HI files suit against NDS investors

March 1, 1995

Imaging services provider Health Images of Atlanta has discovered some skeletons in the closetof National Diagnostic Systems (NDS), a radiology services managementcompany Health Images acquired last year. Health Images announcedlast month that it has

Imaging services provider Health Images of Atlanta has discovered some skeletons in the closetof National Diagnostic Systems (NDS), a radiology services managementcompany Health Images acquired last year. Health Images announcedlast month that it has filed a lawsuit against NDS shareholderswho sold their interests to HI. The suit was filed due to "materialmisrepresentations and omissions relating to NDS and its financialand business condition" made at the time of the sale.

Health Images had owned a 48% stake in NDS for several years,and bought out the remaining interest last August. Health Imagesmerged NDS with its existing Accountable Radiology Inc. (ARI)subsidiary, which managed the radiology services of managed-careproviders and insurers. Health Images named the new entity InteractiveDiagnostic Services Inc. (IDSI).

The NDS business has not performed as expected since the acquisition,however, and Health Images filed the lawsuit against its formershareholders on Feb. 21 in California State Superior Court inRedwood City, CA. The lawsuit seeks to rescind the acquisitionand asks for compensatory and punitive damages.

In connection with the NDS acquisition, Health Images saidit would take a $4.8 million charge against earnings that willresult in the company posting a loss for 1994. Impairment of goodwill accounts for $4.2 million of the charge, $219,000 is relatedto estimated losses associated with current contracts and $398,000is related to other intangibles.

"We are obviously disappointed by the results of the NDSsegment of our business," said Health Images CEO and chairmanRobert Carl. "We are actively looking at ways to reconfigurethe operations of our managed-care subsidiary and expect to showreduced losses from these operations in 1995."