American Health Services to Spin Off Its Money-Losing ‘Stop Smoking’ Unit

In a bid to make its profitable diagnostic imaging business more attractive to investors, American Health Services Inc. of Newport Beach said Monday that it plans to spin off its money-losing Neuromedical Technologies subsidiary into a separate company.

“We are trying to demonstrate to our stockholders and the investment community that we are focusing all our attention on the imaging services business,” said Lewis Meyer, chief executive and president of American Health Services.

Clarke Underwood, the company’s chief financial officer, said the pending restructuring is also expected to boost the investment visibility of Neuromedical Technologies.

The subsidiary, based in McLean, Va., operates “stop smoking” clinics and is seeking federal approval to market a new technology for using an electrical stimulation brain therapy to treat nicotine, alcohol and drug addiction.

“There is a certain kind of investor that understands and likes the imaging business and a completely different kind of investor who is a high roller and goes for a high-risk, high-return company” like Neuromedical Technologies, Underwood said.

The proposed restructuring, which has been approved by the board of American Health Services, is subject to approval by the Securities and Exchange Commission.

The spinoff, expected to be completed by early next year, calls for American Health Services to distribute to its shareholders one share of new Neuromedical Technologies common stock for every five shares of American Health common stock they own.

As a result, about 1.8 million shares of Neuromedical Technologies common stock will be issued.

Also, American Health Services shareholders will have a right to purchase an equal amount of Neuromedical Techologies stock at a price of $1 a share.

American Health said that Zion Educational Foundation and Canadian Neuro Med will purchase all of the optional shares in Neuromedical Technologies not bought by American Health Services shareholders. Zion is a London-based foundation that owns the worldwide rights to the electrical stimulation therapy. Canadian Neuro Med is a Toronto company that operates stop-smoking clinics in Canada.

Larry Selwitz, a securities analyst with Cruttenden & Co., a Newport Beach investment banking firm, said he will be more eager to encourage investors to buy American Health Services stock after it has shed its Neuromedical Technologies subsidiary.

Losses from the addiction treatment research, Selwitz said, have masked the attributes of the up-and-coming diagnostic imaging enterprise, which this year became profitable and which he believes has strong potential.

In the first 9 months of 1988, the diagnostic imaging business recorded $600,000 in net income. American Health Services as a whole posted a loss of $1.8 million because of the cost of research and development by Neuromedical Technologies, Underwood said.

Jeff Kilpatrick, president of Newport Securities, a Costa Mesa brokerage, noted that diagnostic imaging “is a hot area” for investors.

But Kilpatrick said he has not encouraged investments in American Health Services. He said he avoids small companies that have “multiple unrelated businesses” because he believes that they usually do not focus sufficient resources on any of them. He said he will take another look at the company in light of the restructuring proposal.