UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
Commission file number 000-19636
HEALTHCARE IMAGING SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3119929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Schulz Drive, Red Bank, New Jersey 07701
(Address of principal executive offices) (Zip Code)
(732) 224-9292
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 11, 1997
Common Stock, $.01 par value 8,856,474 shares
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION: PAGE
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders
Equity - For the nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 369,738 $ 173,879
Marketable securities - 625,000
Accounts receivable - net 4,821,101 4,328,553
Prepaid expenses and other 146,026 160,021
Total current assets 5,336,865 5,287,453
Property, plant and equipment - net 5,007,181 4,347,745
Other assets:
Advances to licensee 220,998 351,401
Goodwill - net 124,925 138,806
Due from officer 252,364 176,049
Other non-current assets 341,169 265,278
939,456 931,534
Total assets $11,283,502 $10,566,732
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 400,000 $ -
Accounts payable and accrued expenses 1,008,819 1,083,223
Current portion of capital lease
obligations and long-term debt 1,666,862 1,102,559
Reserve for restructuring costs - 150,054
Income taxes payable 6,794 8,304
Total current liabilities 3,082,475 2,344,140
Non-current liabilities:
Capital lease obligations and long-term
debt 2,282,910 2,141,627
Reserve for restructuring costs 364,501 575,589
2,647,411 2,717,216
Minority interests 514,768 500,569
Stockholders' equity:
Convertible preferred stock, $.10 par value;
1,000,000 shares authorized, 330,500 and
660,000 shares outstanding at September
30, 1997 and December 31, 1996, respectively 33,050 66,000
Common stock, $.01 par value;
50,000,000 shares authorized, 7,268,474 and
4,961,974 shares outstanding at September 30,
1997 and December 31, 1996, respectively 72,685 49,620
Additional paid-in capital 11,886,563 11,876,678
Accumulated deficit (6,925,180) (6,588,845)
Unearned compensation (28,270) (398,646)
5,038,848 5,004,807
Total liabilities and stockholders' equity $11,283,502 $10,566,732
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues: $2,566,669 $2,425,043 $7,672,300 $7,062,991
Operating Expenses:
Salaries 689,718 689,075 2,045,402 1,984,724
Other operating expenses 754,634 643,124 2,351,991 1,829,049
Films and supplies 125,353 152,776 376,923 402,849
Equipment maintenance
and repairs 146,266 153,097 463,931 497,366
Consulting and marketing
fees 152,250 5,810 286,866 23,744
Professional fees 161,799 106,922 381,335 362,625
Depreciation and
amortization 397,173 357,302 1,085,798 1,124,247
Interest 162,200 116,537 387,277 357,461
Gain on sale of property,
plant and equipment - - (105,000) -
2,589,393 2,224,643 7,274,523 6,582,065
(Loss)/income before non-
cash compensation charge,
minority interests in
joint ventures and income
taxes (22,724) 200,400 397,777 480,926
Non-cash compensation
charge (89,265) (368,994) (370,376) (1,075,425)
Minority interests in
joint ventures (167,339) (91,250) (331,140) (276,240)
Operating loss before
income taxes (279,328) (259,844) (303,739) (870,739)
Income tax provision 8,665 11,311 32,596 39,000
Net loss $(287,993) $(271,155) $(336,335) $(909,739)
Weighted average common
shares outstanding 6,521,854 4,711,974 5,532,769 4,711,974
Net loss per common share $(.04) $(.06) $(.06) $(.19)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid-in Accumulated Unearned Stockholders'
Shares Amount Shares Amount Capital Deficit Compensation Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 660,000 $ 66,000 4,961,974 $ 49,620 $11,876,678 $ (6,588,845) $ (398,646) $5,004,807
Conversion of Series C Convertible
Preferred Stock (329,500) (32,950) 2,306,500 23,065 9,885
Amortization of unearned
compensation for stock options
and restricted stock grant 370,376 370,376
Net loss for the nine months ended
September 30, 1997 (336,335) (336,335)
SEPTEMBER 30, 1997 330,500 $33,050 7,268,474 $ 72,685 $11,886,563 $ (6,925,180) $ (28,270) $5,038,848
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net loss $ (336,335) $ (909,739)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 1,085,798 1,124,247
Gain on sale of property, plant and
equipment (105,000) --
Amortization of non-cash compensation 370,376 1,075,425
Minority interests in joint ventures 331,140 276,240
Allowance for doubtful accounts 431,000 131,000
Changes in assets and liabilities:
Accounts receivable (923,548) (320,514)
Prepaid expenses and other 13,995 11,775
Advances to licensee 130,403 --
Due from officer (76,315) --
Accounts payable and accrued expenses (74,404) 131,804
Income taxes payable (1,510) 7,021
Other non-current assets (92,054) (108,449)
Net cash provided by operating activities 753,546 1,418,810
Cash flows from investing activities:
Proceeds from sale of marketable securities 625,000 --
Purchases of property, plant and equipment (158,133) (98,627)
Net cash provided by (used in) investing
activities 466,867 (98,627)
Cash flows from financing activities:
Net proceeds received from the sale of
Series C Preferred Stock -- 1,198,254
Borrowings under the revolving line of
credit 400,000 --
Proceeds from sale of property, plant
and equipment related to restructured
operations 105,000 --
Distributions to limited partners of
joint ventures (316,941) (293,689)
Payments on note payable -- (52,530)
Payments on capital lease obligations (1,004,073) (717,931)
Proceeds from subleases related to
restructured operations 127,843 386,173
Payments against obligations related to
restructured operations (336,383) (682,766)
Net cash used in financing activities (1,024,554) (162,489)
Increase in cash and cash equivalents 195,859 1,157,694
Cash and cash equivalents at beginning
of period 173,879 281,416
Cash and cash equivalents at end
of period $ 369,738 $ 1,439,110
6
<PAGE>
HEALTHCARE IMAGING SERVICES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Nine Months Ended
September 30,
1997 1996
Supplemental Cash Flow Information:
Interest paid during the period $357,924 $362,811
Income taxes paid during the period $ 34,107 $ 44,690
Supplemental Schedule of Noncash Investing
and Financing Activities:
Capital leases principally
for medical equipment $1,135,084 $306,634
Reinstatement of mobile MRI unit
related to previously recorded
restructured operations $421,973 $ -
Reinstatement of capital lease
obligation related to previously
recorded restructured operations $574,575 $ -
See accompanying notes to consolidated financial statements.
7
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1997
Note 1. - Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary
to present fairly the Company's financial position as of September
30, 1997 and the related statements of operations and cash flows
for the periods ended September 30, 1997 and 1996. Certain
information and footnote disclosures normally included in annual
financial statements have been omitted from the accompanying
interim consolidated financial statements.
The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results of
operations expected for the year ending December 31, 1997 or any
other period. The consolidated financial statements included
herein should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by the Company's Form 10-K/A No. 1, which are on file at
the Securities and Exchange Commission.
Note 2. - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard ("SFAS") No. 128,
"Earnings Per Share". The statement is effective for periods
ending after December 15, 1997, and changes the method in which net
loss per share will be determined. Adoption of this statement by
the Company will not have a material impact on net loss per share.
Note 3. - Stock Options
The Company has two stock option plans, the 1991 Stock Option
Plan and the 1996 Stock Option Plan for Non-Employee
Directors (collectively the "Plans"). A summary of the stock option
activity and related exercise price range for both Plans since
December 31, 1996 is as follows:
Number of Exercise
Shares Price
Covered By Range Per
Options Share
Outstanding at December 31, 1996 220,600 $1.06 - $5.00
Granted - September 19, 1997 140,000 $0.75
Canceled (44,200) $1.50 - $5.00
Outstanding at September 30, 1997 316,400 $0.75 - $5.00
8
<PAGE>
As of September 30, 1997, options covering an additional
633,600 shares may be issued under the Plans. At September 30,
1997, outstanding stock options covering 148,900 shares were
exercisable.
The Company applies the provisions of APB Opinion 25 and
related interpretations in accounting for its stock options.
Accordingly, no compensation cost has been recognized for the
foregoing options. The excess, if any, of the fair market value of
shares on the measurement date over the exercise price is charged
to operations each year as the options become exercisable. Had
compensation cost for these options been determined using the
Black-Scholes option-pricing model described in FASB Statement 123,
the Company would have recorded aggregate compensation expense of
approximately $984,133. This amount would have been expensed over
the options' vesting periods. The assumptions used in the option-
pricing model include a risk-free interest rate of 6.0%, expected
life of 3 to 4 years and expected volatility of approximately 80%-
106%. The pro forma impact of the provisions of FASB Statement 123
on the Company's operations and loss per share would be as follows:
Nine Months
Ended
September 30, 1997
Net loss - as reported $(336,335)
- pro forma $(414,246)
Net loss per common share - as reported $(.06)
- pro forma $(.07)
Net loss per share has been calculated using the weighted
average shares outstanding of 5,532,769.
Note 4. - Revolving Line of Credit
Effective December 26, 1996, the Company entered into a Loan
and Security Agreement with DVI Business Credit ("DVIBC"), an
affiliate of DVI Financial Services, Inc. ("DFS"), to provide a
secured revolving line of credit to the Company. The maximum
amount available under such credit facility is $2.0 million, with
advances limited to seventy-five percent (75%) of eligible accounts
receivable, as determined by DVIBC. Borrowings under the credit
facility bear interest at three percent (3%) over the prime lending
rate and are repayable within two years from the execution of the
aforementioned loan and security agreement. The Company's
obligations under the credit facility are secured by a first
9
<PAGE>
security interest in all eligible accounts receivable, other than
those of DFS. The agreement contains customary affirmative and
negative covenants including covenants requiring the Company to
maintain certain financial ratios and minimum levels of working
capital. Borrowings under this facility will be used for working
capital. The line of credit does not constrict the Company's
borrowing ability as it relates to the acquisition of new equipment
from DFS. As of September 30, 1997, $400,000 was outstanding under
this credit facility.
Note 5. - Subsequent Event
On November 4, 1997, the Company acquired all of the assets
and business of, and assumed certain liabilities relating to, M.R.
Radiology Imaging of Lower Manhattan, P.C., which is a fixed-site
MRI facility, with ultrasound, located in New York City for an
aggregate purchase price of approximately $2.2 million, subject to
post-closing adjustments, in a combination of $900,000 in cash,
$300,000 in the form of a short-term promissory note and 1,000,000
shares of common stock of the Company. The acquisition will be
accounted for as a purchase.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995 including, without limitation, statements regarding the
sufficiency of the Company's liquidity and sources of capital. Any
statements contained herein which are not historical facts or which
contain the words expect, believe, estimate or anticipate shall be
deemed to be forward-looking statements. These forward-looking
statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially
including the continued availability of financing, reimbursement of
healthcare costs, delayed payment and risk of non-payment and
reliance on key personnel. Additional information regarding
factors that could potentially affect the Company or its financial
results are included in the Company's other filings with the
Securities and Exchange Commission.
Nine Months Ended September 30, 1997 vs. September 30, 1996
For the nine months ended September 30, 1997, revenues were
$7,672,300 as compared to $7,062,991 for the nine months ended
September 30, 1996, an increase of approximately $609,000. This
increase is primarily due to increased revenues at certain of the
Company's MRI facilities, as well as the commencement, through a
joint venture, of fixed-site MRI services in May 1997 at the
Meadowlands Hospital Medical Center located in Secaucus, New Jersey
(the "Meadowlands MRI facility").
For the nine months ended September 30, 1997, operating
expenses were $7,644,899 as compared to $7,657,490 for the nine
months ended September 30, 1996, a decrease of approximately
$13,000. This decrease was primarily a result of lower non-cash
compensation charges recorded during the nine months ended
September 30, 1997 (approximately $370,000) as compared to
September 30, 1996 (approximately $1,075,000) and a gain
(approximately $105,000) on the sale of one of the Company's
mobile MRI units to an unaffiliated third party. The non-cash
compensation charges result from the grant of (1) stock options and
a restricted stock award to the Company's Chairman of the Board,
President and Chief Executive Officer ( the "CEO") and (2) stock
options to Biltmore Securities, Inc. ("Biltmore") pursuant to a
consulting agreement. See "Liquidity and Capital Resources of the
Company."
The Company's operating expenses before the non-cash
compensation charges and the gain on the sale of the mobile MRI
unit increased approximately $797,000, which is attributable to the
start-up expenses incurred in establishing the Meadowlands MRI
facility, as well as additional employee costs and consulting and
11
<PAGE>
marketing fees relating to the increased number of procedures being
performed at the Company's facilities.
During the nine months ended September 30, 1997, as a
corporate general partner the Company recorded $45,009 of losses
attributable to the limited partnership interest in the
Philadelphia, Pennsylvania joint venture (the "Philadelphia MRI
facility") in excess of the limited partners' capital accounts. In
addition, because the Company is the only member in the related
limited liability company obligated to fund working capital for the
Meadowlands MRI facility, the Company recorded $104,495 of losses
attributable to the other member's interest in such facility in
excess of the other member's capital account.
The operating results for the nine months ended September 30,
1996 were substantially affected by the Philadelphia MRI facility
which incurred a loss of $317,963, which loss decreased to $112,523
for the nine months ended September 30, 1997. The Company is
negotiating the purchase of the present limited partners' interests
in such joint venture which it expects to consummate by the end of
fiscal 1997. However, there can be no assurance that these
negotiations will be successfully concluded. In addition, the
operating results for the nine months ended September 30, 1997 were
adversely effected by decreasing margins at the Company's Brooklyn
MRI facility resulting from local competitive pressures, as well as
the funding of the expenses associated with the Meadowlands MRI
facility during its start-up phase.
Three Months Ended September 30, 1997 vs. September 30, 1996
For the three months ended September 30, 1997, revenues were
$2,566,669 as compared to $2,425,043 for the three months ended
September 30, 1996, an increase of approximately $142,000. This
increase is primarily due to increased revenues at certain of the
Company's MRI facilities, as well as the commencement of fixed-site
MRI services at the Meadowlands MRI facility.
For the three months ended September 30, 1997, operating
expenses were $2,678,658 as compared to $2,593,637 for the three
months ended September 30, 1996, an increase of approximately
$85,000. This increase was primarily a result of start-up expenses
incurred in establishing the Meadowlands MRI facility, partially
offset by lower non-cash compensation charges recorded during the
three months ended September 30, 1997 (approximately $89,000) as
compared to September 30, 1996 (approximately $369,000). The non-
cash compensation charges during this three month period result
primarily from the above referenced grant of stock options to the
CEO. See "Liquidity and Capital Resources of the Company."
The Company's operating expenses before the non-cash
compensation charges and the gain on the sale of the mobile MRI
unit increased approximately $365,000, which is attributable to the
start-up expenses incurred in establishing the Meadowlands MRI
12
<PAGE>
facility, as well as additional employee costs and consulting and
marketing fees relating to the increased number of procedures being
performed at the Company's facilities.
During the three months ended September 30, 1997, as a
corporate general partner the Company recorded $27,285 of losses
attributable to the limited partnership interest in the
Philadelphia MRI facility in excess of the limited partners'
capital accounts. In addition, because the Company is the only
member in the related limited liability company obligated to fund
working capital for the Meadowlands MRI facility, the Company
recorded $104,495 of losses attributable to the other member's
interest in such facility in excess of the other member's capital
account.
The operating results for the three months ended September 30,
1996 were substantially affected by the Philadelphia MRI facility
which incurred a loss of $66,722, which loss increased to $68,213
for the three months ended September 30, 1997. The Company is
negotiating the purchase of the present limited partners' interests
in such joint venture which it expects to consummate by the end of
fiscal 1997. However, there can be no assurance that these
negotiations will be successfully concluded. In addition, the
operating results for the three months ended September 30, 1997
were adversely effected by decreasing margins at the Company's
Brooklyn MRI facility resulting from local competitive pressures,
as well as the funding of the expenses associated with the
Meadowlands MRI facility during its start-up phase.
Liquidity and Capital Resources of the Company
As of January 30, 1996, the Company entered into a one year
consulting agreement with Biltmore. Pursuant to the consulting
agreement, Biltmore agreed to act as a consultant to the Company in
connection with, among other things, corporate finance and
evaluations of possible business partners and agreed to seek to
locate business partners suitable for the Company and assist in the
structuring, negotiating and financing of such transactions. The
consulting agreement provided for the issuance to Biltmore upon
execution thereof of options (the "Biltmore Options") exercisable
to purchase 750,000 shares of Common Stock at a cash exercise price
of $0.75 per share and for the additional issuance to Biltmore of
750,000 shares (the "Biltmore Fee Shares") of Common Stock upon
consummation by the Company by January 30, 1997, which date was
extended to January 30, 1999, of an acquisition of a company (or
companies) with assets of at least $2,500,000 during the term of
the consulting agreement (the "Acquisition"). In connection with
the issuance of the Biltmore Options, the Company recorded a non-
cash compensation charge of $685,800 which was amortized over the
initial one year term of the consulting agreement.
As of February 1, 1996, the Company amended its employment
13
<PAGE>
agreement with its CEO. Pursuant to such amendment, the
agreement's expiration date of October 22, 1996 was extended to
October 22, 1997 and during such extension, the CEO's annual base
compensation was reduced from $200,000 to $100,000. In addition,
stock options that the CEO held to purchase an aggregate of 270,000
shares of Common Stock at exercise prices ranging from $1.50 to
$5.00 per share (the "CEO Old Options") were terminated and the
Company granted the CEO options, exercisable until February 1,
2001, to purchase an aggregate of 500,000 shares of Common Stock at
an exercise price of $0.75 per share (the "CEO New Options"). In
connection with the issuance of the CEO New Options, the Company
recorded a non-cash compensation charge of $562,506 which was
amortized over the twenty one months ended October 31, 1997. Upon
execution of such amendment, the CEO received from the Company a
restricted stock award of 250,000 shares (the "Restricted Shares")
of Common Stock (the "CEO Award"). The restrictions related to the
CEO Award lapse upon consummation by the Company of an Acquisition.
In January 1997, the Company extended the required consummation
date of the Acquisition from January 30, 1997 to January 30, 1998
(subject to stockholder ratification and approval of such
extension, which the Company is soliciting at its 1997 Annual
Meeting of Stockholders) and the expiration date of the CEO's
employment agreement from October 22, 1997 to October 22, 1998. In
November 1997, the Company further extended the required
consummation date of an Acquisition to January 30, 1999 (subject to
stockholder ratification and approval of such extension, which the
Company is soliciting at its 1997 Annual Meeting of Stockholders).
In connection with the issuance of the Restricted Shares, the
Company recorded a non-cash compensation charge of $468,744 which
was amortized over the initial twelve month contingency period
ended January 30, 1997. To the extent the Company does not
consummate an Acquisition meeting the specified standards by
January 30, 1999 (assuming stockholder ratification and approval of
such extension), the CEO Award will be forfeited and the previously
recorded non-cash compensation charge will be reversed.
As of September 30, 1997, the Company had a cash balance of
$369,738, current assets of $5,336,865 and working capital of
$2,254,390. Cash flows provided by operating activities were
$753,546 for the nine months ended September 30, 1997, which
consisted primarily of depreciation and amortization of $1,085,798,
amortization of non-cash compensation of $370,376, an increase in
the allowance for doubtful accounts receivable of $431,000 and
minority interests in joint ventures of $331,140. Other
significant components of cash flows provided by operating
activities include an increase in accounts receivable of $923,548
due to an increase in the number of procedures being performed,
repayments by licensees on advances of $130,403 and a decrease in
accounts payable and accrued expenses of $74,404.
Cash flows provided by investing activities were $466,867,
relating to proceeds received from the sale of marketable
securities offset by capital expenditures.
14
<PAGE>
Cash flows used in financing activities were $1,024,554, which
consisted primarily of payments on capital lease obligations of
$1,004,073, payments against obligations related to restructured
operations of $336,383 and distributions to limited partners of
joint ventures of $316,941, partially offset by borrowings of
$400,000 under the revolving line of credit, proceeds of $105,000
from the sale of one of the Company's mobile MRI units to an
unaffiliated third party and proceeds of $127,843 from the
subleases related to restructured operations.
The Company's Philadelphia MRI facility, which has been
operating since November 1992, continues to operate at a loss.
However, such losses have substantially decreased during the nine
months ended September 30, 1997. In order to support the
operations of this facility, the Company has made and continues to
make working capital loans to this joint venture. As of September
30, 1997, the amount of such working capital loans was
approximately $2,479,000 (of which approximately $366,000,
inclusive of an intercompany interest charge of approximately
$167,000, was loaned in 1997). The Company cannot at this time
determine when, or if, these loans will be repaid. The Company is
in the process of negotiating the purchase of the present limited
partners interests in this joint venture which it expects to
consummate before year end. However, there can be no assurance
that these negotiations will be successfully concluded.
As noted above, the competitive environment in which the
Brooklyn MRI facility operates has adversely affected its operating
results. In connection with the Company's review of the viability
of this facility, the Company is actively considering the sale or
lease of this facility. However, there can be no assurance that
such a sale or lease will be consummated.
On May 8, 1997, the Company sold one of its remaining two
mobile MRI units to an unaffiliated third party for $105,000. The
sale enabled the Company to eliminate the overhead costs associated
with the operation of this mobile MRI unit, thereby resulting in
cash savings.
In November 1996, the Company formed a limited liability
company, of which it owns sixty (60%) percent, with Practice
Management Corporation to provide on-site MRI services to
Meadowlands Hospital Medical Center. The site commenced operations
on May 8, 1997. The Company expects that the initial costs to be
incurred in establishing the facility will range between $750,000
and $900,000. These amounts will be in the form of working capital
loans by the Company to the joint venture. As of September 30,
1997 the amount of such working capital loans was approximately
$729,000. The Company is in the process of negotiating the
restructuring of this joint venture which, if successful, will
result in the Company owning 100% of the venture. However, there
can be no assurance that these negotiations will be successfully
concluded. The Company believes that this facility's start-up
15
<PAGE>
phase will last nine to twelve months, although there can be no
assurance that it will not be a longer period.
The nature of the Company's operations require significant
capital expenditures which have historically been financed through
the issuance of debt and the execution of capital leases, proceeds
received from the Company's initial public offering in November
1991 and sale of the Series C Preferred Stock in February 1996, and
the offering and exercise of warrants. Continued expansion, if
any, of the Company's business will require substantial cash
resources and will have an impact on the Company's liquidity.
Also, such expansions, if any, will require the purchase of
additional MRI units and financing sources to fund the purchase of
these additional units. Historically, the Company has been able to
obtain financing for its medical equipment through a former
significant stockholder, DVI Financial Services, Inc. ("DFS"). The
Company believes it will continue to be able to obtain financing
from DFS as well as other financing sources for its future
equipment needs although no assurance can be given.
Effective December 26, 1996, the Company entered into a Loan
and Security Agreement with DVI Business Credit ("DVIBC"), an
affiliate of DFS, to provide a secured revolving line of credit to
the Company. The maximum amount available under such credit
facility is $2.0 million, with advances limited to seventy-five
percent (75%) of eligible accounts receivable, as determined by
DVIBC. Borrowings under the credit facility bear interest at three
percent (3%) over the prime lending rate and are repayable within
two years from the execution of the aforementioned loan and
security agreement. The Company's obligations under the credit
facility are secured by a first security interest in all eligible
accounts receivable, other than those of DFS. Borrowings under
this facility will be used for working capital. The line of credit
does not constrict the Company's borrowing ability as it relates to
the acquisition of new equipment from DFS. As of September 30,
1997, $400,000 was outstanding under this credit facility.
The Company believes that cash to be provided by operating
activities, the proceeds received from the sale of the Series C
Preferred Stock and availability under the revolving line of credit
will be sufficient to meet its anticipated cash requirements for
its present operations for the next twelve months. If for any
reason the Company's estimates prove inaccurate, the Company is
prepared to adopt additional expense reduction measures in addition
to those already implemented, although there can be no assurance
that any such expense reduction measures will be successful.
16
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5 have been omitted because the related
information is either inapplicable or has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) The Company has not filed any reports on Form 8-K during
the quarter ended September 30, 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHCARE IMAGING SERVICES, INC.
(Registrant)
/s/ ELLIOTT H. VERNON
DATE: November 13, 1997 Elliott H. Vernon,
Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: November 13, 1997 /s/ SCOTT P. MCGRORY
Scott P. McGrory,
Vice President - Controller
(Principal Financial and
Accounting Officer)
18
<PAGE>
HEALTHCARE IMAGING SERVICES, INC.
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1997
INDEX TO EXHIBITS
EXHIBIT PAGE
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $ 369,738
<SECURITIES> 0
<RECEIVABLES> 4,821,101
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,336,865
<PP&E> 10,976,734
<DEPRECIATION> 5,969,553
<TOTAL-ASSETS> 11,283,502
<CURRENT-LIABILITIES> 3,082,475
<BONDS> 0
0
33,050
<COMMON> 72,685
<OTHER-SE> 4,933,113
<TOTAL-LIABILITY-AND-EQUITY> 11,283,502
<SALES> 0
<TOTAL-REVENUES> 7,672,300
<CGS> 0
<TOTAL-COSTS> 7,644,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (303,739)
<INCOME-TAX> 32,596
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (336,335)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
