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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-14380
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American Health Services Corp.
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(Exact name of Registrant as specified in its charter)
Delaware 52-1278857
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 Von Karman, Suite 320, Newport Beach, CA 92660
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code 714/476-0733
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
The number of shares of the Registrant's common stock outstanding as of
August 1, 1995 was 9,683,647.
The number of pages in this Form 10-Q is 17.
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
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ITEM 1. Financial Statements
--------------------
Consolidated Balance Sheets,
June 30, 1995, and December 31, 1994 3 - 4
Consolidated Statements of Operations,
for the three and six months ended
June 30, 1995 and 1994 5
Consolidated Statements of Cash Flows,
for the six months ended June 30,
1995 and 1994 6
Notes to Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis
-------------------------------------
of Financial Condition and Results
-----------------------------------
of Operations 8 - 15
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PART II -- OTHER INFORMATION
- ----------------------------
ITEM 6. Exhibits and Reports on Form 8-K 16
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,767,062 $ 3,663,795
Accounts receivable, net of an allowance for doubtful
accounts and contractual discounts of $4,183,717
and $3,691,466 at June 30, 1995 and December 31, 1994
respectively, and an allowance for
professional fees of $1,933,979 and $1,862,399 at
June 30, 1995 and December 31, 1994, respectively 8,681,021 8,587,288
Prepaid expenses and other 514,090 345,040
----------- -----------
Total current assets 12,962,173 12,596,123
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization of $14,203,997 and
$12,348,486 at June 30, 1995 and December 31, 1994,
respectively 23,878,027 25,521,012
OTHER ASSETS 3,077,292 2,105,802
----------- -----------
$39,917,492 $40,222,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND DECEMBER 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,735,990 $ 3,319,079
Accrued payroll and related costs 794,134 700,916
Professional fees payable 318,171 306,446
Current portion of deferred rent expense 550,188 665,343
Current portion of reserve for center terminations 619,164 690,000
Current portion of long-term debt 15,469,238 4,326,816
----------- -----------
Total current liabilities 21,486,885 10,008,600
----------- -----------
DEFERRED RENT EXPENSE 339,679 443,513
----------- -----------
RESERVE FOR CENTER TERMINATIONS 1,222,471 1,253,130
----------- -----------
LONG-TERM DEBT 27,220,963 39,400,171
----------- -----------
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 985,496 81,145
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
10 percent convertible Series B preferred stock with a liquidation
preference of $185 per share plus declared and unpaid dividends
Authorized--5,000,000 shares
Outstanding--37,837.83 at June 30, 1995 and
December 31, 1994 stated at 6,075,107 6,075,107
Common stock, $.03 par value--
Authorized--25,000,000 shares
Outstanding--9,683,647 at June 30, 1995 and December 31, 1994 290,509 290,509
Common stock warrants 1,115,569 1,115,569
Additional paid-in capital 9,343,665 9,343,665
Accumulated deficit (28,162,852) (27,788,472)
----------- -----------
(11,338,002) (10,963,622)
----------- -----------
$39,917,492 $40,222,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Center revenues $9,708,114 $9,370,071 $19,066,015 $18,577,136
EXPENSES:
Center expenses 7,667,258 7,517,631 15,372,724 14,813,012
Provision for center profit
distributions 196,276 224,465 375,744 457,212
---------- ---------- ----------- -----------
Income from center operations 1,844,580 1,627,975 3,317,547 3,306,912
---------- ---------- ----------- -----------
CORPORATE OPERATING EXPENSES 1,071,390 899,562 1,951,965 1,798,157
---------- ---------- ----------- -----------
Income from operations
before interest 773,190 728,413 1,365,582 1,508,755
INTEREST INCOME AND OTHER 36,143 23,006 77,410 52,579
INTEREST EXPENSE (901,179) (1,000,319) (1,817,372) (2,154,349)
---------- ---------- ----------- -----------
Loss before extraordinary item (91,846) (248,900) (374,380) (593,015)
EXTRAORDINARY ITEM:
Gain on restructuring of long-term debt -- 305,985 -- 305,985
---------- ---------- ----------- -----------
Net income (loss) $ (91,846) $ 57,085 $ (374,380) $ (287,030)
========== ========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE (Note 3):
Loss before extraordinary item $ (0.01) $ (0.02) $ (0.04) $ (0.06)
Extraordinary item -- 0.03 -- 0.03
---------- ---------- ----------- -----------
Net income (loss) per common share $ (0.01) $ 0.01 $ (0.04) $ (0.03)
========== ========== =========== ===========
Weighted average number of common
shares outstanding (Note 3) 9,683,647 9,683,647 9,683,647 9,683,647
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (374,380) $ (287,030)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,617,406 2,411,497
Deferred rent expense (218,989) 102,501
Gain on restructuring of long-term debt -- (305,985)
Changes in operating assets and liabilities:
Increase in accounts receivable, net (93,733) (248,766)
(Increase) decrease in prepaid expenses and other (160,300) 181,011
(Increase) decrease in other assets (426,350) 98,865
Increase in accounts payable and accrued expenses 510,129 54,105
Increase (decrease) in professional fees payable 11,725 (33,670)
Decrease in reserve for center terminations (101,495) (289,324)
----------- -----------
Net cash provided by operating activities 1,764,013 1,683,204
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (79,259) (551,125)
Investment in radiation oncology center (408,221) --
------------ ------------
Net cash used in investing activities (487,480) (551,125)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (2,283,448) (1,869,126)
Increase in principal under long-term obligations 1,151,331 1,299,153
Decrease in minority interest (41,149) (137,783)
------------ ------------
Net cash used in financing activities (1,173,266) (707,756)
------------ ------------
NET INCREASE IN CASH 103,267 424,323
CASH, beginning of period 3,663,795 4,339,445
------------ ------------
CASH, end of period $ 3,767,062 $ 4,763,768
============ ============
</TABLE>
During 1994, the Company issued a warrant to purchase 372,524 shares of
the Company's common stock which was valued at $29,802.
The accompanying notes are an integral part of these consolidated statements.
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 (UNAUDITED)
1. Basis of Preparation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial statements and do not include all of the
information and disclosures required for annual financial statements.
These financial statements should be read in conjunction with the
consolidated financial statements and related footnotes for the year
ended December 31, 1994 included as part of the Company's Annual
Report on Form 10-K (File No. 0-14380) filed with the Securities and
Exchange Commission on March 31, 1995.
In the opinion of the Company's management, all adjustments
(consisting of normal recurring accruals) necessary to present fairly
the Company's financial position at June 30, 1995, the results of
operations and changes in cash flows for the six month periods ended
June 30, 1995 and 1994 have been included.
The results of operations of the six month period ended June 30, 1995
are not necessarily indicative of the results to be expected for the
full fiscal year.
2. Canadian Accounting Principles
The Company's common stock is listed with the Ontario Securities
Commission (OSC) and the Company is required to file its financial
statements with OSC. Although the accompanying financial statements
and notes thereto have been prepared in accordance with generally
accepted accounting principles applicable in the United States, the
primary difference between these accounting principles and those
applicable in Canada is as follows:
Currency Translation
The accompanying financial statements are stated in United
States dollars. Translation of the financial statements into
Canadian dollars would be performed using the historical rate
in effect on the dates transactions occurred. No translation
gains or losses would result from the translation. The rates
of exchange in effect at the end of each of the reporting
periods and the average exchange rate for those periods are as
follows:
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2. Canadian Accounting Principles (cont.)
<TABLE>
<CAPTION>
Exchange Rates
(Canadian Dollars per U.S. Dollar)
-----------------------------------
Average for
Six
Months Ended
Year June 30 June 30
---- ------- ------------
<S> <C> <C>
1993 1.258 1.266
1994 1.340 1.356
1995 1.374 1.389
</TABLE>
3. Loss Per Common Share
The number of shares used in computing loss per common share is equal
to the totals of the weighted average number of common and common
equivalent shares outstanding during the period. Common stock
equivalents relating to options, warrants and convertible preferred
stock have not been included in the computation of loss per share in
1995 and 1994 due to their antidilutive effect. Preferred stock
dividends have not been considered in the calculation of loss per
common share since the shares are non-cumulative and no dividends have
been declared.
4. Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes ("FAS No. 109") pursuant to which the
Company recorded the benefit of its net operating loss carryforwards
and also recorded a valuation reserve for the entire amount.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 Compared to June 30, 1994
The Company reported revenues from the operation of its diagnostic
imaging and gamma knife centers for the six months ended June 30, 1995 of
approximately $19,066,000, compared to approximately $18,577,000 for the six
months ended June 30, 1994, representing an increase of approximately 3%. The
increase in reported revenues of approximately $489,000 is due to revenues
generated by three new centers (approximately $1,966,000), offset by the sale
or closure of four centers and the expiration of
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operating agreements relating to five centers subsequent to December 31, 1993
(approximately $1,396,000). Management believes that any future increases in
revenues from existing centers can only be achieved by higher utilization and
not by increases in procedure prices since reimbursement is declining; however,
excess capacity of diagnostic imaging equipment, increased competition,
anticipated healthcare reform and the expansion of managed care may impact
utilization and make it difficult for the Company to achieve revenue increases
in the future, absent the negotiation of provider agreements with managed care
companies and other payors, acquisition of profitable diagnostic imaging
centers and development of management services which are not capital intensive.
Center expenses for the six months ended June 30, 1995, aggregated
approximately $15,373,000, compared to approximately $14,813,000 for the six
months ended June 30, 1994. This increase of approximately $560,000, or 4%, is
due to (i) increased expenses related to the Company's three new centers
(approximately $1,582,000) and (ii) increased expenses related to the
development of an outside billing service (approximately $92,000). This
increase is substantially offset by (i) the elimination of expenses at the nine
terminated centers discussed above (approximately $690,000) and (ii) a decrease
in costs at the majority of the Company's remaining centers (approximately
$424,000) primarily related to reductions in payroll costs, equipment
maintenance and medical supplies.
Provision for center profit distributions was approximately $376,000
for the six months ended June 30, 1995, compared to approximately $457,000 for
the six months ended June 30, 1994. This represents a decrease of
approximately $81,000, or 18%. This decrease is due primarily to (i) the
purchase of the physician limited partnership interests in 1994 discussed
below, and (ii) reduced income at the Company's cooperative venture centers.
This decrease is partially offset by income at the Company's new cooperative
venture centers.
The Company reported income from center operations of approximately
$3,318,000 for the six months ended June 30, 1995, compared to approximately
$3,307,000 for the six months ended June 30, 1994, representing an increase of
approximately $11,000, or less than 1%. This increase in income from center
operations is due primarily to (i) increased income at the Company's centers
which existed at June 30, 1994 (approximately $252,000), (ii) income from
center operations at the Company's three new centers (approximately $384,000),
and (iii) the decrease in provision for center profit distributions. The
increase was substantially offset by the loss of income from center operations
at the terminated centers discussed above (approximately $706,000).
For the six month period ended June 30, 1995, the Company recorded
corporate operating expenses of approximately $1,952,000,
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compared to corporate operating expenses of approximately $1,798,000 for the
six month period ended June 30, 1994, an increase of approximately 9%. This
increase of approximately $154,000 is due primarily to increases in legal,
consulting and travel costs related to acquisition and debt restructure
negotiations.
Interest expense was approximately $1,817,000 during the six months
ended June 30, 1995, compared to approximately $2,154,000 for the six months
ended June 30, 1994, a decrease of approximately $337,000, or 16%. This
decrease was primarily due to (i) reduced interest related to amortization of
long-term obligations, and (ii) reduced interest as a result of the April 12,
1994 restructuring agreement discussed below, partially offset by long-term
debt incurred at the Company's new centers.
For the six months ended June 30, 1995, the Company reported a net
loss before extraordinary item of approximately $374,000 compared to a net loss
before extraordinary item of approximately $593,000 for the six months ended
June 30, 1994. This decrease in net loss before extraordinary item of
approximately $219,000 is the result of increased income from center operations
and a decrease in net interest expense, offset by a slight increase in
corporate operating expenses. As a result of the April 12, 1994 restructuring
agreement discussed below, an extraordinary gain on restructuring of long-term
debt of approximately $306,000 was recorded in 1994.
Net loss per share before extraordinary item for the six months ended
June 30, 1995, was ($0.04), compared to a net loss per share of ($0.06) for the
six months ended June 30, 1994. As discussed below under "Liquidity and
Capital Resources," dividends on the Series B Preferred stock are
non-cumulative. Since the Board of Directors did not declare a dividend for
the six months ended June 30, 1995 and 1994, respectively, no dividend has been
subtracted from net loss to determine loss per share for each of the six months
ended June 30, 1995 and 1994, respectively.
Three Months Ended June 30, 1995 Compared to June 30, 1994
The Company reported revenues from the operation of its diagnostic
imaging and gamma knife centers for the three months ended June 30, 1995 of
approximately $9,708,000, compared to approximately $9,370,000 for the three
months ended June 30, 1994, representing an increase of 4%. The increase in
reported revenues of approximately $338,000 is due primarily to revenues
generated by three new centers (approximately $936,000) which began operations
subsequent to April 1, 1994, offset by the sale or closure of four centers and
the expiration of operating agreements relating to four centers subsequent to
June 30, 1993 (approximately $509,000). Management believes that any future
increases in revenues from existing centers can only be achieved by higher
utilization and not
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by increases in procedure prices since reimbursement is declining; however,
excess capacity of diagnostic imaging equipment, increased competition,
anticipated healthcare reform and the expansion of managed care may impact
utilization and make it difficult for the Company to achieve revenue increases
in the future, absent the negotiation of provider agreements with managed care
companies and other payors, acquisition of profitable diagnostic imaging
centers and development of management services which are not capital intensive.
Center expenses for the three months ended June 30, 1995, aggregated
approximately $7,667,000, compared to approximately $7,518,000 for the three
months ended June 30, 1994. This increase of approximately $149,000, or 2%, is
due to increased expenses related to the Company's three new centers
(approximately $704,000), substantially offset by (i) the elimination of
expenses at the eight terminated centers discussed above (approximately
$166,000), and (ii) a decrease in costs at the majority of the Company's
remaining centers primarily due to reductions in payroll, equipment maintenance
and medical supplies (approximately $389,000).
Provision for center profit distributions was approximately $196,000
for the three months ended June 30, 1995, compared to approximately $224,000
for the three months ended June 30, 1994. This represents a decrease of
approximately $28,000, or 13%. This decrease is due primarily to (i) the
purchase of the physician limited partnership interests in 1994 discussed
below, and (ii) reduced income at the Company's cooperative venture centers.
This decrease is partially offset by income at the Company's new cooperative
venture centers.
The Company reported income from center operations of approximately
$1,845,000 for the three months ended June 30, 1995, compared to approximately
$1,628,000 for the three months ended June 30, 1994, representing an increase
of approximately $217,000, or 13%. This increase in income from center
operations is due primarily to (i) increased income at the Company's centers
which existed at June 30, 1993 (approximately $300,000), (ii) income from
center operations at the Company's three new centers (approximately $232,000),
and (iii) the decrease in provision for center profit distributions, partially
offset by the loss of income from center operations at the eight terminated
centers discussed above (approximately $343,000).
For the three month period ended June 30, 1995, the Company recorded
corporate operating expenses of approximately $1,071,000, compared to corporate
operating expenses of approximately $900,000 for the three month period ended
June 30, 1994, an increase of approximately 19%. This increase of $171,000 is
due primarily to increases in legal, consulting and travel costs related to
acquisition and debt restructure negotiations.
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Interest expense was approximately $901,000 during the three months
ended June 30, 1995 compared to approximately $1,000,000 for the three months
ended June 30, 1994, a decrease of approximately $99,000, or 10%. This
decrease was primarily due to (i) reduced interest related to amortization of
long-term obligations, and (ii) reduced interest as a result of the April 12,
1994 restructuring agreement discussed below, partially offset by long-term
debt incurred at the Company's new centers.
For the three months ended June 30, 1995, the Company reported a net
loss before extraordinary item of approximately $92,000, compared to a net loss
before extraordinary item of approximately $249,000 for the three months ended
June 30, 1994. This decrease in net loss before extraordinary item of
approximately $157,000 is the result of (i) increased income from center
operations, and (ii) a decrease in net interest expense, offset by an increase
in corporate operating expenses. As a result of the April 12, 1994
restructuring agreement discussed below, an extraordinary gain on restructuring
of long-term debt of approximately $306,000 was recorded.
Net loss per share before extraordinary item for the three months
ended June 30, 1995, was ($0.01) compared to a net loss per share before
extraordinary item of ($0.02) for the three months ended June 30, 1994. As
discussed below under "Liquidity and Capital Resources", dividends on the
Series B Preferred stock are non-cumulative. Since the Board of Directors did
not declare a dividend for the quarters ended June 30, 1995 and 1994,
respectively, no dividend has been subtracted from net loss to determine loss
per share for each of the three months ended June 30, 1995 and 1994,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased to a deficit of approximately $8,525,000 at
June 30, 1995 from approximately $2,588,000 at December 31, 1994. This
decrease of $11,113,000 is primarily due to the reclassification of long-term
obligations to current liabilities as a result of scheduled debt maturities and
principal payments on long-term obligations. This decrease was partially
offset by net income before depreciation and amortization. During the past
three years, the Company has financed its operations primarily through
internally generated funds and the credit arrangements discussed below.
Cash increased to approximately $3,767,000 at June 30, 1995 from
approximately $3,664,000 at December 31, 1994, an increase of approximately
$103,000, or 3%. This increase resulted from (i) net income before
depreciation and amortization and deferred rent expense (approximately
$2,024,000), and (ii) an increase in accounts payable and accrued expenses
(approximately $510,000). This increase was offset by (i) an increase in other
assets
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(approximately $426,000), (ii) the investment in a radiation oncology treatment
center (approximately $408,000), (iii) purchases of property and equipment
(approximately $79,000), and (iv) a net decrease in long-term debt obligations
net of the deferred payment discussed below (approximately $1,132,000). Except
for the remaining deferred payment discussed below, the Company currently has
no lines of credit available to borrow against for working capital purposes
except for two working capital loans advanced to Radiosurgery Centers, Inc.,
the Company's wholly owned subsidiary ("RCI"), in connection with its operation
of two Gamma Knife centers as discussed below.
Pursuant to the terms of an April 12, 1994 agreement between the
Company and its primary lender, GE Capital Corporation and GE Medical Systems
("GE"), the maturity of a balloon principal payment of approximately $9,600,000
which was due in May 1994, was extended until January 1, 1996 and the principal
payment was reduced from $9,600,000 to $8,000,000. In addition, the interest
rate on the note related thereto was reduced from 12.75% per annum to 9.25% per
annum which resulted in monthly cash savings of approximately $140,000. As a
result, the Company is required to make certain balloon principal payments
pursuant to its loan agreements with its primary lender as follows:
$10,050,000 in January 1996 and $1,500,000 in August 1996. GE also agreed to
restructure the monthly payments under a $15,200,000 equipment loan which
resulted in monthly cash savings of $75,000. Finally, GE agreed to provide
three deferred payments to be used through December 31, 1995, under certain
circumstances. Each deferred payment will result in a monthly cash savings of
approximately $700,000. These deferred payments will become due in January
1996. In January 1995, the Company utilized the first of its three deferrals.
Subsequent to June 30, 1995, the Company utilized the second of its deferrals.
Further, the Company is required to maintain, under the terms of its loan
agreements with its primary lender, certain financial covenants and ratios.
The Company is not in compliance with several of these covenants and ratios
but has received a written waiver of the violations from its primary lender
through January 1996.
The healthcare industry is highly regulated and changes in laws and
regulations can be significant. The Company believes that the expanding
managed care environment accompanied by cost containment pressures may have a
materially adverse impact on the Company's business, since they may directly
affect the utilization of the Company's centers and reimbursement for those
procedures performed at the Company's centers; however, the Company believes
that as long as the Company is able to negotiate provider agreements with the
managed care companies and other payors to provide productive and cost
efficient services with measurable outcomes, the Company's business should not
be negatively impacted.
In addition to the restructuring arrangements discussed above,
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the Company is also taking certain other actions to achieve profitability.
First, if utilization at certain underperforming centers continues to
deteriorate, those centers will be considered for closure and/or disposition.
Second, the Company has sold or negotiated the termination of leases of all its
idle diagnostic imaging equipment and has renegotiated its equipment
maintenance contracts and contracts with vendors of medical supplies and film.
Third, the Company is continuing to develop a long-term restructuring plan
which includes (i) changes in the Company's debt and capital structure, and
(ii) raising additional working capital. In this regard, the Company has
engaged outside professional assistance and continues to explore (i)
negotiations with its primary lender, (ii) debt restructuring, (iii)
dispositions of certain assets, (iv) raising new capital for future operations,
and/or (v) a merger.
The Company believes that it will be able to meet its long-term debt,
operating lease and other ongoing obligations through January 1996; however,
the Company believes that its ability to meet its long-term debt obligations
beyond January 1996 is contingent upon the consummation of the long-term
restructuring plan discussed above, which may include, among others,
refinancing its long-term debt, a public or private offering, or a merger.
However, there can be no assurances that any of these transactions may be
consummated in a timely manner and on terms reasonably acceptable to the
Company.
In connection with the operation of a Gamma Knife center in Seattle,
Washington, RCI has received a working capital loan for an amount up to
$800,000 from the Company's primary lender to fund the operations of the
center, of which $200,000 is still available.
In 1994, in connection with the operation of a Gamma Knife center in
Miami, Florida, RCI entered into a loan agreement ($2,900,000) with a bank
which provided $500,000 of working capital for operations of the center and
which loan was guaranteed by Mr. Cal Kovens, then a director of the Company
(deceased February 6, 1995). In addition, RCI has received a working capital
loan for an amount up to $500,000 from the Company's primary lender to fund the
operations of the center, of which $250,000 is still available, which loan is
secured by the accounts receivable of the center. RCI commenced operations at
the center in March 1994.
In connection with the Company's expansion plans, the Company has
reviewed several diagnostic imaging centers as acquisition candidates. In
1994, the Company purchased a majority interest in a diagnostic imaging center
in Monterey Park, California. Additionally, in January 1995, the Company
purchased an interest in a radiation oncology treatment facility in Valparaiso,
Indiana. The cash needed to purchase these centers was made available from a
non-revolving line of credit with G.E. The Company's ability to borrow under
the non-revolving line of credit expired on March 31, 1995. Borrowings under
this line in the approximate amount of $1,359,000 were converted to term notes.
The Company continues to review diagnostic imaging centers as acquisition
candidates but has
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not entered into any letters of intent or definitive agreements. Approval of
the Company's primary lender is required for any equipment purchase financing
in connection with any acquisitions by the Company.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA") prohibits
referring physician ownership of diagnostic imaging centers after December 31,
1994. In 1994, the Company evaluated its own cooperative ventures and has
purchased the physician limited partnership interests at four of its
cooperative ventures and has dissolved the physician limited partnership
interests at two other ventures. As a result, the Company no longer has any
cooperative ventures with referring physician ownership. The cash needed for
these buyouts was made available from internally generated funds.
Subject to the limitations described above, the Company expects to
finance the development and other start-up costs and the costs of equipment and
site improvements at any new centers through (i) financing arrangements with
the manufacturers of the equipment utilized at such centers, and (ii) other
financing sources utilized by the Company. The ability of the Company to
establish such centers and to expand operations is dependent upon the
availability of financing on terms reasonably acceptable to the Company.
Dividends on the Series B Preferred Stock are non-cumulative so long
as the Series B Preferred Stockholders control a majority of the Board of
Directors of the Company. In addition, any dividends declared on the Series B
Preferred Stock may be paid in cash or shares of common stock at the discretion
of the Board of Directors. No dividend was declared by the Board of Directors
for the quarter ended June 30, 1995.
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes ("FAS No. 109"), pursuant to which the Company recorded the
benefit of its net operating loss carryforwards and also recorded a valuation
reserve for the entire amount.
Inflation has not had a significant impact on the Company's operations
and, in management's opinion, based upon current trends will not have an
adverse impact on operations in the near future.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended June 30, 1995, the Company did not file any
current report on Form 8-K with the Securities and Exchange
Commission.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
American Health Services Corp.
(Registrant)
/s/ Thomas V. Croal
- ----------------------------
Thomas V. Croal,
Vice President
Chief Financial Officer
/s/ E. Larry Atkins
- ----------------------------
E. Larry Atkins,
President
Chief Executive Officer
Date: August 11, 1995
17
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