U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ____________________ to ________________
Commission File Number: 0-18798
IMAGING MANAGEMENT ASSOCIATES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
COLORADO 84-1110294
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5143 West Woodmill Drive, Suite 23
Wilmington, Delaware 19808
(Address of Principal Executive Offices)
Telephone: (302) 633-6900
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes No __X__
At November 15, 1996 there were 16,525,744 shares outstanding of the
Registrant's no par value Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes No X
<TABLE>
IMAGING MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 40,804 68,458
Accounts Receivable, less allowance
for doubtful accounts of $4,008,530
and $3,976,736, respectively 5,966,040 5,836,961
Inventory 80,603 61,080
Prepaid Expenses 39,874 151,905
Current Poriton of notes receivable 78,252 78,252
__________ _________
Total Current Assets 6,205,573 6,196,656
Notes Receivable 46,042 92,465
Equipment and leasehold improvements, at
cost, net of accumulated depreciation
and amortization of $ 5,596,253
and $5,014,777, respectively 1,573,266 2,154,741
Intangible assets, less accumulated
amortization of $543,887 and
$ 448,914, respectively 810,734 957,171
Other Assets
Deposits 175,209 265,208
Receivables related parties 1,383,471 1,216,577
Other Assets 47,432 91,908
__________ __________
Total Assets 10,241,726 10,974,726
========== ==========
IMAGING MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
____________ ____________
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 1,748,476 $ 628,559
Current portion of capital lease
obligations 1,714,701 2,759,831
Convertible debentures 31,000 31,000
Accounts Payable and accrued expenses 5,203,730 4,910,358
Loans Payable - Related parties 176,499 164,394
_________ _________
Total Current Liabilities 8,874,406 8,494,142
Long Term debt:
Notes Payable 60,394 138,328
Obligations under capital leases 149,228 204,063
Minority Interest in consolidated
partnerships 65,341 77,489
_________ _________
Total Liabilities 9,149,369 8,914,022
_________ _________
Stockholders' Equity:
Common Stock - no par value, 100,000,000 shares
authorized,16,525,744 issued and
outstanding at September 30, 1996
and December 31, 1995 respectively 4,922,035 4,922,035
Retained Deficit (3,829,678) (2,861,331)
___________ ___________
Total Stockholders' Equity 1,092,357 2,060,704
___________ ___________
Total Liabilities and
Stockholders' Equity 10,241,726 10,974,726
========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<TABLE>
IMAGING MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, (UNAUDITED) SEPTEMBER 30,
(UNAUDITED)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Management fee income $ 0 $ 1,336 $ 0 $ 6,272
Revenues from operations of centers 1,479,192 2,103,910 5,060,793 6,165,789
Other income 20,510 21,461 267,621 68,259
_________ _________ _________ _________
Total Revenue 1,499,702 2,126,707 5,328,414 6,240,320
Costs and Expenses:
Operating expenses 1,353,657 1,983,209 5,318,586 6,049,514
Depreciation and amortization of
equipment and leasehold improvements 205,554 248,068 581,475 806,920
Amortization of intangibles 31,658 35,172 94,973 105,518
Interest expense 110,704 195,632 275,961 366,391
Loss on disposal of asset 0 0 22,500 0
Equity in net loss of unconsolidated partnerships 0 145 0 1,011
_________ _________ _________ _________
1,701,573 2,462,226 6,293,495 7,329,354
_________ _________ __________ _________
Loss from Continuing Operations Before Income Taxes
and Minority Equity (201,871) (335,519) (965,081) (1,089,034)
Income Taxes Benefit 0 (134,208) 0 (435,614)
Minority Equity (earnings) Loss (5,046) (26,572) (3,266) (4,957)
__________ _________ _________ __________
Loss From Continuing Operations (206,917) (227,883) (968,347) (658,377)
__________ _________ __________ __________
Discontinued Operations:
Income From Operations (Net of Income Taxes) 0 54,146 0 230,356
Gain On Disposal of Discontinued Operations
(Net of Income Taxes) 0 177,140 0 177,140
__________ ________ _________ ________
Total 0 231,286 0 407,496
__________ ________ _________ ________
Net Earnings (Loss) $ (206,917) $ 3,403 $ (968,347) $ (250,881)
========== ======== =========== =========
Earnings (Loss) Per Common Share (Primary):
Continuing Operations $ (0.01) $ (0.01) $ (0.06) $ (0.04)
====== ====== ====== ======
Net Earnings (Loss) $ (0.01) $ 0.00 $ (0.06) $ (0.02)
====== ====== ====== ======
Earnings (Loss) Per Common Share (Fully Diluted):
Continuing Operations $ (0.01) $ (0.01) $ (0.06) $ (0.04)
====== ====== ====== ======
Net Earnings (Loss) $ (0.01) $ 0.00 $ (0.06) $ (0.02)
====== ====== ====== ======
Primary common stock and common
stock equivalents 16,525,744 16,525,744 16,525,744 16,525,744
Fully diluted common stock and
common stock equivalents 16,525,744 16,525,744 16,525,744 16,525,744
See Accompanying notes to financial statements
</TABLE>
<TABLE>
IMAGING MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
For the Nine Months Ended September 30,
1996 1995
Unaudited Unaudited
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ($968,347) ($250,881)
Adjustments to reconcile net income
to net cash:
provided by operating activities
Gain on Disposal of Discontinued Operations 0 (177,140)
Net of Income Taxes
Depreciation and amortization 675,948 912,438
Minority interest in net loss of
consolidated partnerships 0 8,262
Deferred income taxes 0 (167,255)
Equity in net loss of unconsolidated
partnerships 0 1,011
Changes in assets and liabilities,
net of effect from:
Decrease(increase) in accounts receivable (129,079) 576,807
Decrease (increase) in management fee receivable 0 (6,272)
Decrease in prepaid expenses 112,031 6,501
Decrease in other assets (5,519) (31,105)
Increase (decrease) in accounts payable
and accrued expenses 293,372 326,045
Increase in loans payable -related parties 12,105 47,516
_________ ___________
Net cash provided by (used in)
operating activities (9,489) 1,245,927
_________ ___________
Cash Flows from Investing Activities:
Investments in and advances from
unconsolidated partnerships (37,683) 9,935
Proceeds From Sale of Property and Equipment 77,500 624,283
Acquisition of Property and Equipment 0 0
________ ________
Net cash provided by (used in) investing
activities 39,817 634,218
________ ________
IMAGING MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
For the Nine Months Ended September 30,
Continued
1996 1995
Unaudited Unaudited
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments on notes payable and
capital lease obligations ($57,982) ($1,219,340)
Redemption of convertible debentures 0 0
Proceeds from issuance of common stock
and warrants - net 0 0
_________ ____________
Net cash used in financing activities (57,982) (1,219,340)
_________ ____________
Increase (decrease) in cash and cash equivalents (27,654) 660,805
Cash and cash equivalents at beginning of period 68,458 65,378
_______ __________
Cash and cash equivalents at end of period 40,804 726,183
======= ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
IMAGING MANAGEMENT ASSOCIATES, INC.
Notes to Consolidated Finanacial Statements
September 30, 1996 and 1995
1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to represent fairly the financial position, as of September 30, 1996
and December 31, 1995 and the statements of operations for the three and
nine months ending September 30, 1996 and 1995 and the statements of cash
flows for the nine months ended September 30, 1996 and 1995.
The statements of operation for the three and nine months ended
September 30, 1996 and 1995 are not necessarily indicative of results
for the full year.
While the Company believes that the disclosures presented are
adequate to make the information not misleading, these financial statements
should be read in conjunction with the financial statements and accompanying
notes included on the Company's annual report on Form 10-KSB for the fiscal
year ended December 31, 1995.
2. Earnings per share are based on the weighted average number of shares
of common stock outstanding including common stock equivalents.
IMAGING MANAGEMENT ASSOCIATES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Plan of Operations
The Company's financial performance depends substantially upon
the scan volume of its MRI and other diagnostic imaging equipment and
the payment it receives for such scans. Since a majority of the
Company's expenses are fixed, increased revenues as a result of higher
scan volume and payment it receives for scans significantly improve the
Company's profitability. Conversely, lower scan volume and lower
payment per scan results in lower profitability.
The health care industry is highly regulated and very competitive.
The current health care environment is characterized by increasing cost
containment pressures, which have resulted in decreased revenues per
scan.
As discussed in the "Liquidity and Capital Resources" below,
management is pursuing the following alternatives to address its working
capital deficit of $2,668,833 at September 30, 1996 and the arrears or
defaults under its principal equipment leases and to provide the
anticipated cash requirements for its present operations for the next 12
months: (i) the sale of the operating assets of the North Jersey Imaging
Center and the Company's 60th Street MRI Center; (ii) restructuring of
principal lease obligations; (iii) discontinuing or relocating unprofitable
modalities at certain centers; (iv) downsizing its executive staff and
reducing the size of its corporate offices; (v) financing of accounts
receivable; (vi) increasing productivity to its remaining core group of
centers; and (vii) re-opening its St. Petersburg, Florida Center.
Results of Operations for the Three and Nine Months Ended September 30, 1996
Compared to the Three and Nine Months Ended September 30, 1995.
Total revenues from continuing operations of $1,499,702 and $5,328,414
for the three and nine months ended September 30, 1996 decreased by 29% and
15%, respectively, from total revenues from continuing operations for the
corresponding periods in 1995. Revenues were adversely affected by managed
care's increased scrutinizing of the utilization of "high tech" procedures such
as MRI and decreased revenue per scan as a result of the changing health care
market place and increased competition.
The Company's total revenues for the first three quarters of 1995 and its
operating expenses were computed without reflecting the operating results of
the Company's former Jersey City Imaging Center ("JCIC"), which was sold on
August 31, 1995. The results of operations of JCIC for the first three
quarters of 1995 are reflected on the Company's Statement of Operations as
income (loss) from discontinued operations.
The Company's operating expenses from continuing operations for the
three months ended September 30, 1996 of $1,353,657 decreased by 32% from
operating expenses for the corresponding period in 1995, while operating
expenses from continuing operations decreased for the nine months ended
September 30, 1996 by 12% to $5,318,586. The Company is continuing to
implement a plan to decrease its operating expenses to better adapt the Company
to the changing health care marketplace. This plan includes restructuring of
the financing of MRI equipment leases, selling the operating assets of its 60th
Street MRI Center and the North Jersey Imaging Center and discontinuing
unprofitable modalities.
Depreciation and amortization from continuing operations decreased by
17% and 4%, respectively, to $205,654 and $581,475 for the three and nine
months ended September 30, 1996.
The Company's operations do not reflect the operations of the
Company's imaging center in Orlando, Florida subsequent to the second quarter
of fiscal 1992, due to a dispute and litigation with the manager of that
Center. Commencing in the second quarter of 1992, the Company was denied
access to the Center and the manager refused to remit revenues of the Center
to the Company.
The Company's total costs and expenses from continuing operations of
$1,701,573 for the three months ended September 30, 1996 represent a 31%
decrease from the corresponding period in 1995. Total costs and expenses from
continuing operations of $6,293,495 for the nine months ended September 30,
1996, represent a 14% decrease from the corresponding period in 1995. The
Company's loss from operations was primarily a result of (i) the fixed nature of
the Company's costs; (ii) the increased utilization of the Company's centers by
HMO' s with their lower reimbursement per scan; (iii) overall cost containment
within the insurance industry; (iv) the reduced number of scans performed at
certain centers; and (v) increased competition.
Loss from continuing operations before minority interest and taxes of
$201,871 and $965,081 for the three and nine months ended September 30, 1996
represented a decrease of 39% and 11% , respectively, from the losses for the
corresponding periods in 1995.
The Company had no benefit for income taxes from continuing operations
for the three and nine months ended September 30, 1996 and a benefit of
$134,208 and $435,614 for the three and nine months ended September 30, 1995.
In addition, for the three and nine months ended September 30, 1995 the
Company had gain on disposal of discontinued assets (net of taxes) of $177,140
and income from discontinued operations of $54,146 and $230,356, respectively.
As a result of the foregoing, the Company had a net loss of $206,917 and
$968,347 for the three and nine months ended September 30, 1996, as compared
to net income of $3,403 and a net loss of $250,881 for the three and nine
months ended September 30, 1995. Primary and fully diluted net loss per share
was $.01 and $.06, respectively, for the three and nine months ended
September 30, 1996 as compared to net earnings per share of $.00 for the three
months ended September 30, 1995 and net loss per share of $.02 for the nine
months ended September 30, 1995.
Liquidity and Capital Resources
During the first nine months of 1996, the Company funded its losses with
cash generated from operations and extending terms with creditors, including
lessors of diagnostic imaging equipment. At September 30, 1996, the Company
had a working capital deficit of $2,668,833 as compared to a working capital
deficit of $2,297,486 at December 31, 1995. Cash and cash equivalents at
September 30, 1996 was $40,804 as compared to $68,458 at December 31, 1995.
The Company's net cash used by operating activities for the nine months
ended September 30, 1996, of $9,489 was primarily attributable to the
Company's net loss from operations (net of adjustments for noncash items) of
$292,399 and an increase in accounts receivable of $129, 079 offset by an
increase in accounts payable and accrued expenses of $293,372 and a decrease in
prepaid expenses of $112,031. The increase in accounts payable and accrued
expenses was a result of the Company extending terms with creditors.
Investment activities provided $39,817 from the proceeds from the sale
of contract rights and a deposit for magnetic resonance imaging equipment in the
amount of $77,500 less a decrease in investments in advances from
unconsolidated partnerships of $37,683. Financing activities used a total of
$57,982, resulting from a net decrease in notes payable and capital lease
obligations. Cash and cash equivalents decreased by $27,654 to $40,804 at
September 30, 1996.
The Company's ability to meet its current obligations is primarily
dependent on its ability to maintain future revenues from existing assets while
reducing the costs to generate such revenues, and/or by terminating unprofitable
operations and either redeploying the assets to profitable locations or
disposing of assets. Revenue on a per procedure basis may be difficult to
maintain due to declining reimbursements. In addition, a number of
uncertainties exist that could have an impact on the Company's future business
prospects including: (i) changes in health care legislation which may limit
reimbursement; (ii) numerous competitive factors in the health care industry,
including the increased proliferation of managed care and overall cost
containment in the insurance industry; (iii) the increased utilization of the
Company's centers by managed care entities and their lower reimbursement rate
per scan and (iv) increased competition.
Highline Financial Services, Inc. ("Highline") has informed the Company
that the Company is in default under leases for four magnetic resonance imaging
("MRI") units utilized at the Company's Cherry Hill, New Jersey, Wilmington,
Delaware, Saddlebrook, New Jersey and Orlando, Florida centers, which MRI
units are currently leased directly to the Company or leased to Leonard F.
Vernon and Joseph F. Rooney, Jr. and subleased to the Company. (Drs. Vernon
and Rooney, who are officers and directors of the Company, have entered into
the leases on behalf of the Company and at no cost to the Company.) Highline
has accelerated al payments due under the leases, and is presently pursuing
litigation against the Company and Drs. Vernon and Rooney with regard to the
four leases for rent, replevin and other damages. On the September 30, 1996
balance sheet, $1,555,022 was due to Highline on the leases. Highline has
obtained replevin orders to repossess the MRI equipment located at the
Wilmington, Delaware and Cherry Hill, New Jersey centers. See "Item 1- Legal
Proceedings and "Item 3 - Defaults of Senior Securities".
The Company is arranging for a third party to purchase the MRI
equipment located at the Wilmington, Delaware, Saddlebrook, New Jersey and
Cherry Hill, New Jersey imaging centers from Highline at a substantial discount
from the amounts owed on the leases. These leases represent substantially all
of the Company's capital lease obligations at September 30, 1996. As part of
the purchase the Company plans to sublease the MRI equipment from a third party
for a period of 36 months and to obtain a release from liability for the lease
for MRI equipment located at the Orlando, Florida Center. For the time being,
Highline has not sought replevy for the MRI equipment located at the Cherry
Hill, New Jersey and the Wilmington Delaware centers. If a negotiated
settlement is not reached, Highline will schedule replevy for the MRI equipment
at the Cherry Hill, New Jersey and Wilmington Delaware centers and pursue its
other remedies under the leases.
On September 6, 1996, the Company entered into an Assets Purchase
Agreement with American Imaging, Inc. ("AI") for the sale of the operating
assets (excluding accounts receivable) of the Company's 60th Street MRI Center
in West New York, New Jersey. Under the Agreement, AI is to pay $545,000 in
cash plus the cost of inventory on hand and assume the liabilities and
obligations of the Center after the closing date. In addition on September 6,
1996, AI purchased the Hitachi MRI System located at the Center from Marine
Midland Bank on the condition that the Company repurchase the Hitachi MRI
system from AI at its cost plus interest in the event that the Assets Purchase
Agreement is terminated. The closing of the sale is subject to certain
conditions being satisfied.
One of the conditions of the closing is a simultaneous sale of the
operating assets (including the improved real property where the center is
located, but excluding accounts receivable) of the North Jersey Imaging Center
to American Imaging, Inc. for $500,000 plus the cost of inventory on hand. The
Company owns 53% of the partnership interest in North Jersey Imaging Center,
L.P., the owner of the North Jersey Imaging Center. The proceeds of the sale of
the operating assets of North Jersey Imaging Center will be used exclusively for
the payment of liabilities associated with the Center.
In order to reduce the outstanding obligations on the MRI equipment and
fixtures located at the Company's former Metropolitan Imaging Center, the
Company, in October 1995, with the cooperation of the equipment lessor,
relocated the MRI equipment with a third party. The Company also plans to
re-open its MRI center in St. Petersburg, Florida after renovations to the
center and an upgrade to the MRI equipment is completed.
The Company is pursuing other alternatives to improve its cash flow and
reduce its expenses which include: (i) discontinue or relocate unprofitable
modalities at certain centers; (ii) downsizing its executive staff and reducing
the size of its corporate offices; (iii) financing of the accounts receivable
at certain centers; (iv) increasing productivity of the remaining core group of
Centers and (v) acquiring or developing businesses in nonhealthcare related
fields to achieve diversity and in other health care fields to utilize the
Company's existing resources to maximize efficiencies.
Effective September 3, 1996, the radiologist group at the Spring Valley,
New York imaging center terminated its agreements with Spring Valley MR
Imaging Partnership ("Partnership"), the owner of the Center. (The Company
owns 51% of the partnership interests in the Partnership.) The Partnership has
a pending lawsuit against the radiologist group regarding its breach of the
agreements with the Partnership. Since September 3, 1996, another radiologist
group has been performing services at the Center. The Partnership is in the
process of entering into an agreement with that radiologist group
On September 4, 1996, the Nasdaq Stock Market, Inc. ("Nasdaq")
informed the Company that it was not in compliance with Marketplace Rule
4310(c)(D4), which requires that the Company's common stock to maintain a
minimum bid price of $1.00 or, as an alternative, if the bid price is less than
$1.00, the Company must maintain capital surplus of $2,000,000 and a market
value of the public float of $1,000,000. The Company has been given until
December 3, 1996 to achieve compliance with this requirement, or submit to
Nasdaq its proposal for achieving compliance. Based on the Company's balance
sheet as of September 30, 1996, the Company will not be able to achieve
compliance by the December 3, 1996 deadline. Nasdaq will thus issue a formal
notice of deficiency specifying a delisting date for the Company's common stock
unless the Company submits its proposal for achieving compliance with Nasdaq's
rules by December 3, 1996 and such proposal is deemed by Nasdaq to warrant
continued listing. At the time of the filing of this Form 10-QSB, the Company is
submitting a proposal (which gives effect to transactions currently in progress
as discussed above) to achieve compliance with Nasdaq's rules. There can be no
assurance however, that the proposal will warrant continued listing of the
Company's common stock on Nasdaq.
The Company has no bank lines of credit available. Medical equipment
purchases, capital improvements, acquisitions and center development have been
funded through third party capital lease, debt obligations, private sales of
securities, exercise of warrants and internally generated cash flow. The debt
is generally secured by the equipment, and sometimes other assets of the
Centers. Interest rates in connection with the leases and borrowings range
between ten and eighteen percent.
The Company's cash flow has been and will in the future be adversely
affected by the slow paying process of third party carriers. These third party
carriers include Blue Cross, Blue Shield, Medicare, worker's compensation
carriers, as well as other third party carriers such as HMO's. Reimbursement
times for these carriers vary from 30 days to over 180 days.
<PAGE>
IMAGING MANAGEMENT ASSOCIATES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
1. In July 1996, a complaint was filed in an action entitled Highline
Financial Services, Inc. v. Imaging Management Associates, Inc., in the Superior
Court of New Jersey Law Division: Camden County (Docket #5119-96) regarding
a default under an MRI equipment lease at the Company's Cherry Hill, New
Jersey Center. This action was originally disclosed in the Company's Form
10-QSB for the June 30, 1996 quarter. On September 17, 1996 an Order
Permitting Entry of Writ of Replevin was issued regarding the repossession of
MRI equipment located at the Cherry Hill, New Jersey Center. For the time
being, Highline has not sought replevy of the equipment based on the Company's
efforts in arranging for the purchase of the MRI equipment by a third party.
If a negotiated settlement is not reached, Highline will schedule replevy of
the equipment.
2 On June 10, 1996 a complaint was filed in an action entitled
Highline Financial Services, Inc., v. Joseph F. Rooney, Jr., M.D., D.C. and
Leonard F. Vernon, D.C. in the Superior Court of New Jersey Law Division:
Bergen County (Docket #5373-96) regarding a default under an MRI equipment
lease. This action is ancillary to the matter entitled Highline Financial
Services, Inc., v. Imaging Management Associates, Inc. in the Superior Court of
New Jersey Law Division: Camden County (Docket #5119-96). Despite court records
indicating that both Dr. Rooney and Dr. Vernon have procedurally defaulted this
action for failure to file an answer to the complaint filed, neither has been
served with the complaint. The Company is currently arranging for a third
party to purchase the MRI equipment from Highline to satisfy the default under
the lease and thereby resolve this action.
3. On February 21, 1996 a complaint was filed in an action entitled
Brook-Med Imaging, P.A. et al. v. Ingis & Company, et al. in the Superior Court
of New Jersey Law Division: Bergen County (Docket #1568-96) regarding an
accounting malpractice claim. On May 16, 1996 an answer and Third Party
complaint was filed by Ingis & Company against the Company, Dr. Leonard F.
Vernon and Dr. Joseph F. Rooney, Jr. along with other companies and individuals
in the action as Third Party Defendants. Response pleadings were filed on
November 6, 1996 and the case is proceeding with discovery. In a previously
settled matter, the Company was indemnified by Brook Med Imaging, P.A. from
liability resulting from its lawsuit against Ingis & Company.
4. On July 12, 1996, the Court, in the matter, The Fundamental
Resource Group, Inc. v. Imaging Management Associates, Inc. in the Superior
Court of New Jersey - Chancery Division, Bergen County Docket No. C-229-96,
ordered the Company (i) to provide the plaintiff with documentation and
financial records concerning Brook Magnetics Partnership which owns the
Saddlebrook, New Jersey imaging center; (ii) to proceed with arbitration of the
case pursuant to the Brook Magnetics Partnership partnership agreement; and
(iii) to restrain from disbursing or loaning any partnership funds except in
the ordinary course of business. An arbitration date is being scheduled to
determine the amount owing to plaintiff by the Partnership. The plaintiff
claims it is owed approximately $300,000 from the Partnership. The Company,
which is a 95% partner of Brook Magnetics Partnership, intends to negotiate
a settlement with the plaintiff.
5. In May, 1996, a complaint was filed in an action entitled
Highline Financial Services, Inc. v. Kirkwood Milltown Imaging Associates, LP
d/b/a Kirkwood Milltown MRI, LTD, Joseph F. Rooney, Jr. and Leonard F.
Vernon in the Superior Court of the State of Delaware in and for New Castle
County (C.A. No. 960-066-121 JOH). This matter was previously reported in the
Company's Form 10-QSB for the quarter ended June 30, 1996. Replevy of the
MRI unit at the Center was scheduled to occur on November 11, 1996. For the
time being, Highline has postponed replevy of the equipment based on the
Company's efforts in arranging for the purchase of the MRI equipment by a third
party. If a negotiated settlement is not reached, Highline will reschedule the
replevy.
Item 3. Defaults of Senior Securities
Highline has informed the Company that it is in default under leases for
four MRI units currently leased directly to the Company or leased to Leonard F.
Vernon and Joseph F. Rooney, Jr. (officers and directors of the Company) and
subleased to the Company. In addition, Highline has obtained orders of
replevin for the MRI units located at the Wilmington, Delaware center and the
Cherry Hill, New Jersey center. The Company is arranging the purchase of MRI
equipment located at the Wilmington, Delaware center, Cherry Hill, New Jersey
center and the Saddlebrook, New Jersey center by a third party from Highline.
As part of the arrangement, the Company plans to sublease the equipment from a
third party and obtain a release from the liability for the lease for MRI
equipment located at the Sand Lake Imaging Center. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations -
Liquidity and Capital Resources" for a discussion of defaults monthly payment
obligation on the Highline leases.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
IMAGING MANAGEMENT ASSOCIATES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
IMAGING MANAGEMENT ASSOCIATES, INC.
Date: December 3, 1996 By: /s/ Leonard Vernon
Leonard Vernon, Chairman of the Board
President and Chief Executive Officer
Date: December 3, 1996 By: /s/ Joseph F. Rooney
Joseph F. Rooney,
Executive Vice President,
Secretary, Treasurer,
Director and Principal Financial and
Accounting Officer
