U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995 Commission file number 33-82180
IMAGEX SERVICES, INC.
(Name of issuer as specified in its charter)
NEVADA 93-0933399
(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization) Number)
80 WOLF ROAD, SUITE 503
ALBANY, NEW YORK 12205 (518) 438-3529
(Address of principal (Zip Code) (Registrant's telephone number)
executive offices)
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
NONE
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-B 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-KSB or any amendment to
this Form 10-KSB [ ]
The registrants revenues for its most recent fiscal year were $ 205,498
As of April 30, 1996 the aggregate market value of the voting stock held by
nonaffiliates of the Issuer was approximately $ 4,142,555 based on the average
of the closing bid and asked prices as reported by the NASD OTC Bulletin Board
system.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding as of April 30,1996
- ----- -------------------------------
Common Stock, $.001 par value 12,969,468 Common Shares
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 1
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
Imagex , Services, Inc. ("Imagex" or the "Company") was incorporated
under the laws of the State of Nevada on July 23, 1986 as Balloonies, Inc.
("BI"). BI acquired its present operating subsidiary, Unicare Services Inc., in
a reverse acquisition on June 28, 1993 and BI changed its name to Imagex
Services, Inc. upon such acquisition. Unicare was formed to begin the present
medical diagnostic service business of the Company and had no material
pre-acquisition activities. Imagex' wholly owned subsidiaries, Unicare Services
Inc. and Rome Magnetic Associates, Inc. which conduct business as Unicare and
Rome, are herein referred to as "Unicare and Rome"; Imagex, Unicare and Rome are
herein referred to individually or collectively as the "Company". Unicare and
Rome were incorporated under the laws of the State of New York on April 16, 1993
and August 3, 1993, respectively.
OPERATIONS
The Company provides medical diagnostic services to patients through
contracting physicians, health maintenance organizations, preferred provider
organizations, trade unions, physician groups, clinics, as well as other forms
of group health plan providers (individually or collectively "Group Plans"). The
Company enters into agreements with local Group Plans for the development and
operation of individual medical diagnostic centers ("Centers") in specific
geographical areas; currently the Company is negotiating with several Group
Plans for the development and operation of Centers in New York State and the
Carolinas.
The Centers are designed to provide diagnostic services at reduced cost
for the insured member patients. Prices are generally below the existing
respective regional market prices for similar diagnostic services offered by
others.
The Company's operations had been severely limited due to the effect of
a judgment obtained by General Electric Company against the Company. The Company
and General Electric negotiated a settlement whereby the Company returned the
1.5 Vectra Tesla MRI unit for the Slocum Dixon site and received a $700,000
credit against the judgment and agreed to pay the balance of $700,000 over a
2-year period which sum the Company's president has personally guaranteed and
the Company provided to General Electric a mortgage on the Greenville Center.
The Judgment against the Company was vacated in April, 1996. The Company has
retained the Rome MRI unit and shall continue to meet its monthly obligations
under the lease for the 0.5 Tesla MRI unit located at Rome pursuant to the
settlement.
ADMINISTRATION OF GROUP PLAN CENTERS
In the event the Company terminates any Group Plan agreements for
specific defaults, the Company is expected to generally retain the right to
contract with other Group Plans to utilize the Centers. The Company is dependent
upon maintaining and developing affiliations with Group Plans for referrals. The
Company is dependent upon a continuing public need for the services offered by
the Medical Diagnostic Centers in the locations as situated, proposed or to be
proposed.
The Company does and will concentrate its efforts on development,
operation and administration of the Company Centers. Continued research on
methods to improve operations, services, and equipment packages are anticipated
to be accomplished through monitoring of existing operations.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 3
(1) Services
--------
The Company devotes its principal resources to developing, operating
and administering the use of its equipment in Centers which provide medical
diagnostic services for outpatients through practicing radiologists contracting
for the use of the Company's imaging equipment. The Company contracts with and
supports the medical practices of attending radiologist-physicians who operate
medical practices at the Centers. The Company provides equipment and facilities
and derives revenue from the use of its equipment and facilities. The type and
quantity of medical examinations performed by the radiologist-physicians results
in the equipment and facilities usage fees derived by the Company. The Company
provides administrative support to the physician-radiologists, as necessary, but
the Company has no authority to direct the conduct or operation of the
physician-radiologists' practices. There are currently two Centers in operation,
with a number in the planning and development stage. Centers are usually
constructed or rehabilitated and operated to provide a full complement of
diagnostic services for a particular institutional client or a particular
physician group.
Marketing and Promotion
-----------------------
The Company relies primarily upon its staff's efforts in promoting the
Centers to physicians located within the geographical service range of the
Center and upon its president and its marketing consultant to develop Centers to
service potential Group Plans. The Company also relies upon the efforts of the
contracting radiologist-physicians, and, in the case of the Rome Center, the
efforts of the Rome Hospital to build its patient base referrals to promote and
market the Company's local Center; the Company generally also relies upon
referrals from unaffiliated physicians located within the geographical service
range of the Center. The patients are referred by physician groups or Group
Plans with which the Company has a service contract; the referrals are made
directly to the radiologists with whom the Company has a contract for services
and use of the Center equipment. Other referrals are attributed to unaffiliated
physicians located within the geographical service range of the Center.
Currently, the Company has a long term agreement for the services of
two radiologists to read the MRI produced films for the Rome Center.
Medical Diagnostic Services
---------------------------
The following "diagnostic services" are proposed to be offered at most
Centers:
MAGNETIC RESONANCE IMAGING ("MRI") is a technology utilizing a magnetic field,
which is generated by either superconductive or permanent magnets (0.35 Tesla
measurement level permanently induced) that produce energy in the radio
frequency range. The resultant waves are processed through a computer to produce
cross-sectional images of the internal human anatomy for clinical review of soft
tissue.
MAMMOGRAPHY is an anatomical view of breast anatomy to determine the physical
state of the breast and surrounding wall and/or glandular areas. These studies
are done using a new method, called "screened x-ray", which can reduce the
radiation levels by up to 50%. This examination is used in the detection of
breast cancer.
ULTRASOUND uses high level ultrasonic waves that are beamed into the body, and
the level of the wave form is measured on the return echo. The strength of the
echo is computerized into 256 levels of gray to effect a pictorial
representation of the area under review.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 4
CAT SCANNING ("CT"), technically referred to as Computerized Axial Tomography
Scanning, is a diagnostic imaging technology utilizing x-ray coupled to a
computer to produce cross-sectional images of the internal human anatomy.
X-RAY is based upon the ability of energy waves to penetrate human tissue and to
be detected by either photographic film or electronic devices for the
presentation of an image of the internal human anatomy for the purpose of
determining the functional or physiological state of the particular portion of
the anatomy being imaged. Two different kinds of energy waves are associated
with this method of imaging, x-ray and gamma.
Company Operated Centers
- ------------------------
Each Center provides diagnostic services for medical patients. Each
patient's referring physician receives a report as to the diagnostic services
performed and the results of the tests, and additionally, preventative
maintenance steps may be identified. Each Center is or is expected to be capable
of internally completing the diagnostic testing specified herein.
ROME, NEW YORK CENTER
The Company entered into a marketing and administrative agreement in
May, 1993 with the Rome Hospital and Murphy Memorial Hospital (collectively
"Rome Hospital") for one Center in Rome, New York (the "Rome Center"). The
Agreement was for a term of five years; however, the Rome Hospital was able to
terminate the Agreement annually, provided the Rome Hospital retained the status
of a part of the municipality. The Agreement was, in effect, terminated during
1995.
The Company has contracted with a radiology group whereby the group
provides the radiological services and bills patients and pays the Company a fee
for each procedure.
The Rome Center provides diagnostic services utilizing magnetic
resonance imaging technology. The 0.5 Tesla MRI at the Center had been subject
to a judgment in favor of General Electric Company; the Company settled the
General Electric matter (see item 3), and continues its monthly obligations
under the lease for the 0.5 Tesla MRI unit located at Rome pursuant to the
settlement.
GREENVILLE, NEW YORK CENTER
The Company opened a 9,600 square foot Center in Greenville, New York
(the "Greenville Center") in 1995. The Greenville Center limits its services to
providing x-ray, ultrasound and mammography diagnostic services. It is
anticipated that Greenville will offer MRI and CT in the fourth quarter of 1996.
It provides the rural county populace with a comprehensive multi-modality
imaging center. Located at the same site will be an independent full-service
general medical practice and turnkey offices for satellite specialty practices
to provide direct patient referrals. The Company believes this market has the
potential to support a Center to service the population base. The equipment
manufacturers have agreed in principal to install the equipment on a
lease-financed basis. This Center was designed and constructed by the third
party developer/landlord pursuant to specifications provided by the Company.
DOMESTIC OPPORTUNITIES
The Company's most active growth currently rests in the northeast
corridor and New York State. The Company continues to seek acquisition
opportunities and several negotiations are underway to establish Centers in
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 5
Upstate New York communities in Queensbury, Plattsburgh, Glens Falls, and
Gloversville, which will serve a number of surrounding rural communities.
The Company has signed an agreement with Silk Road Health Care
Corporation to jointly develop a network of ten (10) diagnostic imaging centers
throughout North Carolina and South Carolina. Once funding is approved by Silk
Road Investment Co. Ltd., an investment company will be organized by Silk Road
Health Care to fund such projects. There is no set opening day for the start of
this project. Each Center planned with Silk Road will offer a full range of
diagnostic imaging procedures, including MRI through mobile units and sharing of
equipment, with an emphasis on women's health care.
INTERNATIONAL OPPORTUNITIES
The Company is planning to develop three Centers in Bolivia; these
Centers are expected to pioneer one of the first MRI diagnostic services to the
South American country of Bolivia. Centers are currently being planned in Los
Pas (the country's capital), Santa Cruz and Cochabamba.
TELERADIOLOGY
Through a teleradiology venture the Company shall provide electronic
linkup through American Telemedicine International to all of its Centers, both
in the United States and abroad, having the diagnostic images read via
teleradiology directly at Massachusetts General Hospital under the auspices of
the Company's consulting radiologist-physician and Harvard Medical School
professor, Dr. Kenneth Davis.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 6
<TABLE>
<CAPTION>
MEDICAL DIAGNOSTIC SERVICES
Centers MRI Mammography Ultrasound CT X-Ray
- ------- --- ----------- ---------- -- -----
<S> <C> <C> <C> <C> <C>
Rome, New York !(1) (!) (!) X (!)
Greenville, New York (!)(1) ! ! (!) !
Proposed Centers (Proposed Services)
- ----------------
Plattsburgh, New York (!) (!) (!) (!) (!)
Glens Falls, New York (!) (!) (!) (!) (!)
Johnstown, New York (!) (!) (!) (!) (!)
Schoharie, New York X (!) (!) X (!)
North Carolina (!) (!) (!) (!) (!)
South Carolina (!) (!) (!) (!) (!)
Bolivia, South America (!) (!) (!) (!) (!)
! = Installed
X = Not Available
(!) = Proposed to be Installed
(1) See Item 3 with respect to litigation and settlement
negotiations affecting the Company's MRI units.
</TABLE>
EMPIRE IMAGING
Empire Imaging Technologies, Ltd., a medical equipment sales, service
and supply company, may be acquired pending formal documentation to memorialize
the working relationship and transfer of consideration to the Empire Imaging
shareholders to legally bind the acquisition. Empire Imaging will principally
devote its services and resources to supplying and servicing the Company's
Centers. The Centers will also continue to rely upon the equipment manufacturer
warranties and service contracts for maintenance and support. Empire is
anticipated to reduce costs of miscellaneous supplies and non- warrantied
service needs of the Centers through the in-house centralized supply and service
system created through the acquisition. The acquisition will not be consummated
until the purchase monies have been raised and adequate capital has been raised
to fund its operations.
Per Use Examination Fee
-----------------------
The Company's technicians provide diagnostic imaging scans of the
referred patients in accordance with the protocols and specifications required
by the attending radiologist-physicians. The protocols and specifications for
the scan relate to the angle of the scan, the degree that the hydrogen protons
are magnetized and the data collection time period. The Company's technician
processes the image and delivers the film to the radiologist-physician for
review and diagnosis. The radiologist- physician is charged an equipment user
fee on the basis of a fee for each diagnostic examination (a "per use fee"); the
per use fee includes an additional charge to recover the reimbursement of the
estimated PRO RATA overhead costs including financing costs, service, warranty
service, parts, tubes, cryogens and property damage insurance coverage paid to
the manufacturer through the monthly fixed lease payment.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 7
Installation
------------
The original equipment manufacturer installs the equipment to the
required installation specifications such that the services may be accurately
performed with the equipment. The manufacturer leases the equipment to the
Company on the basis of a fixed monthly rental fee which covers the
manufacturer's overhead costs including financing costs, service, warranty
service, parts, tubes, cryogens and property damage insurance coverage. The
Company, through the manufacturer, is the sole supplier of this package to the
Centers. The use of the Equipment package is restricted to only those uses
authorized by the Company and the manufacturer.
Site Selection
--------------
Selection of development sites is determined based upon, but not
limited to the following considerations: (a) estimated residential or commercial
population density, (b) proximity to and interconnection of primary or secondary
thoroughfares, (c) estimated number of trade union patients in the territory,
(d) the number of trade unions registered within the territory, and (e)
estimated sales forecasts based upon the above considerations. Selected
territories for Centers are generally designated in both urban and rural
population areas, which either contain too low of a volume of diagnostic service
facilities, or in markets with higher than average health care costs.
(2) Distribution Methods - Inapplicable.
--------------------
(3) New Products Status - Inapplicable.
-------------------
(4) Competition
-----------
The Company has encountered intense competition in the medical
diagnostic services business from numerous competitors, almost all of which are
substantially larger, have more substantial histories, backgrounds, experience
and records of successful operations, greater financial and other resources,
more employees and more extensive facilities than the Company now has or will
have in the foreseeable future. Accordingly, such competitors are in a better
position to finance operating diagnostic centers and/or offer incentives to
management to run and/or supervise the operating diagnostic centers. The Company
is not a significant factor in the field in which it is engaged and is at a very
serious disadvantage against more established competitors.
Although the Company believes the diagnostic services are competitive
in most circumstances based on convenience, uniqueness of service, cost and
efficiency, many of the Company's diagnostic services are offered by
competitors, who are larger, longer established and possess substantially
greater financial resources and substantially larger administrative, technical
and marketing staffs than of the Company.
The Company encounters direct competition from private medical groups
and hospitals. A number of health care entities have indicated an intention to
enter or have entered the medical diagnostic services business. Further, the
United States Food and Drug Administration ("FDA") is currently investigating
ways to reduce health care costs throughout the United States. Implementation of
industry, insurance or government strategies or programs to reduce health care
costs may have an unduly harsh result on the Company's business.
(5) Raw Materials - Inapplicable.
-------------
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Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 8
(6) Dependence on Single or Few Major Customers
-------------------------------------------
The Company is dependent upon maintaining and developing affiliations
with Group Plans for patient referrals. The Company is dependent upon a
continuing public need for and use of the services offered by the Centers in the
selected locations. The Company is dependent upon the substantial, continuing
support of the equipment manufacturers for the development and implementation of
operations at each new Center.
(7) Patents, Trademarks, Licenses, Franchises and Concessions
---------------------------------------------------------
The Company believes that its registered U.S. service mark "Imagex ,"
is of material importance to its business. The Company has consented to a Los
Angeles, California company to use the mark "Imagix" with respect to their
private labeling of mammolabels; the U.S. Trademark Office has unofficially
approved the consent. The Company does not anticipate any trade difficulties to
arise due to such consent, and does not anticipate consenting to any other
organization utilizing a similar derivation of its mark.
(8) Governmental Approval
---------------------
The Equipment manufacturer files all required state and federal reports
relating to the manufacturer's installation activities. The Company is
responsible for obtaining all local site approvals and site planning approvals
for the Equipment installation in strict accordance with the manufacturer's site
planning specifications, and for mobile Equipment the Company also obtains site
approval within the specifications of the trailer manufacturer. The Company
provides all architectural or seismic preparations, calculations or submittals
for local and state approval as required.
(9) Effect of Governmental Regulations
----------------------------------
The Company is subject to, and devotes substantial efforts to its
compliance with, a variety of federal and state laws governing medical
diagnostic service practices. State laws and regulations vary from state to
state and impose some restrictions. The regulations may also require the
licensing of the Centers and personnel. The Company seeks in good faith to
comply with regulatory requirements. Given the scope of the Company's business,
however, and the nature of medical health care regulation, compliance problems
could be encountered from time to time. A significant modification of health
care laws could significantly increase the cost of operation of the Medical
Diagnostic Centers.
SELF-REFERRAL REGULATIONS. As no physicians have, will have or be
permitted to have an ownership interest in the Company's Centers, no future
impact on Company operations is anticipated because of state and federal
physician self-referral laws and other restrictions on physicians' interests in
medical diagnostic centers. The radiologists-physicians, under contract with the
Company to provide the medical diagnostic services through the
radiologists-physicians' use of the equipment at the Centers, own their medical
practices independent of the Company. Equipment use fees charged by the Company
arise due to the use of the equipment separate from the medical fees charged by
the independent radiologist-physicians.
ANTI-KICKBACK LAW. The Company seeks to comply with federal
anti-kickback provisions prohibiting the inducement or referrals of Medicare and
Medicaid patients. However, given the scope of these provisions and their lack
of specificity, compliance problems could be encountered. A compliance problem
in this area could have a negative impact on the Company's business.
(10) Research and Development - The Company presently does not
--------------------------
devote any significant resources to research and development
beyond that currently conducted for marketing and expansion
purposes.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 9
(11) Effect of Environmental Laws - Inapplicable.
----------------------------
(12) Employees - At December 31, 1995, the Company had 7 salaried
---------
employees and no employees compensated on an hourly basis.
ITEM 2. PROPERTIES
(a) The Company presently maintains its executive office at 80 Wolf
Road, Suite 503, Albany, New York 12205, consisting of approximately 5,000
square feet at a monthly rental at or about market rates.
The Company maintains its Rome Center at 8218 Turin Road, Rome, New
York, 13440 at a monthly rental fee at or about market rate. The Company has a
third-party lease for the Rome Center. The Rome lease is for 3 years expiring in
1996 for 1,008 square feet with an annual rental of $25,680.
The Company has completed purchase and construction of its Center in
Greenville, New York. The Company owns the diagnostic imaging portion of the
Greenville facility consisting of 2,000 square feet which houses the
administrative and diagnostic imaging platforms. Construction of the second
stage of the facility will be completed in 1996. The second stage of the
Greenville facility consists of 8,000 square feet to house independent primary
care and pharmacy businesses to be subleased from the Company to independent
parties. The third stage of the Greenville facility will be rented from a thrid
party and will have a monthly lease expense of $16,720 for a five year period
beginning January 1, 1996 with an option to renew.
The Company is negotiating for leases for the other anticipated
Centers, but as of yet, no agreements have been entered into.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION WITH - GENERAL ELECTRIC COMPANY - On March 17, 1995 General Electric
Company (General Electric) filed suit against the Company in the Supreme Court
of the State of New York in the County of Nassau; Index no. 95-007721. The suit
alleged the Company defaulted on its leases of MRI imaging machines and demanded
payment in full, approximately $1.5 million. A Stipulated Settlement of $1.3
million was reached on April 28, 1995. The Company is currently in monetary
default under the terms of the Settlement, which obligation the Company's
president has personally guaranteed. On September 13, 1995 General Electric
obtained a money judgment in the amount of $3,699,341.10 and an order allowing
General Electric to repossess the leased 1.5 Vectra/Tesla MRI located at the
Slocum-Dixon Center and the leased 0.5 Tesla MRI located at the Rome Center.
The Company's operations had been severely limited due to the effect of
the judgment obtained by General Electric against the Company. The Company and
General Electric negotiated a settlement whereby the Company returned the 1.5
Vectra Tesla MRI unit for the Slocum Dixon site and received a $700,000 credit
against the judgment and agreed to pay the balance of $700,000 over a 2- year
period which sum the Company's president has personally guaranteed and the
Company provided to General Electric a mortgage on the Greenville Center. The
judgment against the Company was vacated in April, 1996. The Company has
retained the Rome MRI unit and shall continue to meet its monthly obligations
under the lease for the 0.5 Tesla MRI unit located at Rome pursuant to the
settlement.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 10
Litigation with - Center Green, Inc. - On May 10, 1995, Center Green, Inc. filed
a complaint against the Company in the Supreme court of the State of New York in
the county of Oneida. The complaint alleges that the Company breached a building
lease agreement and seeks specific performance under the lease, or in the
alternative, back rent and legal costs. The Company denies such claims and
believes it has no obligations thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders for a vote in fiscal
year 1995.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's common stock is quoted and traded in the
over-the-counter market on the NASDAQ Bulletin Board under the symbol "IMXS".
The following table indicates high and low bid and asked quotations for the
Company's common stock for the periods indicated based upon information supplied
by the National Quotation Bureau, Inc. ("NQB"). The prices represent prices
between dealers, do not include retail markups, markdowns or commissions and do
not represent actual transactions. The prices are not adjusted on a comparative
basis to reflect stock dividends occurring in the reported periods. The
Company's June 28, 1993 stock split was accounted for in NQB's report.
Bid Prices Asked Prices
---------- ------------
Quarter Ended High Low High Low
- ------------- ------------------- -------------------
1992-1993
- ---------
July 1, 1992 through Not Available Not Available
September 20, 1993
September 30, 1993 2 1/2 2 1/4 3 1/4 2 2/3
December 31, 1993 2 1/2 1 1/4 3 1/2 2 3/4
1994
- ----
March 31, 1994 2 3/4 2 3 3/4 2 3/4
June 30, 1994 3 2 3 3/4 3
September 30, 1994 5 1/8 2 1/4 5 1/2 3 1/4
December 30, 1994 5 1/2 5 6 5 1/2
1995
- ----
March 31, 1995 6 5 1/4 6 3/4 5 3/4
June 30, 1995 6 3/4 5 3/4 7 1/4 6 1/2
September 30, 1995 7 1/4 4 1/4 7 1/2 6 1/2
December 30, 1995 5 1/4 1/8 6 1/2 7/8
1996
- ----
March 31, 1996 31/32 1/16 1 1/16 3/8
Although a public trading market for the common stock of the Company
has developed, it is on the NASDAQ Bulletin Board System and not on an
established trading exchange; thus trading may be limited.
(b) At December 31, 1995, the number of holders of the Company's common
stock was one hundred ninety-one (191), based upon the number of record holders.
(c) The Company has not paid any dividends on the common stock since
inception and does not expect to pay any dividends in the foreseeable future.
Therefore, except to the extent dividends must be declared and paid on preferred
stock, none of which is outstanding, it is unlikely that any dividends will be
declared by the Company in the foreseeable future. Dividends on the common stock
may not be paid if the Company is in arrears in the payment of dividends on its
preferred stock.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Year Ending December 31, 1995
-----------------------------
The Company incurred a loss of $2,045,125 for the year ended December
31, 1995 on two medical diagnostic service centers which have been owned and
operated since 1993. The loss is primarily attributable to a substantial
reduction in the usage of the Company's equipment due to fewer patients seeking
diagnostic services at the Company's centers as well as delays in opening the
Company's newest center in Greenville, New York. The Company intends to provide
diagnostic services that are competitive due to the convenience, cost,
efficiency and uniqueness of service.
1995 Compared to 1994
---------------------
Net revenues for the year ended December 31, 1995 were $ 205,498 as
compared to $920,118 for the period ended December 31, 1994, a decrease over the
prior year of $ 714,620.
Direct operating costs were $1,239,340 or 603% of net revenues for the
year ended December 31, 1995 as compared to $1,119,764 or 122% of net revenues
for the period ended December 31, 1994, an increase of $ 119,576. This increase
was primarily due to additional payroll, physician staffing and the cost of
equipment leases.
Selling, general and administrative expenses were $1,003,141 or 488% of
net revenues for the year ended December 31, 1995 as compared to $320,043 or 35%
of net revenues for the period ended December 31, 1994, an increase of $
683,098. The increase is primarily due to a full year of operations and the
opening of the corporate offices in Albany, New York.
The Company's financial condition at December 31, 1995 reflects a
$210,236 decrease in its accounts receivable balance as compared to December 31,
1994. This decrease is due to the lack of revenue generated at the Slocum-Dixon
Center and a significant decline in the number of patients at the Rome Center.
Year Ending December 31, 1994
-----------------------------
The Company operated two medical diagnostic service centers
that it opened in 1993, and incurred a loss of $523,188 for the year ended
December 31, 1994. The loss is primarily attributable to a substantial reduction
in the usage of the Company's equipment due to fewer patients seeking diagnostic
services at the Company's Centers.
Liquidity and Capital Resources -
- -------------------------------
1995 Compared to 1994
---------------------
During the year ended December 31, 1995, cash decreased minimally. By
obtaining extended payment terms with vendors and increasing its accrued
expenses, cash used in operating activities totaled $1,087,544. This compares to
cash provided by operations of $126,031 during the year ended December 31, 1994;
a difference of $1,213,575. Cash was also used for the acquisition and
construction of the Company's new facility in Greenville, New York which
amounted to a cash outflow of $498,182. Cash flows provided by financing
activities were $1,568,427, and were provided primarily from the sale of common
stock and the proceeds from a note payable.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 13
1994 Compared to 1993
---------------------
During the year ended December 31, 1994, cash increased minimally. By
obtaining extended payment terms with vendors and increasing its accrued
expenses, cash provided in operating activities totaled $126,031 an increase of
$314,106 over the period ended December 31, 1993. Cash was primarily used for
the acquisition and construction of the Company's new facility in Greenville,
New York which amounted to a cash outflow of $236,298. Cash flows provided by
financing activities were $110,415, and were provided primarily by loans from
stockholders/directors of $135,963.
Recent Events
- -------------
In April, 1996, the Company finalized its settlement of the General
Electric litigation. The judgment against the Company was vacated in April,
1996. The settlement agreement calls for the Company to pay General Electric
$700,000 over a two year period which sum the Company's president has personally
guaranteed and placed a first mortgage to the benefit of General Electric on the
Greenville facility. The Company has returned the GE 1.5 Vectra/Tesla MRI to
General Electric and closed its Slocum Dixon Center.
In 1995 the Company sold 400,000 shares of stock pursuant to warrants
at a price of $3.00/share to an independent consulting firm. The Company
received other capital through private placement and loans.
Common stock subscriptions receivable for 1,500,000 shares were
outstanding as of December 31, 1995 valued at average market price when issued
aggregating $1,125,000. Such amounts exclude 2,050,000 shares that were
outstanding as subscriptions receivable as of December 31, 1995, which were
returned to the Company subsequent to that date.
The Company has developed a plan to maximize revenues at the two
existing Centers by contracting with a marketing consultant to increase patient
referrals and by contracting with a world renowned physician, Dr. Kenneth Davis,
to perform radiology services. In addition, the plan contemplates reduced
operating costs through the consolidation of duplicative administrative
functions and the streamlining of Company operations. The plan also anticipates
having the new Greenville Center "on-line" and in full operation in 1996 and
that additional centers will be developed as future opportunities arise. No
assurance can be given that the Company will be successful in implementing such
plan.
The Company's plans to overcome its current financial difficulties are
largely based upon its ability to raise capital through the private placement of
equity with potential investors. The Company anticipates obtaining working
capital to enable the Company to develop a network of revenue producing Centers.
The network of revenue producing Centers may take longer that one year to
establish. No assurance can be given that the Company will be successful in
raising such capital, or in developing a network or any Centers, or that any of
its Centers will be profitable.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached following Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 14
FINANCIAL DISCLOSURE
On June 28, 1993, the Company dismissed its principal accountant,
Schiemann & Machen of Reno, Nevada. On November 30, 1993 Schiemann & Machen sold
its assets and practice; by March 31, 1994 it had completed all work then in
process thus completely discontinuing its audit and accounting services by March
31, 1994. The ability to recover in litigation against the former accountants
may be limited as the firm had sold its assets and practice on November 30,
1993. Thus, the Company and/or the investors may be unable to recover against
the Company's former accountants as they may not have any assets. The former
accountant's reports on the Company's financial statements the year prior
thereto did not contain an adverse opinion or a disclaimer of opinion, however,
such report was qualified due to a going concern uncertainty, but not as to
audit scope, or accounting principles. The decision to change accountants was
approved by the Company's board of directors. During the Company's fiscal year
ending December 31, 1993, and during the period from January 1, 1993 through and
including June 28, 1993, there were no disagreements between the Company and the
former accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. During the Company's
fiscal year ending December 31, 1992, and during the period from January 1, 1993
through and including June 28, 1993, the former accountants did not advise the
Company that: (a) internal controls necessary for the Company to develop
reliable financial statements did not exist; (b) information had come to the
former accountant's attention that led it to no longer be able to rely on
management's representation or that made it unwilling to be associated with the
financial statements prepared by management; (c) the former accountant needed to
expand significantly the scope of its audit, or that information had come to the
former accountant's attention that, if further investigated might have (I)
materially impacted the fairness or reliability of a previously issued audit
report or the underlying financial statements, or the financial statements
issued or to be issued covering the fiscal period subsequent to the date of the
most recent financial statements covered by an audit report or (ii) caused it to
be unwilling to rely on management's representations or be associated with the
Company's financial statements, and due to the dismissal of the former
accountant, or for any other reason, the accountant did not so expand the scope
of its audit or conduct such further investigation; or (d) information had come
to the former accountant's attention that the former accountant has concluded
materially impact the fairness or reliability of either (I) a previously issued
audit report or the underlying financial statements, or (ii) the financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report, and due
to the dismissal of the former accountant, or for any other reason, the issue
was not resolved to the former accountant's satisfaction prior to its dismissal.
During 1993 the Company hired DiSanto Bertoline & Company, P.C., 628
Hebron Avenue, Glastonbury, Connecticut 06033 to be its principal accountant.
Prior to hiring DiSanto Bertoline & Company, P.C., the Company had not consulted
the newly engaged accountant regarding: (a) either the application of accounting
principles to a modified transaction, completed or proposed, or the type of
audit opinion that might be rendered on the Company's financial statements, and
no written report or oral advice was provided that the new accountant concluded
was an important factor considered by the Company in reaching a decision as to
the accounting, auditing or financial reporting issue; or (b) any matter that
was either the subject of a disagreement with the former accountant or a
reportable event. There have been no disagreements between the Company and its
current accountants on any matter of accounting or financial disclosure.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 15
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
(a)-(b) The Executive officers and directors of the Company are:
Position Position
Name Age Held Since with Company
---- --- ---------- ------------
Andrew F. Capoccia 53 1993 President, Treasurer and
Director
The following is a brief account of the business experience of each
director and executive officer of the Company during the past five years.
ANDREW F. CAPOCCIA, age 53, has been President, Chief Executive Officer
and a director of the Company since its acquisition of Unicare Services Inc. in
June, 1993, and in March, 1994 was elected Treasurer. Prior to joining the
Company, Mr. Capoccia engaged in the private practice of law in Albany, New York
from 1975 to 1992. Mr. Capoccia was the President of four law centers
incorporated as professional corporations in Albany, Binghamton, Rochester and
Syracuse, New York consisting of approximately forty employees. From 1990
through January, 1993 Mr. Capoccia was the Treasurer and a director of Magar
Inc., a private investment firm which specializes in the commercial development
of early-stage companies and provides management consulting services to
companies in which it has invested. In 1988 he was a co-founder of Life Medical
Sciences, Inc. a publicly traded bio-medical company. From 1986 to 1988, Mr.
Capoccia was a co-founder and legal counsel of Marrow Tech, Inc., a publicly
traded company engaged in research and development of tissue engineering
technology; Marrow Tech changed its name to Advanced Tissues Sciences, Inc. in
1992. Mr. Capoccia holds the degrees of Bachelor of Arts in Psychology, Utica
College of Syracuse University, 1968; Masters of Arts in Psychology, University
of Akron, 1970; and a Juris Doctorate from Albany Law School, 1973. Mr. Capoccia
retains his principal shareholdings in Magar Inc., Life Medical Sciences, and
Advanced Tissues Sciences, Inc.
(c) Family Relationships between Directors and Officers - None.
---------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION AND TRANSACTIONS
(a) SUMMARY OF COMPENSATION. The following table sets forth on an
accrual basis for the years ended December 31, 1995, 1994, and 1993 the
remuneration of each of the Company's officers whose remuneration exceeded
$60,000 and for all officers of the Company as a group.
================================================================================
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 16
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual ----------------------------------
Compensation Awards Payouts Other
-----------------------------------------------------------
Company
Other Restricted Contri-
Fiscal Annual Compen- Stock LTIP bution to
Name/Position Year Salary Bonus sation Awards Options Payouts 401(k)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew F. Capoccia 1995 $24,000 $0 $0 N/A N/A N/A N/A
President 1994 $24,000 $0 $0 N/A N/A N/A N/A
Treasurer, Director 1993 $ 3,000 $0 $0 N/A N/A N/A N/A
(1) N/A expresses that such form of compensation is "Not Available" at this time.
</TABLE>
(b) REMUNERATION. For the fiscal year ending December 31, 1995, the
Company anticipates paying aggregate direct remuneration (based on current
salaries and anticipated bonuses) of approximately zero ($0.00) dollars to all
officers as a group (one person) of which Mr. Capoccia will not be paid any
monies. The Company entered into an employment contract with Mr. Capoccia
effective January 1, 1996.
(c) STOCK OPTION PLANS. No stock option or incentive plans have been
put into effect. The Board anticipates proposing a stock incentive plan at the
next shareholders' meeting.
(D) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR
VALUES. -- Not applicable.
(e) LTIP. -- Not applicable.
(f) DIRECTORS' FEES. During the fiscal year ended December 31, 1995, no
directors' fees were paid in cash to the Company's director. It is anticipated
that the director will not be paid any directors' fees in the fiscal year ending
December 31, 1996.
At December 31, 1995, and at the date hereof, the Company had
one (1) officer/director who presently devotes all of his business time to the
operations of the Company.
(g) OTHER PLANS AND EMPLOYMENT CONTRACTS. The Company entered into a
five (5) year employment contract with the President wherein the President would
be compensated at $175,000 the first year, the remaining years of the contract
the compensation will be $350,000 per year unless sufficient funds are not
readily available. The contract calls for a bonus of 5% of the net increase in
current revenues over prior year revenues. The Company also granted an option to
purchase 1 million shares at $.25 per share. As of May 31, 1996, the President
has received no compensation from the Company. The Company does not have any
other pension or similar plan. The Company currently does not have stock
purchase, profit sharing, 401(k), thrift or similar plans. However, it does
intend to propose a number of stock incentive plans to compensate its officers
and directors and any key employees for beneficial service to the Company; the
director of the Company has expressed an intention to vote in favor of such
plans.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 17
(h) REPORT ON REPRICING OF OPTIONS/SARS. -- Not applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 1, 1996, the number of shares
of the Company's Common Stock owned beneficially to the knowledge of the
Company, by each beneficial owner of more than five percent (5%) of such Common
Stock, by each director and by all officers and directors of the Company as a
group. The percentages have been calculated on the basis of treating as
outstanding for purposes of computing the percentage ownership of a particular
individual, all shares of the Company's Common Stock outstanding as of such date
and all such shares issuable to such individual in the event of exercise of his
outstanding options.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Ownership Class Owned
- ------------------- ----------------------- -----------
Directors and Officers
Andrew F. Capoccia(1) 1,620,000shs (2) 14%
All Officers and 1,620,000 shs (2) 14%
Directors as a group
- ----------------------------
(1) The address of all directors listed in this table is c/o the
Company, 80 Wolf Road, Suite 503, Albany, New York 12205. All
of the stock indicated as owned is owned beneficially and
solely by the individual named without any shared investment
or voting power.
(2) Includes 600,000 (5%) held by the wife of Mr. Capoccia in her
own account.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b) TRANSACTIONS WITH MANAGEMENT AND OTHERS AND CERTAIN
BUSINESS RELATIONSHIPS -- During the fiscal year ended December 31, 1995, the
Company engaged in a number of transaction(s) with certain officers, directors,
beneficial holders of more than five percent (5%) of its outstanding voting
securities and entities with which they were affiliated. The following are the
various affiliations and transactions. One former director of the Company is
currently engaged in businesses competitive to the business of the Company. The
Company's transactions with these individuals and entities in the last two (2)
fiscal years just ended are described below.
With Nancy B. Inserra
---------------------
Advances from the Company to the spouse of Mrs. Inserra were made in
the amount of thirty-six thousand dollars ($36,000) during fiscal year 1993.
Such demand advances bear interest at the rate of 8% and are payable on demand.
No interest payments have been made as the obligation is a demand obligation;
and no demand for payment has yet been made. The Company has no immediate plans
to demand repayment.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 18
The Company's vice president advanced fifty thousand dollars ($50,000)
to the Company as a working capital loan during the year ended December 31,
1994. The Company repaid $15,000 of these advances during the year ended
December 31, 1995. Such demand advances bear interest at the rate of 8% and are
payable within thirty (30) days of demand.
During 1994, the spouse of Mrs. Inserra was engaged as a management and
start-up operations consultant to the Company for four months at a rate of
$6,000 per month. Through December 31, 1994 an aggregate of $24,000 in
consulting fees were paid. Management believes that the services were offered at
a rate comparable to that which could have been secured through an independent
third party. The Company does not anticipate incurring any further consulting
obligations to such consultant in 1994 or in the foreseeable future.
Mrs. Inserra resigned from her positions as Vice President and Secretary and a
Director of the Company on September 15, 1995.
With Jeffrey F. DeSantis and Medical Equipment Development, Inc.
----------------------------------------------------------------
Mr. DeSantis, a director and principal shareholder of the Company, is
also the sole shareholder and the President of Medical Equipment Development,
Inc. ("MED"), and is presently engaged in other business activities relating to
the medical field; thus the opportunity for actual conflicts of interest exists.
The Company had substantial financial obligations to MED as it had leased
Equipment from MED, and had entered into contracts and issued promissory notes
to MED to reflect its agreement to repay MED.
The Company contracted with Medical Equipment Development, Inc.
("MED"), an entity related through common ownership for the medical diagnostic
equipment installed at the Rome and the Slocum-Dixon Centers under the terms of
two separate operating leases. The initial terms of both leases are five years,
expiring in 1998, and renewable annually thereafter, which MED had retained the
option to purchase at the end of each lease. Other terms and conditions of each
lease provide for monthly lease payments, maintenance service and warranty
coverage. Due to MED's relationship with various original diagnostic equipment
manufacturers, MED contracted with the original manufacturers for the use of the
equipment.
As of April 1, 1994 MED terminated its marketing fee which the Company
had owed to MED with respect to the equipment leases for the Company's Rome and
Slocum-Dixon Centers; as of May 24, 1994 MED assigned all of its rights and
obligations under the two Equipment contracts with GE to the Company, including
the $160,000 note payable to GE ("GE Note") issued to finance the leasehold
improvements at the Rome Center. Thus, the Company is currently primarily and
solely responsible under the two equipment contracts to only GE. MED has no
rights, responsibilities and/or privileges with respect to the two equipment
contracts. Further, the Company is the substituted obligor on the $160,000 note
payable to GE (the "GE Note") for the improvements at the Rome Center; the
corresponding note payable by the Company to MED has been canceled. As of April
1, 1994 MED agreed that it would no longer act as an intermediary between the
Company and the original equipment manufacturers for the lease of any equipment
or for any other purpose. The Company will continue to account for its equipment
lease as operating lease as there has been no change in the terms or conditions
of the lease as a result of the assignment.
( See Item 3.)
Mr. DeSantis advanced twenty-five thousand dollars ($25,000) to the
Company in fiscal year ended December 31, 1995 bearing interest at the rate of
8% and is payable within thirty (30) days of demand.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 19
Mr. DeSantis resigned from his position as a Director of the Company on August
24, 1995.
With Andrew F. Capoccia
- -----------------------
The Company's president advanced sixty thousand nine hundred
sixty-three dollars ($60,963) net of repayments to the Company as a working
capital loan during the year ended December 31, 1994. Such demand advances bear
interest at the rate of 8% and are payable within thirty (30) days of demand.
In 1995, the Company's president advanced an additional twenty-five
thousand dollars ($25,000), net of repayments, to the Company as a working
capital loan bearing interest at the rate of 8% and payable within thirty (30)
days of demand.
The Company president's wife received amounts in excess of $100,000 in
1995. Such amounts include reimbursements for furniture and furnishings for the
corporate office and Greenville Facility. Invoices supporting the amounts have
been submitted. The Company did not secure competitive bids as the Company's
president believes the price charged was well below market prices.
(c) INDEBTEDNESS OF MANAGEMENT - At fiscal year end December
31, 1995, no member of management was indebted to the Company in excess of
$60,000.
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
Page 20
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
--------------------
Report of Independent Auditors on Consolidated Financial Statements and
Financial Statement Schedules for the Years Ended December 31, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1995 and December 31, 1994.
Consolidated Statements of Operations - For The Years Ended December 31, 1995
and December 31, 1994.
Consolidated Statements of Changes in Stockholders' Deficiency - For The Years
Ended December 31, 1995 and December 31, 1994.
Consolidated Statements of Cash Flows - For The Years Ended December 31, 1995
and December 31, 1994.
Notes to Consolidated Financial Statements December 31, 1995 and December 31,
1994.
(b) Reports on Form 8-K
-------------------
The Company has not filed any reports on Form 8-K with respect to or
during the year ended December 31, 1995.
(c) Exhibits
--------
(21) Subsidiaries - The following table indicates the wholly owned
subsidiaries of Imagex Services, Inc. and their respective
states and years of incorporation.
Name State of Incorporation Year of Incorporation
- -------------------------------------------------------------------------------
Unicare Services Inc. New York 1993
Rome Magnetic Associates, Inc. New York 1993
(27) Financial Data Schedule (Electronic filing only)
Incorporated by Reference to:
(a) Exhibit 3.1 and 3.2 to Registration Statement on Form SB-2(File No.33-82180)
(b) Exhibit 3.3 to Registration Statement on Form SB-2 (File No. 33-82180)
(c) Exhibit 4.1 to Registration Statement on Form SB-2 (File No. 33-82180)
<PAGE>
Imagex Services, Inc.
Annual Report on Form 10-KSB
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Registrant certifies that it has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Albany, and State of New York.
IMAGEX SERVICES, INC.
(A Nevada corporation)
June 4, 1996 BY:/s/Andrew F. Capoccia
----------------------------
Andrew F. Capoccia, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on the dates indicated.
Signatures Title Date
- ---------- ----- -----
/s/Andrew F. Capoccia
- ---------------------- President, Treasurer
Andrew F. Capoccia & Sole Director June 4, 1996
Principal Executive, Financial
and Accounting Officer
<PAGE>
================================================================================
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Imagex Services, Inc.
We have audited the consolidated balance sheets of Imagex Services, Inc. and
subsidiaries (Company) as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' deficiency and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated 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 Imagex 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $2,045,125 and $523,188
for the years ended December 31, 1995 and 1994, respectively, had a
stockholders' deficiency of $899,916 as of December 31, 1995 and it is our
understanding that losses are continuing subsequent to December 31, 1995.
Further, the Company is in arrears on certain trade payables and notes
outstanding as of December 31, 1995. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The Company's
ability to successfully implement elements of its business plan including the
achievement of profitable future operations and obtaining adequate working
capital to be able to meet its financial obligations when due, as described more
fully in Note 16, and thereby permit the realization of assets and liquidation
of liabilities in the ordinary course of business, is uncertain. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/DiSanto Bertoline & Company, P.C.
Glastonbury, Connecticut
May 17, 1996
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH $ 3,061 $ 20,360
ACCOUNTS RECEIVABLE, less allowance for doubtful accounts of
$32,000 and $147,500 for 1995 and 1994, respectively 31,689 241,925
PREPAID EXPENSES AND OTHER ASSETS 84,266 178,185
DEFERRED OFFERING COSTS -- 87,624
DUE FROM RELATED PARTY 39,458 39,458
CONSTRUCTION IN PROGRESS 225,818 226,300
PROPERTY AND EQUIPMENT, net 614,695 206,943
------------ ------------
Total assets $ 998,987 $ 1,000,795
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
ACCOUNTS PAYABLE (Note 14) $ 1,062,143 $ 668,060
ACCRUED EXPENSES PAYABLE 65,093 83,339
NOTES PAYABLE 602,527 148,991
DUE TO STOCKHOLDERS/DIRECTORS 145,963 135,963
OBLIGATIONS UNDER CAPITAL LEASE 23,177 17,772
------------ ------------
Total liabilities 1,898,903 1,054,125
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock, par value $.001 per share, authorized
25,000,000 shares, issued and outstanding 11,649,468
shares and 9,649,468 shares in 1995 and 1994,
respectively 11,649 9,649
Additional paid-in-capital 2,706,418 384,879
Deficit (2,492,983) (447,858)
Subscriptions receivable (1,125,000) --
------------ ------------
Total stockholders' deficiency (899,916) (53,330)
------------ ------------
Total liabilities and stockholders' deficiency $ 998,987 $ 1,000,795
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
NET REVENUES $ 205,498 $ 920,118
EXPENSES
Direct operating 1,239,340 1,119,764
Selling, general, and administrative 1,003,141 320,043
Interest 8,142 24,499
------------ ------------
2,250,623 1,464,306
------------ ------------
Loss before income taxes (2,045,125) (544,188)
PROVISION FOR (BENEFIT FROM) INCOME TAXES -- (21,000)
------------ ------------
Net loss $ (2,045,125) $ (523,188)
============ ============
NET LOSS PER SHARE $ (0.20) $ (0.05)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 10,103,020 9,753,965
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common stock
----------------------------- Additional Total
Number of Paid-in Subscriptions Stockholders'
Shares Amount Capital Receivable Deficit Deficiency
--------------- ----------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 9,590,002 $ 9,590 $ 257,006 $ (3,400) $ 75,330 $ 338,526
Issuance of common stock pursuant to
exercise of warrants 10,000 10 4,990 -- -- 5,000
Payment of subscription receivable -- -- -- 3,400 -- 3,400
Contribution of capital -- -- 24,000 -- -- 24,000
Issuance of common stock 49,466 49 98,883 -- -- 98,932
Net loss -- -- -- -- (523,188) (523,188)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 9,649,468 9,649 384,879 -- (447,858) (53,330)
Issuance of common stock pursuant to
exercise of warrants net of offering
costs of $100,461 400,000 400 1,099,139 -- -- 1,099,539
Contribution of capital -- -- 24,000 -- -- 24,000
Issuance of common stock 1,600,000 1,600 1,198,400 (1,125,000) 75,000
Net loss -- -- -- -- (2,045,125) (2,045,125)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 11,649,468 $ 11,649 $ 2,706,418 $(1,125,000) $(2,492,983) $ (899,916)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,045,125) $(523,188)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization expense 90,965 47,052
Legal expense pursuant to stock issuance 75,000 48,932
Compensation expense contributed to capital 24,000 24,000
Changes in operating assets and liabilities:
Increase in accounts payable 394,083 586,814
Decrease in accounts receivable 210,236 70,018
Decrease (increase) in prepaid expenses and other assets 93,919 (125,189)
Decrease (increase) in deferred offering costs 87,624 (37,624)
Decrease (increase) in due from related party - (3,458)
(Decrease) increase in accrued expenses payable (18,246) 38,674
---------------- --------------
Net cash provided by (used in) operating activities (1,087,544) 126,031
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for land purchase (94,000) -
Construction in progress outlays (119,428) (226,300)
Acquisition of property and equipment (284,754) (9,998)
---------------- --------------
Net cash used in investing activities (498,182) (236,298)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net of offering costs 1,099,539 5,000
Proceeds from notes payable 500,000 -
Increase in due to stockholders/directors 10,000 135,963
Receipt of subscriptions receivable - 3,400
Repayment of notes payable and obligations under capital lease (41,112) (33,948)
---------------- --------------
Net cash provided by financing activities 1,568,427 110,415
---------------- --------------
NET INCREASE (DECREASE) IN CASH (17,299) 148
CASH, beginning of year 20,360 20,212
---------------- --------------
CASH, end of year $ 3,061 $ 20,360
================ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 7,174 $ 21,838
Income taxes 1,774 -
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment through obligations under capital lease - 16,670
Issuance of stock in exchange for legal fees 75,000 98,932
Officer's salary contributed as capital 24,000 24,000
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Imagex Services, Inc. and subsidiaries ("the Company") devotes its
resources to developing, operating and administering the use of
magnetic resonance imaging ("MRI") equipment in medical diagnostic
centers which provide medical diagnostic services to health maintenance
organizations, preferred provider organizations, trade unions, clinics
and other health care providers. These services are provided in order
to minimize health care costs payable by the Company's customers. The
Company currently operates centers in Rome and Greenville, New York.
BASIS OF PRESENTATION/CONSOLIDATION
The consolidated financial statements include the accounts of Imagex
Services, Inc., formerly Balloonies, Inc., a Nevada corporation, and
its wholly-owned subsidiaries, Unicare Services, Inc., ("Unicare") and
Rome Magnetic Associates, Inc. ("Rome"), each a New York corporation.
Unicare was incorporated on April 16, 1993 and was acquired by the
Company on June 28, 1993 through an exchange of shares accounted for by
recording at historical cost the assets and liabilities of Unicare.
Rome was acquired by the Company on April 6, 1994 for nominal
consideration (see Note 3). All material intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
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 the disclosure of contingent assets and liabilities as
of the date of the financial statements, and revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
are computed using the straight-line method over the useful lives of
the related assets, or, in the case of leasehold improvements and
leased property under capital lease, over the remaining term of the
related lease or useful life of the related asset, whichever is
shorter. Expenditures which substantially increase the useful lives of
the related assets are capitalized. Maintenance, repairs and minor
renewals on property and equipment are charged to operations as
incurred. Maintenance expense related to magnetic resonance imaging
equipment leased under operating leases (see Note 8) is charged to
operations when incurred, to the extent not covered under warranty.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
DEFERRED MAINTENANCE COSTS
Certain monthly maintenance fees paid by the Company in connection with
its lease contracts were deferred to the extent that such amounts
related to the manufacturer's initial one year warranty period. Upon
expiration of the warranty period, such deferred maintenance costs are
amortized on a straight-line basis over the remaining 48 month term of
the lease contracts. During 1995, one of the Company's MRI machines was
repossessed by the lessor (see Notes 10 and 14). The deferred
maintenance costs associated with this machine were expensed in full
during 1995. Deferred maintenance costs total $37,801 and $128,871 as
of December 31, 1995 and 1994, respectively, and are included in
prepaid expenses and other assets in the accompanying consolidated
balance sheets.
INCOME TAXES
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number
of shares outstanding. Weighted average number of shares outstanding
includes common stock equivalents when they have a dilutive effect.
There are no material differences between primary and fully diluted
income per common share.
NOTE 2 - FINANCIAL INSTRUMENTS
CREDIT RISK/REVENUE RECOGNITION
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and accounts receivable. The
Company places its cash and temporary cash investments with high
quality credit institutions. At times such investments may be in excess
of applicable federal insurance limits.
Under the terms of agreements with its customers, the Company provides
MRI equipment and derives revenue based on a fee schedule which gives
consideration to the type and the quantity of examinations performed.
The Company reviews a customer's credit history before extending credit
and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends,
and other information. Such allowances have been within management's
expectations.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 2 - FINANCIAL INSTRUMENTS (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Fair Value
Of Financial Instruments, requires disclosure of the fair value of
financial instruments for which the determination of fair value is
practicable. SFAS No. 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties.
The carrying amounts of the Company's financial instruments approximate
their fair values as outlined below:
* Cash, accounts receivables, trade payables, due to stockholder/
director, and capital leases - The carrying amounts approximate
their fair value because of the short maturity of those
instruments.
* Notes payable - The carrying amount approximates fair value
because the interest rate on the notes approximates the Company's
estimated current borrowing rate.
Management has determined that it is not practicable to estimate the
fair value of amounts due from related party and due to
stockholders/directors since these related party advances have no
scheduled repayment terms and the availability of similar financing
from unrelated lenders is uncertain.
The Company's financial instruments are held for other than trading
purposes.
NOTE 3 - ACQUISITION
ROME MAGNETIC ASSOCIATES, INC.
On April 6, 1994 the Company acquired for nominal consideration all of
the issued and outstanding stock of Rome Magnetic Associates, Inc., an
inactive entity. The acquisition has been accounted for using the
purchase method and was consummated through the payment of $4,825 which
did not exceed the fair value of the assets acquired. The operating
results of this acquisition are included in the Company's consolidated
statement of operations from the date of acquisition.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of property and equipment is as follows:
1995 1994
------- ------
<S> <C> <C>
Land $101,000 $ -
Building 112,909 -
Leasehold improvements 282,538 174,579
Office furniture and equipment 206,989 41,518
Vehicle 25,488 25,488
Leased property under capital lease 36,150 24,033
------- ---------
765,074 265,618
Less: accumulated depreciation and amortization 150,379 58,675
-------- --------
$614,695 $206,943
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1995 and 1994 amounted to $90,965 and $47,052, respectively.
NOTE 5 - NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASE
NOTES PAYABLE
<TABLE>
<CAPTION>
A summary of notes payable is as follows:
1995 1994
------ -----
<S> <C> <C>
Promissory note payable to a finance company, fixed rate of
7.0%, discounted at 13% effective interest rates, payable
sixty (60) days after demand, the holder of the note will
waive all accrued interest if repaid by August 30, 1996,
unsecured. (Face value of the note is $500,000 less
unamortized discount of $18,515). 481,485 -
Term note payable to General Electric, (see Note 8) fixed
rate of 10.5%, monthly principal and interest payments of
$3,409 through November, 1998,
secured by leasehold improvements 110,933 134,065
Term note payable to a finance company, fixed rate of 9.5%,
monthly principal and interest payments of
$502 through September, 1997, secured by vehicle 10,109 14,926
------- -------
602,527 148,991
Less current portion 529,852 -
--------- ---------
$ 72,675 $ 148,991
======== =========
</TABLE>
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 5 - NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASE (Continued)
Aggregate principal maturities of notes payable at fair value in
subsequent years are as follows:
Year ending December 31:
1996 $ 548,367
1997 38,256
1998 34,419
---------
621,042
Less: discount (18,515)
---------
$ 602,527
=========
OBLIGATIONS UNDER CAPITAL LEASE
The following is an analysis of leased property under capital leases by
major class:
1995 1994
------ -----
Office equipment $ 40,033 $ 24,033
Less: accumulated amortization 7,456 3,054
-------- --------
$ 32,577 $ 20,979
======== ========
The following is a schedule by years of future minimum lease payments
under capital leases, together with the present value of the net
minimum lease payments at December 31, 1995.
Year ending December 31:
1996 $ 11,112
1997 11,112
1998 2,579
1999 430
----
Total minimum lease payments 25,233
Less: amount representing interest 2,056
------
Present value of the net minimum lease payments 23,177
Less: current portion 9,613
------
Noncurrent portion $ 13,564
========
Amortization expense related to leased property under capital leases
totaled $4,402 and $2,563 for the years ended December 31, 1995 and
1994, respectively, and is included in depreciation and amortization
expense in the accompanying consolidated financial statements.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 6 - STOCKHOLDERS' EQUITY
WARRANTS
On June 28, 1993, the Company issued warrants to purchase 400,000
shares of Company common stock at $.50 per share ("Class A warrants")
and warrants to purchase an additional 400,000 shares of Company common
stock at $3.00 per share ("Class B warrants"). The Class A warrants
were to expire on October 28, 1993, but were extended to April 30, 1994
and as of December 31, 1994 all Class A warrants had been exercised.
The Class B warrants were to expire on June 28, 1995 and all Class B
warrants were exercised by that date.
NONMONETARY TRANSACTIONS
During 1994, the Company issued 49,466 shares of its $.001 par value
common stock in exchange for legal services at a price of $2.00 per
share which represented fair market value at the time the shares were
issued based on reported bid prices available. Certain of these legal
fees totaling $50,000 were capitalized as deferred offering costs and
were charged against the gross proceeds of the offering related to the
Class B Warrants during the year ended December 31, 1995. Additional
offering costs of $50,461 were also charged against those proceeds
during the year ended December 31, 1995.
In 1995, the Company issued 100,000 shares of its common stock in
exchange for legal services at a price of $.75 per share which
represented the fair market value at the time the shares were issued
based on reported bid prices available.
An officer's salary amounting to $24,000 was contributed to additional
paid-in-capital for each of the years ended December 31, 1995 and 1994.
NOTE 7 - INCOME TAXES
The provision for (benefit from) income taxes consists of the
following:
1995 1994
---------- ----------
Current
Federal $ - $ (25,800)
State - 4,800
---------- ----------
- (21,000)
Deferred - -
---------- ----------
$ - $ (21,000)
========== ==========
The significant components of the deferred tax provision are as
follows:
1995 1994
---------- ----------
Net operating loss $ (969,000) $ (161,700)
Property and equipment, net (28,100) (9,600)
Allowance for doubtful accounts 46,100 (52,700)
Valuation allowance 951,000 224,000
-------- --------
$ - $ -
======== ========
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 7 - INCOME TAXES (Continued)
The components of the net deferred tax liability as of December 31,
1995 and 1994 were as follows:
1995 1994
Allowance for doubtful accounts $ (12,800) $ (58,900)
Net operating loss (1,130,700) (161,700)
Property and equipment, net (31,500) (3,400)
Valuation allowance 1,175,000 224,000
---------- ----------
Net deferred tax liability $ - $ -
========== ==========
The Company has federal net operating loss carryforwards available to
reduce taxable income of approximately $2,300,000 which will expire
through 2009. Federal net operating loss carryforwards of Balloonies
approximating $95,000 may not be utilized by the merged companies due
to limitations on their use resulting from the change of ownership.
NOTE 8 - RELATED PARTY TRANSACTIONS
EQUIPMENT CONTRACTS
As of May 24, 1994 Medical Equipment Development, Inc. ("MED"), an
entity related through common ownership, assigned all of its rights and
obligations under two equipment contracts with General Electric ("GE")
to the Company, including the $160,000 note payable to GE issued to
finance the leasehold improvements at the Rome Center (see Note 5). As
a result, the Company is primarily and solely responsible under the two
equipment contracts to only GE. MED has no rights, responsibilities
and/or privileges with respect to the two equipment contracts. The
Company accounts for its equipment leases as operating leases as there
was no change in the terms or conditions of the leases as a result of
the assignment. Further, the Company is the substituted obligator on
the $160,000 note payable to GE; the corresponding note payable by the
Company to MED has been canceled. During 1995 one of the GE MRI
machines was repossessed and the equipment contract was canceled (see
Notes 10 and 14).
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
EQUIPMENT CONTRACTS (Continued)
The initial lease term of each contract is five years, expiring
September, 1998, and renewable on a yearly basis thereafter. Rent
expense and maintenance expense charged to operations under these lease
agreements totaled $68,045 and $591,348 and $16,621 and $121,000,
respectively for the years ended December 31, 1995 and 1994. The
following is a schedule by years of future minimum lease payments,
including maintenance charges, due under these agreements.
Year ending December 31:
1996 $ 875,184
1997 875,184
1998 656,388
----------
$2,406,756
==========
DUE FROM RELATED PARTY
Amounts due from related party represent demand advances, including
accrued interest at 8%, made to an individual related to one of the
Company's officers/stockholders/directors.
DUE TO STOCKHOLDERS/DIRECTORS
Certain stockholders who are also directors of the Company have
advanced funds to the Company. Such advances bear interest at 8% and
have no scheduled repayment terms.
OFFICE FURNITURE AND DESIGN SERVICES
During 1995 the Company purchased office furniture and office design
services from a related party. Total cost for the office furniture and
design services amounted to $108,466.
NOTE 9 - COMMITMENTS
OPERATING LEASES
The Company is leasing one of its centers under the terms of a three
year lease agreement which requires annual payments of $25,680 and
expires July 31, 1996. Additionally, the Company is leasing its
corporate offices under the terms of a three year lease agreement which
requires annual payments of $43,425 and expires November 30, 1997. Rent
expense under these leases for the years ended December 31, 1995 and
1994 totaled $69,105 and $29,299, respectively.
The schedule of future minimum rental payments required under these
operating leases in succeeding years is as follows:
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 9 - COMMITMENTS (Continued)
OPERATING LEASES (Continued)
Year ending December 31:
1996 $58,405
1997 39,806
-------
$98,211
=======
LEASE AGREEMENT
At one of its centers, the Company has contracted with a physician
group to provide imaging services at a fixed rate per exam under a one
year contract expiring October 19, 1996.
CONSTRUCTION IN PROGRESS
During 1995 the Company was committed to two contracts for the
construction of a new diagnostic center in Greenville, New York. The
first contract covered the construction of the main facility, and was
completed during 1995. The second contract is for the construction of
an addition to the facility. Total contract cost under the second
contract is $67,548, with an outstanding balance of $30,396 at December
31, 1995. The Company has recorded construction in progress of $30,396
in connection with this project as of December 31, 1995.
NOTE 10- LITIGATION
General Electric Company filed suit on March 17, 1995 against the
Company in the Supreme Court of the State of New York. The suit alleged
that the Company defaulted on its leases of MRI imaging machines and
demanded payment in full of approximately $1.4 million. A Stipulation
of Settlement of $1.4 million was reached on April 28, 1995. The
Company is currently in monetary default under the terms of the
Settlement and the Company's president has personally guaranteed the
obligation. On September 13, 1995 General Electric Company obtained a
monetary judgment in the amount of approximately $3.7 million and an
order allowing it to repossess the two MRI machines the Company was
leasing. The suit was settled subsequent to year end (see Note 14).
The Company is involved in certain other legal proceedings and claims
which have arisen in the ordinary course of its business. While the
ultimate outcome of these legal proceedings cannot at this time be
predicted with certainty, management intends to vigorously defend the
claims. Management does not expect that these matters will have a
material adverse effect of the consolidated financial position or
consolidated results of operations of the Company.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 11- OPENING OF CENTER
The Company is in the process of constructing an imaging center in
Greenville, New York featuring state-of-the-art diagnostic equipment
(see Note 9). This center furthers the Company's philosophy of bringing
state-of-the-art, high quality, reduced cost medical care to rural
underserved areas. It is anticipated that construction will be
completed in July 1996.
NOTE 12- CLOSING OF CENTER
On June 26, 1995, the Company was notified that a physician group to
whom the Company was providing imaging equipment was terminating their
contract with the Company. As a result of this notice of termination,
the Company closed its center in Utica, New York.
NOTE 13- STOCK-BASED COMPENSATION
In October, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
This statement addresses alternative accounting treatments for
stock-based compensation, such as stock options and restricted stock.
FAS 123 permits either expensing the value of stock-based compensation
over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of
stock-based compensation awards had been expensed. The value of awards
would be measured at the grant date based upon estimated fair value,
using option pricing models. The requirements of this statement will be
effective for 1996 financial statements, although earlier adoption is
permissible if an entity elects to expense the cost of stock-based
compensation. The Company is currently evaluating the disclosure
requirements and expense recognition alternatives addressed by this
statement. However, the Company expects to adopt the alternative which
would provide for proforma disclosure in the footnotes to the
consolidated financial statements.
NOTE 14- SUBSEQUENT EVENTS
PROFESSIONAL SERVICES
On January 1, 1996 the Company entered into a lease agreement to rent a
building next to their Greenville, New York property.
EMPLOYMENT AGREEMENT
On January 1, 1996, the Company entered into a five year employment
agreement, with its President, which expires December 31, 2001. After
the initial term, the agreement is subject to an automatic annual
renewal, unless a sixty day notice is given by the president or the
Company not to renew the agreement. Under the agreement, the president
is to receive a base annual salary of $175,000 for 1996 and $350,000
for the remainder of the term. The agreement also contains provisions
for incentive compensation payments and stock options.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 14- SUBSEQUENT EVENTS (Continued)
EMPLOYMENT AGREEMENT (Continued)
Under the incentive compensation plan, the president is to receive a
bonus equal to five percent (5%) of the net increase in the Company's
revenues over the prior year's revenues, for each year of employment.
Under the stock option provisions, the President has been granted an
option to purchase 1,000,000 unregistered shares of common stock for
$.25 per share. The president may exercise this option at any time
within ten (10) years (January 1, 2006).
COMMITMENT
On February 14, 1996, the Company entered into an agreement with Silk
Road Health Care Corporation to form a new corporation in which Imagex
will invest $1,470,000 to develop and initially fund ten women's
diagnostic centers ($147,000 for each center) in North and South
Carolina over the next three years.
MECHANIC'S LIEN
On February 20, 1996 the Company's general contractor for the
Greenville, New York property filed and received a mechanic's lien
against this property. The lien was filed due to the Company's slow
payment of invoices to the General Contractor.
MANAGEMENT CONSULTING AGREEMENT
On March 11, 1996 the Company entered into a management consulting
agreement with Blue Water Consulting, Inc. (Consultant). Under the
agreement the Consultant was issued options to purchase 500,000 shares
of common stock of the Company for consideration of cash plus services.
Under the agreement the option price per share shall be equal to the
average closing bid price of the Company's common stock for the last
ten (10) trading days prior to exercise less a discount of sixty
percent (60%) representing the value of services rendered. The options
may be exercised in part or in whole and expire twenty-four (24) months
following the date of issuance.
MARKETING CONSULTING AGREEMENT
On March 11, 1996 the Company entered into a marketing consulting
agreement with Brad Street Marketing, Inc. (Consultant). Under the
agreement the Consultant was issued options to purchase 500,000 shares
of common stock of the Company, for consideration of cash plus
services. Under the agreement the option price per share shall be equal
to the average closing bid price of the common stock for the last ten
(10) trading days prior to exercise less a discount of sixty percent
(60%) representing the value of services rendered. The options may be
exercised in part or in whole, and expire twenty-four (24) months
following the date of issuance.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 14- SUBSEQUENT EVENTS (Continued)
GENERAL ELECTRIC SETTLEMENT AGREEMENT
On April 19, 1996 the Court vacated its September 13, 1995 order (see
Note 10) based on a March 29, 1996 "Settlement Agreement" between the
Company and GE. Under the agreement, the Company was given a $700,000
credit for the repossessed equipment against the $1,400,000 judgment.
The balance of $700,000 was converted from an accounts payable into a
promissory note payable to General Electric, fixed rate of 10%, payable
as follows: $10,000 per month through June, 1996; $110,000 in July,
1996; $15,000 per month August through December, 1996; $115,000 in
January, 1997; $20,000 per month February through June, 1997; $120,000
in July, 1997; $25,000 per month August through November, 1997 and
$117,221 December, 1997. The note is secured by equipment financed and
a first mortgage lien on the Greenville real property as well as a
personal guarantee by the Company's president.
NOTE 15- SUBSCRIPTIONS RECEIVABLE
Common stock subscriptions receivable for 1,500,000 shares were
outstanding as of December 31, 1995, valued at average market price
when issued aggregating $1,125,000. Such amounts exclude 2,050,000
shares that were outstanding as subscriptions receivable as of December
31, 1995, which were returned to the Company subsequent to that date.
NOTE 16- GOING CONCERN
The Company incurred losses of $2,045,125 and $523,188 for the years
ended December 31, 1995 and 1994, respectively, has a stockholders'
deficiency of $899,916 as of December 31, 1995 and it is our
understanding that losses are continuing subsequent to year end. The
deterioration in the Company's earnings during 1995 is primarily
attributable to a substantial reduction in the usage of the Company's
equipment due to fewer patients seeking diagnostic services at one of
the Company's existing centers and the closing of another center, as
well as delays in opening the Company's newest center in Greenville,
New York. In addition, the Company is in arrears on certain trade
payables and other obligations. As discussed in Note 10, the lessor has
filed suit demanding payment and the Company is in monetary default
under terms of the settlement, resulting in the lessor obtaining a
monetary judgment of approximately $3.7 million and an order allowing
it to repossess the equipment. As further discussed in Note 14, that
suit was settled subsequent to December 31, 1995, at which time the
aforementioned judgment was vacated. Such settlement included the
refinancing of a portion of the obligation with the same lessor and the
lessor's repossession of one of the Company's MRI imaging machines.
Further, as discussed in Note 12, a physician group to whom the Company
was providing imaging services has terminated its contract with the
Company. The Company is also experiencing delays in the opening of the
final phase of its newest center in Greenville, New York. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern.
<PAGE>
IMAGEX SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1995 AND 1994
NOTE 16- GOING CONCERN (Continued)
In view of these matters, the Company has developed a business plan
which included the subsequent completed renegotiations with General
Electric, as well as working with potential investors to raise
additional working capital. The plan also considers maximizing revenues
at existing Company centers by contracting with a marketing consultant
to increase patient referrals. In addition, the plan contemplates
reduced operating costs through the consolidation of duplicative
administrative functions and the streamlining of Company operations.
The plan also anticipates that the new Greenville center is expected to
be profitable during 1996 and that additional centers will be developed
as future opportunities arise. The Company's ability to successfully
implement the foregoing elements of its business plan, which may be
necessary to permit the realization of assets and liquidation of
liabilities in the ordinary course of business, is uncertain. The
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IMAGEX SERVICES, INC., FOR THE TWELVE MONTH PERIOD ENDED
DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 64
<ALLOWANCES> 32
<INVENTORY> 0
<CURRENT-ASSETS> 159
<PP&E> 765
<DEPRECIATION> 150
<TOTAL-ASSETS> 999
<CURRENT-LIABILITIES> 1,666
<BONDS> 0
<COMMON> 12
0
0
<OTHER-SE> (912)
<TOTAL-LIABILITY-AND-EQUITY> 999
<SALES> 205
<TOTAL-REVENUES> 205
<CGS> 0
<TOTAL-COSTS> 1,239
<OTHER-EXPENSES> 1,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (2,045)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,045)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
