<PAGE>
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 March 31, 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)
(908) 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 May 14, 1997
----- ---------------------------
Common Stock, $.01 par value 4,961,974 shares
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Changes in Stockholders
Equity - For the three months ended March 31, 1997 5
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
- ----------
</TABLE>
2
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
- ------ ------------ ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 427,974 $ 173,879
Marketable securities - 625,000
Accounts receivable - net 4,696,337 4,328,553
Prepaid expenses and other 236,313 160,021
----------- -----------
Total current assets 5,360,624 5,287,453
----------- -----------
Property, plant and equipment - net 4,140,247 4,347,745
----------- -----------
Other assets:
Advances to licensee 351,873 351,401
Deferred costs 8,414 11,218
Goodwill - net 134,179 138,806
Due from officer 176,049 176,049
Other 421,973 254,060
----------- -----------
1,092,488 931,534
----------- -----------
Total assets $10,593,359 $10,566,732
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 1,287,056 $1,083,223
Current portion of capital lease
obligations and long-term debt 1,129,718 1,102,559
Reserve for restructuring costs 121,444 150,054
Income taxes payable 20,054 8,304
---------- -----------
Total current liabilities 2,558,272 2,344,140
---------- -----------
Non-current liabilities:
Capital lease obligations and long-term
debt 1,846,868 2,141,627
Reserve for restructuring costs 514,104 575,589
----------- ----------
2,360,972 2,717,216
----------- ----------
Minority interests 474,650 500,569
----------- ---------
Stockholders' equity:
Convertible preferred stock,
$.10 par value; 1,000,000 shares
authorized, 660,000 shares outstanding
at March 31, 1997 and December 31, 1996 66,000 66,000
Common stock, $.01 par value;
50,000,000 shares authorized,
4,961,974 shares outstanding at
March 31, 1997 and December 31, 1996 49,620 49,620
Additional paid-in capital 11,876,678 11,876,678
Accumulated deficit (6,586,033) (6,588,845)
Unearned compensation (206,800) (398,646)
----------- ------------
5,199,465 5,004,807
----------- -----------
Total liabilities and stockholders' equity $10,593,359 $10,566,732
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
1997 1996
----- -----
<S> <C> <C>
Revenues: $2,680,450 $2,354,892
---------- ----------
Operating Expenses:
Salaries 702,703 666,069
Other operating expenses 862,343 585,553
Films and supplies 142,318 135,812
Equipment maintenance and repairs 173,495 176,049
Professional fees 62,601 120,009
Depreciation and amortization 324,853 381,475
Interest 107,139 121,673
------- -------
2,375,452 2,186,640
--------- ---------
Income before non-cash compensation
charge, minority interests in
joint ventures and income taxes 304,998 168,252
Non-cash compensation charge (191,846) (337,437)
Minority interests in joint ventures (97,159) (85,439)
-------- --------
Operating income (loss) before income
taxes 15,993 (254,624)
Income tax provision 13,181 11,700
------ ------
Net income (loss) $ 2,812 $(266,324)
======== ==========
Weighted average common
shares outstanding 4,711,974 4,711,974
========= =========
Net income (loss) per common share $.00 $(.06)
==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
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
Amortization of
unearned compensation
for stock options
and restricted stock grants 191,846 191,846
Net income for the
three months ended
March 31, 1997 2,812 2,812
-------------------------------------------------------------------------------------------------------------
BALANCE,
MARCH 31, 1997 660,000 $ 66,000 4,961,974 $ 49,620 $ 11,876,678 $ (6,586,033) $ (206,800) $ 5,199,465
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,812 $(266,324)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 324,853 381,475
Amortization of non-cash compensation 191,846 337,437
Minority interests in joint ventures 97,159 85,439
Allowance for doubtful accounts 135,000 (81,000)
Changes in assets and liabilities:
Accounts receivable (502,784) (71,036)
Prepaid expenses and other (76,292) (56,699)
Deferred costs - (6,167)
Advances to licensee (472) -
Accounts payable and accrued expenses 203,833 275,276
Income taxes payable 11,750 4,690
Other assets (167,913) -
---------- -------
Net cash provided by operating activities 219,792 603,091
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable securities 625,000 -
Purchases of property, plant and
equipment (109,924) (23,242)
--------- --------
Net cash provided by (used in) investing
activities 515,076 (23,242)
------- --------
Cash flows from financing activities:
Proceeds received from the sale
of Series C Preferred Stock - 1,198,254
Distributions to limited partners
of joint ventures (123,078) (48,877)
Payments on note payable - (19,181)
Payments on capital lease obligations (267,600) (227,370)
Proceeds received on sublease for
restructured operations 37,043 92,423
Payments against reserve for restructuring
costs (127,138) (356,274)
--------- ---------
Net cash (used in) provided by financing
activities (480,773) 638,975
---------- -------
Increase in cash and cash equivalents 254,095 1,218,824
Cash and cash equivalents at beginning
of period 173,879 281,416
-------- --------
Cash and cash equivalents at end
of period $427,974 $1,500,240
======== ==========
</TABLE>
6
<PAGE>
HEALTHCARE IMAGING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
----------------------------
1997 1996
------- -------
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid during the period $109,976 $124,192
======== ========
Income taxes paid during the period $ 1,431 $7,010
======== ======
Supplemental Schedule of Noncash Investing
and Financing Activities:
Capital leases principally
for medical equipment $ - $100,700
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
HEALTHCARE IMAGING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1997 and the statements of
operations and cash flows for the periods ended March 31, 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 three months ended March 31, 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. - Implementation of Accounting Standard
- -----------------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share", which establishes new standards for computing and presenting net
income per share. The statement is effective for periods ending after December
15, 1997. Accordingly, the Company will adopt the standard beginning with its
fourth quarter of 1997. For the first quarter of 1997 and 1996, respectively,
pro forma basic and diluted net income (loss) per share amounts required
pursuant to SFAS No. 128 would not have been materially different than the net
income (loss) per common and common equivalent share shown for the periods
presented in the accompanying consolidated statements of operations.
Note 3. - Contingency
- ---------------------
In October 1995, the Company was notified by the New Jersey Division
of Taxation ("NJDT") of a proposed sales and use tax assessment of
approximately $887,000. The Company provided additional information to the
NJDT which substantially reduced the proposed assessment. The New Jersey sales
tax examination was concluded on May 31, 1996 with the Company's payment of
$214,280 to the NJDT under a conditional agreement with the NJDT. Such
agreement acknowledged that the State of New Jersey has not yet reached an
agreement with the State of New York to assure that New York will give full
credit (under the interstate agreement between New Jersey and New York) for
sales tax paid by the Company to the State of New Jersey. Such agreement was
reached between the State of New Jersey and the State of New York in April
1997.
8
<PAGE>
In February 1996, the Company was notified by the New York State
Department of Taxation and Finance ("NYDT") regarding the commencement of a
sales and use tax examination and has received a preliminary assessment for
taxes and interest due of $170,261. As a result of providing the NYDT with
additional information and the receipt of credit for sales tax previously paid
in connection with the NJDT sales and use tax assessment, the Company was able
to substantially reduce the aforementioned NYDT preliminary assessment. The
New York sales tax examination was concluded April 18, 1997 with the Company's
payment of $128,282 to the NYDT. The resolution of these matters did not have
an impact on the Company's financial condition or results of operations beyond
the amounts already reserved therefor.
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 revolving
line of credit bear interest at the rate of 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 grant to DVIBC of a first security
interest in all eligible accounts receivable, other than those of DFS.
Borrowings under this facility will be used for general corporate purposes
including working capital and potential acquisitions. In addition, 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 March 31, 1997, there were no
outstanding borrowings under this credit facility.
9
<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, 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.
ADDITIONAL INFORMATION REGARDING FACTORS THAT COULD POTENTIALLY AFFECT THE
COMPANY OR ITS FINANCIAL RESULTS MAY BE INCLUDED IN THE COMPANY'S FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION.
For the Three Months Ended March 31, 1997 vs. March 31, 1996
- ------------------------------------------------------------
For the three months ended March 31, 1997, revenues were $2,680,450
as compared to $2,354,892 for the three months ended March 31, 1996, an
increase of approximately $326,000. This increase is primarily due to (1)
increased revenues from the Company's fixed-site MRI facility located in
Philadelphia, Pennsylvania (approximately $192,000) and fixed-site MRI
facility located in Brooklyn, New York (approximately $93,000), which increase
was attributable to the Company's expanded advertising and marketing efforts
resulting in an increased number of procedures being performed and (2)
revenues generated by a mobile MRI unit (approximately $82,000) utilized from
time to time at a location in Jersey City, New Jersey.
For the three months ended March 31, 1997, operating expenses were
$2,567,298 as compared to $2,524,077 for the three months ended March 31,
1996, an increase of approximately $43,000. This increase was partially offset
by lower non-cash compensation charges recorded during the quarter ended March
31, 1997 (approximately $192,000) as compared to March 31, 1996 (approximately
$337,000), which charges result from the grant of (I) stock options and a
restricted stock award to the Company's Chairman of the Board, President and
Chief Executive Officer (the "CEO") and (ii) 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 increased approximately
$189,000 primarily due to (x) the funding of start-up expenses incurred by a
joint venture (in which the Company has a sixty (60%) percent interest) formed
to provide on-site MRI services to Meadowlands Hospital Medical Center
(approximately $35,000), (y) expenses incurred in connection with the
provision of mobile MRI services to a location in Jersey City (approximately
$57,000) and (z) increased corporate and site employee related expenses
(approximately $76,000) due to increased staffing requirements along with
corresponding expenses associated with the increased number of procedures
being performed at certain of the Company's MRI facilities. Other operating
expenses increased approximately $276,000, primarily attributed to the
increased number of procedures being performed by certain fixed-site
facilities in addition to the funding of the start-up costs associated with
the commencement of fixed-site MRI services at the
10
<PAGE>
Meadowlands Hospital Medical Center and the provision of mobile MRI services
at a location in Jersey City. Depreciation and amortization expense decreased
approximately $57,000 primarily due to the MRI unit located at the Company's
Edgewater, New Jersey facility becoming fully depreciated in July 1996.
Interest expense decreased approximately $15,000 primarily due to the
satisfaction of a note payable and certain capital lease obligations.
During the three months ended March 31, 1997, as a corporate general
partner, the Company recorded an additional $5,398 of losses attributable to
the limited partnership interests in the Philadelphia, Pennsylvania joint
venture (the "Philadelphia MRI facility") in excess of the limited partners'
capital accounts.
The operating results for the three months ended March 31, 1996 were
substantially affected by the Philadelphia MRI facility which incurred a loss
of $132,973 for such period, which loss decreased to $13,495 for the three
months ended March 31, 1997. The Company has expanded its advertising and
marketing efforts on behalf of the Philadelphia MRI facility which is
evidenced by the improvement in operations for the quarter ended March 31,
1997 as compared to March 31, 1996. The Company is in the process of
negotiating the purchase of the present limited partners interests in such
joint venture which it expects to consummate in the second quarter of fiscal
1997. However, there can be no assurance that these negotiations will be
successfully concluded or as to the timing and magnitude of a restructuring
charge, if any, relating to the Philadelphia MRI facility.
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 will seek to find 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, 1998, 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 term of the consulting agreement.
As of February 1, 1996, the Company amended its employment 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
11
<PAGE>
$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
is being amortized over the twenty-one months ending 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 will 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 intends to solicit 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 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, 1998, the CEO Award will be forfeited and the previously recorded
non-cash compensation charge will be reversed accordingly.
As of March 31, 1997, the Company had a cash balance of $427,974,
current assets of $5,360,624 and working capital of $2,802,352. Cash flows
provided by operating activities were $219,792 for the three months ended
March 31, 1997, which consisted primarily of depreciation and amortization of
$324,853, amortization of non-cash compensation of $191,846, an increase in
the allowance for doubtful accounts receivable of $135,000 and minority
interests in joint ventures of $97,159. Other significant components of cash
flows provided by operating activities include an increase in accounts
receivable of $502,784 due to an increase in the number of procedures being
performed, an increase in other assets of $167,913 primarily due to costs
incurred for potential new business arrangements and an increase in accounts
payable and accrued expenses of $203,833 primarily due to an extension of the
period during which vendors are paid. Cash flows provided by investing
activities were $515,076 primarily due to proceeds received from the sale of
marketable securities. Cash flows used in financing activities were $480,773,
which consisted primarily of payments on capital lease obligations of
$267,600, payments against reserves for restructuring costs of $127,138 and
distributions to limited partners of joint ventures of $123,078, partially
offset by proceeds of $37,043 from the sublease of the restructured mobile MRI
operations and the Maiden Choice MRI equipment.
The Company's Philadelphia MRI facility, which has been operating
since November 1992, continues to operate at a loss. 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 March 31, 1997, the amount
of such working capital loans was approximately $2,291,000 (of which
approximately $178,000, inclusive of an intercompany interest charge of
approximately $52,000, was loaned in 1997). In order to become profitable,
this joint venture must attain a certain volume of
12
<PAGE>
business and it is uncertain whether such business level will ever be
attained. 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 such joint venture which it expects
to consummate in the second quarter of fiscal 1997. However, there can be no
assurance that these negotiations will be successfully concluded or as to the
timing and magnitude of a restructuring charge, if any, relating to the
Philadelphia MRI facility. In addition, because of the increasingly difficult
operating environment relating to the Company's Brooklyn, New York MRI
facility, the Company is currently contemplating the sale of this facility.
On May 8, 1997, the Company sold for $105,000 one of its two
remaining mobile MRI units to an unaffiliated third party. The sale enables
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
which it will operate as a joint venture with Practice Management Corporation
to provide on-site MRI services to Meadowlands Hospital Medical Center. The
Company will own sixty (60%) percent of this joint venture. The site commenced
operations on May 8, 1997 and will initially provide MRI services utilizing
one of the Company's mobile MRI units. The Company estimates that initial
costs to be incurred by the Company in establishing the facility will range
between $275,000 and $350,000. The Company anticipates that most of these
amounts will be in the form of working capital loans by the Company to the
joint venture. The Company believes that the start-up phase will last six to
nine months, although there can be no assurances 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, 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.
Effective December 26, 1996, the Company entered into a Loan and
Security Agreement with DVI Business Credit, an affiliate of DFS ("DVIBC"), 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 revolving line of credit bear interest at the rate
of 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 proposed credit facility are secured by a
grant to DVIBC of a first
13
<PAGE>
security interest in all eligible accounts receivable, other than those of
DFS. Borrowings under this facility will be used for general corporate
purposes including working capital and potential acquisitions. In addition,
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 March 31, 1997,
there were no outstanding borrowings under this credit facility.
The Company believes that cash to be provided by the Company's
operating activities will be sufficient to meet its anticipated cash
requirements for its present operations for the next twelve months. The
proceeds received from the sale of the Series C Preferred Stock and
availability under the revolving line of credit will further supplement the
Company's ability to meet its future cash needs. 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.
14
<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 10.40 - Agreement, dated as of January 30, 1997,
between HealthCare Imaging Services, Inc. and Biltmore
Securities, Inc.
Exhibit 10.41 - Agreement, dated as of January 30, 1997,
between HealthCare Imaging Services, Inc. and Elliott H.
Vernon*
Exhibit 10.42 - Amendment No. 2 to Employment Agreement
between HealthCare Imaging Services, Inc. and Elliott H.
Vernon*
Exhibit 10.43 - Amendment No. 3 to HealthCare Imaging
Services, Inc. 1991 Stock Option Plan*
Exhibit 10.44 - Form of Excess Capacity Agreement
Exhibit 27 - Financial Data Schedule.
(b) The Company has not filed any reports on Form 8-K during
the quarter ended March 31, 1997.
___________________________________________________________________
* Such exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this
Quarterly Report on Form 10-Q.
___________________________________________________________________
15
<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: MAY 14, 1997
Elliott H. Vernon,
Chairman of the Board,
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: MAY 14, 1997 /S/ SCOTT P. MCGRORY
--------------------
Scott P. McGrory,
Vice President - Controller
(Principal Financial and
Accounting Officer)
16
<PAGE>
HEALTHCARE IMAGING SERVICES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
INDEX TO EXHIBITS
EXHIBIT PAGE
- ------- ----
10.40 Agreement, dated as of January 30, 1997,
between HealthCare Imaging Services, Inc.
and Biltmore Securities, Inc.
10.41 Agreement, dated as of January 30, 1997,
between HealthCare Imaging Services, Inc.
and Elliott H. Vernon*
10.42 Amendment No. 2 to Employment Agreement
between HealthCare Imaging Services, Inc.
and Elliott H. Vernon*
10.43 Amendment No. 3 to HealthCare Imaging
Services, Inc. 1991 Stock Option Plan*
10.44 Form of Excess Capacity Agreement
27 Financial Data Schedule
------------------------------------------------------------
* Such exhibit is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this
Quarterly Report on Form 10-Q.
------------------------------------------------------------
17
<PAGE>
AGREEMENT
AGREEMENT, dated as of January 30, 1997, between HEALTHCARE IMAGING
SERVICES, INC., a Delaware corporation ("HIS"), and BILTMORE SECURITIES, INC.,
a Florida corporation ("Biltmore").
W I T N E S S E T H :
WHEREAS, HIS and Biltmore are parties to a consulting agreement, dated
as of January 30, 1996 (the "Consulting Agreement;" all capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
ascribed thereto in the Consulting Agreement); and
WHEREAS, HIS and Biltmore wish to extend the term of the Consulting
Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Section 3 of the Consulting Agreement is hereby amended to extend
the Term for an additional one (1) year (the "Extended Term") and, accordingly,
the Consulting Agreement shall terminate on January 30, 1998. All references to
"Term" in the Consulting Agreement shall be deemed to include the Extended
Term.
2. Except as set forth herein, the Consulting Agreement shall remain
in full force and effect.
3. This Agreement shall bind and inure to the benefit of the parties
hereto, and their respective successors and assigns.
4. The validity, interpretation, construction, performance and
enforcement of this Agreement shall be governed by the internal laws of the
State of New York, without regard to its conflicts of law rules.
5. This Agreement may be executed in one or more counterparts, which
together shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
--------------------------------------
Name:
Title:
BILTMORE SECURITIES, INC.
By: /s/ Elliot Loewenstern
--------------------------------------
Name: Elliot Loewenstern
Title: Chief Executive Officer
2
<PAGE>
AGREEMENT
AGREEMENT, dated as of January 30, 1997, between HEALTHCARE IMAGING
SERVICES, INC., a Delaware corporation ("HIS"), and ELLIOTT H. VERNON, the
Chairman, President and Chief Executive Officer of HIS ("EHV").
W I T N E S S E T H :
WHEREAS, HIS and EHV are parties to a restricted stock award
agreement, dated as of February 1, 1996 (the "Restricted Stock Award
Agreement;" all capitalized terms used herein but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Restricted Stock
Award Agreement); and
WHEREAS, HIS and EHV wish to revise certain of the terms and
provisions of the Restricted Stock Award Agreement upon the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Subject to the provisions of Section 2 hereof, Section 2 of the
Restricted Stock Award Agreement is hereby revised by deleting the January 31,
1997 date in clause (y) of the second sentence of such section and inserting
"January 31, 1998" in its place. Accordingly (subject to the provisions of
Section 2 hereof), all of the Shares subject to the Restricted Stock Award will
vest upon the consummation of an Acquisition by January 31, 1998 (or will be
forfeited in the event of such non-consummation).
2. The foregoing revision of the Restricted Stock Award Agreement is
subject to the ratification and approval of such revision by HIS' stockholders,
which ratification and approval will be presented to HIS' stockholders at their
next regularly scheduled annual meeting.
3. Except as set forth herein, the Restricted Stock Award Agreement
shall remain in full force and effect.
4. This Agreement shall bind and inure to the benefit of the parties
hereto, and their respective successors, assigns, heirs and personal
representatives.
5. The validity, interpretation, construction, performance and
enforcement of this Agreement shall be governed by the internal laws of the
State of New Jersey, without regard to its conflicts of law rules.
6. This Agreement may be executed in one or more counterparts, which
together shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
-------------------------------
Name:
Title:
/s/ Elliott H. Vernon
-----------------------------------
ELLIOTT H. VERNON
2
<PAGE>
AMENDMENT NO. 2
TO
EMPLOYMENT AGREEMENT
BETWEEN
HEALTHCARE IMAGING SERVICES, INC. AND ELLIOTT H. VERNON
AGREEMENT, dated as of January 30, 1997, between HEALTHCARE IMAGING
SERVICES, INC., a Delaware corporation ("HIS"), and ELLIOTT H. VERNON ("EHV").
W I T N E S S E T H :
WHEREAS, HIS and EHV are parties to an employment agreement, dated as
of October 22, 1991, as amended by Amendment No. 1 dated as of February 1, 1996
(the "Employment Agreement;" all capitalized terms used herein but not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Employment Agreement); and
WHEREAS, HIS and EHV wish to extend the term of the Employment
Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Section 2 of the Employment Agreement is hereby amended to extend
the Term for an additional one (1) year (the "Extended Term") and, accordingly,
the Employment Agreement shall terminate on October 22, 1998. All references to
"Term" in the Employment Agreement shall be deemed to include the Extended
Term. During the Extended Term, EHV's base annual salary, payable at such
intervals as the other senior executives of HIS are paid, shall remain at
$100,000.
2. Except as set forth herein, the Employment Agreement shall remain
in full force and effect.
3. This Agreement shall bind and inure to the benefit of the parties
hereto, and their respective successors, assigns, heirs and personal
representatives.
4. The validity, interpretation, construction, performance and
enforcement of this Agreement shall be governed by the internal laws of the
State of New Jersey, without regard to its conflicts of law rules.
5. This Agreement may be executed in one or more counterparts, which
together shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
HEALTHCARE IMAGING SERVICES, INC.
By: /s/ Elliott H. Vernon
-------------------------------
Name:
Title:
/s/ Elliott H. Vernon
-----------------------------------
ELLIOTT H. VERNON
2
<PAGE>
AMENDMENT NO. 3 TO
HEALTHCARE IMAGING SERVICES, INC.
1991 STOCK OPTION PLAN
Section 6(b)(ii) of the HealthCare Imaging Services, Inc. 1991 Stock
Option Plan is hereby amended by adding the following sentence at the end
thereof:
Notwithstanding anything contained herein to the contrary, a
Participant may transfer any Option which is not an Incentive
Stock Option (x) to the spouse or any lineal ancestor or
descendant of such Participant or to any trust, the sole
beneficiaries of which are any one or all of such
Participant's spouse or any lineal ancestor or descendant of
such Participant and (y) in such other circumstances as the
Committee may approve.
This Amendment No. 3 was approved by the Board of Directors of
HealthCare Imaging Services, Inc. on December 20, 1996.
<PAGE>
EXCESS CAPACITY LICENSE AGREEMENT
________, 19__
<PAGE>
EXCESS CAPACITY LICENSE AGREEMENT
This Agreement is entered into as of the ___ day of ______,
19__, by and between HEALTHCARE IMAGING SERVICES, INC., a Delaware corporation
having a place of business at ______________ ("Licensor"), and _________ having
his principal place of business at ___________________ ("Licensee").
RECITALS
WHEREAS, Licensor (and its affiliates) is in the business of retaining
use of certain office space, equipment and employees for the performance of MRI
scans by physicians licensed to perform such scans; and
WHEREAS, from time to time, Licensor has office space, equipment and
employees which/who are not being furnished to physicians who perform MRI scans
or otherwise utilize the services of Licensor; and
WHEREAS, Licensee desires to obtain the right to use and to sublicense
to physicians and medical practices the use of certain of Licensor's excess
office space, equipment and clerical personnel.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. Recitals
The recitals set forth above are incorporated herein as
though set forth in their entirety herein.
<PAGE>
SECTION 2. Scope of License
Subject to the condition precedent stated in Section 6, it is
Licensor's intent to license to Licensee on a non-exclusive basis its (i)
medical office space located at the Premises (as defined below) (the "Medical
Office Space"); (ii) magnetic resonance imaging equipment located at the
Premises (the "Equipment"); and (iii) administrative and clerical personnel who
work on the Premises (the "Clerical Personnel") (collectively, the "Excess
Capacity") to be used by sublicensees of Licensee, approved by Licensor, to
perform MRI studies as an integral part of their practices and incidentally by
Licensee to assist sublicensees in such usage.
SECTION 3. Medical Office Space
3.1 During the Term (as hereinafter defined), Licensor shall
license the use of its Medical Office Space (the "Excess Space) located at
____________ (the "Premises") to Licensee.
3.2 The license for the Excess Space at the Premises
includes:
(a) The non-exclusive use of all office furnishings,
fixtures and equipment including other accouterments customary in an MRI office
located in the county in which the Premises are located and which currently
exist at the Premises as of the date of this Agreement;
(b) Light, heat, air conditioning, water and telephone
service;
(c) Janitorial services; and
(d) Provision of general office supplies.
3.3 Licensor shall maintain the Premises in good order,
condition and repair, and shall, at Licensor's sole expense, use reasonable
efforts to make all necessary repairs in a timely manner to maintain the
Premises in good condition.
2
<PAGE>
3.4 Subject to the terms of this Agreement and Licensee's
performance of all of its covenants and obligations under this Agreement,
during the Term, Licensor grants Licensee the right to utilize the Excess Space
free from any interference, hindrance, or ejection by Licensor or any party
claiming through or under Licensor during the periods of time set forth in this
Agreement.
3.5 Licensee shall obtain and maintain at all times any and
all necessary permits and consents to allow Licensee to erect such signs as are
mutually agreed upon by the parties. In addition, Licensee's sublicensees shall
be permitted to place temporary signage on the door to the Premises during
their use of the Premises; provided that such signage has been approved by
Licensor prior to its use.
SECTION 4. Equipment
4.1 During the Term, Licensor shall license the Equipment as
set forth on Schedule A attached hereto and made a part hereof, or such other
substantially equivalent equipment that is located on the Premises (the "Excess
Equipment"), to Licensee.
4.2 Licensee shall ensure that any and all use of the Excess
Equipment by Licensee's sublicensees shall be limited to the performance of MRI
scans and services related thereto and shall be in accordance with all
manufacturer's safety and operating instructions.
4.3 Licensor shall use its reasonable efforts to cause the
Excess Equipment to be maintained in good working order at all times during the
Term and shall bear all reasonable costs of such maintenance; provided,
however, that Licensee agrees and covenants that the cost of any repairs or
maintenance required by the negligent or improper use by any of its
sublicensees shall be borne by such sublicensee.
3
<PAGE>
4.4 Licensor shall make arrangements to supply Licensee's
sublicensees with gadolinium or other contrast agents, if required, and shall
be compensated at the rate of ____________ ($_____) per MRI scan where Licensor
supplies such agent. The amount owing to Licensor from Licensee's sublicensees
in connection with the supply of such agents shall be paid to Licensor pursuant
to the Turnkey License Agreement, as hereinafter defined.
SECTION 5. Clerical and Other Personnel
5.1 Licensor shall license use of its Clerical Personnel and
such other personnel as it may provide in its discretion upon request of
Licensee (the "Excess Personnel") to Licensee for the primary purpose of
providing MRI technician services, scheduling patients, reception, answering
telephone calls from patients and preparing and maintaining patient medical
records (which shall at all times remain the property of Licensee's
sublicensees) under the supervision of the physicians to whom Licensee shall
sublicense the Excess Capacity. Licensee, or its designee, shall be responsible
for supervision and quality control with respect to such services. Throughout
the Term, the Excess Personnel shall be available on a non-exclusive basis to
Licensee and its sublicensees at the Premises during normal business hours,
Monday through Friday (and on Saturdays and Sundays where prior arrangements
have been made between Licensor and Licensee for periods of time agreed to in
advance by Licensor); provided, however, that Licensee's and its sublicensees'
use of the Excess Personnel does not interfere with the operation of Licensor's
business.
5.2 Licensor shall remain the sole employer of the Excess
Personnel, notwithstanding the fact that Licensee and/or its designees may
exercise supervision over such personnel from time to time. Licensor shall
remain solely responsible for the payment of all salaries,
4
<PAGE>
benefits and taxes for or on behalf of the Excess Personnel with respect to the
services rendered within the scope of this Agreement.
5.3 During the Term, the Excess Personnel shall, upon
request, provide the following services to Licensee and its permitted
sublicensees: receptionist services, MRI technician services, bookkeeping,
scheduling, and creating and maintaining patient files under a physician's
supervision.
SECTION 6. Hours of Usage
6.1 Licensor shall make available to Licensee for its
exclusive use hereunder the Premises and Equipment during the hours set forth
on Schedule B. Such hours may be changed from time to time upon the mutual
agreement of the parties.
6.2 Notwithstanding the foregoing, in case of an urgent
medical need, Licensee shall allow Licensor's other licensees as well as
Licensor reasonable use of the Premises, Equipment and Clerical Personnel
during the hours set forth on Schedule B (as such schedule may be changed from
time to time upon the mutual agreement of the parties), to conduct MRI scans
for their patients.
6.3 Licensor shall make reasonable accommodations to ensure
that in case of an urgent medical need of patients of Licensee's sublicensees,
such sublicensees will have reasonable use of the Premises, Equipment and
Clerical Personnel for hours other than those set forth on Schedule B (as such
schedule may be changed from time to time upon the mutual agreement of the
parties), to conduct MRI scans for their patients.
6.4 Nothing contained herein shall in any fashion limit or
diminish Licensor's right to license use of Excess Capacity (other than for
those specific hours set forth on
5
<PAGE>
Schedule B, as such schedule may be changed from time to time upon the mutual
agreement of the parties) to any other party during the Term. Nothing contained
herein shall in any fashion limit or diminish Licensee's right to obtain use
and/or ownership of any other MRI office, whether or not such MRI office is in
competition with Licensor.
6.5 Licensee shall not be entitled to any abatement of any
Fee (as hereinafter defined) to which Licensor is entitled under this Agreement
or any other agreement by and between and/or among Licensor, Licensee and any
of its sublicensees or to any counterclaim, recoupment, reduction or offset
against such amount, on account of any present or future claim of Licensee
against Licensor, the manufacturer or supplier of the Equipment or any other
person or entity.
SECTION 7. Compensation
7.1 As compensation to Licensor for the monthly licensing of
Excess Capacity, Licensor shall be entitled to, and shall be paid, license fees
(the "Fee") at the rate of ______ ($_____) per MRI scan, it being understood
and agreed that such Fees represent the fair market value of the Excess
Capacity to Licensee.
7.2 The Fee per MRI scan will be allocated as follows:
Medical Office Space - $_____
Equipment - $_____
Clerical and Management Personnel - $_____
7.3 Licensor shall furnish billing and collection services to
(x) the Licensee, if it is legally entitled to bill for and collect payments
with respect to the services rendered by it or its sublicensees utilizing the
Excess Capacity, and (y) if the Licensee is not so entitled to bill
6
<PAGE>
for and collect such payments, then such services shall be rendered directly to
such sublicensees, in each case the cost of such services to be included in the
Fee payable under Section 7.1, and, in the case of clause (y), pursuant to a
Turnkey License Agreement by and between Licensee and each sublicensee of
Licensee that utilizes Excess Capacity, in substantially the form of Exhibit A
hereto (the "Turnkey License Agreement"). No sublicensee of Licensee shall use
the Excess Capacity unless, and until, (A) such sublicensee has delivered to
Licensor a fully-executed original of the Turnkey License Agreement and (B)
Licensee has delivered to Licensor an originally executed Collateral Assignment
and Agreement with respect thereto, in substantially the form of Exhibit B
hereto (the "Collateral Assignment").
7.4 Licensee shall make payment to Licensor of the Fees
within ninety (90) days of presentation by Licensor of a monthly itemized
statement identifying the (i) precise days and times the Premises has been used
by Licensee or its sublicensees and (ii) number of scans performed hereunder.
Licensee also agrees to maintain a complete and accurate record of its usage of
the Premises.
7.5 Licensee and its sublicensees shall be responsible for
the timely payment in full of all taxes due from the use of the Excess Capacity
under this Agreement, including, without limitation, all taxes payable to the
New York State Department of Taxation and Finance, Sales Tax Division. Licensee
will hold Licensor harmless from, and shall indemnify Licensor against, any
liability due to the New York State Department of Taxation and Finance, Sales
Tax Division, or such other taxing authority pursuant to the use of the Medical
Office Space, Excess Personnel and/or Excess Equipment to Licensee's
sublicensees pursuant to this Agreement.
7
<PAGE>
SECTION 8. Representations, Covenants and Warranties of Licensor
8.1 Licensor warrants to Licensee that it has the right to
license use of the Premises, Equipment and Clerical Personnel (and the other
personnel provided hereunder) as set forth in this Agreement.
8.2 Licensor warrants that it (i) is a corporation, validly
existing and in good standing under the laws of the State of Delaware, qualified
to do business in New York, (ii) has the power and authority to carry on its
business as now being conducted, and (iii) has the power to execute and perform
this Agreement.
8.3 Licensor agrees to furnish the services of a radiology
technician at the Premises to the Licensee and its sublicensees during the
hours set forth on Schedule B, as such schedule may be changed from time to
time upon the mutual agreement of the parties.
SECTION 9. Representations, Warranties and Covenants of Licensee
9.1 Licensee shall require and assure that all of its
sublicensees shall, at all times, maintain with reputable, financially sound
insurers professional liability insurance (including malpractice insurance) for
themselves and each shareholder, employee physician and radiology technician
utilizing the Premises pursuant to such sublicensee's Turnkey License Agreement
in the minimum amount of $1 Million for each occurrence and $3 Million in the
aggregate. Each sublicensee shall, no later than fourteen (14) days prior to
such sublicensee's utilization of the Premises, and from time to time
thereafter, furnish appropriate evidence to Licensor of the existence of such
insurance with an insurance company licensed in the State of New York or FOJP
or an affiliated insurance arm of FOJP. Licensee shall also require and assure
that all of the physicians, radiology technicians and other medical personnel
utilizing the Premises maintain appropriate state
8
<PAGE>
medical licensure and have not been disqualified from participating in any
federal, state, local or private healthcare insurance programs and are not
otherwise subject to any disciplinary action, or investigation relating
thereto.
9.2 Licensee shall require and assure that all of its
sublicensees shall, at all times, maintain with reputable, financially sound
insurers general liability and casualty insurance for themselves (naming
Licensor as an additional insured) with respect to the Excess Capacity. The
amount of the insurance shall be determined in the reasonable judgment of
Licensor. Licensee shall further require and assure that all of its
sublicensees shall, at all times, maintain with reputable, financially sound
insurers comprehensive public liability insurance against claims for bodily
injury, death and/or property damage arising out of the use, ownership,
possession, operation or condition of the Premises, together with such other
insurance as may be required by law or reasonably determined by Licensor. All
said insurance shall include Licensor as an insured party and shall be in form
and amounts and with insurers satisfactory to Licensor, and Licensee shall,
upon Licensor's request, furnish to Licensor certified copies or certificates
of such insurance policies and each renewal thereof. Each sublicensee shall
irrevocably authorize Licensor to make, settle and adjust claims under such
policy or policies of physical damage insurance and to endorse the name of the
sublicensee on any check or other item of payment for the proceeds thereof.
9.3 Licensee shall assure that Licensor is furnished with at
least ten (10) days' written notice prior to the cancellation or non-renewal of
any insurance obtained under the terms of this Agreement.
9.4 Licensee shall maintain an up-to-date (a) personnel file
with documentation of the following credentials of its sublicensee's medical
and technical personnel,
9
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including: (i) medical licenses, (ii) medical board certifications, (iii)
malpractice insurance, (iv) DEA certification and (v) no fault/compensation
rating; and (b) list of all managed care organizations, insurance companies,
health maintenance organizations and similar entities (including all contracts
and agreements with any of the foregoing) with which any sublicensee does
business. Licensee shall cause all of the foregoing information to be made
available to Licensor upon its request.
9.5 Licensee shall use the Premises, as well as the Excess
Space, Excess Equipment and Excess Personnel, as contemplated by this
Agreement. Licensee further represents, warrants and covenants that:
(a) Licensee and its sublicensees shall comply with all
applicable laws and regulations in the provision of health care services; and
(b) Licensee acknowledges that each of its sublicensees
shall assume full responsibility for the professional conduct of its medical
practice at the Premises.
9.6 Licensee covenants that it and its sublicensees will
comply with all applicable laws and regulations including, without limitation,
laws governing fraud and abuse in the provision of health care services.
9.7 If a corporation, Licensee warrants that it (i) is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, (ii) has the power and authority to
carry on its business as now being, and as proposed to be, conducted, and (iii)
has the power to execute and perform this Agreement.
9.8 Licensee covenants that neither it nor any of its
sublicensees will grant a lien on or security interest in, or otherwise
encumber, the Equipment or the Premises or alter,
10
<PAGE>
repair, augment or remove the Equipment from the Premises without the prior
written consent of Licensor.
9.9 Licensee covenants that Licensor shall be allowed to
retain a certified public accountant to perform an annual financial audit of
Licensee's and its sublicensee's books and records which reflect their revenues,
as well as compliance with this Agreement. If such audit reveals that the Fees
and other amounts then due to Licensor hereunder are more than three percent
(3%) higher than the sums which have then been paid to Licensor, then Licensee
shall reimburse Licensor for fifty percent (50%) of the costs of such audit.
Further, all sums so calculated by the auditor shall be deemed immediately
owing to Licensor and if such sums remain unpaid within ten (10) days after
performance of the audit, such sums shall accrue interest payable to Licensor
at a rate equal to 1- 1/4% per month or the highest interest rate permitted by
law, whichever is less.
SECTION 10. Fire or Other Casualty
In the event that the Premises shall be damaged by fire or
other casualty and the damage is so extensive as to amount to total destruction
of the Premises, this Agreement shall terminate immediately.
SECTION 11. Transfer and Assignment
(a) Neither Licensee nor Licensor shall assign or otherwise
transfer this Agreement except as set forth in clause (b) below or as otherwise
agreed to in advance by Licensor in its sole and absolute discretion.
(b) Licensee shall have the right, subject to Licensor's
prior consent, which may be withheld in Licensor's reasonable discretion, to
sublicense its use of the Excess Capacity to physician(s) or medical
practice(s) which shall perform MRI scans in accordance with the terms
11
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hereof; provided, however, that prior to any use of the Excess Capacity by such
physicians or medical practices, such persons shall execute and deliver to
Licensee a Turnkey License Agreement and Licensee shall execute and deliver to
Licensor a Collateral Assignment with respect thereto.
(c) The rights of Licensee and its sublicensees under this
Agreement are subject to the terms of any equipment or premises lease or any
other finance agreements to which Licensor is a party. Further, all of
Licensee's sublicensees' rights to utilize Excess Capacity at the Medical
Office space is subject and subordinate to all of the terms and conditions of
this Agreement.
SECTION 12. Further Actions
Each party shall promptly and duly execute and deliver to the
other such further documents, instruments and assurances and take such further
actions as such other party may reasonably request in order to carry out the
intent and purposes of this Agreement and to establish and protect the rights
and remedies created or intended to be created in favor of the requesting
party.
SECTION 13. Indemnifications
13.1 Licensee shall indemnify and hold Licensor, its
permitted successors and assigns and any of their respective officers,
directors, employees, representatives and agents harmless from and against any
and all claims, damages, injuries, liabilities, costs and expenses, including,
without limitation, reasonable fees and disbursements of counsel incurred by
the indemnified party in any action or proceeding between the indemnitor and
the indemnified party or between the indemnified party and any third party or
otherwise, arising out of or in any way related to: (a) any material breach or
default of this Agreement by Licensee, (b) Licensee's professional negligence
in the use of the Premises or the Equipment, (c) any defects or dangerous
conditions caused by or which are the responsibility of Licensee of (i) the
Premises or (ii) the Equipment, (d) any
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<PAGE>
claim made by or on behalf of a member of the Excess Personnel in respect of
his or her employment caused by or which is the responsibility of Licensee, and
(e) any negligent conduct by an employee, agent, representative of Licensee or
Licensor, if such employee, agent, subcontractor or representative of Licensor
is then under the control or supervision of Licensee. This indemnity shall only
apply to compensatory damages and not consequential damages such as the loss of
future business.
Licensee covenants and agrees that each Turnkey
License Agreement shall provide that such sublicensee shall indemnify and hold
Licensor, its permitted successors and assigns and any of their respective
officers, directors, employees, representatives and agents harmless from and
against any and all claims, damages, injuries, liabilities, costs and expenses,
including, without limitation, reasonable fees and disbursements of counsel
incurred by the indemnified party in any action or proceeding between the
indemnitor and the indemnified party or between the indemnified party and any
third party or otherwise, arising out of or in any way related to: (a) such
sublicensee's professional negligence in the use of the Premises or the
Equipment, (b) any defects or dangerous conditions caused by or which are the
responsibility of such sublicensee of (i) the Premises or (ii) the Equipment,
(c) any claim made by or on behalf of a member of the Excess Personnel in
respect of his or her employment caused by or which is the responsibility of
such sublicensee, and (d) any negligent conduct by an employee, agent,
representative of such sublicensee or Licensor, if such employee, agent,
subcontractor or representative of Licensor is then under the control or
supervision of such sublicensee.
13.2 The obligations of this Section 13 shall survive any
termination of this Agreement.
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SECTION 14. Term; Termination
14.1 The term of this license shall begin on the date first
written above (the "Commencement Date") and shall continue for _______ (___)
months (the "Initial Term"). After the Initial Term, this Agreement shall
automatically renew on a month-to-month basis subject to either party's right
to terminate on thirty (30) days prior written notice. The Initial Term of this
Agreement and any renewal term shall be referred to herein as the "Term".
14.2 During the Initial Term, this Agreement may be
terminated by either party with or without cause upon sixty (60) days prior
written notice; provided, however, that any termination shall in no fashion
reduce Licensee's obligations to pay accrued Fees hereunder.
14.3 At the expiration (including by default) of the Term,
the Premises and the Equipment shall be in the same good order and condition as
of the Commencement Date, reasonable wear and tear excepted, and Licensee shall
remove all of Licensee's personal property from the Premises before, or
immediately after, such termination.
SECTION 15. Default
15.1 Licensee shall be in default if it fails to perform
substantially at the time and in the manner herein specified any term or
covenant hereof, and if such breach continues for ten (10) days after Licensee
receives written notice of such breach.
15.2 Licensor shall be in default if it fails to perform
substantially at the time and in the manner herein specified any term or
covenant hereof, and if such breach continues for ten (10) days after Licensor
receives written notice of such breach.
14
<PAGE>
15.3 If either party is in default under any provision of
this Agreement and fails to cure such default within the above-referenced ten
(10) day period, the other party has the right to terminate this Agreement
without prejudice to any other right or remedy provided by law.
15.4 Licensor may also immediately terminate this Agreement
during the Term (i) upon final action by the NYS Board of Regents or other body
having jurisdiction resulting in the termination of any of Licensee's
sublicensees as a professional entity, or the suspension of any sublicensee's
charter or (ii) if Licensee or any of its sublicensees shall apply for or
consent to the appointment of a receiver, trustee or liquidator of it or all or
a substantial part of its assets, file a voluntary petition in bankruptcy or
admit in writing its inability to pay its debts as they come due, make a
general assignment for creditors or take advantage of any insolvency law, or if
any order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of a creditor, adjudicating it as bankrupt or
insolvent or approving a petition seeking its reorganization or appointment of
a receiver, trustee, or liquidator of it or all or a substantial part of its
assets.
SECTION 16. Line of Credit and; Security Interest
16.1 Licensor hereby agrees to provide Licensee a line of
credit (the "Line of Credit") for the use of Licensee solely, in each case with
respect to utilization of the Excess Capacity (i) to pay the radiologists
rendering services on behalf of Licensee or its sublicensees; (ii) to pay
reasonable operating expenses of Licensee, including, without limitation,
accounting, legal, and various professional malpractice insurance premiums;
(iii) to issue patient and third party payor refunds; and (iv) to pay the Fees
payable to Licensor due hereunder. The Line of Credit shall only be available
to the extent that said expenses and fees cannot otherwise be paid from the
general funds of Licensee received for services rendered at the Premises, after
all such available funds have been
15
<PAGE>
expended for Fees and other amounts due hereunder. Each advance under this Line
of Credit shall be available in the net aggregate principal amount of up to
seventy five percent (75%) of the "Aggregate Net Insurance Proceeds" (as
hereinafter defined) which Licensor reasonably believes Licensee will receive
pursuant to the Turnkey License Agreement(s) within ninety (90) days of the
date of the last advance made under the Line of Credit and shall be reflected
on the promissory note to be executed by Licensee simultaneously with the
execution of this Agreement in the form of Exhibit C attached hereto (the
"Note"). The Line of Credit may be drawn down upon five (5) business days'
notice by Licensee to Licensor. Draw-downs (each a "Loan" and collectively, the
"Borrowings") may be requested at any time but not more often than twice per
month, and no more than $200,000 shall be advanced hereunder in any thirty (30)
day period. The term "Aggregate Net Insurance Proceeds" shall mean that portion
of the total sum that Licensor expects to collect on behalf of the sublicensees
of Licensee pursuant to the several Turnkey License Agreements between Licensor
and such sublicensees that Licensee is entitled to receive from such
sublicensees with respect to services rendered by Licensee to such sublicensees
at the Premises. Unless otherwise agreed to in writing by Licensee and
Licensor, the outstanding principal amount of each Loan shall be repaid to
Licensor in three (3) equal monthly installments, if not available sooner,
beginning the 90th day after the Loan is made, provided that such outstanding
amount shall be prepaid to Licensor to the extent that the revenues of Licensee
and/or its sublicensees in any month exceed the amounts owed by Licensee or its
sublicensees to those medical or technical personnel contracted for or employed
by Licensee or its sublicensees and budgeted expenses (and Fees) of Licensee
payable within such month. Interest shall accrue on the outstanding balance of
each Loan beginning upon the 90th day after the Loan is made. Such interest
shall be calculated at the rate of twelve percent (12%) per
16
<PAGE>
annum, but in no case in excess of the maximum rate permitted by law. Licensee
may at any time prepay to Licensor the principal amount of any Loan in whole or
in part, without prepayment penalty. If on the 90th day after a Loan is made,
Licensee has insufficient funds available to repay such Loan pursuant to the
terms hereof after Licensee's payment of current operating expenses, then
repayment of the Loan shall be paid in full from other funds. Notwithstanding
anything to the contrary contained herein, repayment of the Borrowings shall be
governed by the terms of the Note.
16.2 (a) As collateral security for the prompt and complete
payment and performance when due by Licensee of all of its obligations and
liabilities under this Agreement and all other documents and instruments
executed in connection herewith, including, without limitation, the Note
(collectively, the "Obligations"), and to induce Licensor to enter into this
Agreement and all of such other documents and instruments, including, without
limitation, the Note, Licensee hereby sells, assigns, mortgages, hypothecates,
conveys, transfers and grants to Licensor a first priority continuing security
interest in and to all of Licensee's right, title and interest in, to and under
all accounts receivable, debts and other forms or obligations now owned or
hereafter received or acquired by or belonging or owing to Licensee arising out
of or in connection with or otherwise related to services rendered at the
Premises, including, without limitation, all amounts Licensor may collect on
behalf of the sublicensees of Licensee pursuant to the several Turnkey License
Agreements between Licensor and such sublicensees that Licensee is entitled to
receive from such sublicensees with respect to services rendered at the
Premises (collectively, the "Collateral").
(b) Unless an Event of Default (as defined in the Note)
shall have occurred and be continuing, all cash or other amounts payable in
respect of the Collateral shall be remitted to Licensee.
17
<PAGE>
(c) Upon the occurrence of an Event of Default or at any
time during the continuance thereof, Licensor may (i) exercise any and all
rights and remedies granted to a secured party by the Uniform Commercial Code
as in effect in the State of New York on the date hereof or otherwise allowed
at law and, in either case, as otherwise provided by this Agreement, (ii) take
possession of the Collateral or any part thereof with or without notice or
process of law and for that purpose may enter upon Licensee's premises where
any of the Collateral is located and remove the same, and (iii) dispose of the
Collateral as it may choose, so long as every aspect of the disposition
including the method, manner, time, place and terms are commercially
reasonable, and Licensee agrees that, without limitation, the following are
each commercially reasonable: (A) Licensor shall not in any event be required
to give more than fourteen (14) days' prior notice to Licensee of any such
disposition, (B) any place within the New York metropolitan area may be
designated by Licensor for disposition, and (C) Licensor may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. To the extent permitted by law, Licensee
hereby expressly waives and covenants not to assert any appraisement,
valuation, stay, extension, or redemption, now or at any time hereafter in
force, which might delay, prevent or otherwise impede the performance or
enforcement of the provisions hereof.
(d) Licensee covenants and agrees that it (i) shall
defend Licensor's right, title and security interest in and to the Collateral
as a first priority continuing security interest against the claims and demands
of all persons whomsoever; and (ii) shall not grant any other lien on or
security interest in or otherwise encumber any of the Collateral.
18
<PAGE>
(e) Licensee hereby appoints Licensor or its designee as
Licensee's attorney-in-fact, at Licensee's own cost and expense, to exercise at
any time after the occurrence of an Event of Default all or any of the powers,
authorities, and discretions conferred on or reserved to Licensor by or
pursuant to this Agreement or applicable law, and (without prejudice to the
generality of any of the foregoing) to seal and deliver or otherwise perfect
any deed, assurance, agreement, instrument or act as Licensor may deem proper
in or for the purpose of exercising any of such powers, authorities or
discretions. Licensee hereby ratifies and confirms, and hereby agrees to ratify
and confirm, whatever lawful acts Licensor or any of its agents or attorneys
shall do or purport to do in the exercise of the power of attorney granted to
Licensor pursuant hereto, which power of attorney, being given for
consideration, is irrevocable.
(f) Licensee agrees to deliver to Licensor concurrently
herewith such duly executed UCC Financing Statements as Licensor may reasonably
request and agrees, from time to time, to deliver to Licensor such additional
UCC Financing Statements for filing, as may be appropriate, to perfect
Licensor's security interest in the Collateral in such jurisdictions as
Licensor may determine to be appropriate. Further, Licensee shall, at its own
cost and expense, promptly execute and deliver all such other certificates,
documents, instruments, financing and continuation statements and amendments
thereto, notices and other agreements, and take all further action, that
Licensor may reasonably request, from time to time, in order to perfect and
protect the security interest granted hereby or to enable Licensor to exercise
and enforce its rights and remedies hereunder with respect to the Collateral.
19
<PAGE>
(g) Licensee agrees to use its best efforts to cause
each of its sublicensees to execute any and all documents and instruments as
the Licensor deems necessary or desirable to protect and perfect Licensor's
security interest in the Collateral.
SECTION 17. Entire Agreement
This Agreement sets forth the entire understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements between the parties with respect to the subject matter
hereof. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, that are not embodied in this
Agreement, and that no other agreement, statement or promise not contained in
this Agreement shall be valid or binding as between Licensor and Licensee.
SECTION 18. Amendment
This Agreement may not be orally changed or modified. All
changes or modifications of this Agreement shall be in writing signed by the
party against whom enforcement of any waiver, change, modification, extension
or discharge is sought.
SECTION 19. Benefit and Burden
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective permitted successors and assigns.
This Section 19 shall not be deemed to permit any transfer or assignment
otherwise prohibited by this Agreement.
20
<PAGE>
SECTION 20. Notices
Unless otherwise stated herein, any notice or other
communication required or permitted to be given hereunder shall be in writing,
and shall be delivered to the parties at the addresses set forth below (or to
such other addresses as the parties may specify by due notice to the other).
Notices or other communications given by certified mail, return receipt
requested, postage prepaid, shall be deemed given three (3) business days after
the date of mailing. Notices or other communications sent in any other manner
shall be deemed given only when actually received.
Licensor: HealthCare Imaging Services, Inc.
Tri-Parkway Corporate Park
200 Schulz Drive
Red Bank, New Jersey 07701
ATTN: Elliott H. Vernon, Chairman
With a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
20th Floor
New York, New York 10022
ATTN: Scott M. Zimmerman, Esq.
Licensee:
With a copy to:
SECTION 21. No Waiver
No waiver shall be effective against either party unless it
is in writing, signed by that party. No waiver of any breach of any term or
covenant contained in this Agreement shall operate as a waiver of such term or
covenant itself, or of any subsequent breach thereof.
SECTION 22. Severability
21
<PAGE>
The invalidity or unenforceability of any provision of this
Agreement shall not impair the validity or enforceability of any other
provision.
SECTION 23. Governing Law
This Agreement shall be governed by the internal laws of the
State of New York.
SECTION 24. Headings
The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
SECTION 25. Counterparts
This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
SECTION 26. Independent Contractor
This Agreement is not intended, and shall not be construed,
to create a venture, partnership or association as between Licensor and
Licensee and/or its sublicensees. Each party is an independent contractor of
the other.
22
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
first written above.
HEALTHCARE IMAGING SERVICES, INC.
By:
-----------------------------------
[LICENSEE]
By:
-----------------------------------
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $427,974
<SECURITIES> 0
<RECEIVABLES> 4,696,337
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,360,624
<PP&E> 9,375,006
<DEPRECIATION> 5,234,759
<TOTAL-ASSETS> 10,593,359
<CURRENT-LIABILITIES> 2,558,272
<BONDS> 0
0
66,000
<COMMON> 49,620
<OTHER-SE> 5,083,845
<TOTAL-LIABILITY-AND-EQUITY> 10,593,359
<SALES> 0
<TOTAL-REVENUES> 2,680,450
<CGS> 0
<TOTAL-COSTS> 2,567,298
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,993
<INCOME-TAX> 13,181
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,812
<EPS-PRIMARY> 0.00
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