscopy for
arthrograms, upper gastrointestinal series, barium enemas, and other real-time
examinations. A computerized tomography, or CT, machine was added for
examination of the brain, chest, abdomen, and pelvis, as well as other body
parts. Nuclear medicine was also added for scans of the bones, thyroid gland,
gallbladder, and other organs. A treadmill stress test room was incorporated,
monitored by a cardiologist, followed by a nuclear SPECT scan of the heart,
screening for coronary artery disease. Hours of operation were expanded from 7
A.M. to 9 P.M., Monday through Friday, and 8 A.M. to 5 P.M., Saturday and
Sunday.
Another addition to the building was completed in November 1992 to house a new
magnetic resonance machine. This is used extensively for examination of the
brain; spinal cord and spine; knees, shoulders, hips, and other joints; as well
as virtually all other body parts and organ systems. Magnetic resonance
angiography has been performed routinely in examinations of the brain, to screen
for aneurysms and blockage of major vessels (ischemia and occlusions).
The hours of operation were reduced in September 1995, since very few patients
requested evening and Sunday hours. The office was then open 7 A.M. to 6 P.M.,
Monday through Friday, and 8 A.M. to 1 P.M. on Saturday.
In January 1997, the CT machine was replaced with a new Synergy Spiral CT by
General Electric, which performed examinations much faster. This machine
virtually eliminated artifacts due to breathing and patient motion and made
diagnosis more accurate.
From the beginning, The Imaging Center has offered EKG's, with the current
machine printing a computer-generated interpretation, to assure prompt diagnosis
and treatment. It also provided blood drawing and specimen collections, with
laboratory examinations performed by an independent clinical laboratory. In
February 1998, the office began to open at 6 A.M. to draw blood for early risers
and patients on their way to work.
The facilities, employees and operations of, and services previously offered
by, Dr. Jackson's practice group and related companies continue to be provided
by Dr. Jackson's practice group and us as described in this prospectus.
The following table describes the examinations made by the procedures
indicated below at The Imaging Center during the years 1993 through 1999.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Ultrasound 3448 3331 3257 3676 4168 4715 4305
Mammograms 4011 4289 4476 4648 4809 5285 5158
X-Ray/IVP 4284 4664 5241 5473 5617 5789 4580
Fluoroscopy 548 504 553 540 551 582 315
Nuclear 852 794 741 919 1176 1334 1003
CT 1802 1717 1848 2072 2265 2660 2542
MRI 1597 1729 2108 2142 2335 2456 2375
------ ------ ------ ------ ------ ------ ------
Total 16,542 17,028 18,224 19,470 20,921 22,421 20,278
</TABLE>
The decline in examinations undertaken during 1999, when compared to the years
1997 and 1998, occurred due to Dr. Jackson's withdrawal from an association with
two family practice physicians who previously shared facilities with The Imaging
Center. When these doctors moved out of The Imaging Center, a significant number
of patient referrals were lost, resulting in a decrease in the number of
examinations conducted in 1999.
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<PAGE>
The foregoing information is based upon data provided by the various entities
that previously owned and operated our facilities and equipment, including Dr.
Jackson and his practice group. While we believe that this information is
accurate with respect to prior operations of The Imaging Center, we cannot
assure you that this information is indicative as to our future performance or
results of operations.
Contracts and Relationships with Insurance Companies, HMO's and Other Payors
Third Party Payors.
We derive our revenues from service fees paid to us by Dr. Jackson's practice
group or by referrals from unaffiliated physicians or practices for the services
we provide. Substantially all of our revenues and the revenue of Dr. Jackson's
practice group is currently derived from government sponsored health care
programs, principally Medicare and Medicaid, and private third-party payors,
such as Blue Cross/Blue Shield, and similar provider networks. The contracting
provider in most cases is F. Daniel Jackson, M.D., P.A. Many of these contracts
have one-year terms and are renewed automatically unless terminated by one of
the parties.
The following is a list of the major contracts with third-party payors, with a
summary of the contract term and termination provisions for each, other than
terminations for cause.
<TABLE>
<CAPTION>
Payor/Network Term Termination
<S> <C> <C>
Allegany County Health Dept. (early detection of breast and 1 year (subject to renewal up 14 days' notice
cervical cancer for low-income women) to 5 times)
America's Health Plan, Inc. 90 days' notice prior to end
of term
Anthem Health Plan of West Virginia, Inc., (PrimeONE) 1 year (renewed annually) 90 days' written notice
Blue Cross Blue Shield of Maryland 1 year (renewed annually) 60 days' written notice
Comprehensive Health Services, Inc. (disability reviews N/A N/A
for US Railroad Retirement Board)
CIGNA Health Care Mid-Atlantic, Inc. Year to Year 60 days' written notice
CIGNA Healthplan Mid-Atlantic, Inc. 1 year (renewed annually) 90 days' written notice
Cardio Metrix (disability reviews for US Railroad Retirement N/A N/A
Board)
Potomac Physicians, P.A. 1 year (renewed annually) 90 days' written notice
CHAMPUS N/A N/A
CHIR/CHMC Valley Community Healthcare Network 1 year (renewed annually) 60 days' notice prior to
expiration of term
Beverly Enterprises - Maryland, Inc. 1 year (renewable by agreement) 30 days' written notice
Garrett County Local Health Dept. (early detection of 1 year (subject to renewal up 14 days' written notice
breast and cervical cancer for low-income women) to 4 times)
Health Care and Retirement Corporation of America 1 year (renewed annually) 30 days' written notice
Physicians Health Plan of Maryland, Inc. 1 year (renewed annually) 90 days' written notice
Medicaid Open-ended 30 days' written notice
Comprehensive Medical Imaging, Inc. 1 year 90 days' written notice
Med-Eval, Inc. 2 years (renewed automatically 90 days' written notice
for one-year terms)
Medicare 1 year (renewed annually) By provider by end of term;
by Medicare after notice and
opportunity for hearing
(for breach of agreement
only)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Payor/Network Term Termination
<S> <C> <C>
Midatlantic Cardiovascular Associates, P.A. 1 year 90 days' written notice
Network Medical Services, Inc. 6/1/98 - 12/31/2001 90 days' written notice
thereafter renewed annually) prior to expiration of term
Primary One, Inc. 1 year (renewed annually) 90 days' written notice
United Health Care of the Mid-Atlantic, Inc. 1 year (renewed annually) 90 days' written notice (60
days for Virginia)
West Virginia Workers' Compensation Division N/A N/A
West Virginia Medicaid N/A 30 days' written notice
</TABLE>
For calendar years 1998 and 1999, combined medical service revenues of Dr.
Jackson's practice group and us were derived from the following sources in the
approximate proportions:
<TABLE>
<CAPTION>
Source 1998 1999
<S> <C> <C>
Government approved health care programs 25.16% 23.64%
Private third-party payors 65.3 % 57.28%
Self-pay 9.5 % 19.08%
</TABLE>
The health care industry is experiencing a trend toward cost containment as
government and private third-party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. We believe that these trends will continue to result in a reduction
from historical levels in per-patient service fees and that the results of our
operations are likely to continue to be affected by lower reimbursement levels.
Further reductions in payments or other changes in reimbursement for health care
services could have a significantly adverse effect on our business or
profitability unless we are otherwise able to offset such payment reductions.
Risks Associated With Managed Care Contracts and Capitated Fee Arrangements
During the 12-month period ended December 31, 1998, Dr. Jackson's practice
group and The Imaging Center derived 99% of their combined medical service
revenues of from payments made on a fee-for-service basis by patients and third-
party payors, including government programs. Capitated arrangements accounted
for less than 1% of these combined medical service revenues. During 1997,
capitated arrangements accounted for approximately 15% of combined medical
service revenues. Under capitated or other risk-sharing arrangements, the health
care provider typically is paid a pre-determined amount per-patient per-month
from the payor in exchange for providing all necessary covered services to
patients covered under the arrangement. Such contracts pass much of the
financial risk of providing care, including the risk of over-utilization, from
the payor to the provider.
These types of risk-sharing arrangements result in greater predictability of
revenue but greater unpredictability of expenses and, consequently,
profitability. We offer no assurance that Dr. Jackson's practice group or we
will be able to negotiate satisfactory arrangements on a capitated or other
risk-sharing basis. To the extent that patients or enrollees covered by such
contracts require more frequent or extensive care than is anticipated, we would
incur unanticipated costs not offset by additional revenue, which would reduce
operating margins. In the worst case, the revenue derived from such contracts
may be insufficient to cover the costs of the services provided. Any such
reduction or elimination of earnings could materially adversely affect our
business or financial condition.
Neither Dr. Jackson nor we currently have any capitated or other risk-sharing
arrangements. Neither of us intends to enter into any such arrangements in the
future. If Dr. Jackson's practice group or we enter into capitation arrangements
in the future, payments under these contracts would be allocated 70% to us and
30% to Dr. Jackson's group under the Agreement for Technical Services. This
would present some
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<PAGE>
financial risk to us, because there is no guarantee that the capitation payments
would adequately cover the costs of the services we provide.
Current Debt; Future Capital Requirements
Most of our facilities and equipment are leased or financed under arrangements
with the sellers of equipment or with Imaging Associates of Cumberland, Inc. and
Value Healthcare, Inc., both of which are controlled by Dr. Jackson. These
leasing arrangements are described in detail below under the heading "Existing
and Potential Conflict of Interests".
Our future ability to acquire or lease new or replacement equipment depends
upon our ability to obtain financing on reasonable terms.
Business Strategy
Our purpose is to provide technical radiology and imaging services to Dr.
Jackson's practice group and to other physicians and practices using our
services. Our primary business strategy is to emphasize quality service, making
patient service and referring physician satisfaction a key element of our
strategy. We also intend to maintain operating efficiencies that will enable Dr.
Jackson's practice group and any other referring physicians to enhance quality
of care, increase revenue and more effectively control costs.
Possible Future Expansion of Facilities
Together with Dr. Jackson's practice group, we are investigating the
feasibility of expanding the facilities currently occupied and services offered
by both of us, including the construction of a larger building. Any such
expansion is dependent upon the growth of both of our businesses sufficient to
justify the proposed expansion.
Information Management
We depend upon a company-wide computer system to manage our operations
effectively, compete for managed care contracts and achieve standardization and
economies of scale. This system includes patient demographic information,
registration, transcription and electronic filing, and is integrated with the
systems used by Dr. Jackson's practice group. Our computer system may require
modifications or replacements as we expand or adopt new technology. These
modifications or replacements may require substantial expenditures and may
interrupt operations as they are put into effect. We cannot know whether we will
be able to operate new computer systems effectively or whether new systems will
produce the expected benefits. Our failure to operate and maintain our computer
systems successfully could prevent us from efficiently accumulating, storing and
managing data and providing billing and other accounting services to Dr.
Jackson's practice group, which could adversely affect our business and
financial condition.
Corporate Liability and Insurance
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Our intent is not to influence or control
the practice of medicine by physicians or have responsibility for compliance
with certain regulatory and other requirements directly applicable to physicians
and physician groups, but to provide technical equipment and services to
physicians. However, as a result of the relationship between Dr. Jackson's
practice group or other referring physicians and us, we may become subject to
legal actions under various theories. Because we operate and manage The Imaging
Center, professional liability claims or claims based upon improper usage or
calibration of equipment used in our business may be made against us. Claims,
suits or complaints relating to services provided by Dr. Jackson's practice
group or other referring physicians may be asserted against us in the future. No
such claims have been filed against us or any of our predecessor entities.
One malpractice claim was filed against Dr. Jackson. This claim went to trial
in 1997, resulting in a verdict in favor of Dr. Jackson.
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<PAGE>
We maintain insurance coverage that we believe will be adequate. The
availability and cost of this insurance is affected by various factors, many of
which are beyond our control or the control of Dr. Jackson's practice group.
Increases in the cost of this insurance to us and to Dr. Jackson's practice
group may have an adverse effect on our operations. In addition, successful
malpractice or other claims asserted against Dr. Jackson's practice group, other
referring physicians or us that exceed applicable policy limits could adversely
affect us.
Industry Background
The Health Care Financing Administration estimates that national health care
spending in 1997 was approximately $1.1 trillion, including approximately $217
billion for physician services, and that for 1999 these amounts will be
approximately $1.228 trillion and $241 billion, respectively. According to the
American College of Radiology, an estimated 347 million radiological procedures
were performed in the United States during 1997, excluding procedures performed
by HMO's.
Fees charged for diagnostic imaging, interventional radiology and radiation
oncology procedures consist generally of two components. One is a technical
component relating to facilities, equipment and non-physician personnel. The
other is a professional component consisting of fees paid to physicians for the
interpretation of diagnostic images, the performance of interventional radiology
procedures and the treatment of radiation oncology patients. Technical
facilities are located within hospitals and in outpatient centers, such as our
facilities, throughout the United States. Professional radiology services are
provided by board certified radiologists and other specialists.
Radiology
Radiology. In general, radiology includes diagnostic imaging, interventional
radiology and radiation oncology. Imaging procedures use energy waves to
penetrate human tissue and generate images of the body, which can be recorded on
film or digitized for display on a video monitor. Diagnostic imaging procedures
are used to diagnose diseases and physical injuries and are performed in
hospitals, physicians' offices, outpatient centers and imaging centers.
Interventional radiology procedures include the use of radiological methods to
monitor and guide catheters, stents, drains and needles to open clogged vessels,
relieve obstructed kidneys, perform biopsies of mass lesions, drain abscess
collections and lower pressure in certain vessels. Generally, these
interventional procedures are more time efficient, more cost-effective and less
invasive than surgical alternatives and have historically been performed in a
hospital setting to enable utilization of hospital support services. Radiation
oncology procedures use a variety of radiation sources to treat cancer and/or
relieve pain caused by certain tumors and are performed in hospitals and free-
standing outpatient centers. At the present time, we do not offer technical
services related to complex interventional radiology and radiation oncology.
The principal diagnostic imaging techniques include the following, all of
which are non-invasive:
. General Radiology: X-Ray and Fluoroscopy. X-rays utilize roentgen rays to
penetrate the body and record images of organs and structures on film.
Fluoroscopy utilizes ionizing radiation combined with a video viewing
system for real time monitoring of organs. X-ray and fluoroscopy are the
most frequently used imaging techniques.
. Computed Tomography (CT). CT utilizes a computer to direct the movement of
an x-ray tube to produce multiple cross sectional images of a particular
organ or area of the body. CT is used to detect tumors and other conditions
affecting bones and internal organs. It is also used to detect the
occurrence of strokes, hemorrhages and infections. CT provides higher
resolution images than conventional x-rays, but soft tissue swelling and
edema are not as well defined as those produced by magnetic resonance.
. Magnetic Resonance Imaging (MRI). MRI utilizes a strong magnetic field in
conjunction with low energy electromagnetic waves which are processed by a
computer to produce high-resolution
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<PAGE>
images of body tissue including the brain, spine, abdomen, heart and
extremities. Unlike CT and conventional x-rays, MRI does not utilize
ionizing radiation, which can cause tissue damage in high doses.
. Mammography. Mammography is a specialized form of radiology utilizing low
dosage x-rays to visualize breast tissue and is the primary screening tool
for breast cancer. Mammography procedures also include the biopsy of cells
to assist in the diagnosis of breast cancer. New digital mammography
techniques are even more sensitive in detecting abnormalities of breast
tissue.
. Ultrasound. Ultrasound imaging utilizes high-frequency sound waves to
develop images of internal organs, unborn fetuses and the vascular system.
Ultrasound has widespread applications, including procedures in obstetrics,
gynecology and cardiology.
. Nuclear Medicine. Nuclear medicine utilizes short-lived radioactive
isotopes which release small amounts of radiation that can be recorded by a
gamma camera and processed by a computer to produce an image of various
anatomical structures or to assess the function of various organs such as
the heart, kidneys, thyroid and bones. Nuclear medicine is used primarily
to study anatomic and metabolic functions.
Trends In Radiology
Technological Advancements. We believe that advances in technology, including
the development and continued enhancements of MRI, CT, nuclear medicine,
ultrasound and interventional radiology have contributed to the growth of the
diagnostic imaging industry. Increased professional and technical utilization is
a result of these technological advances, which have also produced safer, more
accurate and less invasive diagnostic procedures than techniques previously
utilized. While traditional x-rays continue to be the primary imaging technique
based on the number of procedures performed, the use of advanced diagnostic
imaging techniques such as MRI and CT has increased rapidly in recent years.
These techniques allow physicians to diagnose a wide variety of diseases and
injuries quickly and accurately without exploratory surgery or other surgical or
invasive procedures, which are usually more expensive, involve greater risk to
the patient and result in longer rehabilitation time. As a result, hospital days
are shortened or eliminated and time lost from work is significantly reduced. In
addition, diagnostic imaging is increasingly used as a screening tool for
preventive care. We believe that future technological advances will enhance the
ability of radiologists to diagnose and direct treatment, thereby lowering
overall health care costs.
Recent technological advancements include: magnetic resonance spectroscopy,
which can differentiate malignant from benign lesions; magnetic resonance
angiography, which can produce three-dimensional images of body parts and assess
the status of blood vessels; spiral computed tomography, which permits three-
dimensional images of body parts; monoclonal antibody studies utilizing nuclear
medicine to localize certain cancers that would otherwise be difficult to detect
or treat; and the development of teleradiology, which digitally transmits
radiological images from one location to another for interpretation. We believe
that the utilization of both the diagnostic and therapeutic capabilities of
radiology will continue to increase because of its cost-effective, time-
efficient and risk/benefit advantages over alternative procedures, including
surgery. In addition, we believe that newer technologies and future
technological advancements will result in further sub-specialization and
increased utilization of professional and technical radiological services.
Reimbursement Patterns. Payment for radiology services comes primarily from
third-party payors such as private insurers, including traditional indemnity
insurance plans, managed care plans, including HMOs and PPOs, and governmental
payors, including Medicare and Medicaid. Historically, radiologists and other
physicians generally provided medical services on a fee-for-service basis. As
managed care entities and other payors have focused on providing care in a more
cost-effective manner, they have demanded and received significant discounts
from fee-for-service rates charged for radiological procedures. As a result,
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physicians have seen a decrease in per procedure reimbursements from managed
care and governmental entities for such procedures. More recently, payors have
sought to control the utilization of services by devices such as utilization
review and capitation arrangements. Significant changes of this type will
require us, Dr. Jackson's practice group and other referring physicians to
develop practice guidelines and appropriateness criteria and to manage the
utilization of radiological procedures.
We believe that the shift in financial risk from payors to providers decreases
the attractiveness of under-utilized imaging equipment within a general
practitioner's office and will accelerate the centralization of resources to
high-volume centers. We believe that the general diagnostic imaging services
performed by non-radiologists may be directed to radiologists by managed care
entities seeking to have services performed at the lowest overall cost. As a
result, we believe that managed care entities, provided with utilization
reports, will focus on reducing costs by shifting radiological procedures
performed by non-radiologists to radiologists.
Development of Independent Radiology Services. Concurrent with the growth of
managed care and strict controls on Medicare reimbursement for inpatient costs,
diagnostic imaging services began to shift from hospital settings to independent
radiology facilities in the early 1980s. Subsequent changes in federal law
restricted the referral of patients by a physician to a facility in which the
physician maintained an ownership interest. As a result, many physicians sold
their interests in such facilities to hospitals, radiologists and companies
engaged exclusively in the ownership, operation and management of radiology and
imaging centers.
Referral Sources. Non-radiologists, including specialists and primary care
physicians, direct the utilization of radiology services. Most industry
marketing has been focused on developing relationships with these referring
physicians. As more patients move to managed care plans, we believe physicians
will have fewer referral options for diagnostic imaging procedures. As the
choices for radiology referrals decrease, we believe that quality of care,
subspecialty expertise and patient and referring physician satisfaction will be
important factors in determining referral patterns.
Trends in Radiology Organizations. The trends toward managed care, cost
containment and health care consolidation have combined to limit the number of
positions available and the salaries paid to radiologists. In addition, small
independent physician groups and individual practices, such as Dr. Jackson's
practice group and us, are typically at a competitive disadvantage to larger
associations or networks of physicians. Among the reasons for this disadvantage
are the lack of capital necessary to expand geographic practice areas and the
imaging techniques offered, to develop state-of-the-art information systems, and
to purchase costly new imaging technologies, each of which can improve quality
of care and reduce costs. They may also lack the cost accounting and quality
management systems necessary to allow them to price and monitor complex risk-
sharing arrangements with third-party payors.
Additionally, small to medium-sized groups and individual practices often do
not have contractual ties with other providers nor do they have the ability to
offer a broad range of subspecialty imaging services. Small practices often have
higher operating costs, since overhead must be spread over a relatively small
revenue base, and minimal vendor purchasing power. In order to remain
competitive in the changing medical service environment, radiologists are
beginning to affiliate with or create larger organizations by adding
radiologists to their groups, creating or joining a network or an independent
physician association or affiliating with a physician practice management
entity.
Government Regulation and Supervision
As a provider of healthcare services, we are subject to extensive federal and
state laws which regulate the relationships between providers of health care
services, physicians and other clinicians. Our ability to operate profitably
depends in part upon our ability and the ability of Dr. Jackson's practice group
and affiliated referring physicians to obtain and maintain all necessary
licenses, certificates of need and other
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approvals and to operate in compliance with present and future applicable health
care laws and regulations and requirements of insurance companies and other
health care providers.
Licensing and Certification Laws
The ownership, construction, operation, expansion and acquisition of
facilities similar to The Imaging Center are subject to various federal and
state laws, regulations and approvals concerning the licensing of facilities,
medical personnel and technicians, certificates of need, and other required
certificates for certain types of health care facilities and major medical
equipment. The Imaging Center does not require a certificate of need. However,
Maryland law requires that we obtain and maintain a license to operate certain
major medical equipment which we use in our business, such as computed
tomography scanners, also referred to as CT and magnetic resonance imagers, also
known as MRI.
Fee-Splitting; Corporate Practice of Medicine; Payments for Referrals
The laws of many states, including Maryland, prohibit business corporations,
such as us, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as fee-
splitting, with physicians. These laws and their interpretations vary from state
to state and are enforced by both the courts and regulatory authorities, each
with broad discretion. In the state of Maryland there is no explicit prohibition
against sharing fees with non-physicians, as such, or against the corporate
practice of medicine. However, Maryland law prohibits payments for bringing or
referring a patient and referrals by a practitioner to a health care entity in
which the practitioner directly or indirectly owns a beneficial interest or has
a compensation arrangement. These laws are subject to certain exceptions. These
issues are discussed in greater detail below under the discussion of Medicare
and Medicaid fraud and abuse. While we believe that the use of our services by
Dr. Jackson's practice group does not violate these laws, there are legal issues
associated with the ownership of our shares by physicians who refer patients to
Dr. Jackson's practice group. These physicians should obtain legal advice on
that subject before purchasing our stock.
We cannot represent whether regulatory authorities or other parties will
assert that we are engaged in the corporate practice of medicine or that the
payment of service fees to us by Dr. Jackson's practice group constitutes fee
splitting or prohibited payment for referrals. If such a claim was successfully
asserted, we could be subject to civil and criminal penalties and could be
required to restructure or terminate our contractual arrangements. Such results
or our inability to successfully restructure our relationships to comply with
these laws could significantly affect our profitability.
Physician Payment Systems
Approximately 25% of our revenues are derived from government approved
healthcare programs, such as Medicare and Medicaid. The federal government has
implemented, through the Medicare program, a resource-based relative value scale
payment methodology for physician services. This methodology is a fee schedule
that, except for certain geographical and other adjustments, pays similarly
situated physicians the same amount for the same services. This schedule is
adjusted each year and may increase or decrease at the discretion of Congress.
To date, the implementation of this methodology has reduced payment rates for
certain of the procedures historically provided by Dr. Jackson's practice group.
Federal law also provides for reductions in the rate of growth of payments for
physician services, including services historically provided by Dr. Jackson's
practice group, in the amount of $5.3 billion over a five-year period ending in
2002. In addition, this law mandates a resource-based methodology for payment of
physician practice expenses over a four-year period beginning in fiscal year
1999. This methodology is expected to reduce payments for services historically
provided by Dr. Jackson's practice group.
For a number of years, Medicare has reimbursed most radiology services
provided to Medicare patients under a separate radiology relative value system.
This radiology relative value system has been integrated into payment
methodology described above, but has been "rescaled," to be consistent with that
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methodology. Some components of reimbursement for portable x-ray services
relating to the transport and set-up of equipment continue to be reimbursed
separately from the professional and technical components. Regulations were
adopted in 1996 to limit separate payment for transportation of diagnostic
equipment in most circumstances to certain approved suppliers.
Similar type payment systems also have been adopted by certain private third-
party payors and we believe that it is likely that other private third-party
payors will adopt this payment methodology in the future. Wider-spread
implementation of these programs could reduce payments by private third-party
payors and could indirectly reduce our operating margins to the extent that the
costs of providing administrative, technical and non-medical services related to
such procedures could not be proportionately reduced. These cost reduction
efforts by governmental or private third-party payors may significantly
adversely affect our business or profitability.
Private third-party payors and Medicare and Medicaid have increased their use
of managed care as a means of cost containment. Increasingly, private third-
party payors negotiate discounts from established physician and hospital charges
or require capitation or other risk sharing arrangements as a condition of
patient referral to physician groups such as Dr. Jackson's practice group.
Federal law also includes provisions designed to increase the enrollment of
Medicare and Medicaid participants in managed care programs. Our inability to
negotiate satisfactory arrangements with managed care companies could
significantly adversely affect our business or profitability.
Rates paid by non-governmental insurers, including those that provide Medicare
supplemental insurance, are based on established physician and hospital charges
and are generally higher than Medicare payment rates. A change in the makeup of
the patient mix of the medical practices that results in a decrease in patients
covered by private insurance plans could adversely affect our revenue and
income.
Medicare and Medicaid Fraud and Abuse
These laws include the fraud and abuse provisions of the Social Security Act,
which include the federal "anti-kickback" and "Stark" or anti-referral laws. The
"anti-kickback" laws prohibit the offering, payment, solicitation or receipt of
any direct or indirect remuneration for the referral of Medicare, Medicaid or
other governmental program patients or for the recommending, leasing, arranging,
purchasing, ordering or providing of Medicare or Medicaid covered services,
items or equipment. Violations of the "anti-kickback" laws may result in
substantial civil or criminal penalties for individuals or entities, including
large civil monetary penalties and exclusion from participation in Medicare,
Medicaid and other governmental programs.
Federal law, including the Balanced Budget Act of 1997, contains reform
provisions relating to Medicare, Medicaid and other governmental programs. These
provisions are intended to assist the government in its efforts to enforce the
"anti-kickback" laws. Changes included adding a civil money penalty and
broadening the scope of circumstances under which mandatory or permissive
exclusion from these programs may apply.
Similarly, provisions contained in the Stark law prohibit physician referrals
for certain "designated health services," including radiology services to
entities with which a physician or an immediate family member has a financial
relationship. The Stark law also prohibits entities from billing for these
designated health services which are furnished under a prohibited referral. A
violation of the Stark law by us, any member of Dr. Jackson's practice group or
unaffiliated physicians, may result in significant civil penalties of as much as
$15,000 for each violating referral and $100,000 for participation in a
"circumvention scheme". Violations may also cause the exclusion or suspension of
the physician or entity from future participation in the Medicare and Medicaid
programs.
Maryland law similarly prohibits referrals by a practitioner to an entity in
some cases in which the practitioner has a beneficial interest in or a
compensation arrangement with the entity. A determination of
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violation under any of these laws by Dr. Jackson's practice group or us could
have a significant adverse effect on our business or profitability.
Federal regulatory and law enforcement authorities have recently increased
enforcement activities with respect to Medicare and Medicaid fraud and abuse
regulations and other reimbursement laws and rules, including laws and
regulations that govern our activities and the activity of referring physicians.
In the future, we may be investigated, claims may be made against us or
increased enforcement activities may directly or indirectly adversely affect our
business or financial condition or the market price of our shares.
The federal government has recently announced a policy of increased scrutiny
of joint ventures and other transactions among health care providers in an
effort to reduce potential fraud and abuse relating to Medicare costs. The
applicability of these provisions to many business transactions in the health
care industry has not yet been subject to judicial and regulatory
interpretation.
We believe that although we receive fees for technical radiology and imaging
services, we are not in a position to make or influence referrals of patients or
services reimbursed under these governmental programs to Dr. Jackson's practice
group or unaffiliated referring physicians, or to receive such referrals. These
service fees are intended by us to be consistent with fair market value in arms'
length transactions for the nature and amount of technical services rendered.
Moreover, due to the high degree of integration between the technical services
offered by us and the professional services offered by Dr. Jackson's practice
group, it is doubtful whether there are or will be any "referrals" between Dr.
Jackson's practice group and us in the sense contemplated by the anti-kickback
laws. For these reasons, we do not believe that fees payable to us should be
viewed as remuneration for referring or influencing referrals of patients or
services covered by such programs as prohibited by statute. If, however, we are
deemed to be in a position to make, influence or receive referrals from or to
physicians, or we are deemed to be a provider under the Medicare or Medicaid
programs, our operations could be subject to scrutiny under federal and state
anti-kickback and anti-referral laws and could be materially and adversely
affected.
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Special Note to Physicians Contemplating Purchasing Shares
We believe that although we receive fees for technical services, we are not in a
position to make or influence referrals of patients. While we believe that the
use of our services by Dr. Jackson's practice group does not violate these laws,
there are legal issues associated with the ownership of our shares by physicians
who refer patients to Dr. Jackson's practice group, and any such referring
physicians should obtain legal advice on that subject before purchasing our
shares.
--------------------------------------------------------------------------------
Health Care Reform Initiatives
In addition to existing government health care regulation, there have been
numerous initiatives on the federal and state levels for comprehensive reforms
affecting the payment for and availability of health care services. We believe
that such initiatives will continue during the foreseeable future. Certain
aspects of these reforms as proposed in the past, such as further reductions in
Medicare and Medicaid payments and additional prohibitions on physician
ownership, directly or indirectly, of facilities to which they refer patients,
if adopted, could adversely affect us. The proposal of these sorts of reforms
may affect the price of the stock of many companies in health care and related
industries and may similarly affect the market price of our stock.
Compliance Program
With the assistance of our special health care regulatory counsel, we monitor
compliance with federal and state laws and regulations applicable to health care
entities. We conduct or have our special health care regulatory counsel conduct
periodic audits of various aspects of its operations for compliance with such
requirements. In addition, we have a formal compliance program in effect.
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While we operate in compliance with applicable federal and state laws, our
current and anticipated business operations have not been reviewed or audited by
any judicial or regulatory agency for compliance with such requirements. A
review of our business by courts or regulatory authorities could result in
determinations adversely affecting our operations. In addition, the health care
regulatory environment could change in a manner that restricts our operations.
Maryland law may require us to modify our operational structure in order to
continue or expand our operations within Maryland. Any limitation on our ability
to expand or offer additional services could have a material adverse effect on
our business or financial condition.
Insurance Laws and Regulations Applicable to Risk-Sharing Arrangements
Any physician or physician network engaged in risk-based contracting are
subject to applicable insurance laws and regulations of certain states,
including Maryland. These laws and regulations may include minimum capital
requirements and other safety and soundness requirements. If, in the future, Dr.
Jackson or we enter into any risk-based contracts, also know as capitation
arrangements, failure to comply with these statutes and regulations could
significantly adversely affect our business or financial condition. Insurance
related regulations or compliance requirements could also impose substantial
costs to us. However, neither Dr. Jackson nor we intend at this time to enter
into capitation arrangements or risk-based contracts that would subject us to
regulation as an insurer.
Quality Assurance Programs
Various quality assurance programs and organizations have been created to
scrutinize managed care organizations and their providers. In response to these
programs, managed care organizations and providers have developed their own
quality assurance programs to address a variety of areas, including patient
access to services, patient satisfaction, outcomes and performance measures and
utilization of services. These quality assurance measures involve various costs
associated with their implementation and operation and depend, in part, upon the
sophistication and compatibility of existing systems and operations of Dr.
Jackson's practice group and us, and our ability to integrate those systems and
operations. The inability of Dr. Jackson's practice group and us to develop
strong quality assurance measures could place us at a competitive disadvantage
and have a material adverse effect on our business or financial condition.
FACILITIES AND EMPLOYEES
Our facilities are located in a building located at 715 Williams Street,
Cumberland, Maryland, which is leased from Imaging Associates of Cumberland,
Inc., a corporation controlled by Dr. Jackson. Our principal technical services
are described in the following table. A more detailed explanation of the method
and nature of such technical services is contained under "Industry Background -
Radiology."
Technical Services Description
X-Ray Roentgen rays penetrate the body and record images
of organs and bone structures on film.
We lease a GE Radiographic/Tomography machine and a
GE Radiographic/Fluoroscopy machine from Imaging
Associates of Cumberland, Inc. The terms of the
lease are discussed below under the heading "Current
Debt; Future Capital Requirements."
Mammography Low dosage x-rays used to visualize breast tissue.
The primary screening tool for breast cancer.
Mammography procedures also include biopsy of cells
to assist in the diagnosis of breast cancer. We
previously leased from Imaging Associates of
Cumberland, Inc. a GE 600T Mammography System until
July 7, 2000. This unit was taken out of service to
install the Full Field digital system described
below.
We purchased a second mammography system from
General Electric, a Senographe DMR Mammography
System, with SenoVision Digital Spot and
Stereotactic Biopsy System. This system provides
improved image quality, giving superior images in-
patients with dense breasts, while improving
contrast and decreasing patient exposure dose by up
to 40%, accompanied by shorter exposure times.
Patient comfort is an important factor in
encouraging women to obtain mammograms at regular
recommended intervals. The
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Technical Services Description
Senographe DMR is designed to enhance patient relaxation
and cooperation. The system's open configuration and low
profile allows for constant patient/technologist eye
contact. This system also uses digital spot film images
to enhance visualization of small calcifications, which
may indicate the first stages of breast malignancy and
permit better evaluation of the nature of mass lesions,
especially in dense breasts. A single digital image can
be manipulated to adjust density and contrast without
subjecting patients to additional compression or
dose.
The Stereotactic Biopsy System allows actual breast
biopsy to be performed on site, decreasing costs to the
patients and their insurance companies. The unit rotates
around the patient, allowing access to hard-to-reach
spots and enhancing patient comfort.
We purchased this new equipment on November 20, 1999,
for $218,104.09, which includes a one-year warranty and
service agreement. A long-term service contract will
begin after the first year of operation.
Full Field Digital mammography was recently approved for
clinical applications by the U.S. Food and Drug
Administration (FDA). The system displays each mammogram
exposure immediately on a monitor, without having to
develop films. The image can be manipulated on the
monitor, to change contrast and brightness of the image.
This system provides immediate results, reduced retakes,
increased patient volumes, and improved diagnostic
confidence.
On June 23, 2000, we entered into a lease/purchase
agreement with General Electric Medical System for their
Senographe 2000 D Mammography System. The initial
purchase price was $433,565.00. Out monthly base price
is $8,990.00 per month, with an additional $2,274.60 per
month for a service contract, with a 60-month term. At
the completion of the lease, we can purchase the
equipment for $1.00. Included in the purchase is a Kodak
Dryview 8600 PACS Ink Laser Imager, to produce hard
copies of images. The physicians and technology staff
are currently training on this system. After training is
complete, we will apply to the FDA for certification, so
that we can commence clinical operation. We will also
apply to the ACR for accreditation.
Magnetic Resonance Strong magnetic field in conjunction with low energy
Imaging (MRI) electromagnetic waves are processed by a computer to
produce high-resolution images of body tissue including
the brain, spine, abdomen, heart and extremities.
We lease a new MRI machine from General Electric Medical
Systems, consisting of a Signa Horizon Echospeed 1.5
Tesla. This is the most up-to-date and state-of-the-art
MRI unit available, featuring a short magnet with flared
ends, so that only a short segment of the patient is
enclosed, thereby markedly decreasing any feelings of
claustrophobia. A sound system is incorporated for
further patient comfort. The magnet incorporated into
this system is a more powerful magnet than the magnets
found on typical "open" MRI units, and is marketed by GE
as a "Wide Open High-Field MR System". An Invivo 4500
MRI Pulse Oximeter is included in this system to augment
patient safety by monitoring patient blood oxygenation
and pulse and analyzing EKG waveform, as well as
providing EKG gating for higher quality vascular
studies. The system includes fast acquisition imaging
software to assist in imaging uncooperative or sedated
patients, using abdominal breath hold-images, and for
use in evaluating obstructions of the bile ducts, kidney
examinations, and conducting magnetic resonance
mammograms. Additional enhancements facilitate
angiography of the brain, carotid arteries, aorta, renal
arteries, and peripheral vessels, enable improved
imaging to differentiate between old or recent strokes,
and provide detailed analysis of cardiac chambers,
pumping action of the heart, spinal cord, joints and
other body parts. This new MRI system was installed and
began operating in June 1999.
The new MRI equipment is housed in a mobile van leased
from General Electric. The van is manufactured by the
Calumet Coach Company and is connected directly to the
existing building. The van is customized and shielded to
provide high quality MRI images and maximum patient
safety. The mobile van arrived with the MRI pre-
installed in June 1999.
Computed Computer directed movement of an x-ray tube to produce
Tomography (CT) multiple cross sectional images of a particular organ or
area of the body. Used to detect tumors and other
conditions affecting bones and internal organs. Also
used to detect the occurrence of strokes, hemorrhages
and infections.
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Technical Services Description
We use the following CT equipment: General Electric
Synergy Helical CT System, Model # 2137298; a Medrad
MCT Injector System with a 5-year Service Contract; and
CT Workstation Upgrade to perform three dimensional
Analysis and QCT Bone Mineral Density for osteoporosis.
All of this equipment is leased from Value Healthcare,
Inc.
Nuclear Imaging Short-lived radioactive isotopes which release small
amounts of radiation are recorded by a gamma camera and
processed by a computer to produce an image of various
anatomical structures or to assess the function of
various organs such as the heart, kidneys, thyroid and
bones. Nuclear medicine is used primarily to study
anatomic and metabolic functions.
We also lease a new nuclear medicine machine from
General Electric Medical Systems. The Millenium MG
(Multi-Geometry) Dual Rectangular Head Camera
represents state-of-the-art equipment. Dual cameras
provide for much faster acquisition of data, increasing
the quality of images by decreasing patient motion and
increasing spatial resolution, thus enhancing cardiac
imaging associated with treadmill or pharmaceutical
stress testing and quantification of cardiac function.
Scans of the bones, thyroid gland, gallbladder,
kidneys, and other body parts, will also be enhanced.
The system features GENIE Acquisition, a multitasking
computer, which features true simultaneous operation of
its reconstruction, display, analysis, networking,
filming, and archiving functions, to enhance
productivity. Included with the nuclear camera are two
"dry-view" laser cameras, which are interfaced with
nuclear medicine, magnetic resonance imaging, CT, and
three ultrasound machines. Traditional chemicals and
water baths are not used with these cameras, supplied
by Imation, a company associated with Kodak. This
equipment was installed and began operating in May
1999.
Electrocardiogram and Measures heart function under static and stress
Heart Stress Testing conditions using a treadmill.
A new treadmill and cardiac-monitoring system, The
Quinton Q4500 Stress Test System, was installed in
March 1999. The system is highly mobile, computerized,
and programmable to accommodate variable programs for
different users performing cardiac stress tests. A
self-inflating sphygmomanometer cuff obtains automatic
blood pressure readings. The purchase price for this
equipment includes 13 months of service under warranty.
Ultrasound High-frequency sound waves develop images of internal
organs, unborn fetuses and the vascular system.
Ultrasound has widespread applications, including
procedures in obstetrics, gynecology and cardiology.
We use three Acuson 128XP Ultrasound systems to provide
this service. This equipment is leased from Imaging
Associates of Cumberland, Inc. The terms of the lease
are discussed below under the heading "Current Debt;
Future Capital Requirements."
In addition to the foregoing equipment, we have additional EKG equipment,
vehicles and medical, office, and professional equipment which we use in
providing technical services.
Dr. Jackson's practice group will provide professional diagnostic,
treatment, and supervisory services.
We employ approximately 50 persons in the following professional,
administrative and technical capacities.
No. Full No. Part
Position Time Time Description of Duties
Professional Medical 1 1 Licensed physician and surgeon,
Board Certified, specializing in
radiology and related diagnostic
and treatment aspects of
medicine. Supervises technical
employees.
Chief Operating Officer 1 Responsible for all our business
operational activities at our
various locations. Operational
activities include, but are not
limited to, property management,
personnel, purchasing, accounts
payable, accounts receivable,
reception, transcription, and
payroll. Also undertakes such
projects as we may determine
which require the expertise of
this officer.
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No. Full No. Part
Position Time Time Description of Duties
Chief Financial Officer 1 Responsible for contracting,
negotiating and filing
applications with insurance
companies to become a provider
(governmental and commercial).
Supervises accounts receivable
(billing Supervisor, billing and
collections). Billing Software
applications. Credentials for
medical professional. Acquiring
outside business with facilities
and organizations such as
federal, state, and county
prisons, nursing homes, and free-
standing medical clinics.
Agreements for special programs
and grants, such as with State
and County Health Departments.
Radiologic Technologist 14 Licensed technologists certified
in specific modalities to perform
diagnostic radiological
procedures ordered by primary
care physicians and other medical
specialists on patients of all
ages.
Billing Staff 7 Codes diagnoses and procedures to
submit to insurance carriers for
payment (electronic and hard copy
claims). Bills self-pay patients
and collecting balances not
covered by insurance. Applies
receipts and adjustments to
proper patient accounts. Prepares
month-end reports for
receivables.
Clerical, Reception and 26 Obtains physician orders, health
Maintenance Staff insurance information and
personal demographics from
patients and schedule procedures.
Has proper release forms and
assignments signed. Transcribes
the radiologist's reports and
findings on performed procedures.
Distributes reports and films to
ordering physicians (fax or
courier). Maintains files of
patient records (films, charts
and reports). Maintains quality
assurance and compliance records,
employee orientation of
policies/procedures and peer
review. Purchases supplies
(medical, office and
maintenance). Maintains buildings
and grounds.
Executive Secretary 1 Documents and maintains pertinent
records for corporations.
Maintains physician's credentials
and Continuing Medical Education
files. Responsible for follow-up
on patient quality assurance
records required by MQSA
(Mammography Quality Standards
Act). Accountable to all
departments for secretarial
duties. Calculates employee time
cards for payroll. Responsible
for advertising, public relations
and community activities for the
business.
Members of the professional medical staff are required to hold licenses to
practice medicine in Maryland. Dr. Jackson is the full time professional medical
staff and holds medical licenses from the States of Maryland, West Virginia and
Pennsylvania. He also holds permits to dispense controlled dangerous substances
from the Drug Enforcement Administration and the states of Maryland and West
Virginia. Dr. Alicia M. Cartagena is the part time professional medical staff,
and holds licenses from the states of Maryland and Virginia and the District of
Columbia. She also is registered with the Drug Enforcement Administration to
dispense controlled dangerous substances. Both of them are certified by the
American Board of Radiology and under the Mammography Quality Standards Act.
This act requires the interpretation of 960 mammography studies within a 36
month period and teaching or completing at least 15 continuing medical education
credits in mammography within a 36 month period, including six credits in each
mammography modality used by them. The State of Maryland requires each of them
also to obtain at least 50 credit hours of continuing medical education every
two years.
All of the radiologic technologists employed by us are licensed by the
State of Maryland, certified by the American Registry of Radiologic
Technologists and hold cardiopulmonary resuscitation certifications, except for
two recent hires, one of whom is preparing for certification examinations.
Certain of the radiologic technologists also hold certifications from the
American Registry of Diagnostic Medical Sonographers. The Nuclear Medicine
Technology Certification Board also certifies one of the radiologic
technologists. In order to maintain such certifications, radiologic
technologists must obtain continuing education credits every two or three years.
25
<PAGE>
Certain of our facilities and equipment, including our nuclear equipment,
must also be licensed by the State of Maryland and the U. S. Food and Drug
Administration. The American College of Radiology accredits our mammography
facilities and ultrasound facilities. We have applied for similar accreditation
for our MRI facilities.
Many of our technicians require special training and certification. Our
success is dependent upon our ability to attract and retain qualified and
capable personnel to operate our equipment or provide related services to our
customers. Our inability to attract and retain qualified employees could
adversely affect our business and financial condition. Similarly, we could be
adversely affected by the inability of Dr. Jackson's practice group to retain
qualified medical professionals who use our services.
OUR MANAGEMENT
Directors, Executive Officers and Senior Management
F. Daniel Jackson, M.D. is our President, a director, and our controlling
shareholder. He has not held any other office or position with us. During the
past five years, Dr. Jackson was an employee of F. Daniel Jackson, M.D., P.A.,
of which he is the sole stockholder and officer. He holds licenses to practice
medicine in the States of Maryland, Pennsylvania and West Virginia, and was
certified by the American Board of Radiology in 1977. He is 51 years old and
earned his M.D. degree from the School of Medicine at the University of North
Carolina, Chapel Hill, in 1973. He received postgraduate training in diagnostic
radiology from Rochester General Hospital, Rochester New York. Since 1977, Dr.
Jackson has practiced diagnostic radiology in the Cumberland, Maryland, area,
and has been affiliated at various times with Frostburg Community Hospital,
Frostburg, Maryland; Potomac Valley Hospital, Keyser, West Virginia; Memorial
Hospital and Medical Center, Cumberland, Maryland; and Garrett County Memorial
Hospital, Oakland, Maryland. He is a member of the following professional
associations: American Medical Association, American College of Radiology,
Maryland Medical and Chirurgical Faculty, Radiological Society of North America,
Maryland Radiological Society, and Allegany County Medical Society. He has been
a board member of the Allegany County Chapter of the American Cancer Society.
Dr. Jackson conducts his business at our offices and resides at 726
Washington Street, Cumberland, Maryland.
Our other executive officers, directors and significant employees and
information about them are described below.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Name, Age and Address Title Business Experience/Employment During Last 5 Years
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frederick J. Hill, 64 Director Retired since 1995. Formerly Senior Vice President, Beall, Garner,
822 Buckingham Road Screen and Geare, Inc., Cumberland, MD, a financial services company
Cumberland, Maryland 21502 providing insurance, pension planning and discount brokerage services
-----------------------------------------------------------------------------------------------------------------------------------
James F. Scarpelli, Jr., 46 Director Vice President, Scarpelli Funeral Home, PA, 108 Virginia Avenue,
894 Eastgate Court Cumberland, MD
Cumberland, Maryland 21501
-----------------------------------------------------------------------------------------------------------------------------------
Larry James Taylor, 50 Chief Operating Chief Operating Officer and Vice President, The Imaging Center, 201
Route #1, Box 124 D Officer and Vice Virginia Avenue, Cumberland, MD, 1996 - present
Keyser, WV 26726 President
Interim Plant Manager, Anchor Glass Container, Keyser, WV, a
manufacturer of glass containers, 1995 - 1997
-----------------------------------------------------------------------------------------------------------------------------------
D. Jeanne Starkey, 50 Chief Financial Chief Financial Officer and Treasurer, The Imaging Center, 201
753 Washington Street Officer and Virginia Avenue, Cumberland, MD, 1996 - present
Cumberland, MD 21502 Treasurer
Business Manager, The Imaging Center, Cumberland, MD, 1992 - 1996
-----------------------------------------------------------------------------------------------------------------------------------
Carolyn L. Hott, 56 Corporate Secretary Secretary, The Imaging Center, 715 Williams Street, Cumberland, MD,
319 Caroline Street 1990 - present
Cumberland, MD 21502
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
None of these persons either is related to any of the others by blood or
marriage or has been involved in any material legal proceedings during the past
five years, including bankruptcy and significant or material criminal offenses.
Retirement Plan
We adopted the retirement plan that is sponsored by Dr. Jackson's practice
group. This retirement plan is a 401(k) profit-sharing plan open to each
employee that has attained age 21 and completed 12 months of service during
which the employee completed 1,000 hours of service. We do not match any portion
of the elective deferral of the employee; however, we can make a discretionary
contribution of up to 15% of eligible compensation annually. Any employer
contributions are vested 20% each year with each employee fully vested after
five years.
EXECUTIVE COMPENSATION
Because we began operations on July 1, 1999, no compensation or other
remuneration was paid to our officers or directors before that date. They did,
however, receive compensation from Dr. Jackson's practice group and related
entities, which are our predecessors.
Each of our officers receives compensation from us in the amount of $20,000
annually. Our officers are also officers or employees of Dr. Jackson's practice
group and related companies and receive compensation from them. None of our
officers has an employment agreement with us.
Our directors receive $500 for each meeting of the Board of Directors they
attend.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
Dr. Jackson is the sole owner of all 100 issued and outstanding shares of
our Class A Voting common stock.
The following table sets forth the expected respective ownership interests
in shares of our Class B Non-Voting common stock of each executive officer and
director upon completion of the offering.
<TABLE>
<CAPTION>
Ownership of Class B Non-Voting Shares of Common Stock
Number Owned Percentage Number Percentage
Before Offering Owned Before Owned After Owned After
Name Offering Offering Offering
<S> <C> <C> <C> <C>
F. Daniel Jackson, M.D. 8,999,000 90% 8,999,000 90%
Frederick J. Hill, Director 0 0 1,000 .01%
James F. Scarpelli, Jr., Director 0 0 1,000 .01%
Larry James Taylor, Vice President 0 0 1,000 .01%
D. Jeanne Starkey, Treasurer 0 0 1,000 .01%
Carolyn L. Hott, Corporate Secretary 0 0 1,000 .01%
Total, all Officers and Directors 8,999,000 90% 9,004,000 90.05%
Others 0 0% 995,000 9.95%
</TABLE>
Sale of Shares In the Future by Dr. Jackson Could Adversely Affect the
Price of Our Stock. Upon completion of this offering, Dr. Jackson, our
controlling shareholder, will own or control 8,999,000, or 90%, of our total
outstanding shares of Class B Non-Voting common stock. Dr. Jackson expects to
offer and sell his shares of Class B Non-Voting common stock from time to time
in accordance with the limitations of applicable federal and state securities
laws. These sales could cause the price of the Class B shares to decline. Dr.
Jackson has expressed his intent to begin offering and selling his shares of
Class B Non-Voting common stock in the near future.
EXISTING AND POTENTIAL CONFLICT OF INTERESTS
Dr. Jackson is our President, a director and the sole owner of all
outstanding shares of our Class A Voting common stock. Accordingly, Dr. Jackson
will make all decisions regarding our operations, facilities and future
development. Dr. Jackson owns 100% of the stock of Value Healthcare, Inc.
and
27
<PAGE>
100% the stock of Imaging Associates of Cumberland, Inc., the companies which
leased various items of equipment to us. These transactions were intended to be
for fair market value of such equipment, but were not negotiated at arm's
length. Dr. Jackson also controls the real estate and building in which our
facilities and equipment are located. We leased these facilities under terms we
believe to be fair, but not necessarily the same terms as we would have obtained
through arm's length negotiations.
We lease certain of our equipment and our building from Value Healthcare,
Inc. and Imaging Associates of Cumberland, Inc. Dr. Jackson controls both of
these corporations. Current lease and financing arrangements for the building we
occupy and our major equipment are described in the following table.
<TABLE>
<CAPTION>
Financing/Leasing
Description Terms Lender/Lessor
<S> <C> <C>
Mammography Machine Purchased for cash on November 20, 1999. Not Applicable
MRI Machine 5 year term. Monthly lease and service payments are $32,974.00 for General Electric Medical Systems
12 months, then $ 43,829.00 for months 13 through 60. A buyout
provision is available after 57 months for $ 778,730.00.
Trailer for MRI Equipment 5 year term. Monthly lease payments will be $ 5,396.00, which General Electric Medical Systems
includes service the first year. A service contract will be
signed for years 2 through 5, is estimated to cost about
$20,000.00 per year.
Nuclear Medicine Machine 5 year term. Monthly lease and service payments are $ 9,439.00 for General Electric Medical Systems
12 months, then $ 13,939.00 for months 13 through 60. A buyout
provision is available after 57 months for $161,126.00.
Treadmill and Cardiac None /2/ Not Applicable
Monitoring System
Building, 715 Williams 5 year term with right to renew for an additional 5 years. Monthly Imaging Associates of Cumberland,
Street, Cumberland, MD lease payments are $5,835 per month for the first 5-year term and Inc.
$7,440 for any renewal term.
Ultrasound, Tomography, 5-year term, subject to renegotiation by mutual consent at any Imaging Associates of Cumberland,
Fluoroscopy and X-Ray time (but no more than once each year). Monthly lease payments are Inc.
Equipment $8,175 per month.
GE Synergy CT Machine 5 year term. Monthly lease payments are $14,500 per month. Value Healthcare, Inc.
and Medrad CT Injector
</TABLE>
Notes:
1. Purchase price was $218,104.09.
2. Original cost was $23,300.
Financing on Our Leased Building and Equipment. There is no debt owed upon
the building or any of the equipment and other property we lease from Imaging
Associates of Cumberland, Inc. and Value Healthcare, Inc. However, the building,
equipment and property, together with other property owned by related or
affiliated companies, is pledged to The American Trust Bank as security for a
debt of approximately $1,400,000 to that bank. Rents under the leases with these
companies were calculated as a monthly amount sufficient to pay the original
purchase price of such property over a term of five years, in the case of
equipment, or ten years, in the case of the building, plus any taxes on such
property.
Terms of Equipment Leases. The equipment leases with Imaging Associates of
Cumberland, Inc. and Value Healthcare, Inc. require us to pledge all collectible
accounts receivable as security for full payment of rent throughout the term of
the lease. These leases require us to comply with and conform to all national,
state, municipal, police and other laws, ordinances and regulations in any way
relating to the possession, use or maintenance of the leased equipment. The
lessors disclaim any warranties regarding such equipment, express or implied.
We are obligated to maintain the leased equipment in good repair, condition
and working order at our own cost and to bear the risk of any loss or damage to
the equipment, repairing or replacing it upon loss or damage. We are required
under the leases to maintain insurance against loss of and damage to the
28
<PAGE>
equipment for not less than its full replacement value and combined public
liability and property damage insurance with limits as approved by the lessor,
in both cases naming the lessor as loss payee.
The leases require us to keep the equipment free and clear of all levies,
liens and encumbrances, and to pay when due all license and registration fees,
assessments and taxes arising from the use or operation of the equipment. The
leases require us to indemnify the lessor against, and hold lessor harmless
from, any and all claims, actions, suits, proceedings, costs, expenses, damages
and liabilities, including reasonable attorney's fees and costs, arising out of,
connected with, or resulting from our use of the leased equipment.
Terms of Building Lease. The lease covers all of the building located at
715 Williams Street, Cumberland, Maryland, which is generally known as "The
Imaging Center." The lease may be renegotiated at any time by mutual consent,
but not more than once each calendar year. The leased premises may be used and
occupied by us for any lawful purpose which complies with applicable zoning
ordinances. Except for assignment to related entities or a purchaser of
substantially all our assets, we may not sublease all or any part of the leased
premises, or assign the lease in whole or in part without the lessor's consent.
The lease requires us to make, at our expense, all necessary repairs to the
leased premises. We may also make additions, improvements and replacements to
the leased premises from time to time as we deem desirable. The lease requires
us to pay all general real estate taxes and special assessments coming due
during the lease term and all personal property taxes with respect to lessor's
personal property, if any, on the leased premises. We are responsible for paying
all personal property taxes with respect to our personal property at the leased
premises.
If fire or other casualty resulting from our act or negligence damages the
building, our obligation to pay rent will not be diminished or abated while such
damages are being repaired. We will also be responsible for the costs of repair
not covered by insurance. We must maintain fire and extended coverage insurance
on the building and the leased premises in such amounts as approved by lessor.
We must also maintain, at our expense, fire and extended coverage insurance on
all of our personal property located at the leased premises.
The lease further requires us to maintain comprehensive general liability
insurance with respect to the activities in the building providing not less than
$1,000,000 combined single limit coverage for bodily injury, property damage or
both. Our comprehensive general liability insurance must name the lessor as an
additional insured.
The lease requires us to pay for water, sewer, gas, electricity, telephone
and other services and utilities used by us on the leased premises during the
term of the lease.
We are required to comply with the rules of the building adopted and
altered by lessor from time to time.
If fire, casualty or structural defects damage the leased premises so that
it cannot be used for our purposes, we are responsible for repairing the damage
promptly, at our expense. We are required to pay rent and other charges while
the leased premises are inoperable or unfit for occupancy, or use, in whole or
in part, for our purposes.
The lease is subject and subordinate to any existing or future mortgage,
deed of trust or other lien upon the leased premises, including any renewals,
refinancing and extensions. The lessor may subordinate the lease to any present
or future mortgage, deed of trust or other lien placed upon the leased premises
or the building. The building we lease is subject to a mortgage securing a
$1,400,000 debt to The American Trust Bank, as discussed above.
29
<PAGE>
DESCRIPTION OF COMMON STOCK
General. We are authorized to issue two classes of common stock, consisting
of 1,000 shares of Class A Voting common stock $1.00 par value per share, and
9,999,000 shares of Class B Non-Voting common stock $1.00 par value per share.
The Class A shares are not offered under this prospectus. Upon completion of the
offering, we will have 100 Class A shares and 9,999,000 Class B shares of common
stock outstanding, assuming that all Class B shares offered under this
prospectus are purchased. The following description of our common stock is
qualified in its entirety by reference to our Articles of Incorporation, a copy
of which is attached to this prospectus as Appendix E.
We will act as transfer agent for our common stock.
Voting and Other Rights of Classes of Common Stock. Holders of Class A
Voting common stock are entitled to one vote per share on all matters on which
shareholders are entitled to vote generally. The holders of Class A Voting
common stock shall have the exclusive right to vote for any and all matters for
which our stockholders shall have the right to vote. Shareholders have no right
to cumulate their votes in the election of directors. Accordingly, holders of a
majority of the outstanding shares of Class A common stock entitled to vote in
any election of directors may elect all of the directors standing for election.
The holders of Class B Non-Voting common stock have no right to vote for or
elect directors or to vote on any other matter submitted to a vote at any
meeting of the stockholders. Class B shareholders may be entitled to vote when
required by the Maryland General Corporation Law, but then only to the extent
not modified or waived by our Articles of Incorporation. We believe that
Maryland law does not require a vote by our Class B shareholders on any matter
upon which our shareholders may otherwise be entitled to vote. The holders of
Class B Non-Voting common stock are entitled to receive notice of the meetings
of the stockholders but are not entitled to vote on any matters submitted at
these meetings.
All classes of stock are identical in all other respects.
The stockholders have no preemptive rights with respect to sale of any
additional shares of our common stock. All outstanding shares of common stock
and any shares acquired in this offering, when paid for, will not be subject to
any calls or assessments.
Holders of common stock may receive dividends and other distributions when
and if declared from time to time by the Board of Directors. We do not intend to
declare or pay any dividends on the shares of our common stock in the near
future.
Liabilities of Stockholders. Under Maryland law, our stockholders have no
liability when acting in that capacity to laborers, servants or our employees.
Maryland courts have, however, held shareholders liable for their actions in
other capacities, such as acting as a guarantor or as an officer or director, or
by the commission of fraud.
Liquidation Rights. In the event of a voluntary or involuntary liquidation,
dissolution or winding up, after distribution of any amounts required to be
distributed to any other class or series of stock having a preference over the
outstanding common stock, the holders of common stock are entitled to share
ratably in proportion to the number of shares held by each holder in all our
assets remaining after payment of our liabilities. Our Articles of Incorporation
state that no holder of any class or series of stock shall have any preemptive
rights. We may, in our sole discretion, purchase or redeem shares of our stock
in accordance with Maryland law. All outstanding shares of common stock are, and
the shares offered hereby will be, when issued and paid for, fully paid and non-
assessable. The rights, preferences and privileges of holders of common stock
are subject to, and may become subordinate, to the rights of holders of shares
of any other class of stock or series of preferred stock which we may designate
and issue in the future.
Ownership of Shares Upon Completion of Offering. Upon completion of the
offering, we will have 100 shares of Class A Voting common stock and 9,999,000
shares of Class B Non-Voting common stock
30
<PAGE>
outstanding, assuming that all offered shares are purchased. The following table
sets forth each person who owns of record as of March 1, 1999, 10% or more of
the outstanding shares of common stock, and the expected respective ownership
interests expressed as a percentage of total ownership interests, upon
completion of the offering.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Ownership Interest*
-------------------------------------------------------
Class A Shares Class B Shares
-------------------------------------------------------
Owner Upon Upon
Prior to Completion of Prior to Completion of
Offering Offering Offering Offering
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F. Daniel Jackson, M.D.** 100% 100% 100% 90%
-----------------------------------------------------------------------------------
Other Shareholders*** 0% 10%
-----------------------------------------------------------------------------------
</TABLE>
* Expressed as a percentage of all issued and outstanding shares of
each class.
** Includes shares held in his profit sharing plan.
*** Includes all purchasers of shares offered by this prospectus,
assuming all offered shares are sold.
Control by Certain Shareholders and Affiliates. Dr. Jackson is the sole
owner of all Class A shares and is our President and a director. As such, he
controls the election of our directors and all decisions regarding our
operations, facilities and future development of our facilities.
Sales of Additional Shares. Before this offering, no public market existed
for the common stock. Sales of substantial amounts of common stock into the
public market after the offering, or the perception that such sales could occur,
could adversely affect the prevailing market price for the common stock and our
ability to raise equity capital. We cannot predict the effect, if any, that the
sale or availability for sale in the future of shares of common stock will have
on the market price of the common stock prevailing from time to time.
All shares of Class B Non-Voting common stock sold in this offering will be
freely tradable, except that any shares purchased by "affiliates", such as our
officers and directors, Dr. Jackson and entities controlled by him, must be sold
in compliance with the requirements of applicable state and federal securities
laws. Shares acquired by affiliates may be sold from time to time either under a
registration statement filed with the SEC or in transactions exempt from
registration. Dr. Jackson expects to offer and sell shares of Class B Non-Voting
common stock owned by him or entities controlled by him from time to time in
accordance with the limitations of applicable law.
Management and Operation of Company. Ownership of the shares offered by
this prospectus does not entitle the owners of those shares to participate in
our management or operation, except for any rights granted by Maryland law.
Possible Effects of Characterization as a "Penny Stock". If our shares are
characterized as a penny stock, your ability to sell them could be severely
affected. The regulations relating to penny stocks could limit the ability of
broker-dealers to sell our shares and, concurrently, your ability to sell your
shares in the secondary market.
Our stock will be a "penny stock" under applicable law and the rules and
regulations of the SEC if:
. its price is less than $5.00 per share
. it is not traded on a national securities exchange or the NASDQ, or
. we have:
. less than $5,000,000 in net tangible assets and have been in
business less than three years, or
31
<PAGE>
. under $2,000,000 in net tangible assets and have been in business
for at least three years, or
. average revenues of less than $6,000,000 for the last three years.
Based upon the offering price of our stock and our present financial
condition, we expect that our stock will be a "penny stock" upon completion of
this offering.
Although we are not subject to any special reporting requirements if our
stock is a "penny stock", brokers and dealers trading "penny stocks" are subject
to special regulation by the SEC. These regulations impose additional sales
practice requirements, including the requirement that purchasers of penny stocks
be provided specific information regarding investment in penny stocks as
described on SEC Schedule 15G and acknowledge receipt of this information. The
broker-dealer must reasonably determine that transactions in penny stocks are
suitable for the investor and must secure the investor's written agreement to
purchase the security, including its name and the amount of shares to be
purchased. The broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative and current quotations for
the shares. Finally, monthly statements must be sent disclosing recent price
information for the penny stocks held in the customer's account.
LEGAL PROCEEDINGS
We are not a party to any suits or complaints relating to services provided
by us or by Dr. Jackson's practice group. However, claims may be asserted
against us in the future.
REPORTS TO INVESTORS
Under Maryland law, we are required to prepare annually and submit to the
annual meeting of stockholders a full and complete statement of our affairs,
including a balance sheet and a financial statement of operations for the
preceding fiscal year. This statement is also required by law to be available to
all our stockholders for inspection and copying. Stockholders are also entitled
to inspect and copy during usual business hours our bylaws, minutes of the
meetings of stockholders, annual statements of affairs and voting trust
agreements on file at our principal office. Our shareholders are also entitled
to obtain from us a statement of each class of stock or other securities issued
by us during a specified period of not more than 12 months before the date of
the request, the consideration received per share, and the value of any
consideration other than money as set in a resolution of our board of directors.
LEGAL MATTERS
Richard G. McAlee, P.A., Crofton, Maryland, is passing upon certain legal
matters with respect to the validity of the shares of Class B Non-Voting common
stock. Miles & Stockbridge P.C., Baltimore, Maryland, acted as our special
counsel in this offering.
EXPERTS
Our management prepared the pro forma financial information concerning us
contained in this prospectus with the assistance of Huber, Michaels & Company,
Certified Public Accountants, based upon past operations of F. Daniel Jackson,
M.D., P.A. and related companies. We recalculated this historical information to
take into account our creation and the services we will perform for Dr.
Jackson's practice group. Our management prepared the financial statements for
the six months ended June 30, 2000, with the assistance of Huber, Michaels &
Company, Certified Public Accountants.
We are independent of all experts and counsel named in this prospectus.
None of them has any financial interest in us. Huber, Michaels & Company,
Certified Public Accountants, have acted as our independent accountants since we
commenced operations on July 1, 1999.
AVAILABLE INFORMATION ABOUT THE COMPANY
32
<PAGE>
We have filed with the United States Securities and Exchange Commission a
registration statement on Form SB-1 with respect to the offered shares. We have
also filed with the Securities Commissioners of each state in which the shares
are offered for sale a registration statement on Form U-1 under the Securities
Act of each such state for the offered shares. This prospectus, which is a part
of the registration statement, does not contain all of the information set forth
in the registration statement and its exhibits and schedules. Prospective
investors should refer to the registration statement and the exhibits and
schedules filed with it for further information about the shares and us. This
prospectus contains summaries of the provisions of certain contracts, agreements
or other documents, which are not necessarily complete. Certain of these
contracts, agreements or documents may be filed as an exhibit to the
registration statement and prospective investors should refer to such exhibits
for a more complete description of those items.
A copy of our registration statement, including the exhibits and schedules
thereto, may be inspected without charge at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following Regional Offices of the SEC: New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the registration statement and the exhibits and schedules thereto can
be obtained from the Public Reference Section of the SEC upon payment of
prescribed fees. The registration statement and any amendments are also
available at the SEC's Internet web site, http://www.sec.gov.
Prior to filing the registration statement, we were not subject to any
reporting requirements under the Securities Exchange Act of 1934 or any state
securities act. Following effectiveness of the registration statement, we will
become subject to the informational and periodic reporting requirements of the
Exchange Act. These reports will be available for inspection and copying at the
public reference facilities and other regional offices described above, as well
as from the SEC's website.
Appendices
The following appendices are part of this prospectus.
A - Pro Forma Financial Statements
B - Audited Financial Report for Six Months Ended December 31, 1999
C - Unaudited Financial Statements for Three Months Ended March 31,
2000
D - Articles of Incorporation
33
<PAGE>
Appendix A
THE IMAGING CENTER, INC.
PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND
THE SIX MONTHS ENDED JUNE 30, 1999
A-1
<PAGE>
THE IMAGING CENTER, INC.
PRO FORMA FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Pro Forma Balance Sheets 1
Pro Forma Statements of Income 2
Selected Notes to Financial Statements 3-9
Supplementary Information
Historical to Pro Forma Financial Statement Adjustments 15
Adjusting Entries for Pro Forma Financial Statements 16
Historical to Pro Forma Financial Statement Adjustments 17
Adjusting Entries for Pro Forma Financial Statements 18
</TABLE>
A-2
<PAGE>
THE IMAGING CENTER, INC.
PRO FORMA BALANCE SHEETS
December 31, 1998 & June 30, 1999
<TABLE>
<CAPTION>
Dec. 31, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
ASSETS
------
Current Assets
Cash $ 687,018 $ 913,489
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$15,457 and $12,892 12,384 10,328
---------- -----------
Total Current Assets 699,402 923,817
---------- -----------
Property, Plant, & Equipment
Office Furniture and Equipment 74,592 78,651
Equipment 1,294,839 4,459,709
Vehicles 20,709 20,709
---------- -----------
1,390,140 4,559,069
Less Accumulated Depreciation (731,036) (1,159,474)
Total P,P,&E 659,104 3,399,595
---------- -----------
Total Assets $1,358,506 $ 4,323,412
========== ===========
LIABILITIES AND EQUITY
----------------------
Current Liabilities
Accounts Payable $ 22,868 $ 55,000
Accrued Liabilities 20,406 40,000
Current Portion of Capital Leases Payable 224,401 601,505
---------- -----------
Total Current Liabilities 267,675 696,505
Long-Term Debt ---------- -----------
Long-Term Leases Payable 473,197 2,724,028
Deferred Income Taxes 63,088 162,778
---------- -----------
Total Liabilities 803,960 3,583,311
---------- -----------
Equity
Common Stock 180,000 180,000
Retained Earnings 374,546 560,101
---------- -----------
Total Equity 554,546 740,101
---------- -----------
Total Liabilities and Equity $1,358,506 $ 4,323,412
========== ===========
</TABLE>
See selected notes to the financial statements
A-3
<PAGE>
THE IMAGING CENTER, INC.
PRO FORMA STATEMENTS OF INCOME
For the Year Ended December 31, 1998 & Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Year Six Mo.
Ended Ended
Dec. 31, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Total Revenue $3,356,141 $1,399,543
Operating Expenses
Salaries 658,347 333,963
Billing and Collection Fees 347,305 144,830
Medical Supplies 275,443 139,988
Other Operating Expenses 1,393,773 348,012
---------- ----------
Total Operating Expenses 2,674,868 966,793
---------- ----------
Operating Income 681,273 432,750
---------- ----------
Other Income (Expenses)
Interest Income 10,994 3,895
Misc Income 2,350 0
Interest Expense (67,570) (139,403)
---------- ----------
Total Other Income (Expense) (54,226) (135,508)
---------- ----------
Income Before Inc. Taxes 627,046 297,242
Provision for Income Taxes (252,500) (111,687)
---------- ----------
Net Income $ 374,547 $ 185,555
========== ==========
Earnings per share, Class A Common Stock $ 0.04 $ 0.02
Earnings per share, Class B Common Stock $ 0.04 $ 0.02
</TABLE>
See selected notes to the financial statements
A-4
<PAGE>
THE IMAGING CENTER, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - INTRODUCTION
The Imaging Center, Inc. will provide the technical component of diagnostic
medical services. The historical financial statements for December 31, 1998 and
the year then ended and June 30, 1999 and the six months then ended have been
restated to reflect a scenario in which the technical component of F. Daniel
Jackson, MD, PA is operating independently of all other associated operations,
as will be done for the entity The Imaging Center, Inc. Revenues are restated
to include only the technical component of the original fees and expenses are
restated to exclude the professional component of the original expenses. By
contractual agreement, the Imaging Center, Inc. is to receive and recognize as
revenue 78.08% of the realizable billings of F. Daniel Jackson, MD, PA. This
percentage historically represents the proportion of technical services
provided. An allowance for doubtful accounts is to be recognized based on the
historical trends of F. Daniel Jackson, MD, PA. The collections attributable to
the Imaging Center, Inc. are paid regularly by F. Daniel Jackson, MD, PA. It is
necessary for F. Daniel Jackson to bill the professional and technical
components of services provided globally due to the requirements of certain
third-party payers. Billing and collection fees are recognized as being 7.81%
of realizable billings. This amount is based on historical results and appears
reasonable. All interest, rent and advertising expenses are included in the
expenses of the Imaging Center, Inc. as these expenses relate to the technical
component of diagnostic medical services. Executive salaries have been
allocated between the technical and professional components based on
management's estimates of the appropriate remuneration for the services
provided. Only common expenses are administrative salaries and related costs
based on an evaluation of the services provided and amount of time sent. It has
been determined that an adequate salary is $20,000, as documented below:
<TABLE>
<CAPTION>
Total Annual Hours Hours Imaging Imaging Reported in
Salary Worked Per Worked Center Center Salary Financial
Month Percentage Statements
<S> <C> <C> <C> <C> <C> <C>
President $106,700 240.00 45.00 18.75% $20,006 $20,000
V-Pres. 46,200 160.00 70.00 43.75% 20,213 20,000
Treasurer 44,000 160.00 70.00 43.75% 19,250 20,000
Secretary 24,000 160.00 135.00 84.38% 20,250 20,000
</TABLE>
Contracts and Relationships with Insurance Companies, HMO's and Other
Payers
<TABLE>
<CAPTION>
Payor/Network Term Termination
<S> <C> <C>
Allegany County Health Dept. (early detection of breast and 1 year (subject to renewal up 14 days' notice
cervical cancer for low-income women) to 5 times)
America's Health Plan, Inc. 90 days' notice prior to end
of term
Anthem Health Plan of West Virginia, Inc., (PrimeONE) 1 year (renewed annually) 90 days' written notice
Blue Cross Blue Shield of Maryland 1 year (renewed annually) 60 days' written notice
Comprehensive Health Services, Inc. (disability reviews for US N/A N/A
Railroad Retirement Board)
CIGNA Health Care Mid-Atlantic, Inc. Year to Year 60 days' written notice
CIGNA Healthplan Mid-Atlantic, Inc. 1 year (renewed annually) 90 days' written notice
Cardio Metrix (disability reviews for US Railroad Retirement N/A N/A
Board)
Potomac Physicians, P.A. 1 year (renewed annually) 90 days' written notice
CHAMPUS N/A N/A
CHIR/CHMC Valley Community Healthcare Network 1 year (renewed annually) 60 days' notice prior to
expiration of term
Beverly Enterprises - Maryland, Inc. 1 year (renewable by agreement) 30 days' written notice
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
Payor/Network Term Termination
<S> <C> <C>
Garrett County Local Health Dept. (early detection of 1 year (subject to renewal up 14 days' written notice
breast and cervical cancer for low-income women) to 4 times)
Health Care and Retirement Corporation of America 1 year (renewed annually) 30 days' written notice
Physicians Health Plan of Maryland, Inc. 1 year (renewed annually) 90 days' written notice
Medicaid Open-ended 30 days' written notice
Comprehensive Medical Imaging, Inc. 1 year 90 days' written notice
Med-Eval, Inc. 2 years (renewed auto-matically 90 days' written notice
for one-year terms)
Medicare 1 year (renewed annually) By provider by end of term; by
Medicare after notice and
opportunity for hearing (for
breach of agreement only)
Midatlantic Cardiovascular Associates, P.A. 1 year 90 days' written notice
Network Medical Services, Inc. 6/1/98 - 12/31/2001 (thereafter 90 days' written notice prior
renewed annually) to expiration of term
Primary One, Inc. 1 year (renewed annually) 90 days' written notice
United Health Care of the Mid-Atlantic, Inc. 1 year (renewed annually) 90 days' written notice (60
days for Virginia)
West Virginia Workers' Compensation Division N/A N/A
West Virginia Medicaid N/A 30 days' written notice
</TABLE>
Adjustments to the Historical Financial Statements
The adjustments to the historical financial statements of F. Daniel
Jackson, MD, PA, are reflected in the supplemental information. An explanation
of the assumptions used and supporting facts follows:
For the Year Ended December 31, 1998 and the Six Months Ended June 30, 1999
---------------------------------------------------------------------------
(A) An evaluation of the revenues of F. Daniel Jackson, MD, PA reflected that
approximately 78.08% were derived from the technical components and 21.92% were
derived from the professional component. The balances of Accounts Receivable and
the Allowance for Doubtful Accounts as of December 31, 1998 on the Pro Forma
Financial Statements of The Imaging Center, Inc. reflect the historical
collection cycle of the technical revenues of F. Daniel Jackson, MD, PA. For the
six months ended June 30, 1999, the same percentages were used. See Adjusting
Entries for Pro Forma Financial Statements Number 1.
(B) An evaluation of the operating expenses of F. Daniel Jackson, MD, PA
reflected that an estimated $1,589,586 for the Year Ended December 31, 1998, and
$596,512 for the six months ended June 30, 1999, were relative to the
professional component. A large portion of the adjustments reflect professional
salaries. The balances of the current liabilities as of December 31, 1998, and
June 30, 1999, on the Pro Forma Financial Statements of the Imaging Center, Inc.
reflect the approximate historical payment cycle of the technical expenses of F.
Daniel Jackson, MD, PA. See Adjusting Entries for Pro Forma Financial Statements
Number 2.
(C) The financial statements were adjusted to reflect total common stock of
$180,000. See Adjusting Entries for Pro Forma Financial Statements Number
3.
(D) Balance sheet account balances on the historical financial statements of F.
Daniel Jackson, MD, PA as of January 1, 1998, that derive from the entity before
that date are eliminated from the Pro Forma Financial Statements of The Imaging
Center, Inc. See Adjusting Entries for Pro Forma Financial Statements Number 4.
(E) As described in Note 5, The Imaging Center, Inc., leases several pieces of
equipment. An entry records two capital leases as of December 31, 1997, that had
been recorded in the historical financial statements as operating leases.
Depreciation was taken on this equipment in accordance with the Company's
depreciation methods described in Note 2. See Adjusting Journal Entries for Pro
Forma Financial Statements Number 5.
A-6
<PAGE>
(F) To record the transactions related to the capital leases described above
for the year ended December 31, 1998. See Adjusting Journal Entries for Pro
Forma Financial Statements Number 6.
(G) To record depreciation expense on the assets capitalized described in item
(E) above. See Adjusting Journal Entries for Pro Forma Financial Statements
Number 7.
(H) Based on the changes made at the Journal entries above, Deferred and
Current Income Taxes on the Accrual Basis are adjusted. These changes have been
calculated using applicable federal and state rates. See Adjusting Journal
Entries for Pro Forma Financial Statements Number 8.
(I) Billing and Collection fees are recorded. Billing and collection fees are
based on the historical information of F. Daniel Jackson, MD, PA and approximate
10%. See Adjusting Entries for Pro Forma Financial Statements Number 9.
Additional References for the Six Months Ended June 30, 1999
------------------------------------------------------------
(J) Additional equipment obtained and the relevant financing information is
discussed at Note e5. See Adjusting Journal Entries for Pro Forma Financial
Statements Number 4.
(K) For the purposes of this Pro Forma Financial Statement, it is assumed that
all new equipment was placed in service January 1, 1999. The Historical
Financial Statements reflect that the equipment was placed in service throughout
the year, and contain expenses for operating leases that were replaced by the
equipment in Item (J). As all new equipment is assumed in service at January 1,
1999, the operating expenses for the replaced equipment are omitted. See
Adjusting Journal Entries for Pro Forma Financial Statements Number 5.
(L) To record depreciation expense on all equipment purchased through capital
leases. See Adjusting Journal Entries for Pro Forma Financial Statements Number
6.
(M) To adjust income taxes for the above entries. See Adjusting Journal Entries
for Pro Forma Financial Statements Number 7.
(N) As the Company experiences positive cash flow, the loan from F. Daniel
Jackson, MD will be repaid. See Adjusting Journal Entries for Pro Forma
Financial Statements Number 8.
(O) Billing and collection fees are recorded. Billing and collection fees are
based on the historical information of F. Daniel Jackson, MD, PA, and 7.81%. See
Adjusting Entries for Pro Forma Financial Statements Number 9.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
--------------------
The Company utilizes the accrual method for financial reporting purposes
and the ca method for tax purposes. Under the accrual method, revenues are
recognized when earned and expenses are recorded when incurred. The cash method
recognizes revenues and expenses when received or paid. This difference in
reporting revenue and expenses has resulted in the recognition of deferred
income taxes on the balance sheets presented.
Uses of Estimates
-----------------
Preparation of financial statements in accordance with Generally Accepted
Accounting Principles requires the use of estimates. Management uses estimates
to determine the value of receivables and the useful lives of property and
equipment. There will be differences in the estimated and actual results, and
these differences could be material.
Depreciation
------------
Fixed assets are recorded at cost and depreciated using accelerated methods
in accordance with Internal Revenue Service regulations, and straight line
methods. Where accelerated methods have been used,
A-7
<PAGE>
the differences between depreciation calculated using Generally Accepted
Accounting Principles and Internal Revenue Service regulations is not material.
Depreciable lives with each classification are as follows:
Office furniture and equipment 5-7 years
Equipment 5-7 years
Vehicles 3-5 years
Leasehold improvements 31.5 years
Other current assets
--------------------
Accounts receivable arise in the normal course of business. These
receivables are not collateralized.
NOTE 3 - OTHER LIABILITIES
Accrued liabilities represent items such as accrued salaries and payroll
taxes payable.
A-8
<PAGE>
THE IMAGING CENTER, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NOTE 4 - INCOME TAXES
Provisions for income taxes on pro forma pretax income have been included
using the graduated rates currently in effect for corporations. Deferred tax
liabilities have been calculated at the rate of 41%.
NOTE 5 - EQUIPMENT LEASES
For the Year Ended December 31, 1998, the Corporation leased equipment from
Value Healthcare, Inc. (a related party) and Imaging Associates of Cumberland,
Inc. (a related party). These leases have been recorded as capital leases and
each have a term of 60 months. The lease with Value Healthcare, Inc. began on
January 1, 1997. The lease with Imaging Associates of Cumberland, Inc. began
on September 1, 1996, and may be renegotiated at any time, but not more than
once a year. These leased assets are pledged as security for debt of $1.4
million of debt of related parties.
For the Year Ended December 31, 1998, the Company also leased a building
from Imaging Associates, Inc. (a related party) with a 60 month term for $70,020
a year. The building is insured for $711,000 at an annual cost of $2,919. A
$300,000 limit per fire and certain other limits apply. The lease is
automatically renewed unless a written notice is given at the end of the lease.
Rent on the building will be increased to $89,280 per year if the lease is
renewed after the initial five years.
All leases with related parties will not exceed market rates that would be
obtained with the unrelated entities. All collections on accounts receivable
are pledged as security for the lease payments with related parties. Included
in the insurance policy for the building is $2,500,000 coverage for equipment,
with certain limits applying.
The following is a schedule of future minimum lease payments required under the
above leases as of January 1, 1999.
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------
<S> <C>
1999 $ 342,120
2000 342,120
2001 309,420
2002 70,020
2003 70,020
----------
$1,133,700
==========
</TABLE>
A-9
<PAGE>
THE IMAGING CENTER, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NOTE 5 - EQUIPMENT LEASES (Continued)
-------------------------------------
The following is a schedule of the long-term debt under the capital leases
for the equipment as of January 1, 1998.
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------
<S> <C>
1998 $224,401
1999 243,027
2000 230,170
2001 -0-
2002 -0-
--------
$697,598
========
</TABLE>
The Company began leasing equipment from GE Healthcare Services. In 1999,
the statements are adjusted as if the leases began January 1, 1999. These
leases have been recorded as capital leases and each have a term of 60 months.
Two of the leases with GE Healthcare have an early purchase option after 57
months for 33% of the original equipment cost, or $939,856.
The following is a schedule of the future minimum lease payments for all leases
described in this note.
Amount
------
Six Months ending June 30, 1999 $ 457,914
Year Ending June 30,
--------------------
2000 915,828
2001 915,828
2002 747,078
2003 643,728
----------
$3,680,376
==========
The following is a schedule of the long-term debt under the capital leases
for all leases described in this note.
Year Ending June 30, Amount
-------------------- ------
1999 601,505
2000 651,427
2001 532,786
2002 467,415
2003 and thereafter 1,072,400
----------
$3,325,533
==========
A-10
<PAGE>
THE IMAGING CENTER, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK
The Company is authorized to issue 1,000 shares of Class A Voting Common
Stock, $0.02 stated value per share, 100 shares of which are issued and
outstanding. F. Daniel Jackson, M.D. owns 100% of these shares. Holders of
Class A shares are entitled to one vote per share on all matters for which the
stockholders of the Corporation shall have the right to vote.
The Company is authorized to issue 9,999,000 shares of Class B Non-Voting
Common Stock $0.02 stated value per share, 8,999,000 shares which are issued and
outstanding. F. Daniel Jackson, M.D. owns 100% of these shares. Holders of
Class B shares do not have any right to vote on any matters, but are entitled to
receive notification of the meetings of the stockholders.
There are no preferences regarding dividend distributions and liquidations
with respect to Class A voting or Class B nonvoting shares. The per share price
of the stock was set to equal book value as of the date of inception of the
Company. The per share price did not reflect any consideration for goodwill or
going concern value, which is typical for a non-public start-up entity.
NOTE 7 - EARNINGS PER SHARE
Basic EPS Computation
<TABLE>
<CAPTION>
Description Year Ended December 31, 1998 Six Months Ended June 30, 1999
----------- ---------------------------- ------------------------------
<S> <C> <C>
Net Income $ 374,546 $ 185,555
Less: Dividends paid -0- -0-
---------- ----------
Income available to
Common Stockholders 374,546 185,555
---------- ----------
Number of Shares of
Common Stock 8,999,100 8,999,100
---------- ----------
Basic EPS $ 0.04 $ 0.02
========== ==========
</TABLE>
NOTE 8 - PROFESSIONAL LIABILITY INSURANCE
F. Daniel Jackson, MD, has primary liability insurance covering $1,000,000
per occurrence and $3,000,000 annually, and an excessive professional liability
policy covering $1,000,000 per occurrence and $1,000,000 annually. The annual
premium is $10,662 for both policies, but has been reduced 30% to $7,463 based
on Dr. Jackson's claim free status.
A-11
<PAGE>
THE IMAGING CENTER, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
NOTE 9 - MANAGEMENT DISCUSSION AND ANALYSIS
The Company has demonstrated positive earnings for both periods. Solvency
is demonstrated by a strong ratio of total current assets to total current
liabilities. The fair market value of equipment approximates the balance due on
the related capital leases.
In its first six months of operations ended December 31, 1999, the Company
did not meet its earnings projections. Management believes projections were not
met due to the time spent in establishing and organizing this new entity. The
initial startup is now behind the Company, and management believes results for
the next six months should be closer to those projected. A comparison of pro
forma and actual results is as follows:
<TABLE>
<CAPTION>
Pro Forma Six Months Actual Six Months
June 30, 1999 December 31, 1999
------------- -----------------
<S> <C> <C>
Revenue $1, 399.543 $1,329,341
Income from operations $ 432,750 $ 180,668
Net Income $ 185,555 $ 42,306
Earnings per share $ .02 $ .005
</TABLE>
A-12
<PAGE>
<TABLE>
<CAPTION>
THE IMAGING CENTER, INC.
SUPPLEMENTARY INFORMATION
HISTORICAL TO PRO FORMA FINANCIAL STATEMENT ADJUSTMENTS
Balances per Balances per
December 31, 1998 December 31, 1998
Category Financial Statements # AJE's Pro Forma F/S
-------- ------------------------------ ----- ---------- --------------------
<S> <C> <C> <C> <C>
Cash 19,044 (1) 1,139,163 687,018
(2) 1,446,402
(3) 170,000
(4) (850,314)
(8) (889,972)
(9) (347,305)
----------------------------------------------------------------------------------------------------------------------------------
Investments 239,775 (4) (239,775) 0
----------------------------------------------------------------------------------------------------------------------------------
Accounts Receivable 2,093,742 (1) (2,065,901) 27,841
----------------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts 0 (1) (15,457) (15,457)
----------------------------------------------------------------------------------------------------------------------------------
Office Furniture & Equipment 74,592 74,592
----------------------------------------------------------------------------------------------------------------------------------
Equipment 176,354 (5) 1,118,485 1,294,839
----------------------------------------------------------------------------------------------------------------------------------
Vehicles 20,709 20,709
----------------------------------------------------------------------------------------------------------------------------------
Accumulated Depreciation (256,754) (5) (250,584) (731,036)
(7) (223,698)
----------------------------------------------------------------------------------------------------------------------------------
Accounts Payable (44,573) (2) 21,705 (22,868)
----------------------------------------------------------------------------------------------------------------------------------
Accrued Liabilities (101,141) (2) 80,735 (20,406)
----------------------------------------------------------------------------------------------------------------------------------
Accrued Pension (40,744) (2) 40,744 0
----------------------------------------------------------------------------------------------------------------------------------
Current Portion Leases payable 0 (5) (207,203) (224,401)
(6) (17,198)
----------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes (717,260) (8) 654,172 (63,088)
----------------------------------------------------------------------------------------------------------------------------------
Note Payable - F. Daniel Jackson (43,511) (4) 43,511 0
----------------------------------------------------------------------------------------------------------------------------------
Long-term Lease Payable (5) (697,598) (473,197)
(6) 224,401
----------------------------------------------------------------------------------------------------------------------------------
Common Stock (10,000) (3) (170,000) (180,000)
----------------------------------------------------------------------------------------------------------------------------------
Retained Earnings (1,410,234) (4) 1,046,578 (374,546)
(5) 36,900
(6) (223,696)
(10) 175,906
----------------------------------------------------------------------------------------------------------------------------------
Revenue (4,298,336) (1) 942,195 (3,356,141)
----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses 3,741,854 (2) (1,589,586) 2,674,868
(6) (48,403)
(7) 223,698
(9) 347,305
----------------------------------------------------------------------------------------------------------------------------------
Interest Income (10,994) (10,994)
----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Income (2,350) (2,350)
----------------------------------------------------------------------------------------------------------------------------------
Interest Expense 2,674 (6) 64,896 67,570
----------------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes 16,700 (8) 235,800 252,500
----------------------------------------------------------------------------------------------------------------------------------
Net income 550,453 (10) (175,906) 374,547
----------------------------------------------------------------------------------------------------------------------------------
TOTALS 0 0 0
============================== ========== ====================
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
THE IMAGING CENTER, INC.
SUPPLEMENTARY INFORMATION
ADJUSTING ENTRIES FOR PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
Number Account / Description Debit Credit Reference
------ --------------------- ----- ------ ---------
<S> <C> <C> <C> <C>
(1) Revenue 1,289,501 Note 1(A)
Accounts Receivable 515,744
Cash 773,757
To remove 30% of revenue, which reflect the professional component of the services
(2) Cash 1,446,402 Note 1(B)
Accounts Payable 21,705
Accrued Liabilities 80,735
Accrued Pension 40,744
Operating Expenses 1,589,586
To remove operating expenses which reflect the professional component of the services
(3) Cash 170,000 Note 1(C)
Common Stock 170,000
To reflect the purchase of shares.
(4) Retained Earnings 1,046,578 Note 1(D)
Note Payable - F. Daniel Jackson 43,511
Investments 239,775
Cash 850,314
To adjust assets and liabilities on the Balance Sheet at January 1, 1998, that do not
relate
(5) Cash 300,000 Note 1(E)
Note Payable - F. Daniel Jackson 300,000
To reflect working capital provided.
(6) Equipment 1,118,485 Note 1(F)
Accumulated Depreciation 250,584
Current Portion Capital Lease Payable 207,203
Long-term Portion Capital Lease Payable 697,598
Retained Earnings 36,900
To adjust January 1, 1998, balance to reflect capital leases.
(7) Long-term Capital Lease Payable 224,401 Note 1(G)
Interest Expense 64,896
Current Portion Capital Lease Payable 17,198
Operating Expenses 48,403
Retained Earnings 223,696
To reflect 1998 capital lease payments.
(8) Operating Expenses 223,698 Note 1(H)
Accumulated Depreciation 223,698
To record depreciation expense on equipment leased through capital leases.
(9) Deferred Income Taxes 12,282 Note 1(I)
Provision for Income Taxes 235,800
Cash 248,082
To reflect change in income taxes based on above AJE's.
(10) Retained Earnings 175,906
Net Income 175,906
To adjust retained earnings and net income for above entries.
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
THE IMAGING CENTER, INC.
SUPPLEMENTARY INFORMATION
HISTORICAL TO PRO FORMA FINANCIAL STATEMENT ADJUSTMENTS
Balances per Balances per
June 30, 1999 June 30, 1999
Category Financial Statements # AJE's Pro Forma F/S
-------- --------------------- ----- -------------- ------------------
<S> <C> <C> <C> <C>
Cash 261,062 (1) 667,973 913,489
(2) (616,484)
(3) 663,327
(6) 301,791
(7) 11,670
(8) (231,020)
(9) (144,830)
-------------------------------------------------------------------------------------------------------------------------
Investments 303,947 (1) (239,775) 0
(3) (64,172)
-------------------------------------------------------------------------------------------------------------------------
Accounts Receivable 1,868,107 (1) (2,065,901) 23,220
(2) 221,014
-------------------------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts (1) (15,457) (12,892)
(2) 2,565
-------------------------------------------------------------------------------------------------------------------------
Office Furniture & Equipment 78,651 78,651
-------------------------------------------------------------------------------------------------------------------------
Equipment 198,769 (1) 1,118,485 4,459,709
(4) 3,142,455
-------------------------------------------------------------------------------------------------------------------------
Vehicles 20,709 20,709
-------------------------------------------------------------------------------------------------------------------------
Accumulated Depreciation (263,702) (1) (474,282) (1,159,474)
(5) (421,490)
-------------------------------------------------------------------------------------------------------------------------
Accounts Payable (53,170) (1) 21,705 (55,000)
(3) (23,535)
-------------------------------------------------------------------------------------------------------------------------
Accrued Liabilities (42,187) (1) 80,735 (40,000)
(3) (78,548)
-------------------------------------------------------------------------------------------------------------------------
Accrued Pension 0 (1) 40,744 0
(3) (40,744)
-------------------------------------------------------------------------------------------------------------------------
Current Portion Leases Payable 0 (1) (224,401) (601,505)
(4) (377,104)
-------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes (691,534) (1) 654,172 (162,778)
(7) (125,416)
-------------------------------------------------------------------------------------------------------------------------
Note Payable - F. Daniel Jackson (43,511) (1) 43,511 0
(4) (231,020)
(8) 231,020
-------------------------------------------------------------------------------------------------------------------------
Long-term Leases Payable 0 (1) (473,197) (2,724,028)
(4) (2,250,831)
-------------------------------------------------------------------------------------------------------------------------
Common Stock (10,000) (1) (170,000) (180,000)
-------------------------------------------------------------------------------------------------------------------------
Retained Earnings (1,627,141) (1) 1,035,688 (560,101)
(10) 31,352
-------------------------------------------------------------------------------------------------------------------------
Revenue (1,792,448) (2) 392,905 (1,399,543)
-------------------------------------------------------------------------------------------------------------------------
Operating Expenses 1,581,495 (3) (456,328) 966,793
(4) (422,903)
(5) 421,490
(7) (301,791)
(9) 144,830
-------------------------------------------------------------------------------------------------------------------------
Interest Income (3,895) (3,895)
-------------------------------------------------------------------------------------------------------------------------
Miscellaneous Income 0 0
-------------------------------------------------------------------------------------------------------------------------
Interest Expense 0 (4) 139,403 139,403
-------------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes (2,059) (7) 113,746 111,687
-------------------------------------------------------------------------------------------------------------------------
Net income 216,907 (10) (31,352) 185,555
-------------------------------------------------------------------------------------------------------------------------
TOTALS 0 0 0
=============== ============== ==============
</TABLE>
A-15
<PAGE>
<TABLE>
<CAPTION>
THE IMAGING CENTER, INC.
SUPPLEMENTARY INFORMATION
ADJUSTING ENTRIES FOR PRO FORMA FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Number Account / Description Debit Credit Reference
------ ---------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(1) Cash 667,973 Notes
Accounts Payable 21,705 1(A) - 1(I)
Equipment 1,118,485 12/31/98
Accrued Liabilities 80,735
Accrued Pension 40,744
Deferred Income Taxes 654,172
Note Payable - F. Daniel Jackson 43,511
Retained Earnings 1,035,688
Investments 239,775
Accounts Receivable 2,065,901
Allowance for Doubtful Accounts 15,457
Accumulated Depreciation 474,282
Current Portion Leases Payable 224,401
Long-term Leases Payable 473,197
Common Stock 170,000
To record cumulative effect of entries made when completing Pro Forma Financial Statements for The
Imaging Center, Inc. for the Year Ended December 31, 1998.
(2) Revenue 392,905 Note 1(A)
Allowance for Doubtful Accounts 2,565
Accounts Receivable 221,014
Cash 616,484
To remove 21.92% of revenue, which reflects the professional component of the services provided on the
Historical Financial Statements, and adjust Accounts Receivable for the Allowance for Doubtful Accounts
based on the available historical information.
(3) Cash 663,327 Note 1(B)
Accounts Payable 23,535
Accrued Liabilities 78,548
Accrued Pension 40,744
Investments 64,172
Operating Expenses 456,328
To remove operating expenses which reflect the professional component of the services
provided on the Historical Financial Statements, and adjust Liabilities for the
estimated outstanding balances of those expenses.
(4) Equipment 3,142,455 Note 1(J)
Note Payable - F. Daniel Jackson 231,020
Current Portion Leases Payable 377,104
Long-term Leases Payable 2,250,831
Interest Expense 139,403
Operating Expenses 422,903
To record new equipment purchased and acquired by capital leases at January 1, 1999,
and the leasing transactions for the six months ended June 30, 1999.
(5) Operating Expenses 421,490 Note 1(K)
Accumulated Depreciation 421,490
Adjust Accumulated Depreciation for Leased Equipment.
(6) Cash 301,791 Note 1 (L)
Operating Expenses 301,791
To adjust for terminated operating leases.
(7) Cash 11,670 Note 1(M)
Provision for Income Taxes 113,746
Deferred Income Taxes 125,416
Reflect the changes in income taxes based on the above entries.
(8) Note Payable - F. Daniel Jackson 231,020 Note 1(N)
Cash 231,020
To repay the loan to F. Daniel Jackson
(9) Operating Expenses 144,830 Note 1(O)
Cash 144,830
To record billing an collection fees of approximately 10% of realizable billings based on
historical averages.
</TABLE>
A-16
<PAGE>
<TABLE>
<S> <C> <C> <C>
(10) Retained Earnings 31,352
Net Income 31,352
To reconcile Retained Earnings for the various
entries.
</TABLE>
A-17
<PAGE>
Appendix B
THE IMAGING CENTER, INC.
FINANCIAL REPORT
DECEMBER 31, 1999
B-1
<PAGE>
THE IMAGING CENTER, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Income Statement 3
Statement of Retained Earnings 4
Statement of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6-11
</TABLE>
B-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
The Imaging Center, Inc.
Cumberland, MD 21502
We have audited the accompanying balance sheet of The Imaging Center, Inc.
as of December 31, 1999, and the related statements of income, retained
earnings, and cash flows for the six months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Imaging Center, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the six months then ended in conformity with generally accepted accounting
principles.
Cumberland, Maryland
February 7, 2000
B-3
<PAGE>
THE IMAGING CENTER, INC.
Balance Sheet
December 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash in bank - regular $ 58,540
Pru-Bache Money Market 16
Accounts receivable 11,066
Allowance for doubtful accounts (4,922)
Due from F. Daniel Jackson, MD, PA 12,227
Due from Imaging Associates 18,006
Deferred tax asset 33,971
Prepaid insurance 4,725
-------------
Total Current Assets 133,629
-------------
PROPERTY, PLANT & EQUIPMENT
Equipment 4,251,796
Less: accumulated depreciation (254,300)
-------------
Total Property, Plant & Equipment 3,997,496
-------------
OTHER ASSETS
Organizational costs 14,548
Less: accumulated depreciation (242)
-------------
Total Other Assets 14,306
-------------
TOTAL ASSETS ########
=============
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities - leases $ 618,915
Accounts payable 25,926
Salaries payable 14,132
Payroll taxes payable 17,915
Income taxes payable 26,183
Accrued pension 13,653
-------------
Total Current Liabilities 716,724
-------------
LONG-TERM DEBT
Capital leases 3,825,334
Less: current maturities (618,915)
-------------
Total Long-Term Debt 3,206,419
-------------
TOTAL LIABILITIES 3,923,143
-------------
STOCKHOLDER'S EQUITY
Capital stock 179,982
Retained Earnings 42,306
-------------
Total Stockholder's Equity 222,288
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ##########
=============
</TABLE>
See Independent Auditors' Report
B-4
<PAGE>
THE IMAGING CENTER, INC.
Income Statement
For the Six Months Ended December 31, 1999
<TABLE>
<CAPTION>
REVENUE
Technical fees ##########
------------
<S> <C>
OPERATING EXPENSES
Billing and collection fee 133,430
Salaries 472,047
Pension expense - office 13,653
Directors' fees 7,500
Payroll taxes 46,582
Supplies - office 2,060
Supplies - medical 90,559
Medical expense 522
Legal and accounting 5,100
Directors' and officers' insurance 1,575
Malpractice insurance 7,710
Group and life insurance 17,628
Postage 324
Office expense 28
Bank charges 228
Professional development 575
Depreciation expense 254,300
Amortization expense 242
Building lease 35,010
Equipment repairs and maintenance 55,605
Miscellaneous expense 807
Licenses and certification fees 2,880
Meals and entertainment 308
----------
Total Operating Expenses 1,148,673
----------
OPERATING INCOME 180,668
OTHER INCOME (EXPENSE)
Interest income 343
Miscellaneous income 874
Interest expense (128,367)
----------
NET INCOME BEFORE INCOME TAXES 53,518
INCOME TAXES
Federal income taxes (7,466)
State income taxes (3,746)
----------
NET INCOME $ 42,306
==========
</TABLE>
See Independent Auditors' Report
B-5
<PAGE>
THE IMAGING CENTER, INC.
Statement of Retained Earnings
December 31, 1999
<TABLE>
<S> <C>
BALANCE, beginning of period
$ 0
Net income for the period 42,306
----------
BALANCE, end of period $42,306
==========
</TABLE>
See Independent Auditors' Report
B-6
<PAGE>
THE IMAGING CENTER, INC.
Statement of Cash Flows
For the Six Months Ended December 31, 1999
<TABLE>
<S> <C> <C>
Cash flows from operating activities:
NET INCOME $ 42,306
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization $ 242
Depreciation 254,300
Change in accounts receivable (6,144)
Change in due from F. Daniel Jackson, MD, PA (12,227)
Change in due from Imaging Associates (18,006)
Change in deferred tax asset (33,971)
Change in prepaid insurance (4,725)
Change in current maturities - leases 618,915
Change in accounts payable 25,926
Change in salaries payable 14,132
Change in payroll taxes payables 17,915
Change in income taxes payable 26,183
Change in accrued pension 13,653
-----------
Total adjustments 896,193
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 938,499
----------
Cash flow from investing activities:
Purchase of equipment (218,104)
----------
NET CASH USED BY INVESTING ACTIVITIES (218,104)
----------
Cash flow from financing activities:
Proceeds from common stock issuance 179,982
Repayment of capital leases (841,820)
-----------
NET CASH USED BY FINANCING ACTIVITIES (661,838)
----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 58,557
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 0
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 58,557
==========
Income taxes paid $ 29,190
Interest paid $ 128,367
==========
</TABLE>
See Independent Auditors' Report
B-7
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
---------------------------
The Imaging Center, Inc. provides the technical component of
diagnostic medical services. The professional component of the services are
provided by F. Daniel Jackson, MD, PA (a related party) By contractual
agreement, the Imaging Center, Inc. is to receive and recognize as revenue
78.08% of the realizable billings of F. Daniel Jackson, MD, PA. This
percentage historically represents the proportion of technical services
provided. An allowance for doubtful accounts is to be recognized based on
the historical trends of F. Daniel Jackson, MD, PA. The collections
attributable to the Imaging Center are paid regularly by F. Daniel Jackson,
MD, PA. Billing and collection fees are recognized as being 7.81% of
realizable billings. This amount is based on historical results and appears
reasonable. All interest, rent and advertising expenses are included in the
expenses of The Imaging Center, Inc. as these expenses relate to the
technical component of diagnostic medical services. Executive salaries have
been allocated between the technical and professional components based on
management's estimates of the appropriate remuneration for the services
provided. Only common expenses are administrative salaries and related
costs based on an evaluation of the services provided and amount of time
spent. It has been determined that an adequate salary is $20,000 as
documented below.
<TABLE>
<CAPTION>
Total Hours Imaging Imaging Reported
-------- ------- --------- ------- ----------
Annual Worked Hours Center Center in Finan.
-------- ------- ------ --------- ------- ----------
Salary Per Mo. Worked Percent. Salary Statements
-------- ------- ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pres. $106,700 240.000 45.00 18.75% $20,006 $20,000
V-Pres. 46,200 160.000 70.00 43.75% 20,213 20,000
Treas. 44,000 160.000 70.00 43.75% 19,250 20,000
Secretary 24,000 160.000 135.00 84.38% 20,250 20,000
</TABLE>
The agreement between The Imaging Center, Inc. and F. Daniel Jackson,
MD, PA is for a period of five years beginning October 14, 1999. The contract
will automatically renew for additional five year periods unless either
corporation provides written notice of intent not to renew at least ninety (90)
days prior to expiration. F. Daniel Jackson, MD, PA
See Independent Auditors' Report
B-8
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS - (Continued)
----------------------------------------
is responsible for billing for all services provided. The agreement also
states the two corporations will fully cooperate with one another in
defending or prosecuting potential claims for injury or lawsuit.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------
Method of Accounting
--------------------
The Company utilizes the accrual method for both financial reporting
purposes and tax purposes. Under the accrual method, revenues are
recognized when earned and expenses are recorded when incurred. For
financial reporting purposes, the Company has capitalized certain leases
that have been treated as operating leases for tax purposes. This
difference in reporting expenses has resulted in the recognition of a
deferred tax asset on the balance sheet presented.
Revenue Recognition
-------------------
Revenue is recognized based on 78.08% of the realizable billings of F.
Daniel Jackson, MD, PA. This rate is not subject to change during the
duration of the contract between the two parties. Operating revenue are not
generated from any other sources. It is necessary for F. Daniel Jackson,
MD, PA to bill the professional and technical components globally due to
requirements of certain third party payers.
An allowance for uncollectible accounts has been established based on
historical results to allow for adjustments and bad debts.
Use of Estimates
----------------
Preparation of financial statements in accordance with Generally
Accepted Accounting Principles requires the use of estimates. Management
uses estimates to determine the value of receivables and the useful lives
of property and equipment. There will be differences in the estimated and
actual results, and these differences could be material.
See Independent Auditors' Report
B-9
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (Continued)
-----------------------------------------------------
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Depreciation
------------
Fixed assets are recorded at cost and depreciated using straight line
methods in accordance with Generally Accepted Accounting Principles.
Depreciable lives within each classification are as follows:
Equipment 5-7 years
Machinery & Equipment
---------------------
Cost Accumulated Depreciation Book Value
---- ------------------------ ----------
$ 4,251,796 $ 254,300 $ 3,997,496
=========== ========= ===========
Depreciation expense for the six months ended December 31, 1999 was
$254,300.
NOTE 3 - RELATED PARTY TRANSACTIONS
-----------------------------------
The Company leases office space from a related party corporation,
Imaging Associates, Inc. The terms of the lease are no more or less
favorable than would be provided an unrelated third party. The lease
started in July, 1999 and requires monthly payments of $5,835 until July,
2004. The lease may be renegotiated at any time, but not more than once a
year, with the consent of both parties.
In July, 1999, the Company also entered into a lease agreement with
Imaging Associates, Inc. (a related party), for the use of
ultrasound/radiograph equipment. The cost of the capital lease is $403,178.
This lease requires monthly payments of $8,175. The lease is reported as a
capital lease in these financial statements. The principal amount of the
capital lease was determined using a market rate of 8%, which is market
value.
See Independent Auditors' Report
B-10
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS - Continued
-----------------------------------
In July, 1999, the Company entered into a lease agreement with a
related party corporation, Value Healthcare, Inc. for the use of Medrad CT
Injector equipment. The cost of the capital lease is $715,117. This lease
requires monthly payments of $14,500. The lease is reported as a capital
lease in these financial statements. The principal amount of the capital
lease was determined using a market rate of 8%, which is market value.
The Company receives 100% of its technical fees from a related party
corporation, F. Daniel Jackson, MD, PA. The Company's revenue is based on
78.08% of the realizable billings of F. Daniel Jackson, MD, PA.
The Company is covered under an umbrella health insurance policy which
includes affiliated corporations. The payment for the Company's portion was
made by F. Daniel Jackson, MD, PA in the amount of $26,584. This amount is
included in the current asset, Due from F. Daniel Jackson, MD, PA.
The Company paid for medical supplies and maintenance agreements in
which a portion of the expense was for affiliated corporations. Medical
supplies of $38,811 were paid on behalf of F. Daniel Jackson, MD, PA and
maintenance agreements of $18,006 were paid on behalf of Imaging
Associates, Inc. These amounts are included in the current assets as Due
from F. Daniel Jackson, MD, PA and Due from Imaging Associates.
NOTE 4 - OPERATING LEASE
------------------------
In July, 1999, the Company entered into a lease with a related party
corporation, Imaging Associates, Inc. to lease real property in which the
Company operates. The terms of the lease require payments of $5,835 per
month beginning July, 1999 and continuing for five years. The lease may be
renegotiated at any time, but not more than once a year, with the consent
of both parties.
See Independent Auditors' Report
B-11
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - OPERATING LEASE - Continued
------------------------
Rents paid during the six months presented were $35,010. Rent payments
for next five years are as follows:
June 30, 2000 $70,020
June 30, 2001 $70,020
June 30, 2002 $70,020
June 30, 2003 $70,020
June 30, 2004 $70,020
NOTE 5 - CONCENTRATION OF CREDIT RISK
-------------------------------------
Although accounts receivable are not collateralized, 100% of them are
from a related party and expected to be fully collected. The Company is
paid weekly for the previous week's services.
Cash deposits during the year were subject to credit risk as account
balances were above the Federal Deposit Insurance Corporation's coverage of
$100,000 for a portion of the year.
NOTE 6 - CONCENTRATION OF REVENUE
---------------------------------
The company receives 100% of its operating revenue from a related
party. This revenue is subject to fluctuation based on the level of service
provided.
NOTE 7 - PENSION PLAN
---------------------
The Company operates a defined contribution plan for employees. A
contribution of 4% of an employees wages is made by the Company for all
eligible employees. Eligible employees are those who have at least one year
of service and are at least 21 years of age. Contributions for the six
months ended December 31, 1999 were $13,653. Employees may additionally
defer up to 15% of their wages through payroll withholdings. The plan is
jointly sponsored by F. Daniel Jackson, MD, PA (a related party) and the
Company. Any years of service with either company counts as service for the
plan.
See Independent Auditors' Report
B-12
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
---------------------
The Company uses the accrual basis of accounting for computing its
income taxes. The Company recognizes certain lease arrangements as capital
leases for financial statement purposes, but treats them as operating
leases for tax purposes. This represents a deductible temporary difference.
The Company also uses the straight line method of depreciation for
financial statement purposes, while it uses an accelerated method of
depreciation for income tax purposes. A deferred tax asset arising from
this taxable temporary difference is recorded as a current asset and is
$15,993 at December 31, 1999.
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Federal State Total
-------------------------------
<S> <C> <C> <C>
Current expense, book $ 21,770 $ 7,420 $ 29,190
Current expense, tax 35,029 10,154 45,183
-------- ---------
Deferred (benefit) (13,259) (2,734) (15,993)
======== ======== =========
</TABLE>
NOTE 9 - STATEMENTS OF CASH FLOWS - NON-CASH TRANSACTIONS
---------------------------------------------------------
During the six months ended December 31, 1999, the Company acquired
equipment costing $4,033,692 through capital lease agreements.
NOTE 10 - SUBSEQUENT EVENT
--------------------------
Subsequent to the balance sheet date, the Company filed with the
Securities Exchange Commission its intent to offer 1,000,000 shares of its
Class B non-voting common stock to the public.
See Independent Auditors' Report
B-13
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY
------------------------------
At December 31, 1999 the stockholders' equity of the Company includes
100 issued and outstanding shares of Class A voting common stock with a
stated value of $.02 each and 8,999,000 issued and outstanding shares of
Class B non-voting common stock with a $.02 stated value. One thousand
shares of Class A voting common stock and 9,999,000 shares of Class B non-
voting common stock have been authorized.
On July 1, 2000 100 shares of Class A and 8,999,000 shares of Class B
common stock were issued.
There are no preferences regarding dividend distributions and
liquidations with respect to Class A voting and Class B non-voting shares.
The per share price of the stock was set to equal book value as of the date
of inception of the Company. The per share price does not reflect any
consideration for goodwill or going concern value.
NOTE 12 - CAPITAL LEASES
------------------------
The corporation has entered into five lease agreements, which based on
the terms of the leases are required to be capitalized under Generally
Accepted Accounting Principles. The lease terms of the leased equipment is
greater than (>) seventy-five percent (75%) of the expected life of the
assets. The equipment leases listed below are solely equipment; there is
no real estate involved.
Two of the leases are with related party corporations solely owned by
the 100% shareholder of The Imaging Center, Inc. The total amount
capitalized under the capital leases is $4,033,692 with related accumulated
depreciation of $251,271 at December 31, 1999, included in the balance
sheet.
See Independent Auditors' Report
B-14
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - CAPITAL LEASES - Continued
------------------------
<TABLE>
<S> <C> <C>
MRI Machine 5 year term. Monthly lease payments are $2,087,359
$32,974 for 12 months, then $43,829 for
months 13 through 60. A buyout provision
is available after 57 months for $778,730.
Mobile Van 5 year term. Monthly lease payments are 272,431
$5,396 which includes service for the first
year. A service contract will be signed for
years 2 through 5, is estimated to cost
about $20,000 per year.
Nuclear Medicine 5 year term. Monthly lease payments are 555,607
Machine $9,439 for 12 months, then $13,939 for
months 13 through 60. A buyout provision
is available after 57 months for $161,126.
Ultrasound 5 year term, subject to renegotiation by 403,178
Tomography mutual consent at any time (but no more
Fluoroscopy than one each year). Monthly lease
and X-Ray payments are $8,175. Lessee is required to
Equipment maintain insurance equal to but not less
than fair market value.
GE Synergy 5 year term. Monthly lease payments are 715,117
CT Machine $14,500 per month. Lessee is required to
and Medrad maintain insurance equal to but not less
CT Injector than fair market value.
Total $4,033,692
</TABLE>
Assets pledged as security for leased equipment is the equipment itself.
See Independent Auditors' Report
B-15
<PAGE>
THE IMAGING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - CAPITAL LEASES - (Continued)
------------------------
Future minimum lease payments for each of the next five years are
as follows:
December 31, 2000 $ 618,915
December 31, 2001 $ 795,712
December 31, 2002 $ 863,433
December 31, 2003 $ 937,370
December 31, 2004 $ 609,904
-----------
$ 3,825,334
===========
See Independent Auditors' Report
B-16
<PAGE>
APPENDIX C
THE IMAGING CENTER, INC.
FINANCIAL REPORT
JUNE 30, 2000
C-1
<PAGE>
July 23, 2000
The Imaging Center, Inc.
P.O. Box 1692
Cumberland, MD 21502
We have compiled the accompanying balance sheet of The Imaging Center, Inc.
as of June 30, 2000 and the related statements of income for the six months
ended June 30, 2000 in accordance with Statement on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Management has elected to omit substantially all financial statement
disclosures, the statement of retained earnings and the statement of cash flows.
If the omitted disclosures and statements were included in the financial
statements, they might influence the user's conclusions about the company's
financial condition and results of operations. Accordingly, these financial
statements are not designed for those who are not informed about such matters.
Huber, Michaels & Company
Cumberland, Maryland
C-2
<PAGE>
THE IMAGING CENTER, INC.
Balance Sheet
June 30, 2000
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
CASH IN BANK - REGULAR $ 222,689
PRU-BACHE MONEY MARKET 16
ACCOUNTS RECEIVABLE - NET 150,019
DUE FROM IMAGING ASSOCIATES 18,006
PREPAID INSURANCE 4,725
PREPAID INTEREST EXPENSE 12,315
-------------
TOTAL CURRENT ASSETS 407,770
-------------
PROPERTY, PLANT & EQUIPMENT
EQUIPMENT 4,251,796
LESS ACCUMULATED DEPRECIATION (530,296)
-------------
TOTAL PROPERTY, PLANT & EQUIP. 3,721,500
-------------
OTHER ASSETS
ORGANIZATIONAL COSTS 14,547
ACCUMULATED AMORTIZATION (1,697)
-------------
TOTAL OTHER ASSETS 12,850
-------------
TOTAL ASSETS #########
=============
</TABLE>
See Accountants' Compilation Report
C-3
<PAGE>
THE IMAGING CENTER, INC.
Balance Sheet
June 30, 2000
<TABLE>
<S> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES - LEASES $ 740,641
ACCOUNTS PAYABLE 35,352
DUE TO/FROM FDJ, MD PA 39,494
SALARIES PAYABLE 11,455
WV WITHHOLDING PAYABLE 1442
PA WITHHOLDING PAYABLE 527
MD WITHHOLDING PAYABLE 3,799
STATE UNEMPLOYMENT PAYABLE 773
INSURANCE WITHHELD PAYABLE 10,355
FEDERAL UNEMPLOYMENT PAYABLE 2,820
DEFERRED INCOME TAXES 76,339
-----------
TOTAL CURRENT LIABILITIES 922,997
-----------
LONG-TERM DEBT
CAPITAL LEASES 3,525,032
LESS: CURRENT PORTION (740,641)
-----------
TOTAL LONG-TERM DEBT 2,784,391
-----------
TOTAL LIABILITIES 3,707,388
-----------
STOCKHOLDER'S EQUITY
CAPITAL STOCK 179,982
RETAINED EARNINGS 42,307
YTD NET PROFIT OR (LOSS) 212,443
-----------
TOTAL STOCKHOLDER'S EQUITY 434,732
-----------
TOTAL LIAB. & STCKHLDR'S EQUITY #########
===========
</TABLE>
See Accountants' Compilation Report
C-4
<PAGE>
THE IMAGING CENTER, INC.
Income Statement
Six Months Ended June 30, 2000
<TABLE>
<S> <C>
REVENUE
TECHNICAL FEES #########
--------------
OPERATING EXPENSES
SALARIES - OFFICE 437,518
PENSION EXPENSE 13,125
DIRECTORS FEES 3,000
PAYROLL TAXES 41,861
SUPPLIES - OFFICE 1206
SUPPLIES - MEDICAL 172,790
LEGAL & ACCOUNTING 3,694
INSURANCE EXPENSE 24,944
BILLING EXPENSE 172,052
BANK CHARGES 192
REPAIRS & MAINTENANCE 7,452
DEPRECIATION EXPENSE 275,996
AMORTIZATION EXPENSE 1455
BUILDING LEASE 35,010
EQUIP. REPAIRS & MAINTENANCE 22,827
OTHER TAXES & LICENSES 18,403
LICENSES & CERTIFICATION FEES 450
--------------
TOTAL OPERATING EXPENSES 1,231,975
--------------
OPERATING INCOME 493,027
OTHER INCOME (EXPENSE)
INTEREST INCOME 584
INTEREST EXPENSE (148,658)
--------------
</TABLE>
C-5
<PAGE>
<TABLE>
<S> <C>
NET INCOME OR (LOSS) BEFORE
INCOME TAXES 344,953
INCOME TAXES
FEDERAL INC. TAX (108,364)
STATE INC TAX (24,146)
--------------
NET INCOME OR (LOSS) $ 212,443
==============
</TABLE>
See Accountants' Compilation Report
C-6
<PAGE>
APPENDIX D
Articles of Incorporation
ARTICLES OF INCORPORATION
THE IMAGING CENTER, INC.
------------------------
THIS IS TO CERTIFY THAT:
FIRST: I, the undersigned, F. Daniel Jackson, M.D., 715 Williams Street, Post
Office Box 1692, Cumberland, Maryland 21502, being at least eighteen (18) years
of age, do hereby form a corporation under the general laws of the State of
Maryland by the execution and filing of these Articles of Incorporation.
SECOND: The name of the Corporation is The Imaging Center, Inc.
THIRD: The purposes for which the Corporation is formed are as follows:
(a) To purchase, lease or otherwise acquire, hold, develop, improve,
mortgage, sell, exchange, let or in any manner encumber or dispose of property
of every nature and description, including real, personal, mixed and/or
intangible, wherever situated.
(b) To generally engage in the business of operating a medical imaging center
and medical office building, as well as to generally engage in any and all other
activities incidental thereto or which may be necessary or convenient in
connection therewith.
(c) To apply for, obtain, purchase or otherwise acquire, any licenses,
copyrights, patents, permissions and the like which might be used for any of the
purposes of the Corporation, and to use, exercise and develop such licenses, and
to sell and otherwise deal with such licenses.
(d) To loan, or advance money with or without security, without limits as to
amount; to borrow or raise money for any purposes of the Corporation and to
issue bonds, debentures, notes, securities or other obligations of any nature
and in any manner permitted by law, for money so borrowed in payment for
property purchased, or for any other lawful consideration, and to secure the
payment thereof and the interest thereon, by mortgage upon or pledge or
conveyance or assignment in trust of, the whole or any part of the property of
the Corporation real, personal, mixed and/or intangible, including contract
rights, whether at the time owned or thereafter acquired; and to sell, pledge,
or otherwise dispose of such bonds, notes, or other obligations of the
Corporation for its corporate purposes.
(e) To carry on any of the businesses herein enumerated for itself, or for
account of others, or through others for its own account, and to carry on any
other business which may be deemed by it to be calculated, directly or
indirectly, to effectuate or facilitate the transaction of the objects or
businesses stated herein, or any of them, or any part thereof, or to enhance the
value of its property, business or rights.
The foregoing enumeration of the purposes, objects and business of the
Corporation is made in furtherance, and not in limitation, of the powers
conferred upon the Corporation by law, and is not intended, by the mention of
any particular purposes, object or business, in any manner to
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limit or restrict the generality of any other purpose, object or business
mentioned, or to limit or restrict any of the powers of the Corporation.
The Corporation is hereby authorized to engage in any other lawful activity
for which corporations may be organized under the Corporations and Associations
Article of the Annotated Code of Maryland, as amended from time to time, and
under any successor and/or replacement to said Law.
FOURTH: The address of the principal office of the Corporation in Maryland is
715 Williams Street, Post Office Box 1692, Cumberland, Maryland 21502. The name
and address of the resident agent of the Corporation in Maryland is F. Daniel
Jackson, M.D., 715 Williams Street, Post Office Box 1692, Cumberland, Maryland
21502. Said resident agent is an adult citizen of Maryland and presently
resides therein.
FIFTH: The total number of shares of capital stock that the Corporation has
authority to issue is TEN MILLION (10,000,000) shares, all having a par value of
$1.00 per share, which shall be divided into ONE THOUSAND (1,000) shares of
Class A Voting Common Stock with a par value of $1.00 per share and NINE
MILLION, NINE HUNDRED NINETY-NINE THOUSAND (9,999,000) shares of Class B Non-
Voting Common Stock with a par value of $1.00 per share. The aggregate par
value of all the shares of all classes is ten million dollars ($10,000,000).
The following is a description of each class of stock of the Corporation
including the voting powers of each class:
(a) Each outstanding share of Class A Voting Common Stock shall be
entitled to one (1) vote on each matter submitted to a vote at a meeting of the
stockholders. The holders of the shares of the Class A Voting Common Stock
shall have the exclusive right to vote on any and all matters for which the
stockholders of the Corporation shall have the right to vote.
(b) THE HOLDERS OF THE SHARES OF THE CLASS B NON-VOTING COMMON STOCK
SHALL NOT HAVE ANY RIGHT TO VOTE FOR OR ELECT THE DIRECTORS OF THE CORPORATION
NOR SHALL THE HOLDERS OF THE SHARES OF THE CLASS B NON-VOTING COMMON STOCK HAVE
THE RIGHT TO VOTE ON ANY OTHER MATTER SUBMITTED TO A VOTE AT ANY MEETING OF THE
STOCKHOLDERS, UNLESS OTHERWISE REQUIRED BY THE MARYLAND GENERAL CORPORATION LAW,
AND IN SUCH CASE, ONLY TO THE EXTENT SUCH REQUIREMENT IS UNMODIFIABLE OR
UNWAIVERABLE BY THESE ARTICLES OF INCORPORATION. The holders of the shares of
the Class B Non-Voting Common Stock shall be entitled to receive notice of the
meetings of the stockholders but shall not be entitled to vote on any matters
submitted at such meetings.
All classes of stock of the Corporation are identical in all other respects.
WITH RESPECT TO EVERY CLASS OF COMMON STOCK OF THE CORPORATION (CLASS A
VOTING COMMON STOCK AND CLASS B NON-VOTING COMMON STOCK), THE STOCKHOLDERS OF
THE CORPORATION SHALL HAVE NO PREEMPTIVE RIGHTS WITH RESPECT TO SALE BY THE
--
CORPORATION OF ANY ADDITIONAL SHARES OF COMMON STOCK WHETHER IN THE CLASS OF
STOCK IN WHICH THE STOCKHOLDER OWNS STOCK, OR OTHERWISE, AND REGARDLESS OF THE
PURPOSE FOR SALE OF SUCH COMMON STOCK.
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<PAGE>
SIXTH: The total number of directors of the Corporation may be fixed and
thereafter increased or decreased pursuant to the By-Laws of the Corporation,
but shall never be less than the number of stockholders of the Corporation if
there are less than three (3) stockholders, and the names of the director who
shall act until the First Annual Meeting of the Stockholders, or until his
successors are duly chosen (and qualified) by the holders of the Class A Voting
Common Stock is F. Daniel Jackson.
SEVENTH: The duration of the Corporation shall be perpetual.
EIGHTH: The following provisions are hereby adopted for the purposes of
defining, limiting, and regulating the powers of the Corporation and of the
directors and stockholders thereof:
(a) The Board of Directors of the Corporation is hereby empowered to direct
issuance from time to time of shares of its stock of any class, and convertible
securities, whether now or hereafter authorized by the stockholders, for such
consideration as may be deemed advisable by the Board of Directors and without
any further authorization other than initial authorization in these Articles of
Incorporation and without any further action by the stockholders.
(b) The Board of Directors may classify or reclassify any unissued shares by
fixing or altering in any one or more respects, from time to time before
issuance of such shares, the preferences, rights, voting powers, restrictions
and qualifications of, the dividends on, the times and prices of redemption, and
the conversion rights, of such shares. The Board of Directors may further
promulgate any rules, regulations and/or restrictions which the Board of
Directors may deem appropriate or necessary from time to time with respect to
the administration of any meeting of the Corporation, including, by way of
example and not by way of limitation, the right to limit the periods of
discussion on any matter by any stockholder.
(c) Any director, individually, or any firm of which any director may be a
member, or any partnership, corporation or association of which any director may
be a partner, officer or director or in which any director may be interested as
an owner or holder of any amount of its capital stock, partnership interests or
otherwise, may be a party to, or may be pecuniarily or otherwise interested in,
any contracts or transactions of the Corporation, and in the absence of fraud no
contract or other transaction shall be thereby affected or invalidated;
PROVIDED, HOWEVER, that in the event that a director or any firm of which a
director is a member, or any partnership, corporation or association of which a
director may be a partner, officer or director or have a pecuniary interest is
so interested, such fact shall be disclosed to or shall have been known by the
Board of Directors of the Corporation or a majority thereof, and any director of
the Corporation who is also a partner, director or officer of or interested in
such other partnership, corporation or association, or who, or the firm of which
he is a member, is so interested, may be counted in determining the existence of
a quorum at the meeting of the Board of Directors of the Corporation which shall
authorize, ratify, or confirm any such contract or transaction, and may vote
thereat to authorize, ratify, or confirm any such contract or transaction; AND
FURTHER, PROVIDED, HOWEVER, in such event such contract or transaction must also
be approved by a majority vote of the disinterested directors even if the
disinterested directors shall constitute less than a quorum.
(d) The Corporation reserves the right to amend its Articles of Incorporation
so that such amendment may alter the contract rights, as expressly set forth in
the Articles of Incorporation, of any outstanding stock, even though such rights
are substantially adversely affected, and any objecting stockholder whose rights
may or shall be thereby substantially adversely affected shall not be entitled
to the same rights as an objecting stockholder in the case of a consolidation or
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<PAGE>
merger; and, as long as all stockholders of a class are treated equally, then
even though an amendment may substantially adversely affect them, no cause of
action at law or equity shall accrue on account of such amendment.
The enumeration and definition of a particular power of the Board of
Directors, the stockholders and/or the Corporation included in the foregoing
shall in no way be limited or restricted by reference to or inference from the
terms of any other clause of this or any other article of the charter of the
Corporation, or construed as or deemed by inference or otherwise in any manner
to exclude or limit any powers otherwise conferred under the General Laws of the
State of Maryland now or hereafter in force.
NINTH: In each case where the Corporations and Associations Article of the
Annotated Code of Maryland, as hereafter amended from time to time, requires an
affirmative vote of the stockholders in excess of a simple majority of such
stockholders before a particular action may be taken by the Corporation, such
affirmative stockholder vote requirement shall be lowered to an affirmative vote
of a majority of the stockholders of the Class A Voting Common Stock of the
Corporation. This provision in the Articles is meant to reduce such stockholder
voting requirement to a simple majority for each of the following corporate
actions (but shall not be limited to): charter amendments, consolidation,
merger, transfer of assets, partial liquidation, and dissolution.
TENTH: To the fullest extent permitted by Maryland General Corporation Law,
as applicable from time to time, no person who at any time was or is a director
or officer of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages. No amendment of these Articles of
Incorporation or repeal of any of its provisions shall limit or eliminate any of
the benefits provided to the directors and officers under this Article with
respect to any act or omission that occurred prior to such amendment or repeal.
ELEVENTH: The Corporation shall indemnify, to the fullest extent permitted
by Maryland General Corporation Law, as applicable from time to time, all
persons who at any time were or are directors or officers of the Corporation for
any threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administration or investigative) related to any action alleged to have
been taken or omitted in such capacity as a director or an officer. The
Corporation shall pay or reimburse all reasonable expenses incurred by a present
or former director or officer of the Corporation in connection with any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) in which the present or former
director or officer is a party, in advance of the final disposition of the
proceeding, to the fullest extent permitted by, and in accordance with the
applicable requirements of, Maryland General Corporation Law, as applicable from
time to time. The Corporation may indemnify any other persons permitted but not
required to be indemnified by Maryland General Corporation Law, as applicable
from time to time, if to the extent indemnification is authorized and determined
to be appropriate in each case in accordance with the applicable law by the
Board of Directors, the stockholders or special legal counsel appointed by the
Board of Directors. The Corporation shall not be required to purchase or
maintain insurance on behalf of any present or former directors or officers or
other persons required or permitted to be indemnified. No amendment of these
Articles of Incorporation or repeal of any of its provisions shall limit or
eliminate any of the benefits provided to the directors or officers under this
Article with respect to any act or omission that occurred prior to such
amendment or repeal.
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<PAGE>
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 23/rd/ day of April, 1999.
WITNESS:
/s/ Richard G. McAlee /s/ F. Daniel Jackson, M.D. (SEAL)
F. Daniel Jackson, M.D.
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================================================================================
[Outside Back Cover of Prospectus]
No person is authorized to give any information or to make any
representation not contained in this prospectus. You should not rely upon any
information or representation not contained in the prospectus or assume that
they have been authorized by the company. This prospectus is not an offer to
sell or a solicitation of an offer to buy any security other than the shares,
and is not an offer to sell or a solicitation of an offer to buy any of the
shares in any jurisdiction where such offer or solicitation is unlawful. The
information contained in this prospectus may change after its date.
Table of Contents
Appears on Inside Front Cover
Dealer Prospectus Delivery Obligation Until ____________, 2000 (90 days
after the date of this prospectus), all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
The Imaging Center, Inc.
715 Williams Street
Cumberland, Maryland 21501-1705
Minimum of 200,000 Shares for a total of
$400,000 and
Maximum of 1,000,000 Shares for a Total of
$2,000,000 of
Class B Non-Voting Common
Stock
--------------
PROSPECTUS
--------------
__________ 1, 2000
================================================================================
<PAGE>
Part II. Information Not Required in Prospectus.
Item 1. Indemnification of Directors and Officers.
There are no indemnification provisions for directors, officers and controlling
persons of the Company specifically dealing with liability under the Securities
Act.
The following general provisions are applicable to indemnification of directors,
officers and controlling persons:
The Company's Articles of Incorporation and Bylaws authorize the Company to
indemnify its directors and officers to the full extent permitted by Maryland
law.
Sec. 2-418 of the Corporations and Associations Article of the Annotated Code of
Maryland provides the authority to indemnify directors, officers, employees and
agents of the issuer. The statute permits corporations to indemnify an
individual made a party to a proceeding against judgments, penalties, fines,
settlements and reasonable expenses actually incurred (including attorneys'
fees) by reason of service in that capacity unless it is established that: (a)
the act or omission was material to the matter giving rise to the proceeding and
was committed in bad faith or was the result of active and deliberate
dishonesty; or (b) the person received an improper personal benefit in money,
property or services, or (c) in the case of any criminal proceeding, the person
had reasonable cause to believe that the act or omission was unlawful.
Further, Sec. 2-418(d) of the Corporations and Associations Article of the
Annotated Code of Maryland provides for mandatory indemnification for a director
who was successful, on the merits or otherwise, in the defense of any proceeding
shall be indemnified against reasonable expenses incurred by the director in
connection with the proceeding. Sec. 2-418(j) of the Corporations and
Associations Article of the Annotated Code of Maryland provides for certain
mandatory and permissive indemnification for corporate officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to Maryland law and the Company's Articles of
Incorporation and Bylaws, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
Item 2. Other Expenses of Issuance and Distribution.*
------------------------------------------------------------------
Securities and Exchange Commission Fees $ 556.00
------------------------------------------------------------------
State Securities Filing Fees 2,285.00
------------------------------------------------------------------
Printing Fees 15,000.00
------------------------------------------------------------------
Legal and Accounting Fees 160,000.00
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Escrow Agent Fees 500.00
------------------------------------------------------------------
Total $ 178,340.00
------------------------------------------------------------------
* All amounts are estimated other than the Securities and Exchange Commission
filing fee.
<PAGE>
Item 3. Undertakings.
Undertakings Required by Item 512(a) of Regulation S-B:
The Company will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertakings Required by Item 512(e) of Regulation S-B:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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.
<PAGE>
Item 4. Unregistered Securities Issued or Sold Within One Year
At the time of its incorporation, the Company sold to its President and
controlling shareholder, F. Daniel Jackson, M.D., 100 shares of its Class A
Voting Common Stock and 8,999,000 shares of its Class B Non-Voting Common Stock
at the price of $0.02 per share for an aggregate cost of $179,982.
The Company believes that such transaction qualified as a transaction by an
issuer not involving a public offering pursuant to Section 4(2) of the
Securities Act of 1933 based upon the following facts. All of the shares of
Common Stock were offered and sold only to F. Daniel Jackson, M.D. No shares of
Common Stock were offered to the public and no solicitation, general or limited,
was undertaken in connection with the sale to Dr. Jackson. Dr. Jackson
incorporated the Company and is familiar with its business, operations and
financial condition. He has been advised by counsel that his shares of Common
Stock in the Company may not be resold except in compliance with applicable
federal and state securities laws.
Item 5. Index to Exhibits
Exhibit 2.1* Issuer's Articles of Incorporation
Exhibit 2.2* Bylaws of Issuer
Exhibit 4 Subscription Agreement
Exhibit 6.1* Commercial Lease Agreement, dated July 1, 1999, between Imaging
Associates of Cumberland, Inc. and The Imaging Center, Inc.
Exhibit 6.2* Equipment Lease, dated July 1, 1999, between Imaging Associates of
Cumberland, Inc. and The Imaging Center, Inc.
Exhibit 6.3* Equipment Lease, dated July 1, 1999, between Value Healthcare,
Inc. and The Imaging Center, Inc.
Exhibit 6.4* Agreement for Technical Services, dated October 14, 1999, between
The Imaging Center, Inc. and F. Daniel Jackson, MD., P.A.
Exhibit 9* Escrow Agreement
Exhibit 10.1* Consent of Huber, Michaels & Company, Certified Public
Accountants
Exhibit 11* Opinion of Richard G. McAlee P.A.
* Previously Filed
Item 6. Description of Exhibits
See Item 5.
Signatures
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Cumberland, State of Maryland, on August 18, 2000.
<PAGE>
The Imaging Center, Inc.
By: /s/ F. Daniel Jackson, M.D.
F. Daniel Jackson, M.D., President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Officers Directors
<S> <C>
/s/ F. Daniel Jackson, M.D. /s/ F. Daniel Jackson, M.D.
F. Daniel Jackson, M.D., President F. Daniel Jackson, M.D.
Date: August 18, 2000 Date: August 18, 2000
/s/ Larry James Taylor /s/ Frederick J. Hill
Larry James Taylor, Vice President (Chief Frederick J. Hill
Operating Officer) Date: August 18, 2000
Date: August 18, 2000
/s/ D. Jeanne Starkey /s/ James F. Scarpelli, Jr.
D. Jeanne Starkey, Treasurer and Chief James F. Scarpelli, Jr
Financial Officer (Principal Accounting
Officer) Date: August 18, 2000
Date: August 18, 2000
</TABLE>
