<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10 - K/A
(Amendment No. 1)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended December 31, 1995
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 0-19897
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SMT HEALTH SERVICES INC.
------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 25-1672183
- -------------------------------- --------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
10521 Perry Highway
Wexford, Pennsylvania 15090
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412-933-3300
------------
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Units Consisting of one Share of
Common Stock, Par Warrants to Purchase Common Stock, and One Warrant To Preferred Stock
Value $.01 Per Share Common Shares Purchase a Common Share Purchase Rights
- --------------------- --------------------- -------------------------------- ---------------
<S> <C> <C> <C>
</TABLE>
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant was approximately $25,542,000 based upon the closing sale price of
the Common Stock on the National Association of Securities Dealers, Inc.
Automated Quotations System on June 11, 1996.
As of June 11, 1996, the Registrant had 3,087,225 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and III incorporate information by reference from the Registrant's
definitive Proxy Statement filed with the Commission within 120 days after the
close of the Registrant's fiscal year.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
---------------------
The following table sets forth, for the period indicated, the percentages
which the items in the Statement of Operations bear to revenue and the dollar
increase (decrease) of such items as compared to the prior year.
<TABLE>
<CAPTION>
Percentage of Revenue Increase (Decrease)
---------------------- -------------------
Year Ended December 31,
-----------------------
1995 1994
Versus Versus
1995 1994 1993 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% 100% $1,876,000 $1,376,000
---- ---- ----- ---------- ----------
Costs & expenses:
Operating 36% 44% 44% (496,000) 635,000
Depreciation &
amortization 24% 24% 23% 516,000 408,000
S, G & A 16% 14% 14% 578,000 289,000
Interest 12% 13% 14% 120,000 (78,000)
Write-down of leased
medical equipment -- -- 5% -- (625,000)
---- ---- ----- ---------- ----------
Total costs & expenses 88% 95% 100% 718,000 629,000
---- ---- ----- ---------- ----------
Income from continuing
operations before taxes
and minority interests 12% 5% -- 1,158,000 747,000
---- ---- ----- ---------- ----------
Minority interests -- -- 1% (9,000) 6,000
---- ---- ----- ---------- ----------
Income (loss) from continuing
operations before taxes
and gain on sale 12% 5% (1%) 1,167,000 741,000
Gain on sale of partnership
interests -- -- -- 48,000 --
---- ---- ----- ---------- ----------
Income (loss) before
income taxes 12% 5% (1%) 1,215,000 741,000
Income taxes 3% 1% -- 384,000 130,000
---- ---- ----- ---------- ----------
Income (loss) from continuing
operations 9% 4% (1%) 831,000 611,000
Preferred Stock dividend -- -- -- -- (24,000)
---- ---- ----- ---------- ----------
Income (loss) attributable to
Common Stockholders from
continuing operations 9% 4% (1%) 831,000 635,000
Discontinued operations, net -- (1%) (19%) 132,000 2,086,000
---- ---- ----- ---------- ----------
Net income (loss) 9% 3% (20%) $ 963,000 $2,721,000
==== ==== ===== ========== ==========
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
1995 Versus 1994
----------------
The Company realized a significant increase in profitability during 1995.
Net income during 1995 increased $963,000, or 235%, to $1,373,000 (or $.49
per share) from $410,000 (or $.16 per share) during 1994. (Please refer to
Note 2 of the Company's Consolidated Financial Statements included in Item
8, which information is incorporated herein by reference, for a discussion
of the Modified Treasury Stock Method of computing earnings per share). The
increase in profitability is primarily due to increased revenues, lower
costs due to increased utilization of the Company's units, as well as the
impact of a cost reduction program begun in 1994, and lower financing costs.
Revenues during 1995 increased $1,876,000, or 14%, to $15,158,000 in
comparison to $13,282,000 in 1994. Revenues, excluding $548,000 and
$1,018,000 for 1995 and 1994, respectively, related to the Cardiac and
Nuclear SPECT partnerships which the Company sold on June 30, 1995 (see Note
15 of the Company's Consolidated Financial Statements included in Item 8,
which information is incorporated herein by reference), increased 19% from
1994 to 1995. This increase is primarily due to increased utilization of the
Company's MRI units as well as additional units put into service. Revenues
of existing units increased approximately 8% in 1995 compared to 1994.
Further, revenues increased approximately 11% due to the fact that the
Company operated an average of ten units during 1995 versus nine units in
1994.
Operating expenses during 1995 decreased $496,000, or 8%, to $5,396,000
compared to $5,892,000 in 1994. This decrease was primarily due to various
cost containment measures implemented during late 1994 and early 1995, as
well as the purchase and upgrade during November 1994 of a Mobile Unit which
had previously been leased on an annual basis by the Company pursuant to an
operating lease (accordingly, its lease payment was treated entirely as an
operating expense). As a result of the purchase and upgrade, the lease
costs are now treated as depreciation and interest expenses. Operating
expenses of existing units decreased approximately 2% in 1995 compared to
1994, excluding the aforementioned lease adjustment. During 1994 and early
1995, the Company renegotiated its mobile unit maintenance contracts,
property insurance rates and several other major operating expenditures
resulting in recurring annual cost savings of approximately $250,000.
Depreciation and amortization expense increased $516,000, or 16%, to
$3,679,000 in 1995 from $3,164,000 in 1994. The increase is primarily due
to higher depreciation expense associated with the Company's new units
purchased in February and September of 1995 as well as its upgraded and
refinanced units.
Selling, general and administrative costs for 1995 increased $578,000 to
$2,472,000, or 16% of revenues, compared to $1,894,000, or 14% of revenues
for 1994. The increase is primarily due to approximately $133,000 of
increased marketing expenses, an approximate $119,000 increase in
professional expenses related to the Company's shareholder rights plan and
various securities filings and approximately $200,000 of increased
compensation costs related to the Company's management bonus plan.
-3-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
1995 Versus 1994 (Continued)
----------------
Interest expense for 1995 increased $120,000 to $1,758,000 from $1,638,000
but decreased as a percentage of revenue to 12% of revenue versus 13% of
revenue in 1994. The increase in interest expense primarily reflects the
interest payments on the two new units purchased during 1995. The decrease
in interest expense as a percentage of revenues reflects the more favorable
lease terms obtained on the units refinanced during 1994 and 1995.
Income tax expense for 1995 was $478,000 as compared to income tax expense
of $93,500 for 1994. This increase reflects the significant increase in
profitability of the Company during 1995 (see Note 4 of the Company's
Consolidated Financial Statements included in Item 8, which information is
incorporated herein by reference).
1994 Versus 1993
----------------
The Company sustained an increase in revenues and profitability during 1994.
The Company's earnings from continuing operations before income taxes were
$636,000 in 1994 compared to a loss before income taxes of $105,000 in 1993
(including the effect of a one-time charge of $625,000 - see Note 14 of the
Company's consolidated financial statements included in Item 8, which
information is incorporated herein by reference).
The Company's income from continuing operations was $542,000 (or $.21 per
share) in 1994 versus a net loss of $93,000 (or $.04 per share) in 1993,
which included $24,000 of dividends on Preferred Stock. The Company's total
loss from discontinued operations, net of income taxes was $132,000 (or $.05
per share) and $2,217,000 (or $.90 per share) for 1994 and 1993,
respectively. The Company's net income for 1994 was $410,000 (or $.16 per
share) compared to a net loss of $2,311,000 (or $.94 per share) in 1993 (see
Note 2 of the Company's Consolidated Financial Statements included in Item
8, which information is incorporated herein by reference).
Revenues from continuing operations during 1994 increased $1,376,000, or
12%, to $13,282,000 in comparison to $11,906,000 in 1993. This increase was
primarily due to increased utilization of the Company's MRI units, as well
as the fact that the Company operated nine units during all of 1994 versus
operating nine units for only seven months of 1993. Mobile Unit service
revenues comprised approximately 92% of the Company's total revenues in
1994.
Operating expenses during 1994 increased $635,000, or 12%, to $5,892,000
compared to $5,257,000 in 1993. Operating expenses increased primarily due
to a new unit placed into service in June 1993. This Mobile Unit was being
leased on an annual basis pursuant to an operating lease and accordingly,
its lease payment was treated entirely as an operating expense versus being
treated as interest and depreciation expense. This unit was purchased and
upgraded during November 1994 and future costs will be treated as
depreciation and interest costs.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
1994 Versus 1993 (Continued)
----------------
Depreciation and amortization expense increased $408,000, or 15%, to
$3,164,000 in 1994 from $2,756,000 in 1993. The increase was primarily due
to higher depreciation expense associated with the Company's upgraded and
refinanced units.
Selling, general and administrative costs for 1994 increased $289,000 to
$1,894,000, or 14% of revenues, compared to $1,605,000, or 14% of revenues
for 1993. The increase was primarily due to increased marketing expenses,
the write-off of a miscellaneous note of approximately $20,000 and increased
compensation costs related to the Company's management bonus plan.
Interest expense for 1994 decreased $78,000 to $1,638,000 from $1,716,000
and decreased as a percentage of revenue to 13% of revenue versus 14% of
revenue in 1993. This decrease in interest expense reflected the more
favorable lease terms obtained on the units refinanced during 1994.
Income tax expense for 1994 was $93,500 as compared to an income tax benefit
of $36,000 for 1993 (see Note 4 of the Company's Consolidated Financial
Statements included in Item 8, which information is incorporated herein by
reference).
Liquidity and Capital Resources
-------------------------------
During 1995, the Company experienced a net increase of $5,541,000 in cash
from continuing operations as compared to a net increase of $4,040,000
during 1994. This increase is primarily due to increased income before
depreciation and amortization. Cash used for discontinued operations
totaled $64,000 in 1995 and $410,000 in 1994.
The Company used net cash for investing activities during 1995 of
$1,380,000, primarily related to the purchase of equipment (including the
change in cash restricted due to financing of new equipment) partially
offset by cash received on the sale of a discontinued center and the
Company's Cardiac and Nuclear SPECT centers.
The Company used cash for financing activities during 1995 of approximately
$3,576,000 and $28,000 for continuing operations and discontinued
operations, respectively, primarily related to principal payments under
capital leases and financing agreements. Cash used in financing activities
during 1994 approximated $3,111,000 and $438,000 for continuing operations
and discontinued operations, respectively.
The Company incurred a net increase in cash and cash equivalents of
approximately $493,000 during 1995 and maintained an unrestricted cash
balance at December 31, 1995 of approximately $2,342,000. The Company also
maintained a restricted cash balance of $1,600,000 at December 31, 1995.
-5-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
Liquidity and Capital Resources (Continued)
-------------------------------
The Company's trade accounts receivable balance increased by $84,000 to
$1,060,000 at December 31, 1995. There was no allowance for doubtful
accounts at December 31, 1995 or 1994. In the experience of the Company,
average accounts receivable collections typically do not exceed 40 days, as
there are no billings which are subject to traditional third-party payors,
and the accounts receivable balance turned over approximately 15 times
during 1995. Approximately 35% of the Company's billings and collections are
processed through Hospital Shared Services ("HSS"), a representative of
certain hospitals. As a fee for these services, HSS retains approximately
2.5% of gross billings to these hospitals. The Company has been able to meet
all past debt service obligations, currently is able to meet all such
obligations, and anticipates that it will continue to meet such obligations.
As in the past, management anticipates that such obligations will be funded
by the revenues generated by the Mobile Units.
At December 31, 1995, the Company had a working capital surplus of $405,000
compared to a working capital deficit of $252,000 at December 31, 1994. The
increase in working capital is primarily due to the Company's increased cash
balance. Further, $4,381,000 of the $5,236,000 of current liabilities
relate to the current portion of capital leases and long-term debt which
will be due over the next twelve months, as opposed to current assets of
$5,642,000 which are highly liquid and turn over frequently.
To date, the Company has financed its equipment acquisitions and working
capital requirements with loans and leases, from internal cash flow and
capital contributions. As of December 31, 1995, the Company was a party to
leases or finance arrangements covering all of its mobile MRI units. The
aggregate outstanding principal balance of all such loans and leases was
approximately $17,091,000 at December 31, 1995. The amount of such leases
and other debt obligations due during the next twelve months is
approximately $4,381,000.
During 1991 and 1992, the Company initiated what it then believed was a
natural progression into the operation of outpatient full service diagnostic
imaging centers and freestanding radiation therapy facilities (outpatient
healthcare centers). The Company's expansion into these businesses was
based upon the belief that (i) numerous opportunities existed to develop or
acquire outpatient healthcare facilities due to new regulatory changes
enacted (see "Fraud and Abuse Laws" and "Other Patient Referral
Restrictions"), (ii) once mature, the healthcare facilities it developed or
acquired could generate substantial incremental earnings and (iii)
freestanding healthcare facilities would complement the Company's mobile MRI
business. During 1992, the Company acquired one full-service freestanding
diagnostic imaging center and developed one freestanding radiation oncology
facility. However, through December 31, 1993, these outpatient healthcare
centers operated below expectation and incurred substantial losses while the
Company's core mobile business sustained an increase in revenues and profit.
Further, with continued uncertainty in the healthcare industry surrounding
the Clinton Administration's efforts to reform healthcare, the Company has
seen an increase in the demand for its mobile MRI services. Based upon
continued growth and profitability of its core mobile MRI business, as well
as the belief that the Company's capital and other resources were
insufficient to properly support continued growth in its core mobile MRI
business and the opening of outpatient healthcare centers, the decision was
made in
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
December 1993 to sell the freestanding full-service diagnostic imaging
center and the freestanding radiation oncology center.
The Company sold substantially all of the assets of the Auburn Regional
Center for Cancer Care on October 31, 1994. The sale price of the Auburn
Regional Center for Cancer Care was approximately $1.3 million comprised of
$400,000 in cash and the assumption of certain liabilities of the Center.
The Company remains obligated on approximately $450,000 of capital leases as
of December 31, 1995. The buyer has agreed to use its best efforts to have
the Company released from these leases and has secured its obligations to
the Company to perform on these leases through a pledge of certain assets in
favor of the Company (see Note 3 and Note 13 of the Company's Consolidated
Financial Statements incorporated herein by reference).
On June 30, 1995, the Company completed the sale of substantially all of the
assets of its remaining freestanding diagnostic imaging center, Airport
Regional Imaging Center ("Airport Center"), located in Coraopolis,
Pennsylvania for a total sale price of approximately $300,000, including
cash and net trade receivables. Although the buyer assumed all future
operating liabilities of the Airport Center, the Company remains obligated
on approximately $741,000 of capital leases as of December 31, 1995. The
buyer has agreed to use its best efforts to have the Company released from
these leases and has secured its obligations to the Company to perform on
these leases through a pledge of stock and certain assets in favor of the
Company (see Note 3 and Note 13 of the Company's Consolidated Financial
Statements incorporated herein by reference.)
On June 30, 1995, in conjunction with the sale of the Airport Center, the
Company sold its majority ownership and general partner rights in four
cardiac care partnerships for a total sale price of $300,000 comprised of
$200,000 in cash and a $100,000, thirty-month note. The Company recognized
a pre-tax gain on this sale of $48,219. The partnerships, which constituted
approximately seven percent of the Company's revenues, had total assets of
approximately $1.4 million, comprised primarily of diagnostic equipment and
accounts receivable, and total liabilities of approximately $1.2 million
comprised primarily of capital lease obligations associated with the
diagnostic equipment.
The Company's mobile MRI operation continues to grow. In 1994, healthcare
costs came under great scrutiny and the healthcare market forces began their
own healthcare reform. This reform continues, and mobile diagnostic imaging
has benefited from such market reform of the healthcare
system as shared equipment is a key to containing healthcare costs while
still delivering advanced and cost effective medical technology. As
hospitals look for ways to reduce capital expenditures and contain costs,
SMT and shared mobile diagnostic imaging units/systems allow hospitals to
add or increase the range of quality, state-of-the-art diagnostic services
with no capital expenditure by providing an outsourcing alternative.
Further, many states are strengthening their Certificate of Need ("CON")
review systems, whereby healthcare providers must justify a need in a
community before the state will permit capital expenditures for medical
equipment. As a result of CON review systems, hospitals and other healthcare
providers are less able to install fixed site facilities thus providing an
opportunity for mobile suppliers whose equipment will be shared among many
hospitals.
-7-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
In February 1995, the Company purchased an eighteen-month-old Siemens 1.0
Tesla Impact Mobile Unit for approximately $1.2 million. This unit
increased the Company's mobile fleet to ten units. The Company financed the
purchase of this unit under a 48 month dollar-out capital lease requiring
monthly payments of approximately $31,000.
In June 1995, the Company upgraded one of its .5 Tesla General Electric
Signas to a 1.0 Tesla Signa for approximately $1.9 million. The Company
financed the purchase of this unit with a 60 month dollar-out capital lease
requiring monthly payments of approximately $41,000.
In September 1995, the Company purchased a new unit for $1.9 million. This
unit increased the Company's mobile fleet to eleven units. The Company
financed the purchase of this new unit with a 60 month loan requiring
monthly payments of approximately $40,000.
The Company upgraded one of its .5 Tesla Signas to a 1.0 Tesla Horizon unit.
The new unit was financed at a net total cost of approximately $2.0 million
and was delivered in late February 1996. The Company financed the purchase
of this new unit with a 60 month dollar-out lease requiring monthly payments
of approximately $44,000.
The Company has contracted with several new hospital clients and purchased a
new Siemens 1.0 Tesla Impact unit which began service in mid-February 1996.
The cost of this new unit approximates $1.9 million and increases the
Company's fleet to twelve mobile units. The Company financed the purchase
of this new unit with a 60 month loan requiring monthly payments of
approximately $35,000.
In February and March 1995, the Company refinanced four of its Mobile MRI
Units to more favorable lease terms. The refinancing of the four units
completed the Company's current lease refinance program. During 1994 and
1995, the Company refinanced approximately $10.3 million of capital leases
to dollar-out capital leases at lower interest rates. The total refinance
program reduced the Company's annual debt service by approximately $300,000.
Prior to July 1, 1995, the Company subleased certain truck cabs from Shared
Mobile Enterprises ("SME"), which, in turn, leased such truck cabs from an
independent third-party leasing company. Effective July 1, 1995, SME
released the Company from its obligations under ten long-term subleases in
exchange for the issuance to SME of 120,000 unregistered Common Shares
valued at $3 per share, the weighted average closing price for the stock for
the prior thirty trading days. The Company received an opinion from an
independent financial advisor that the transaction was fair to the Company
and its shareholders. At the same time, with the concurrence of the third-
party leasing company, the Company assumed SME's obligations under its
original lease and modified that lease by (1) extending the lease term by
one additional year and (2) adding one additional truck cab to the schedule
of leased property with a corresponding increase in base rental payments.
The $360,000 value of the shares represents the present value of the excess
of the sublease payments over the original lease payments. The Company has
capitalized the $360,000 and is amortizing this prepaid rent over a period
which approximates the lease term. SME was one hundred percent beneficially
owned by certain officers/directors and a former director/consultant of the
Company who own approximately 24% of the Company's outstanding Common
Shares.
-8-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
The Company has continued to extend a number of its existing hospital
service contracts to 1998 through 2000 and during 1995 extended fourteen
hospital contracts to longer terms. Further, during 1995, the Company
signed eight new hospital contracts and now serves over 60 hospitals.
In November 1994, the Company issued a letter-of-credit in the amount of
$270,000 related to the purchase and financing of a new Mobile Unit. The
letter-of-credit is scheduled to be reduced at various times beginning in
1997.
In relation to the refinancing of the four Mobile Units in February and
March 1995, the Company issued two letters-of-credit in the aggregate amount
of $930,000. In February 1996, the lessor holding one of the letters-of-
credit totaling $330,000 allowed the letter-of-credit to expire. The
remaining letter-of-credit is reviewable annually with no definitive early
termination.
In February 1996, the Company entered into an agreement to purchase certain
assets of a mobile MRI company which operates three mobile units in the
state of North Carolina (the "Seller"). The purchase price approximates
$600,000 in cash (net of negotiated trade-in value for the Seller's mobile
MRI units) in exchange for MRI Programs including Certificate of Need
licenses or exemptions and certain customer service contracts. Closing is
scheduled for March 15, 1996 and is subject to certain conditions including
concurrence of the Certificate of Need Section of the Division of Facility
Services of the Department of Human Resources of the State of North
Carolina. Upon completion of the acquisition, the Company intends to trade-
in and upgrade two of the Seller's units to newer technology and sell the
third unit. The transaction will increase the Company's mobile MRI fleet to
14 units.
The Company has been named as a defendant along with a hospital which
contracts for the Company's MRI services, in a claim filed by a woman who
alleges to have incurred partial paralysis as a result of being mishandled
during an MRI procedure. The claim has been filed for $6.0 million in
damages. The claim is in the early discovery stages. The Company does not
believe that it has been negligent in any manner and intends to vigorously
defend the claim. The Company has approximately $2.0 million of insurance
related to this matter. Management does not believe the outcome of this
matter will result in a material adverse effect on its operations or
financial condition.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances
-9-
<PAGE>
based on future expected cash flows indicate that the carrying
amount may not be recoverable. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995. Upon
adoption, the Company does not believe that SFAS 121 will have a material
impact on its consolidated financial statements.
-10-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
In November 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation. SFAS 123 establishes a fair-value-based approach for
accounting for stock-based compensation arrangements under which employees
receive shares of stock or other equity instruments of the employer, or the
employer otherwise incurs liabilities to its employees in amounts based on
the price of its stock. The Statement provides a choice of accounting
methods for transactions within the scope of APB Opinion No. 25, Accounting
for Stock Issued to Employees ("Opinion 25"). Companies may continue to
apply Opinion 25 in accounting for its stock-based employee compensation
arrangements. However, an entity that does so shall disclose pro forma net
income and earnings per share determined as if the fair value based method
had been applied in measuring compensation costs. SFAS 123 is effective for
financial statements for fiscal years beginning after December 15, 1995.
Management is currently evaluating the alternative methods of accounting
provided within SFAS 123 for its stock-based compensation arrangements, and
has not as yet determined the method under which the Company will account
for such transactions for fiscal years ending subsequent to December 31,
1995.
The Company from time to time is presented with and investigates possible
transactions related to the acquisition and commencement of operations of
additional Mobile Units, such as the transactions discussed above, and the
Company expects to continue such investigations and, to the extent that
terms favorable to the Company can be negotiated, to consummate such
transactions.
-11-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SMT Health Services Inc. and Subsidiaries
Independent Auditors' Report of KPMG Peat Marwick LLP . . . . . . . . 13
Independent Auditors' Report of Deloitte & Touche LLP . . . . . . . . 14
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . 19
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 22
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<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
SMT Health Services Inc.:
We have audited the accompanying consolidated balance sheets of SMT Health
Services Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. In connection with our
audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as of and for the years ended
December 31, 1995 and 1994, as listed in Item 14. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SMT
Health Services Inc. and subsidiaries as of December 31, 1995 and 1994 and
the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles. Also,
in our opinion, the related consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
February 21, 1996
-13-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
SMT Health Services Inc.
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of SMT Health Services Inc.
and Subsidiaries (Company) for the year ended December 31, 1993. Our audit
also included the financial statement schedule for the year ended December
31, 1993, as listed in Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of the
Company for the year ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche L.L.P.
March 4, 1994
Pittsburgh, Pennsylvania
-14-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents - non-restricted $ 2,341,519 $ 1,848,504
Cash and cash equivalents - restricted (Note 3) 1,600,000 468,500
Accounts receivable - no allowance for doubtful accounts 1,059,567 976,365
Accounts receivable, other, net of allowance for
doubtful accounts of $20,000 74,455 --
Notes receivable - current portion 47,760 67,100
Receivable from sale of leases secured by equipment -
current portion 342,789 172,221
Other current assets 175,506 206,548
Net assets of discontinued operations -- 215,666
----------- -----------
Total current assets 5,641,596 3,954,904
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 174,556 223,840
Furniture and fixtures 59,712 66,492
Vehicles 125,103 114,351
Leasehold improvements 27,915 27,410
Leased medical equipment 22,167,551 20,654,249
----------- -----------
Total property and equipment 22,554,837 21,086,342
Less accumulated depreciation and amortization (6,613,759) (5,837,219)
----------- -----------
Property and equipment, net 15,941,078 15,249,123
----------- -----------
OTHER ASSETS:
Notes receivable - noncurrent 52,240 69,682
Receivable from sale of leases secured by equipment -
noncurrent 878,590 480,758
Contract acquisition costs, net of accumulated
amortization of $788,000 in 1995 and
$572,000 in 1994 109,260 340,353
Deposits and other assets 506,041 21,133
Deferred income taxes, net of valuation allowance
of $103,000 in 1995 and $415,000 in 1994 219,000 507,000
----------- -----------
Total other assets 1,765,131 1,418,926
----------- -----------
TOTAL ASSETS $23,347,805 $20,622,953
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-15-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 270,277 $ 269,821
Accrued wages and related taxes 57,823 48,615
Current portion of long-term debt and capital
lease obligations - third parties 4,380,930 1,939,461
Current portion of long-term debt and capital
lease obligations - related parties (Note 9) -- 1,654,942
Other current liabilities 527,217 293,601
----------- -----------
Total current liabilities 5,236,247 4,206,440
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS:
Third parties - less current portion 12,709,905 7,423,598
Related parties - less current portion (Note 9) -- 5,194,415
----------- -----------
Total long-term debt and capital lease obligations 12,709,905 12,618,013
----------- -----------
Total liabilities 17,946,152 16,824,453
----------- -----------
MINORITY INTERESTS (Note 15) -- 145,188
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; authorized
10,000,000 shares; issued and outstanding
2,654,400 and 2,408,000, respectively 26,544 24,080
Cumulative Convertible Preferred Stock;
$0.01 par value; authorized 994,600 shares;
no shares issued and outstanding -- --
Additional paid-in capital 6,636,070 5,940,858
Accumulated deficit (1,260,961) (2,311,626)
----------- -----------
Stockholders' equity 5,401,653 3,653,312
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $23,347,805 $20,622,953
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-16-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------- ----------- ---------------
<S> <C> <C> <C>
REVENUES:
Service revenue $15,020,428 $13,235,019 $11,844,361
Interest income 137,417 47,166 61,958
----------- ----------- -----------
Total revenues 15,157,845 13,282,185 11,906,319
----------- ----------- -----------
COSTS AND EXPENSES:
Operating expenses - third parties 5,216,121 5,054,997 4,592,933
Operating expenses - lease expense -
related parties (Note 9) 180,000 837,000 664,000
Depreciation and amortization 3,679,246 3,163,606 2,755,824
Selling, general and administrative 2,472,023 1,894,037 1,604,629
Interest - third parties 1,671,013 239,193 64,550
Interest - related parties (Note 9) 86,538 1,398,363 1,650,979
Write-down of leased medical equipment -- -- 625,000
----------- ----------- -----------
Total costs and expenses 13,304,941 12,587,196 11,957,915
----------- ----------- -----------
Income (loss) from continuing operations before
income taxes, minority interests and gain
on sale 1,852,904 694,989 (51,596)
Minority interests in earnings of
subsidiaries (Note 15) 49,906 59,231 53,621
----------- ----------- -----------
Income (loss) from continuing operations before
income taxes and gain on sale 1,802,998 635,758 (105,217)
Gain on sale of partnership interests 48,219 -- --
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 1,851,217 635,758 (105,217)
Income taxes (benefit) 478,000 93,500 (36,000)
----------- ----------- -----------
Income (loss) from continuing operations 1,373,217 542,258 (69,217)
Preferred Stock dividend -- -- 23,850
----------- ----------- -----------
Income (loss) attributable to
Common Stockholders from
continuing operations 1,373,217 542,258 (93,067)
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
-17-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Operations (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
---------- --------- -----------
<S> <C> <C> <C>
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net
of tax benefit of $180,000 in 1993 -- -- (1,027,492)
Loss on disposal of discontinued
operations, net of tax benefit of
$102,000, $68,000 and $210,000
in 1995, 1994 and 1993, respectively (198,000) (132,000) (1,190,000)
Extraordinary item, debt forgiveness,
net of tax expense of $102,000 in
1995 (Note 13) 198,000 -- --
---------- --------- -----------
-- (132,000) (2,217,492)
---------- --------- -----------
Net income (loss) $1,373,217 $ 410,258 ($2,310,559)
========== ========= ===========
EARNINGS (LOSS) PER COMMON
SHARE:
From continuing operations $ .49 $ .21 ($ .04)
From discontinued operations -- (.05) (.90)
---------- --------- -----------
Earnings (loss) per Common Share
(Note 2) $ .49 $ .16 ($ .94)
========== ========= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-18-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $1,373,217 $ 542,258 ($ 69,217)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,679,246 3,163,606 2,755,824
Write-down of leased medical equipment -- -- 625,000
Negative amortization on capital lease obligations 5,521 51,017 --
Minority interests in subsidiaries 49,906 59,231 53,621
Deferred income tax expense (benefit) 288,000 48,500 (36,000)
Gain on sale of partnership interests (48,219) -- --
Other 10,467 110,658 70,668
Changes in assets and liabilities of continuing
operations:
Accounts and notes receivable 17,705 143,231 (2,302)
Other current assets 12,182 (72,347) 271,739
Accounts payable and other 143,049 (14,348) (114,943)
Accrued wages and related taxes 10,134 8,073 12,396
---------- ---------- ---------
NET CASH PROVIDED BY CONTINUING
OPERATING ACTIVITIES 5,541,208 4,039,879 3,566,786
---------- ---------- ---------
NET CASH USED IN DISCONTINUED
OPERATING ACTIVITIES (64,264) (410,108) (758,404)
---------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,476,944 3,629,771 2,808,382
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment:
Continuing operations (269,354) (234,833) (47,497)
Discontinued operations -- -- (35,894)
Construction of leasehold improvements:
Continuing operations (7,435) (13,160) (73,825)
Discontinued operations -- -- (25,921)
Net cash restricted for equipment financing purposes (1,131,500) (270,000) (198,500)
Deferred development costs of discontinued operations -- -- (16,002)
Net cash received for sale of partnership interests 122,854 -- --
Net cash received for sale of discontinued entities 110,000 380,183 --
Payment for purchase of acquired entities,
net of cash acquired -- (44,000) --
Other:
Continuing operations (204,974) (79,336) (15,766)
Discontinued operations -- -- (60,000)
---------- ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,380,409) (261,146) (473,405)
---------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
-19-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred Stock dividend -- -- (23,850)
Other (4,562) 116,505 --
Principal payments under long-term debt and capital leases:
Continuing operations (3,571,151) (3,227,293) (2,723,586)
Discontinued operations (27,807) (437,530) (254,710)
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (3,603,520) (3,548,318) (3,002,146)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 493,015 (179,693) (667,169)
CASH AND CASH EQUIVALENTS - unrestricted -
beginning of year 1,848,504 2,028,197 2,695,366
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - unrestricted -
end of year $2,341,519 $1,848,504 $2,028,197
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-20-
<PAGE>
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Total
------------ --------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- ------- ------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES - December 31, 1992 2,300,000 $23,000 5,400 $540,000 $5,401,938 ($ 411,325) $ 5,553,613
Net loss -- -- -- -- -- (2,310,559) (2,310,559)
Conversion of Preferred Stock 108,000 1,080 (5,400) (540,000) 538,920 -- --
--------- ------- ------- -------- ---------- ---------- ----------
BALANCES - December 31, 1993 2,408,000 24,080 -- -- 5,940,858 (2,721,884) 3,243,054
Net income -- -- -- -- -- 410,258 410,258
--------- ------- ------- -------- ---------- ---------- ----------
BALANCES - December 31, 1994 2,408,000 24,080 -- -- 5,940,858 (2,311,626) 3,653,312
Stock Dividend (Note 12) 120,400 1,204 -- -- 321,348 (322,552) --
Issuance of Common Stock (Note 9) 120,000 1,200 -- -- 358,800 -- 360,000
Exercise of Stock Options 6,000 60 -- -- 15,064 -- 15,124
Net Income -- -- -- -- -- 1,373,217 1,373,217
--------- ------- ------- -------- ---------- ---------- ----------
BALANCES - December 31, 1995 2,654,400 $26,544 -- $ -- $6,636,070 ($1,260,961) $5,401,653
========= ======= ======== ========= ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-21-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. ORGANIZATION
------------
SMT Health Services Inc. and its wholly-owned subsidiaries (the "Company")
are engaged primarily in providing medical diagnostic imaging services to
hospitals, physicians and patients. The Company, through its subsidiaries,
operates eleven mobile Magnetic Resonance Imaging (MRI) Units ("MRI Units")
in Pennsylvania, West Virginia, North Carolina, Virginia, Kentucky and Ohio.
In February 1996, the Company purchased and began operation of its twelfth
MRI unit.
The Company's Common Stock and Warrants currently trade on the National
Association of Securities Dealers, Inc. Automated Quotations Systems
(NASDAQ) National Market System under the symbols "SHED" and "SHEDW",
respectively.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Consolidation Policy: The consolidated financial statements
--------------------
include the accounts of SMT Health Services Inc. and its wholly
owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Revenue Recognition: Revenue from diagnostic imaging services is
-------------------
recognized as patient services are performed.
Service Agreements: The Company provides services directly to
------------------
hospitals under Mobile MRI Service Agreements which expire at
various times between 1996 and 2000 and accordingly, bills and
collects the fees for such services directly from the hospitals.
Approximately 35% of the Company's billings and collections under
these service contracts are processed through Hospital Shared
Services (HSS), a representative of certain hospitals. As a fee for
these services, HSS retains approximately 2.5% of gross billings to
these hospitals and, accordingly, the Company records related
revenues on a net basis. Such fees totaled approximately $146,000,
$120,000, and $131,000 for 1995, 1994 and 1993, respectively.
Cash and Cash Equivalents: Cash equivalents include highly-liquid
--------------------------
investments with original maturities of ninety days or less.
Property and Equipment: Property and equipment are stated at
-----------------------
cost and are depreciated using the straight-line method over the
estimated useful lives of the related assets, which is generally
five years. Leased medical equipment is being amortized to its
estimated residual value using the straight-line method over the
lease term of generally five years.
-22-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Contract Acquisition Costs: Contract acquisition costs represent
---------------------------
the value of mobile service contracts acquired relating to the
purchase of two entities in 1991 and the purchase of VA-MRI in
November 1994 (Note 9) and are being amortized over an approximate
four-year period which approximates the lives of the contracts. The
amounts related to the mobile service contracts acquired in 1991
(monthly amortization of $17,000) were fully amortized in February
1996.
Income Taxes: Deferred income taxes are provided to account for
-------------
temporary differences between financial statement accounting and
income tax reporting and relate principally to differences in
reporting for diagnostic medical equipment, depreciation and net
operating loss carryforwards.
Net Earnings Per Common and Common Share Equivalent: The net
----------------------------------------------------
earnings per common and common share equivalent are calculated
using the weighted average common and common share equivalents
outstanding during the year, except where anti-dilutive. Common
share equivalents include shares issuable upon the exercise of
stock options, rights and warrants less the number of shares
assumed purchased with the proceeds available from the assumed
exercise of the options, rights and warrants.
The Treasury Stock Method of reflecting use of proceeds from
options and warrants may not adequately reflect potential dilution
if options and warrants to acquire a substantial number of Common
Shares (greater than 20% of the number of Common Shares outstanding
for the period for which the computation is being made) are
outstanding. In such instances, the Modified Treasury Stock Method
must be utilized.
The Company's options and warrants to acquire Common Shares exceed
20% and accordingly, the Treasury Stock Method has been modified in
determining the dilutive effect of the options and warrants on
earnings per share data.
For purposes of the earnings per share calculation, the Modified
Treasury Stock Method resulted in adjusted net income for the year
ended 1995 of approximately $2,699,000 and adjusted shares
outstanding of 5,499,000, resulting in earnings per Common Share of
$.49 for the year ended December 31, 1995. Actual net income for
the year ended December 31, 1995 of $1,373,217 divided by the
actual weighted average shares outstanding for the year of
2,589,000 resulted in earnings per Common Share of $.53 for the
year ended December 31, 1995.
-23-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Earnings per share for the years ended December 31, 1994 and 1993
were not subject to the Modified Treasury Stock Method as this
method was anti-dilutive. Accordingly, weighted average shares
outstanding were 2,528,400 and 2,468,400 for 1994 and 1993,
respectively. The weighted average shares outstanding for 1994 and
1993 reflect a retroactive adjustment increasing the weighted
average shares outstanding by 120,400 shares to reflect the July
1995 5% stock dividend as if such dividend had occurred at the
beginning of the respective period (Note 12).
Fully diluted earnings per common share are anti-dilutive and,
accordingly, are not presented.
Certain Significant Risks and Uncertainties: The Company is
--------------------------------------------
engaged primarily in providing mobile MRI services to small-to-
medium-sized hospitals in Pennsylvania, West Virginia, North
Carolina, Virginia, Kentucky and Ohio.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain Significant Estimates: The Company operates mobile MRI
------------------------------
units which are capital intensive and subject to changes in
technology. The Company primarily leases such equipment over a 48
to 60 month period and depreciates the equipment over the
respective lease period to an estimated residual value which
typically approximates 20% of the original cost of the equipment.
The useful lives and residual values estimated by management are
considered significant estimates. During 1994 and 1995, the Company
upgraded its fleet of mobile MRI units to newer state-of-the-art
technology. Management does not currently anticipate significant
technological advances which could significantly affect its
estimates.
The Company is not dependent on any one customer or geographic
region as a source of its revenues. However, the Company utilizes
the services of HSS to process approximately 35% of its billings
and collections (Note 2 -Service Agreements).
-24-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
Recent Accounting Pronouncements: In March 1995, the Financial
---------------------------------
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances based on future expected cash flows
indicate that the carrying amount may not be recoverable. SFAS 121
is effective for financial statements for fiscal years beginning
after December 15, 1995. Upon adoption, the Company does not
believe that SFAS 121 will have a material impact on its
consolidated financial statements.
In November 1995, the FASB issued SFAS 123, Accounting for Stock-
Based Compensation. SFAS 123 establishes a fair value based
approach for accounting for stock-based compensation arrangements
under which employees receive shares of stock or other equity
instruments of the employer, or the employer otherwise incurs
liabilities to its employees in amounts based on the price of its
stock. The Statement provides a choice of accounting methods for
transactions within the scope of APB Opinion No. 25, Accounting for
Stock Issued to Employees ("Opinion 25"). Companies may continue to
apply Opinion 25 in accounting for its stock-based employee
compensation arrangements. However, an entity that does so shall
disclose pro forma net income and earnings per share determined as
if the fair value based method had been applied in measuring
compensation costs. SFAS 123 is effective for financial statements
for fiscal years beginning after December 15, 1995. Management is
currently evaluating the alternative methods of accounting provided
within SFAS 123 for its stock-based compensation arrangements, and
has not as yet determined the method under which the Company will
account for such transactions for fiscal years ending subsequent to
December 31, 1995.
SFAS 107, Disclosure About Fair Value of Financial Instruments,
requires companies to disclose the fair value of financial
instruments. Management believes that the carrying values of its
financial instruments approximates their fair values and any
differences which may exist between the carrying values and fair
values are not material.
-25-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------
Note 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
--------------------------------------------
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Capital lease and loan obligations $17,090,835 $16,212,416
Less current portion 4,380,930 3,594,403
----------- -----------
$12,709,905 $12,618,013
=========== ===========
</TABLE>
Future minimum lease payments under capital leases and maturities of long-term
debt as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending Long-Term Capital Lease
December 31, Debt Obligations
- ------------ ---------- --------------
<S> <C> <C>
1996 $ 332,036 $ 5,560,973
1997 354,182 5,545,788
1998 387,141 5,003,546
1999 425,567 1,800,001
2000 346,672 539,723
---------- -----------
18,450,031
Less amounts representing interest (3,204,794)
-----------
$1,845,598 $15,245,237
========== ===========
</TABLE>
As of December 31, 1995, the cost and accumulated amortization of property
securing capital lease and loan obligations were $22,171,000 and $6,407,000,
respectively. Interest rates under the capital leases range from approximately
9.5% to 13.5%.
In February 1995, the Company purchased an eighteen-month-old Siemens 1.0 Tesla
Impact Mobile Unit for approximately $1.2 million. This unit increased the
Company's mobile fleet to ten units. The Company financed the purchase of this
unit under a 48 month dollar-out capital lease requiring monthly payments of
approximately $31,000.
In June 1995, the Company upgraded one of its .5 Tesla General Electric Signas
to a 1.0 Tesla Signa for approximately $1.9 million. The Company financed the
purchase of this unit with a 60 month dollar-out capital lease requiring monthly
payments of approximately $41,000.
-26-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (continued)
--------------------------------------------
In September 1995, the Company purchased a new unit. This unit increased the
Company's mobile fleet to eleven units. The Company financed the purchase of
this new unit with a 60 month loan requiring monthly payments of approximately
$40,000.
The Company upgraded one of its .5 Tesla Signas to a 1.0 Tesla Horizon unit.
The new unit was financed at a net total cost of approximately $2.0 million
and was delivered in late February 1996. The Company financed the purchase of
this new unit with a 60 month dollar-out lease requiring monthly payments of
approximately $44,000.
The Company has contracted with several new hospital clients and purchased a
new Siemens 1.0 Tesla Impact unit which began service in mid-February 1996.
The cost of this new unit approximated $1.9 million. The Company financed the
purchase of this new unit with a 60 month loan requiring monthly payments of
approximately $35,000.
In February and March 1995, the Company refinanced four of its Mobile MRI
Units to more favorable lease terms. The refinancing of the four units
completed the Company's current lease refinance program. During 1994 and
1995, the Company refinanced approximately $10.3 million of capital leases to
dollar-out capital leases at lower interest rates.
The long-term debt and capital lease obligations balance includes
approximately $1.2 million of capital lease obligations due to third parties
related to the equipment at the Auburn Regional Center for Cancer Care and
Airport Regional Imaging Center which the Company had treated as discontinued
operations and sold in October 1994 and in June 1995, respectively.
Accordingly, the Company has recorded an offsetting receivable for the lease
receivables due from the purchaser of the centers. Such lease receivables are
secured by the equipment and accounts receivable of the centers (Note 13).
The Company leases certain tractors for the transportation of Mobile Units
(Note 9).
The future minimum lease payments (excluding variable mileage costs of $.063
per mile) required under these operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1996 $ 209,000
1997 209,000
1998 209,000
1999 209,000
2000 209,000
Thereafter 52,000
----------
Total $1,097,000
==========
</TABLE>
-27-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 4. INCOME TAXES
------------
Income tax expense (benefit) attributable to income from continuing operations
for the years ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------------------------- ---------------------------- ----------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- ----- -------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $ 10,000 $ -- $ -- $254,000 $44,000 ($36,000) $264,000 $44,000 ($36,000)
State 180,000 45,000 -- 34,000 4,500 -- 214,000 49,500 --
-------- -------- ----- -------- ------- -------- -------- ------- --------
$190,000 $45,000 $ -- $288,000 $48,500 ($36,000) $478,000 $93,500 ($36,000)
======== ======== ===== ======== ======= ======== ======== ======= ========
</TABLE>
The difference between the Company's effective income tax rate and its
statutory rate is reconciled below:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory
rate $629,414 $216,158 ($35,774)
Increase (reduction) in income taxes
resulting from:
State and local income taxes,
net of federal income tax benefit 118,800 32,670 --
Change in state net operating loss
carryforward rules -- (90,000) --
Decrease in valuation allowance (312,000) (72,500) --
Other items 41,786 7,172 (226)
-------- -------- --------
$478,000 $ 93,500 ($36,000)
======== ======== ========
</TABLE>
-28-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 4. INCOME TAXES (continued)
------------
The components of the net deferred tax asset recognized in the December 31,
1995 and 1994 consolidated balance sheets of the Company are presented below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $1,415,794 $2,064,736
Non-deductible accrued expenses 139,291 247,521
Other 37,203 67,511
---------- ----------
1,592,288 2,379,768
Deferred tax liabilities:
Diagnostic medical equipment, principally
due to differences in depreciation (1,270,288) (1,457,768)
---------- ----------
322,000 922,000
Less valuation allowance (103,000) (415,000)
---------- ----------
Net deferred tax asset $ 219,000 $ 507,000
========== ==========
</TABLE>
The total valuation allowance at December 31, 1995 was $103,000. The
valuation allowance recorded as of January 1, 1995 was $415,000. Realization
of the net deferred tax asset is dependent upon the Company achieving future
taxable income. The Company believes, given the historical growth and
profitability of its mobile MRI business, that such net deferred tax asset
will be realized. Future adjustments to the valuation allowance, favorable or
unfavorable, will impact net income.
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $3,700,000 which are available to
offset future federal taxable income through 2009. The Company has
approximately $2,700,000 of available carryforwards as of December 31, 1995
for state purposes which are available principally through 1997.
Note 5. STOCKHOLDERS' EQUITY
--------------------
On July 19, 1993, DVI, the holder of the Series A Preferred Shares (Note 6),
converted 5,400 Series A Preferred Shares and sold the 108,000 Common Shares
and 108,000 Warrants it received as a result of such conversion.
-29-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 5. STOCKHOLDERS' EQUITY (continued)
--------------------
In accordance with the Company's March 1992 Initial Public Offering, the
Company issued Warrants to purchase shares of Common Stock of the Company.
Pursuant to the Warrant Agreement, the outstanding Warrants have been
recapitalized to reflect the July 1995 Common Stock dividend (Note 12).
Accordingly, on July 10, 1995, the outstanding warrants' exercise price was
reduced from $7.00 to $6.67 and each Warrant Certificate now entitles the
holder to purchase 1.05 shares of Common Stock of the Company. On December
31, 1995, 1,587,950 Warrants were outstanding. The Warrants expire in March
1997 and are redeemable by the Company provided certain conditions are met.
The Company's Initial Public Offering underwriter has an option to purchase
126,000 units (comprised of one share of Common stock and one Warrant) at
$5.94 (adjusted to reflect the 5% Common Stock dividend). The underwriter's
option expires in March 1997.
On August 9, 1995, the Company adopted the 1995 Director Warrant Plan (the
"Plan") pursuant to which eligible directors received unregistered warrants to
purchase Common Stock (the "Directors' Warrants"). The Plan allows for
issuance of warrants to purchase up to 700,000 shares of Common Stock.
On August 9, 1995, warrants to purchase up to 500,000 shares of Common Stock
at an initial exercise price of $3.875 (the closing price of the Company's
stock on the date of issue) were issued to five directors pursuant to the
Plan. Separately, unregistered warrants to purchase 114,500 shares of Common
Stock at an initial exercise price of $4.01 were also issued to an outside
director, who is also a consultant to the Company, who was ineligible to
participate in the Plan.
In October 1995, the Company signed an agreement retaining Commonwealth
Associates ("Commonwealth") as its investment banking firm. Commonwealth, a
New York-based investment banking firm specializing in serving the financial
needs of emerging growth companies, has been engaged to assist the Company in
establishing a long-term financial strategy and in evaluating possible
transactions involving other mobile diagnostic providers. In addition to a
normal retainer, the Company granted to Commonwealth 100,000 five-year
Warrants to purchase the Company's Common Stock at $4.47, the closing bid
price of the Common Stock on the day the Agreement was executed.
As of December 31, 1995, none of the aforementioned warrants had been
exercised.
In November 1995, the Company adopted a Preferred Stock Purchase Rights Plan
(the "Rights Plan") which contains provisions to protect the Company in the
event of an unsolicited offer to acquire control of the Company on terms which
the Company's Board of Directors determines not to be in the best interest of
the Company.
-30-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 5. STOCKHOLDERS' EQUITY (continued)
--------------------
The Rights Plan provides for the distribution to shareholders of one right for
each share of Company Common Stock outstanding. When exercisable, each right
will entitle shareholders to buy one one-hundredth of a newly issued share of
the Company's Class A Series One Preferred Stock at an exercise price of
$22.00. Each right has terms designed to make it substantially the economic
equivalent of one share of Common Stock. Shareholders of record as of the
close of business on November 8, 1995 and thereafter will receive the Rights.
The rights will expire on November 30, 2005, unless further extended, and will
be subject to redemption by the Board of Directors at $.01 per right at any
time prior to the first date upon which they become exercisable. The rights
themselves have no voting power, nor will they entitle a holder to receive
dividends.
Note 6. PREFERRED STOCK
---------------
The Company is authorized to issue 994,600 shares of preferred stock
("Preferred Stock") issuable in series. The Company had one authorized series
of 5,400 Preferred Shares, par value $.01, designated as Series A Preferred
Stock. On July 19, 1993, DVI, the holder of the Series A Preferred Shares
(Note 5), converted the 5,400 Series A Preferred Shares and sold the 108,000
Common Shares and 108,000 Warrants it received as a result of such conversion.
Each Series A Preferred Share was entitled to receive annual cumulative
dividends of $12.00 per share payable quarterly in cash or in kind on March 1,
June 1, September 1 and December 1; was not entitled to vote on any matters
submitted to the stockholders generally (unless dividends thereon were not
paid for six consecutive quarters, in which case, the holders of the Series A
Preferred Shares were entitled to vote as a class for the election of two
directors); was redeemable at the option of the Company at $100.00 plus
accrued and unpaid dividends; had a liquidation preference of $100.00; was
convertible, at the option of the holder into twenty Units, each Unit
consisting of one Common Share and one Warrant to purchase one Common Share;
and was not subject to a sinking fund. The Company has the authority to issue
Preferred Stock in one or more series and to fix the rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series. At
present, the Company has no plans to issue any other series of Preferred
Stock.
In order to facilitate the Company's IPO, the Company agreed to contribute
108,000 Warrants to DVI, the holder of the Series A Preferred Shares, if DVI
converted the Series A Preferred Stock and sold the Common Shares prior to the
date in which the components of the Units were to be separately transferable
[March 4, 1993 or such earlier date as the underwriter determined in its sole
discretion (the "Separation Date")], in order to allow DVI to sell the 108,000
Common Shares and Warrants as Units during the period in which the Common
Shares and Warrants traded as a Unit. As of August 1, 1992, the Company and
DVI agreed that, in exchange for a reduction in the dividend rate of the
Series A Preferred Stock from $12 to $8 per share, the Company would deliver
to DVI, upon conversion of the 5,400 shares of Series A Preferred Stock, the
108,000 Warrants whether such conversion occurred before or after the
Separation Date.
-31-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 7. STOCK OPTION PLANS
------------------
The Company's 1991 Employee Stock Option Plan (the "Employee Plan") currently
provides for the granting of options to employees to purchase up to 787,500
shares of the Company's Common Stock at the fair market value at the date of
grant. Options granted to employees may either be incentive stock options (as
defined in the Internal Revenue Code of 1986, as amended) or non-qualified
stock options and expire ten years from date of grant.
<TABLE>
<CAPTION>
Options Outstanding
-------------------------
Number Price Per Share
-------- ---------------
<S> <C> <C>
Balance - December 31, 1992 140,000 $ 5.00
Granted 140,175 $ 3.33
Exercised -- --
Expired/Cancelled (140,000) $5.00
--------
Balance - December 31, 1993 140,175 $ 3.33
Granted 203,175 $1.37 - $2.14
Exercised -- --
Expired -- --
--------
Balance - December 31, 1994 343,350 $1.37 - $3.33
Granted 415,125 $2.46 - $3.81
Exercised -- --
Expired -- --
--------
Balance - December 31, 1995 758,475 $1.37 - $3.81
========
</TABLE>
All of the above outstanding options are non-qualified options.
At December 31, 1995, options to purchase 711,750 shares were exercisable and
29,025 shares were available for future grant in accordance with the Employee
Plan.
The total number of options to purchase shares of Common Stock and the
exercise prices of any options which were granted pursuant to the Employee
Plan prior to July 1995 have been adjusted to reflect the July 1995 5% Common
Stock dividend (Note 12).
The Company's 1991 Director Stock Option Plan for non-employee directors (the
"Directors' Plan") currently provides for the granting of options to non-
employee directors to purchase up to 105,000 shares of the Company's Common
Stock at the fair market value on the date of grant. Under the Directors'
Plan, each eligible director will automatically receive options to purchase
2,100 shares of the Company's Common Stock on December 31 of each year.
Options granted under the Directors' Plan may be exercised within ten years of
the date of grant and while the recipient of the option is a director of the
Company.
-32-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 7. STOCK OPTION PLANS (continued)
------------------
<TABLE>
<CAPTION>
Options Outstanding
------------------------
Number Price Per Share
------ ---------------
<S> <C> <C>
December 31, 1992 8,400 $3.21
Granted 12,600 $1.78
Exercised -- --
Expired -- --
------
December 31, 1993 21,000 $1.78 - $3.21
Granted 10,500 $2.20
Exercised -- --
Expired -- --
------
December 31, 1994 31,500 $1.78 - $3.21
Granted 8,400 $4.38
Exercised (6,000) $1.78 - $3.21
Expired (300) $1.78 - $3.21
------
December 31, 1995 33,600 $1.78 - $4.38
======
</TABLE>
As of December 31, 1995, options to purchase 33,600 shares of Common Stock
were exercisable under the Directors' Plan.
The total number of options to purchase shares of Common Stock and the
exercise prices of any options which were granted pursuant to the Directors'
Plan prior to July 1995 have been adjusted to reflect the July 1995 5% Common
Stock dividend (Note 12).
In February 1994, the board of directors granted additional vested options to
purchase 42,000 shares of the Company's Common Stock at an exercise price of
$1.78 per share, the fair market value of the Common Stock at the date of
grant, to two non-management members of the board of directors.
Note 8. BENEFIT PLANS
-------------
The Company maintains an annual bonus plan for key executives and employees
which is based primarily upon the pre-tax earnings of the Company. No bonuses
were expensed under the program during 1993. The Company expensed
approximately $348,000 and $115,000 for the program during 1995 and 1994,
respectively.
-33-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 8. BENEFIT PLANS (continued)
-------------
The Company maintains and administers an employee savings plan pursuant to
Internal Revenue Code Section 401(k). The Plan provides for discretionary
contributions as determined by the Company's Board of Directors. The
Company contributed approximately $18,000 to the Plan in 1995 and 1994,
respectively. The Company did not make a contribution to the Plan in 1993.
Note 9. RELATED PARTY TRANSACTIONS
--------------------------
A certain shareholder/director of the Company is also a consultant to the
Company and the Company has entered into a five-year consulting agreement
with him through November 1996 pursuant to which he will receive a fee of
$75,000 per year. Fees paid to this Shareholder/Director totaled
approximately $75,000 for each of the past three years.
Prior to July 1, 1995, the Company subleased certain truck cabs from Shared
Mobile Enterprises ("SME"), which, in turn, leased such truck cabs from an
independent third party leasing company. Effective July 1, 1995, SME
released the Company from its obligations under ten long-term subleases in
exchange for the issuance to SME of 120,000 unregistered Common Shares
valued at $3 per share, the weighted average closing price for the stock for
the prior thirty trading days. The Company received an opinion from an
independent financial advisor that the transaction was fair to the Company
and its shareholders. At the same time, with the concurrence of the third
party leasing company, the Company assumed SME's obligations under its
original lease and modified that lease by (1) extending the lease term by
one additional year and (2) adding one additional truck cab to the schedule
of leased property with a corresponding increase in base rental payments.
The $360,000 value of the shares represents the present value of the excess
of the sublease payments over the original lease payments. The Company has
capitalized the $360,000 and is amortizing this prepaid rent over a period
which approximates the lease term. SME was one hundred percent beneficially
owned by certain officers/directors and a director/consultant of the Company
who own approximately 24% of the Company's outstanding Common Shares.
Total rental expense paid to SME for the year ended December 31, 1995, 1994
and 1993 was approximately $180,000, $257,000, and $258,000, respectively.
Certain shareholders/officers of the Company, who own approximately 15% of
the outstanding Common Stock of the Company, also collectively owned 50% of
the outstanding capital stock of Upstate MRI, Inc., a.k.a., Virginia MRI,
Inc. ("VA MRI"), which owned and operated a Mobile Unit which provided
service in Virginia and North Carolina. The Company and the
shareholders/officers of the Company guaranteed the lease on such Mobile
Unit.
-34-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 9. RELATED PARTY TRANSACTIONS (continued)
--------------------------
On June 1, 1993, the Company entered into a one-year operating lease with VA
MRI where the Company leased the VA MRI Mobile Unit ("VA Mobile Unit") and
related service contracts in return for a monthly rental of $58,000, which
lease was renewed on June 1, 1994. A previously negotiated management
agreement between VA MRI and the Company, pursuant to which the Company
received $5,000 per month in administrative fees, plus reimbursement of all
expenses, in return for managing the operations of VA MRI was terminated.
On November 14, 1994, the Company purchased the VA Mobile Unit in
consideration for the assumption of all of VA MRI's lease obligations
totaling approximately $400,000 (approximate fair market value of the
equipment). In addition, VA MRI transferred and assigned to the Company its
rights in the service contracts related to the VA Mobile Unit in
consideration for the forgiveness of the remaining approximately $50,000
owed to the Company pursuant to a note and the payment by the Company of
$44,000. The Company capitalized the approximately $94,000 as contract
acquisition costs which are being amortized over the term of the service
contracts which approximates four years (Note 2).
In addition, on November 14, 1994, upon completion of the VA Mobile Unit
purchase, the Company traded in the VA Mobile Unit and upgraded this Unit to
a General Electric 1.0 Tesla Signa which the Company has financed with a 66
month lease requiring monthly payments of approximately $41,000. This new
lease transfers the ownership of such Mobile Unit to the Company at the
completion of the lease. The original VA Mobile Unit lease assumed by the
Company has been terminated in conjunction with this transaction.
During 1992 and 1993, the Company entered into numerous leasing transactions
with DVI pertaining to both continuing and discontinued operations involving
total financing of approximately $15.6 million. During 1994, the Company
did not enter into any new leases with DVI and refinanced with third parties
$3.2 million of leases held by DVI. During the first quarter of 1995, the
Company refinanced its remaining leases with DVI, totalling approximately
$6.5 million, with third-party lease companies. Interest rates under
financing agreements with DVI ranged from 11% to 14%. Total payments to DVI
during 1995, 1994 and 1993 with respect to capital lease obligations were
approximately $440,000, $3.9 million and $4.1 million, respectively,
including $87,000, $1.4 million and $1.7 million, respectively, of interest
expense associated with such capital leases.
In July 1993, DVI converted the 5,400 Series A Preferred Shares and sold the
108,000 Common Shares and 108,000 Warrants it received as a result of such
conversion (Note 6).
In March 1995, DVI sold its 368,000 shares, pursuant to registration
statements under the Securities Act of 1933, as amended (the "Securities
Act").
-35-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 9. RELATED PARTY TRANSACTIONS (continued)
--------------------------
A certain director of the Company is a director of, consultant to and
shareholder of DVI Inc., the parent of DVI.
Note 10. COMMITMENTS AND CONTINGENCIES
-----------------------------
The lease for the Company's principal facility expires in April 1999. Rent
expense for the Company's principal facility was $76,000, $69,000, and
$59,000 for 1995, 1994 and 1993, respectively. Future minimum lease
payments under this lease are as follows:
<TABLE>
<CAPTION>
Year Ended Future Minimum
December 31, Lease Payments
------------ --------------
<S> <C>
1996 $ 76,000
1997 76,000
1998 76,000
1999 25,300
--------
Total $253,300
========
</TABLE>
Pursuant to capital lease obligations (Note 3) and related maintenance
contracts, which begin upon expiration of the manufacturer's warranty period
of generally 12 to 18 months and which contracts expire at various dates
through the year 2000, the Company is obligated to pay approximately
$101,000 per month for maintenance of equipment.
In November 1992, the Company issued a letter-of-credit in the amount of
$198,500 pursuant to a lease transaction related to its freestanding full-
service diagnostic imaging center (Note 13). In exchange for restructuring
the terms of the debt of this Center, the Company increased the outstanding
letter-of-credit to an aggregate $400,000.
In November 1994, the Company issued a letter-of-credit in the amount of
$270,000 related to the purchase and financing of a new Mobile Unit. The
letter-of-credit is scheduled to be reduced at various times beginning in
1997.
In relation to the refinancing of four Mobile Units in February and March
1995 (Note 3), the Company issued two letters-of-credit in the aggregate
amount of $930,000. In February 1996, the lessor holding one of the
letters-of-credit totaling $330,000 allowed the letter-of-credit to expire.
The remaining letter-of-credit is reviewable annually with no definitive
early termination.
The Company must maintain a cash balance on deposit with the bank which
issued the letters-of-credit equal to the outstanding letters-of-credit.
-36-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 11. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The Company entered into various capital leases or financing arrangements
aggregating approximately $4,800,000, $4,350,000, and $4,615,000 during
1995, 1994 and 1993, respectively. These amounts were recorded as
obligations under capital leases and as leased diagnostic medical equipment.
The Company refinanced various capital leases during 1995 and 1994
aggregating approximately $7,092,000 and $3,231,000, respectively.
Interest paid during 1995, 1994 and 1993 was approximately $1,736,000,
$1,474,000, and $1,594,000, respectively.
Taxes paid during 1995 and 1994 approximated $71,000 and $46,000. No taxes
were paid during 1993.
Note 12. COMMON STOCK DIVIDEND
---------------------
On July 10, 1995, the Company issued 120,400 Common Shares in conjunction
with a 5% Common Stock dividend for all shareholders of record on June 30,
1995. As a result of the stock dividend, approximately $323,000 was charged
to accumulated deficit.
In accordance with the Company's Warrant Agreement, the outstanding Warrants
have been recapitalized to reflect the Common Stock dividend. Accordingly,
on July 10, 1995, the outstanding Warrants' exercise price was reduced from
$7.00 to $6.67 and each Warrant Certificate entitles the holder to now
purchase 1.05 shares of Common Stock of the Company. At December 31, 1995,
1,587,950 Warrants were outstanding (Note 5).
Note 13. DISCONTINUED OPERATIONS
-----------------------
On December 30, 1993, the Company formally adopted a plan to sell its
freestanding full-service diagnostic imaging center and its radiation
oncology center during 1994 and 1995.
The following table presents net revenues, net losses from discontinued
operations, net losses on disposal of discontinued operations and selected
balance sheet information relating to the freestanding full-service
diagnostic imaging and radiation oncology businesses as of, and for the
years ended, December 31, 1995, 1994 and 1993:
-37-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 13. DISCONTINUED OPERATIONS (continued)
-----------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Net revenues $821,000 $1,660,077 $1,682,993
Loss from discontinued operations, net
of tax benefit of $180,000 in 1993 -- -- 1,027,492
Loss on disposal of discontinued operations,
net of tax benefit of $68,000 and
$210,000 in 1994 and 1993, respectively -- 132,000 1,190,000
Accounts receivable, net -- 148,189 353,633
Leased medical equipment, net -- 1,305,897 2,351,406
Leasehold improvements, net -- 277,176 675,377
Deferred costs, net -- 197,297 449,060
Other assets, net -- 137,291 190,964
Accounts payable and accrued expenses -- 88,154 171,194
Long-term debt and capital lease obligations -- 1,305,728 2,501,035
Reserve for loss on discontinued operations -- 456,302 1,400,000
</TABLE>
The Company sold substantially all of the assets of the Auburn Regional
Center for Cancer Care on October 31, 1994. The sale price of the Center
was approximately $1.3 million comprised of $400,000 in cash and the
assumption of the Center's liabilities. The Company remains obligated on
approximately $450,000 of capital leases as of December 31, 1995. The buyer
has agreed to use its best efforts to have the Company released from these
leases and has secured its obligations to the Company to perform on these
leases through a pledge of certain assets in favor of the Company (Note 3).
The Company had previously established a discontinued operations reserve and
accordingly, no gain or loss was recorded as a result of this sale.
In January 1995, the Company restructured the majority of the long-term debt
and capital lease obligations of the freestanding imaging center resulting
in debt forgiveness of approximately $300,000, a lower interest rate and
extension of the term to 66 months, including interest only payments for the
first six months. The debt forgiveness was considered in determining the
adequacy of the reserve for loss on discontinued operations as of December
31, 1994. In relation to this debt restructuring, the Company increased the
letter-of-credit outstanding to $400,000 (Note 10).
On June 30, 1995, the Company completed the sale of substantially all of the
assets of its remaining freestanding diagnostic imaging center, Airport
Regional Imaging Center ("Airport Center"), located in Coraopolis,
Pennsylvania for a total sale price of approximately $300,000, including
cash and net trade receivables. Although the buyer assumed all future
operating liabilities of the Airport Center, the Company remains obligated
on approximately $741,000 of capital leases as of December 31, 1995. The
buyer has agreed to use its best efforts to have the Company released from
these leases and has secured its obligations to the Company to perform
-38-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 13. DISCONTINUED OPERATIONS (continued)
-----------------------
on these leases through a pledge of stock and certain assets in favor of the
Company (Note 3). The Company had previously established a discontinued
operations reserve and accordingly, no gain or loss was recognized as a
result of this sale.
Note 14. WRITE-DOWN OF LEASED MEDICAL EQUIPMENT
--------------------------------------
In 1993, the Company initiated a program of upgrading its Mobile Units to
newer, more advanced technology. During 1993, the Company upgraded four of
its older Mobile Units to newer state-of-the-art technology which offers the
advantages of faster scan times, finer detailed images and the capability to
perform additional procedures unavailable on the older Mobile Units. The
upgrade of the four Mobile Units did not result in a charge to operations.
In December 1993, the Company began discussions with an equipment
manufacturer regarding the upgrade of the Company's oldest and last first-
generation Mobile Unit. The old Mobile Unit was recorded at a value which
exceeded the amount the equipment manufacturer was offering on a trade-in,
and accordingly, in December 1993, the Company reduced the carrying value of
its older and last first-generation Mobile Unit to its estimated fair market
value. This write-down resulted in a non-cash charge to December 31, 1993
continuing operations of $625,000, comprised of the write-down of the leased
equipment of $550,000 and the write-off of deferred finance charges of
approximately $75,000 related to the Mobile Unit.
Note 15. SALE OF PARTNERSHIP INTERESTS
-----------------------------
On June 30, 1995, in conjunction with the sale of the Airport Center which
had been treated as a discontinued operation (Note 13), the Company sold its
majority ownership and general partner rights in four cardiac care
partnerships for a total sale price of $300,000 comprised of $200,000 in
cash and a $100,000, thirty-month note. The Company recognized a pre-tax
gain on this sale of $48,219. The partnerships, which constituted
approximately seven percent of the Company's revenues, had total assets of
approximately $1.4 million, comprised primarily of diagnostic equipment and
accounts receivable, and total liabilities of approximately $1.2 million
comprised primarily of capital lease obligations associated with the
diagnostic equipment.
-39-
<PAGE>
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- ------------------------------------------
Note 16. LITIGATION
----------
The Company has been named as a defendant, along with a hospital which
contracts for the Company's MRI services, in a claim filed by a woman who
alleges to have incurred partial paralysis as a result of being mishandled
during an MRI procedure. The claim has been filed for $6.0 million in
damages. The claim is in the early discovery stages. The Company does not
believe that it has been negligent in any manner and intends to vigorously
defend the claim. The Company has approximately $2.0 million of insurance
related to this matter. Management does not believe the outcome of this
matter will result in a material adverse effect on its operations or
financial condition.
Note 17. ACQUISITION
-----------
In February 1996, the Company entered into an agreement to purchase certain
assets of a mobile MRI company which operates three mobile units in the
state of North Carolina (the "Seller"). The purchase price approximates
$600,000 in cash (net of negotiated trade-in value for the Seller's mobile
MRI units) in exchange for MRI Programs including Certificate of Need
licenses or exemptions and certain customer service contracts. Closing is
scheduled for March 15, 1996 and is subject to certain conditions including
concurrence of the Certificate of Need Section of the Division of Facility
Services of the Department of Human Resources of the State of North
Carolina. Upon completion of the acquisition, the Company intends to trade-
in and upgrade two of the Seller's units to newer technology and sell the
third unit. The transaction will increase the Company's mobile MRI fleet to
14 units.
-40-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial statements, financial statement schedules and exhibits not listed
have been omitted where the required information is included in the consolidated
financial statements or notes thereto, or is not applicable or required.
<TABLE>
<S> <C> <C>
(a) (1) A listing of the consolidated financial statements, notes and independent auditors'
report required hereunder is set forth in Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedule:
The following is included in this Report:
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation of SMT, as Incorporated herein by reference is Exhibit 3.1
amended to Registration Statement No. 33-44329 on Form S-1 (the
"Form S-1").
3.2 By-Laws of SMT Incorporated herein by reference is Exhibit 3.2 to the
Form S-1.
4.1 Unit Purchase Option dated March 11, 1992 Incorporated herein by reference is Exhibit 4.1 to SMT's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992.
4.2 Warrant Agreement dated March 11, 1992 Incorporated herein by reference is Exhibit 4.2 to SMT's
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992.
4.3 Rights Agreement between SMT Health Incorporated herein by reference is Exhibit 1 to the
Services Inc. and American Stock Transfer Registrant's Registration Statement on Form 8-A
and Trust Company dated November 8, 1995 Amendment No. 1, filed on December 6, 1995
10.1 Lease for SMT's facility Incorporated herein by reference is Exhibit 10.01 to
SMT's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1994 (the "3Q94 Report").
10.2* Employment Agreement with Jeff D. Bergman Incorporated herein by reference is Exhibit 10.2 to the
Form S-1.
10.3* Employment Agreement with Daniel Dickman Incorporated herein by reference is Exhibit 10.3 to the
Form S-1.
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-41-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.4 Consulting Agreement with Mark A. DeSimone Incorporated herein by reference is Exhibit 10.4 to the
Form S-1.
10.5* 1991 Employee Stock Option Plan Incorporated herein by reference is Exhibit 10.14 to
SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992.
10.6* 1991 Stock Option Plan for Non-Employee Incorporated herein by reference is Exhibit 10.15 to
Directors SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1993.
10.7 Registration Rights Agreement, dated as of Incorporated herein by reference is Exhibit 10.17 to
November 27, 1991, between SMT and DVI SMT's Annual Report on Form 10-K for the Fiscal Year
Financial Services Inc. Ended December 31, 1992.
10.8 Management Agreement, dated January 1, Incorporated herein by reference is Exhibit 10.18 to the
1992, between DVI Financial Services Inc. Form S-1.
and SMT, including exhibits thereto
10.9 Equipment Leases, dated as of November 1, Incorporated herein by reference is Exhibit 10.19 to the
1991, between Shared Medical Technologies, Form S-1.
Inc. and Shared Mobile Enterprises
10.10 Amendment to Equipment Leases, dated as of Incorporated herein by reference is Exhibit 10.20 to the
November 27, 1991, between Shared Medical Form S-1.
Technologies, Inc., Shared Mobile Enterprises
and SMT
10.11 Underwriting Agreement between SMT and Incorporated herein by reference is Exhibit 10.23 to
Stratton Oakmont, Inc. SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992.
10.12 Limited Partnership Agreement among SMT Incorporated herein by reference is Exhibit 2.02 to the
Cardiac Corp. and Cardiac Fitness Center of Form 8-K for the event dated August 1, 1992.
Erie, Inc., dated August 1, 1992
10.13* SMT Profit Sharing Plan Incorporated herein by reference is Exhibit 10.30 to
SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992.
10.14 Agreement of Limited Partnership of Airport Incorporated herein by reference is Exhibit 10.31 to
Regional Imaging Center, L.P. SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992.
10.15 Lease for Airport Regional Imaging Center, Incorporated herein by reference is Exhibit 10.32 to
L.P. facility SMT's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1992.
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-42-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.16 Service Agreement, as of August 1, 1992, Incorporated herein by reference is Exhibit 10.34 to
between Cardiac Fitness Center of Erie, L.P. SMT's Annual Report on Form 10-K for the Fiscal Year
and C.F. Cardiac Services, P.C. Ended December 31, 1992.
10.17 Sublease, as of August 1, 1992, between Incorporated herein by reference is Exhibit 10.35 to
Cardiac Fitness Center of Erie, L.P. and SMT's Annual Report on Form 10-K for the Fiscal Year
C.F. Cardiac Services, P.C. Ended December 31, 1992.
10.18 Agreement of Limited Partnership, dated Incorporated herein by reference is Exhibit 10.36 to
August 1, 1992, of C.F. Nuclear Medicine of SMT's Annual Report on Form 10-K for the Fiscal Year
Shadyside Ended December 31, 1992.
10.19 Agreement of Limited Partnership, dated Incorporated herein by reference is Exhibit 10.37 to
September 1, 1992, of C.F. Nuclear Medicine, SMT's Annual Report on Form 10-K for the Fiscal Year
Ltd. Ended December 31, 1992.
10.20 Master Security Agreement, dated October 6, Incorporated herein by reference is Exhibit 10.42 to
1992, between U.S. Concord, Inc. and Airport SMT's Annual Report on Form 10-K for the Fiscal Year
Regional Imaging Center, L.P., including Ended December 31, 1992.
exhibits thereto
10.21 Equipment Lease, dated January 13, 1992, Incorporated herein by reference is Exhibit 10.43 to
between SMT Health Services Inc. and SMT's Annual Report on Form 10-K for the Fiscal Year
Shared Mobile Enterprises Ended December 31, 1992.
10.22 Equipment Lease, dated December 23, 1992, Incorporated herein by reference is Exhibit 10.44 to
between SMT Health Services Inc. and SMT's Annual Report on Form 10-K for the Fiscal Year
Shared Mobile Enterprises Ended December 31, 1992.
10.23 Lease renewal and upgrade dated March 15, Incorporated herein by reference is Exhibit 10.03 to the
1993, between SMT Health Services Inc. and 3Q94 Report.
GE Medical Systems
10.24 Master Equipment Lease Agreement dated as Incorporated herein by reference is Exhibit 10.06 to the
of September 15, 1994, between Financing 3Q94 Report.
for Science International, Inc. and SMT
Health Services Inc., including exhibits
thereto
10.25 Master Maxi-service Agreement Number Incorporated herein by reference is Exhibit 10.07 to the
dated October 6, 1994, by and between GE 3Q94 Report.
Medical Systems and SMT Health Services
Inc., including exhibits thereto
10.26 Asset Purchase Agreement between Universal Incorporated herein by reference is Exhibit 10.08 to the
Treatment Centers, Inc. and SMT Health 3Q94 Report.
Services Inc., dated as of October 31, 1994,
including schedules thereto
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-43-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.27 Master Equipment Lease dated November 21, Incorporated herein by reference is Exhibit 10.31 to
1994, by and between Laurel Capital SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. and Year Ended December 31, 1994.
exhibits thereto
10.28 Master Equipment Lease dated January 26, Incorporated herein by reference is Exhibit 10.32 to
1995, by and between Laurel Capital SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. and Year Ended December 31, 1994.
exhibits thereto
10.29 Master Equipment Lease dated January 26, Incorporated herein by reference is Exhibit 10.33 to
1995, by and between Laurel Capital SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. and Year Ended December 31, 1994.
exhibits thereto
10.30 Master Equipment Lease dated February 3, Incorporated herein by reference is Exhibit 10.34 to
1995, by and between Copelco Capital, Inc. SMTs Annual Report on Form 10-K for the Fiscal
and SMT Health Services Inc. and exhibits Year Ended December 31, 1994.
thereto
10.31 Master Equipment Lease dated February 20, Incorporated herein by reference is Exhibit 10.35 to
1995, by and between Heller Financial Leasing, SMTs Annual Report on Form 10-K for the Fiscal
Inc. and SMT Health Services Inc. and Year Ended December 31, 1994.
exhibits thereto.
10.32 Master Equipment Lease dated February 20, Incorporated herein by reference is Exhibit 10.36 to
1995, by and between Heller Financial Leasing, SMTs Annual Report on Form 10-K for the Fiscal
Inc. and SMT Health Services Inc. and Year Ended December 31, 1994.
exhibits thereto.
10.33 Loan Modification Agreement dated January Incorporated herein by reference is Exhibit 10.37 to
1, 1995, by and between Airport Regional SMTs Annual Report on Form 10-K for the Fiscal
Imaging Center, L.P. and Marine Midland Year Ended December 31, 1994.
Business Loans, Inc., formerly known as
U.S. Concord, Inc.
10.34 Master Lease/Service Agreement, Agreement Incorporated herein by reference is Exhibit 10.01 to the
Number 8003 dated March 28, 1995 by and 2Q95 Report.
between G.E. Medical Systems and SMT
Health Services Inc.
10.35 Agreement of Lease dated March 16, 1995, Incorporated herein by reference is Exhibit 10.39 to
by and between SMT Health Services Inc. SMTs Annual Report on Form 10-K for the Fiscal
and Shared Mobile Enterprises. Year Ended December 31, 1994.
10.36 Agreement of Lease dated March 16, 1995, Incorporated herein by reference is Exhibit 10.40 to
by and between SMT Health Services Inc. SMTs Annual Report on Form 10-K for the Fiscal
and Shared Mobile Enterprises. Year Ended December 31, 1994.
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-44-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.37* Employment Agreement with Jeff D. Incorporated herein by reference is Exhibit 10.41 to
Bergman. SMTs Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1994.
10.38* Employment Agreement with Daniel Incorporated herein by reference is Exhibit 10.42 to
Dickman. SMTs Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1994.
10.39 Agreement of Purchase and Sale By and Incorporated herein by reference is Exhibit 10.02 to the
Between Airport Regional Imaging Center, 2Q95 Report.
L.P. and SMT Cardiac Corp., as Seller and
C.F. Services, Inc. and C.F. Airport Health
Services, Inc. as Buyers (and related
schedules; Equipment Sublease by and
between Airport Regional Imaging Center,
L.P. and C.F. Airport Health Services, Inc.
dated June 30, 1995; Credit Agreement dated
June 30, 1995; Security Agreement dated
June 30, 1995; Pledge of Securities
Agreement dated June 30, 1995; and
Continuing Agreement of Guaranty and
Suretyship including Authority to Confess
Judgment after Default)
10.40 Agreement between Shared Medical Incorporated herein by reference is Exhibit 10.03 to the
Enterprises and SMT Health Services Inc. 2Q95 Report.
dated July 1, 1995
10.41* 1991 Employee Stock Option Plan (as Incorporated herein by reference is Exhibit 10.04 to the
amended on April 27, 1995) 2Q95 Report.
10.42* 1991 Directors Stock Option Plan for Incorporated herein by reference is Exhibit 10.05 to the
Non-Employee Directors (as amended April 27, 2Q95 Report.
1995)
10.43 Loan and Security Agreement, Agreement Incorporated herein by reference is Exhibit 10.01 to the
Number 130-0001386-000 dated September 3Q95 Report.
27, 1995 by and between Siemens Credit
Corporation and SMT Health Services Inc.
10.44* Employment Agreement with David A. Zynn Previously filed herewith.
10.45* Employment Agreement with David Spindler Previously filed herewith.
10.46* Warrant Agreement dated August 9, 1995 by Previously filed herewith.
and between SMT Health Services Inc. and
Mark A. DeSimone
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-45-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.47* Warrant Agreement dated August 9, 1995 by Previously filed herewith.
and among Jeff D. Bergman, Daniel
Dickman, Gerald Cohn, Alan Novich and
David J. Malone
10.48* Amendment to 1991 Stock Option Plan for Previously filed herewith.
Nonemployee Directors
10.49 Agreement of Purchase and Sale Between Previously filed herewith.
Trans-Carolina Imaging, LLC, as Seller, and
SMT Mobile V Corp., as Buyer dated as of
February 27, 1996
10.50 Engagement Letter by and among SMT Incorporated herein by reference is Exhibit 10.02 to the
Health Services Inc. and Commonwealth 3Q95 Report.
Associates
10.51 Warrant Agreement by and among SMT Incorporated herein by reference is Exhibit 10.03 to the
Health Services Inc. and Commonwealth 3Q95 Report
Associates
10.52 Promissory Note and Loan and Security Previously filed herewith.
Agreement by and between Siemans Credit
Corporation and SMT Health Services Inc.
dated February 9, 1996
10.53 Amended Schedule of Leased Equipment by Previously filed herewith.
and between Laurel Capital Corporation and
SMT Health Services Inc. dated January 4,
1996
10.54* SMT Health Services Inc. 1995 Directors Previously filed herewith.
Warrant Plan
11.1 Computation of Earnings Per Share Previously filed herewith.
16.1 Letter dated June 20, 1994, from Deloitte & Incorporated herein by reference is Exhibit 16.01 to the
Touche regarding change in certifying Current Report on Form 8-K for the event dated June 20,
accountants. 1994.
21.1 List of Subsidiaries Previously filed herewith.
23.1 Consent of Independent Public Accountants Filed herewith.
23.2 Consent of Independent Public Accountants Filed herewith.
27.1 Financial Data Schedule Filed herewith.
99.1 Press Release dated February 20, 1996 Previously filed herewith.
99.2 Press Release dated March 20, 1996 Previously filed herewith.
</TABLE>
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-46-
<PAGE>
SMT will furnish to the Commission upon request copies of any instruments
not filed herewith, if any, which authorize the issuance of long-term
obligations of SMT not in excess of 10% of SMT's total assets on a
consolidated basis.
(b) During the quarter ended December 31, 1995, SMT filed no reports on
Form 8-K.
(c) SMT hereby files as exhibits to this Form 10-K the exhibits set forth in
Items 14(a)(3) hereof which are not incorporated by reference.
(d) SMT hereby files as financial statement schedules to this Form 10-K the
financial statement schedule set forth in Item 14(a)(2) hereof.
- ---------------------
*Denotes management agreement or compensatory plan or arrangement.
-47-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the
city of Pittsburgh, Commonwealth of Pennsylvania, on June 14, 1996.
SMT HEALTH SERVICES INC.
By: /s/ David A. Zynn
---------------------------------------
David A. Zynn
Chief Financial Officer,
Treasurer, Chief Accounting
Officer and Assistant Secretary
-48-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation of SMT, as Incorporated herein by reference is Exhibit 3.1 to
amended Registration Statement No. 33-44329 on Form S-1
(the "Form S-1").
3.2 By-Laws of SMT Incorporated herein by reference is Exhibit 3.2 to
the Form S-1.
4.1 Unit Purchase Option dated March 11, 1992 Incorporated herein by reference is Exhibit 4.1 to
SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
4.2 Warrant Agreement dated March 11, 1992 Incorporated herein by reference is Exhibit 4.2 to
SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
4.3 Rights Agreement between SMT Health Incorporated herein by reference is Exhibit 1 to
Services Inc. and American Stock Transfer the Registrants Registration Statement on Form 8-A
and Trust Company dated November 8, 1995 Amendment No. 1, filed on December 6, 1995
10.1 Lease for SMT's facility Incorporated herein by reference is Exhibit 10.01
to SMT's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1994 (the "3Q94 Report").
10.2* Employment Agreement with Jeff D. Incorporated herein by reference is Exhibit 10.2
Bergman to the Form S-1.
10.3* Employment Agreement with Daniel Incorporated herein by reference is Exhibit 10.3
Dickman to the Form S-1.
10.4 Consulting Agreement with Mark A. Incorporated herein by reference is Exhibit 10.4
DeSimone to the Form S-1.
10.5* 1991 Employee Stock Option Plan Incorporated herein by reference is Exhibit 10.14
to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
10.6* 1991 Stock Option Plan for Non-Employee Incorporated herein by reference is Exhibit 10.15
Directors to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1993.
10.7 Registration Rights Agreement, dated as of Incorporated herein by reference is Exhibit 10.17
November 27, 1991, between SMT and DVI to SMT's Annual Report on Form 10-K for the Fiscal
Financial Services Inc. Year Ended December 31, 1992.
10.8 Management Agreement, dated January 1, Incorporated herein by reference is Exhibit 10.18
1992, between DVI Financial Services Inc. to the Form S-1.
and SMT, including exhibits thereto
10.9 Equipment Leases, dated as of November 1, Incorporated herein by reference is Exhibit 10.19
1991, between Shared Medical Technologies, to the Form S-1.
Inc. and Shared Mobile Enterprises
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.10 Amendment to Equipment Leases, dated as of Incorporated herein by reference is Exhibit 10.20
November 27, 1991, between Shared Medical to the Form S-1.
Technologies, Inc., Shared Mobile Enterprises
and SMT
10.11 Underwriting Agreement between SMT Incorporated herein by reference is Exhibit 10.23
and Stratton Oakmont, Inc. to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
10.12 Limited Partnership Agreement among SMT Incorporated herein by reference is Exhibit 2.02
Cardiac Corp. and Cardiac Fitness Center of to the Form 8-K for the event dated August 1, 1992.
Erie, Inc., dated August 1, 1992
10.13* SMT Profit Sharing Plan Incorporated herein by reference is Exhibit 10.30
to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
10.14 Agreement of Limited Partnership of Airport Incorporated herein by reference is Exhibit 10.31
Regional Imaging Center, L.P. to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
10.15 Lease for Airport Regional Imaging Center, Incorporated herein by reference is Exhibit 10.32
L.P. facility to SMT's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1992.
10.16 Service Agreement, as of August 1, 1992, Incorporated herein by reference is Exhibit 10.34
between Cardiac Fitness Center of Erie, L.P. to SMT's Annual Report on Form 10-K for the Fiscal
and C.F. Cardiac Services, P.C. Year Ended December 31, 1992.
10.17 Sublease, as of August 1, 1992, between Incorporated herein by reference is Exhibit 10.35
Cardiac Fitness Center of Erie, L.P. and C.F. to SMT's Annual Report on Form 10-K for the Fiscal
Cardiac Services, P.C. Year Ended December 31, 1992.
10.18 Agreement of Limited Partnership, dated Incorporated herein by reference is Exhibit 10.36
August 1, 1992, of C.F. Nuclear Medicine of to SMT's Annual Report on Form 10-K for the Fiscal
Shadyside Year Ended December 31, 1992.
10.19 Agreement of Limited Partnership, dated Incorporated herein by reference is Exhibit 10.37
September 1, 1992, of C.F. Nuclear to SMT's Annual Report on Form 10-K for the Fiscal
Medicine, Ltd. Year Ended December 31, 1992.
10.20 Master Security Agreement, dated October Incorporated herein by reference is Exhibit 10.42
6, 1992, between U.S. Concord, Inc. and to SMT's Annual Report on Form 10-K for the Fiscal
Airport Regional Imaging Center, L.P., Year Ended December 31, 1992.
including exhibits thereto
10.21 Equipment Lease, dated January 13, 1992, Incorporated herein by reference is Exhibit 10.43
between SMT Health Services Inc. and to SMT's Annual Report on Form 10-K for the Fiscal
Shared Mobile Enterprises Year Ended December 31, 1992.
10.22 Equipment Lease, dated December 23, 1992, Incorporated herein by reference is Exhibit 10.44
between SMT Health Services Inc. and Shared to SMT's Annual Report on Form 10-K for the Fiscal
Mobile Enterprises Year Ended December 31, 1992.
10.23 Lease renewal and upgrade dated March 15, Incorporated herein by reference is Exhibit 10.03
1993, between SMT Health Services Inc. and to the 3Q94 Report.
GE Medical Systems
10.24 Master Equipment Lease Agreement dated as Incorporated herein by reference is Exhibit 10.06
of September 15, 1994, between Financing to the 3Q94 Report.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
for Science International, Inc. and SMT
Health Services Inc., including exhibits
thereto
10.25 Master Maxi-service Agreement Number dated Incorporated herein by reference is Exhibit 10.07
October 6, 1994, by and between GE Medical to the 3Q94 Report.
Systems and SMT Health Services Inc.,
including exhibits thereto
10.26 Asset Purchase Agreement between Universal Incorporated herein by reference is Exhibit 10.08
Treatment Centers, Inc. and SMT Health to the 3Q94 Report.
Services Inc., dated as of October 31,
1994, including schedules thereto
10.27 Master Equipment Lease dated November 21, Incorporated herein by reference is Exhibit 10.31
1994, by and between Laurel Capital to SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. Year Ended December 31, 1994.
and exhibits thereto
10.28 Master Equipment Lease dated January 26, Incorporated herein by reference is Exhibit 10.32
1995, by and between Laurel Capital to SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. Year Ended December 31, 1994.
and exhibits thereto
10.29 Master Equipment Lease dated January 26, Incorporated herein by reference is Exhibit 10.33
1995, by and between Laurel Capital to SMTs Annual Report on Form 10-K for the Fiscal
Corporation and SMT Health Services Inc. Year Ended December 31, 1994.
and exhibits thereto
10.30 Master Equipment Lease dated February 3, Incorporated herein by reference is Exhibit 10.34
1995, by and between Copelco Capital, Inc. to SMTs Annual Report on Form 10-K for the Fiscal
and SMT Health Services Inc. and exhibits Year Ended December 31, 1994.
thereto
10.31 Master Equipment Lease dated February 20, Incorporated herein by reference is Exhibit 10.35
1995, by and between Heller Financial to SMTs Annual Report on Form 10-K for the Fiscal
Leasing, Inc. and SMT Health Services Inc. Year Ended December 31, 1994.
and exhibits thereto.
10.32 Master Equipment Lease dated February 20, Incorporated herein by reference is Exhibit 10.36
1995, by and between Heller Financial to SMTs Annual Report on Form 10-K for the Fiscal
Leasing, Inc. and SMT Health Services Inc. Year Ended December 31, 1994.
and exhibits thereto.
10.33 Loan Modification Agreement dated January Incorporated herein by reference is Exhibit 10.37
1, 1995, by and between Airport Regional to SMTs Annual Report on Form 10-K for the Fiscal
Imaging Center, L.P. and Marine Midland Year Ended December 31, 1994.
Business Loans, Inc., formerly known as
U.S. Concord, Inc.
10.34 Master Lease/Service Agreement, Agreement Incorporated herein by reference is Exhibit 10.01
Number 8003 dated March 28, 1995 by and to the 2Q95 Report.
between G.E. Medical Systems and SMT Health
Services Inc.
10.35 Agreement of Lease dated March 16, 1995, Incorporated herein by reference is Exhibit 10.39
by and between SMT Health Services Inc. to SMTs Annual Report on Form 10-K for the Fiscal
and Shared Mobile Enterprises. Year Ended December 31, 1994.
10.36 Agreement of Lease dated March 16, 1995, Incorporated herein by reference is Exhibit 10.40 to
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
by and between SMT Health Services Inc. SMTs Annual Report on Form 10-K for the Fiscal
and Shared Mobile Enterprises. Year Ended December 31, 1994.
10.37* Employment Agreement with Jeff D. Incorporated herein by reference is Exhibit 10.41
Bergman. to SMTs Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1994.
10.38* Employment Agreement with Daniel Dickman. Incorporated herein by reference is Exhibit 10.42
to SMTs Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1994.
10.39 Agreement of Purchase and Sale By and Incorporated herein by reference is Exhibit 10.02
Between Airport Regional Imaging Center, to the 2Q95 Report.
L.P. and SMT Cardiac Corp., as Seller and
C.F. Services, Inc. and C.F. Airport Health
Services, Inc. as Buyers (and related
schedules; Equipment Sublease by and
between Airport Regional Imaging Center,
L.P. and C.F. Airport Health Services, Inc.
dated June 30, 1995; Credit Agreement dated
June 30, 1995; Security Agreement dated
June 30, 1995; Pledge of Securities
Agreement dated June 30, 1995; and
Continuing Agreement of Guaranty and
Suretyship including Authority to Confess
Judgment after Default)
10.40 Agreement between Shared Medical Incorporated herein by reference is Exhibit 10.03
Enterprises and SMT Health Services Inc. to the 2Q95 Report.
dated July 1, 1995
10.41* 1991 Employee Stock Option Plan (as Incorporated herein by reference is Exhibit 10.04
amended on April 27, 1995) to the 2Q95 Report.
10.42* 1991 Directors Stock Option Plan for Incorporated herein by reference is Exhibit 10.05
Non-Employee Directors (as amended to the 2Q95 Report.
April 27, 1995)
10.43 Loan and Security Agreement, Agreement Incorporated herein by reference is Exhibit 10.01
Number 130-0001386-000 dated September to the 3Q95 Report.
27, 1995 by and between Siemens Credit
Corporation and SMT Health Services Inc.
10.44* Employment Agreement with David A. Zynn Previously filed herewith.
10.45* Employment Agreement with David Spindler Previously filed herewith.
10.46* Warrant Agreement dated August 9, 1995 by Previously filed herewith.
and between SMT Health Services Inc. and
Mark A. DeSimone
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
- ----------- ---------
<S> <C> <C>
10.47* Warrant Agreement dated August 9, 1995 by Previously filed herewith.
and among Jeff D. Bergman, Daniel Dickman,
Gerald Cohn, Alan Novich and David J. Malone
10.48* Amendment to 1991 Stock Option Plan for Previously filed herewith.
Nonemployee Directors
10.49 Agreement of Purchase and Sale Between Previously filed herewith.
Trans-Carolina Imaging, LLC, as Seller,
and SMT Mobile V Corp., as Buyer dated
as of February 27, 1996
10.50 Engagement Letter by and among SMT Incorporated herein by reference is Exhibit 10.02
Health Services Inc. and Commonwealth to the 3Q95 Report.
Associates
10.51 Warrant Agreement by and among SMT Health Incorporated herein by reference is Exhibit 10.03
Services Inc. and Commonwealth Associates to the 3Q95 Report
10.52 Promissory Note and Loan and Security Previously filed herewith.
Agreement by and between Siemans Credit
Corporation and SMT Health Services Inc.
dated February 9, 1996
10.53 Amended Schedule of Leased Equipment by Previously filed herewith.
and between Laurel Capital Corporation and
SMT Health Services Inc. dated January 4,
1996
10.54* SMT Health Services Inc. 1995 Directors Previously filed herewith.
Warrant Plan
11.1 Computation of Earnings Per Share Previously filed herewith.
16.1 Letter dated June 20, 1994, from Deloitte Incorporated herein by reference is Exhibit 16.01
& Touche regarding change in certifying to the Current Report on Form 8-K for the event
accountants dated June 20, 1994.
21.1 List of Subsidiaries Previously filed herewith.
23.1 Consent of Independent Public Accountants Filed herewith.
23.2 Consent of Independent Public Accountants Filed herewith.
27.1 Financial Data Schedule Filed herewith.
99.1 Press Release dated February 20, 1996 Previously filed herewith.
99.2 Press Release dated March 20, 1996 Previously filed herewith.
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
SMT Health Services Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-44329) on Form S-3, registration statement (No. 33-61600) on Form
S-8, registration statement (No. 33-61602) on Form S-8, registration statement
(No. 33-86920) on Form S-3, and registration statement (No. 33-80571) on
Form S-3 of SMT Health Services Inc. of our report dated February 21, 1996
relating to the consolidated balance sheets of SMT Health Services Inc.
and subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows
for the years then ended and the related schedule, which report appears
in the December 31, 1995 annual report on Form 10-K/A of SMT Health Services
Inc.
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
June 14, 1996
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
61600 and No. 33-61602 of SMT Health Services Inc. on Form S-8 and Registration
Statements No. 33-86920 and 33-44329 of SMT Health Services Inc. on Form S-3 of
our report dated March 4, 1994, appearing in Form 10-K/A (Amendment No. 1)
of SMT Health Services Inc. for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1995 10K AMENDMENT NO. 1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,941,519
<SECURITIES> 0
<RECEIVABLES> 1,134,022
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,641,596
<PP&E> 22,554,837
<DEPRECIATION> 6,613,759
<TOTAL-ASSETS> 23,347,805
<CURRENT-LIABILITIES> 5,236,247
<BONDS> 0
0
0
<COMMON> 26,544
<OTHER-SE> 5,375,109
<TOTAL-LIABILITY-AND-EQUITY> 23,347,805
<SALES> 15,020,428
<TOTAL-REVENUES> 15,157,845
<CGS> 0
<TOTAL-COSTS> 11,547,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,757,551
<INCOME-PRETAX> 1,851,217
<INCOME-TAX> 478,000
<INCOME-CONTINUING> 1,373,217
<DISCONTINUED> (198,000)
<EXTRAORDINARY> 198,000
<CHANGES> 0
<NET-INCOME> 1,373,217
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
