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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 September 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
American Health Services Corp.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1278857
- -------------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 Von Karman, Suite 320, Newport Beach, CA 92660
- -------------------------------------------------- ----------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 714/476-0733
---------------------
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
October 27, 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
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets,
September 30, 1995, and December 31, 1994 3-4
Consolidated Statements of Operations,
for the three and nine months ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows,
for the nine months ended September 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
PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,974,506 $ 3,663,795
Accounts receivable, net of an allowance for doubtful
accounts and contractual discounts of $4,041,946
and $3,691,466 at September 30, 1995 and December 31, 1994
respectively, and an allowance for
professional fees of $1,836,731 and $1,862,399 at
September 30, 1995 and December 31, 1994, respectively 7,864,371 8,587,288
Prepaid expenses and other 513,210 345,040
----------- -----------
Total current assets 13,352,087 12,596,123
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization of $12,700,669 and
$12,348,486 at September 30, 1995 and December 31, 1994,
respectively 19,649,893 25,521,012
OTHER ASSETS 2,943,166 2,105,802
----------- -----------
$35,945,146 $40,222,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
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(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,317,786 $ 3,319,079
Accrued payroll and related costs 766,386 700,916
Professional fees payable 387,977 306,446
Current portion of deferred rent expense 521,541 665,343
Current portion of reserve for center terminations 490,000 690,000
Current portion of long-term debt 17,708,580 4,326,816
----------- -----------
Total current liabilities 23,192,270 10,008,600
----------- -----------
DEFERRED RENT EXPENSE 308,439 443,513
----------- -----------
RESERVE FOR CENTER TERMINATIONS 1,020,345 1,253,130
----------- -----------
LONG-TERM DEBT 21,416,385 39,400,171
----------- -----------
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 1,533,350 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 September 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 September 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 (28,350,493) (27,788,472)
----------- -----------
(11,525,643) (10,963,622)
----------- -----------
$35,945,146 $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 Nine Months Ended
September 30, September 30,
--------------------------- ------------------------------
1995 1994 1995 1994
---------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Center revenues $9,186,774 $9,102,453 $28,252,789 $27,679,589
EXPENSES:
Center expenses 7,387,681 7,357,344 22,760,405 22,170,356
Provision for center profit distributions 222,624 183,021 598,368 640,233
---------- ---------- ----------- -----------
Income from center operations 1,576,469 1,562,088 4,894,016 4,869,000
CORPORATE OPERATING EXPENSES 1,000,942 901,230 2,952,907 2,699,387
---------- ---------- ----------- -----------
Income from operations before interest 575,527 660,858 1,941,109 2,169,613
INTEREST INCOME AND OTHER 33,449 35,534 110,859 88,113
INTEREST EXPENSE (796,617) (888,695) (2,613,989) (3,043,044)
---------- ---------- ----------- -----------
Loss before extraordinary item (187,641) (192,303) (562,021) (785,318)
EXTRAORDINARY ITEM:
Gain on restructuring of long-term debt -- -- -- 305,985
----------- ---------- ----------- ------------
Net loss $ (187,641) $ (192,303) $ (562,021) $ (479,333)
---------- ---------- ----------- ------------
EARNINGS (LOSS) PER COMMON SHARE (Note 3):
Loss before extraordinary item $ (0.02) $ (0.02) $ (0.06) $ (0.08)
Extraordinary item -- -- -- 0.03
----------- ---------- ----------- ------------
Net income (loss) per common share $ (0.02) $ (0.02) $ (0.06) $ (0.05)
---------- ---------- ----------- ------------
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>
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (562,021) $ (479,333)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,731,124 3,678,550
Deferred rent expense (278,876) (6,993)
Gain on restructuring of long-term debt -- (305,985)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net 500,275 (225,342)
(Increase) decrease in prepaid expenses and other (159,420) 207,535
(Increase) decrease in other assets (434,805) 24,216
Increase in accounts payable and accrued expenses 733,819 338,297
Increase (decrease) in professional fees payable 81,531 (32,437)
Decrease in reserve for center terminations (208,466) (870,056)
---------- -----------
Net cash provided by operating activities 3,043,161 2,328,452
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases) sales of property and equipment, net 679,315 (645,830)
Investment in radiation oncology center (408,221) --
---------- -----------
Net cash provided by (used in) investing
activities 271,094 (645,830)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (4,023,151) (2,707,095)
Increase in principal under long-term obligations 1,918,961 1,425,480
Increase (decrease) in minority interest 100,646 (339,493)
---------- -----------
Net cash used in financing activities (2,003,544) (1,621,108)
---------- -----------
NET INCREASE IN CASH 1,310,711 61,514
CASH, beginning of period 3,663,795 4,339,445
---------- -----------
CASH, end of period $ 4,974,506 $ 4,400,599
=========== ===========
</TABLE>
During 1995 and 1994, the Company made interest payments of $2,651,463 and
$3,328,690, respectively.
In connection with the termination of a center in 1995, certain assets and
liabilites were sold as follows:
<TABLE>
<S> <C>
Book value of assets sold $2,721,065
Long-term and other liabilities assumed by buyer 2,496,746
----------
Amount applied against reserve for center terminations $ 224,319
==========
</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
SEPTEMBER 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 September 30, 1995, the results of
operations and changes in cash flows for the nine month periods ended
September 30, 1995 and 1994 have been included.
The results of operations of the nine month period ended September 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:
<TABLE>
<CAPTION>
Exchange Rates
(Canadian Dollars per U.S. Dollar)
-----------------------------------
Average for
Nine
Months Ended
Year September 30 September 30
---- ------------ ------------
<S> <C> <C>
1993 1.3369 1.2802
1994 1.3425 1.3639
1995 1.3419 1.3781
</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
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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
Nine Months Ended September 30, 1995 Compared to September 30, 1994
- -------------------------------------------------------------------
The Company reported revenues from the operation of its centers for
the nine months ended September 30, 1995 of approximately $28,253,000, compared
to approximately $27,680,000 for the nine months ended September 30, 1994,
representing an increase of approximately 2%. The increase in reported
revenues of approximately $573,000 is due to revenues generated by three new
centers (approximately $2,804,000), offset by the sale or closure of four
centers and the expiration of operating agreements relating to five centers
subsequent to December 31, 1993 (approximately $2,158,000). 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 nine months ended September 30, 1995,
aggregated approximately $22,760,000, compared to approximately $22,170,000 for
the nine months ended September 30, 1994. This increase of approximately
$590,000, or 3%, is due to (i) increased expenses related to the Company's
three new centers (approximately $2,237,000) and (ii) increased expenses
related to the development of an outside billing service (approximately
$143,000). This increase is substantially offset by (i) the elimination of
expenses at the nine terminated centers discussed above (approximately
$1,061,000) and (ii) a decrease in costs at the majority of the
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Company's remaining centers (approximately $729,000) primarily related to
reductions in payroll costs, equipment maintenance and medical supplies.
Provision for center profit distributions was approximately $598,000
for the nine months ended September 30, 1995, compared to approximately
$640,000 for the nine months ended September 30, 1994. This represents a
decrease of approximately $42,000, or 7%. This decrease is due primarily to
(i) the purchase of the physician limited partnership interests in 1994
discussed below, and (ii) reduced income at certain of the Company's other
cooperative venture centers. This decrease is partially offset by income at
two of the Company's new cooperative venture centers.
The Company reported income from center operations of approximately
$4,894,000 for the nine months ended September 30, 1995, compared to
approximately $4,869,000 for the nine months ended September 30, 1994,
representing an increase of approximately $25,000, or 1%. This increase in
income from center operations is due primarily to (i) increased income at the
Company's centers which existed at September 30, 1994 (approximately $513,000),
(ii) income from center operations at the Company's three new centers
(approximately $567,000), and (iii) the decrease in provision for center profit
distributions. The increase was substantially offset by the loss of income
from center operations in 1994 at seven of the terminated centers discussed
above (approximately $691,000) and increased losses incurred in 1995 from two
of the terminated centers (approximately $406,000).
For the nine month period ended September 30, 1995, the Company
recorded corporate operating expenses of approximately $2,953,000, compared to
corporate operating expenses of approximately $2,699,000 for the nine month
period ended September 30, 1994, an increase of approximately 9%. This
increase of approximately $254,000 is due primarily to increases in personnel,
legal, consulting and travel costs related to business development, acquisition
and debt restructure negotiations.
Interest expense was approximately $2,614,000 during the nine months
ended September 30, 1995, compared to approximately $3,043,000 for the nine
months ended September 30, 1994, a decrease of approximately $429,000, or 14%.
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 nine months ended September 30, 1995, the Company reported a
net loss before extraordinary item of approximately $562,000 compared to a net
loss before extraordinary item of approximately $785,000 for the nine months
ended September 30, 1994. This decrease in net loss before extraordinary item
of
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approximately $223,000 is the result of increased income from center operations
and 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 in 1994.
Net loss per share before extraordinary item for the nine months ended
September 30, 1995, was ($0.06), compared to a net loss per share before
extraordinary item of ($0.08) for the nine months ended September 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 nine months ended September 30, 1995 and 1994,
respectively, no dividend has been subtracted from net loss to determine loss
per share for each of the nine months ended September 30, 1995 and 1994,
respectively.
Three Months Ended September 30, 1995 Compared to September 30, 1994
- --------------------------------------------------------------------
The Company reported revenues from the operation of its centers for
the three months ended September 30, 1995 of approximately $9,187,000, compared
to approximately $9,102,000 for the three months ended September 30, 1994,
representing an increase of 1%. The increase in reported revenues of
approximately $85,000 is due primarily to revenues generated by two new centers
(approximately $790,000) which began operations subsequent to September 30,
1994, offset by the sale or closure of three centers and the expiration of
operating agreements relating to two centers subsequent to September 30, 1994
(approximately $761,000). 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 three months ended September 30, 1995,
aggregated approximately $7,388,000, compared to approximately $7,357,000 for
the three months ended September 30, 1994. This increase of approximately
$31,000, or less than 1%, is due to increased expenses related to the Company's
two new centers (approximately $614,000), substantially offset by (i) the
elimination of expenses at the five terminated centers discussed above
(approximately $430,000), and (ii) a decrease in costs at the majority of the
Company's remaining centers primarily due to
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reductions in payroll, equipment maintenance and medical supplies
(approximately $153,000).
Provision for center profit distributions was approximately $223,000
for the three months ended September 30, 1995, compared to approximately
$183,000 for the three months ended September 30, 1994. This represents an
increase of approximately $40,000, or 22%. This increase is due primarily to
income at the Company's two new cooperative venture centers offset by (i) the
purchase of the physician limited partnership interests in 1994 discussed
below, and (ii) reduced income at certain of the Company's other cooperative
venture centers.
The Company reported income from center operations of approximately
$1,576,000 for the three months ended September 30, 1995, compared to
approximately $1,562,000 for the three months ended September 30, 1994,
representing an increase of approximately $14,000, or 1%. This increase in
income from center operations is due primarily to (i) increased income at the
Company's centers which existed at September 30, 1994 (approximately $209,000),
(ii) income from center operations at the Company's two new centers
(approximately $176,000), partially offset by (i) the loss of income from
center operations in 1994 at three of the terminated centers discussed above
(approximately $148,000) and increased losses incurred in 1995 from two of the
terminated centers (approximately $183,000), and (ii) the increase in provision
for center profit distributions.
For the three month period ended September 30, 1995, the Company
recorded corporate operating expenses of approximately $1,001,000, compared to
corporate operating expenses of approximately $901,000 for the three month
period ended September 30, 1994, an increase of approximately 11%. This
increase of $100,000 is due primarily to increases in personnel, legal,
consulting and travel costs related to business development, acquisition and
debt restructure negotiations.
Interest expense was approximately $797,000 during the three months
ended September 30, 1995 compared to approximately $889,000 for the three
months ended September 30, 1994, a decrease of approximately $92,000, or 10%.
This decrease was primarily due to reduced interest related to amortization of
long-term obligations, partially offset by long-term debt incurred at the
Company's new centers.
For the three months ended September 30, 1995, the Company reported a
net loss of approximately $188,000, compared to a net loss of approximately
$192,000 for the three months ended September 30, 1994. This decrease in net
loss of approximately $4,000 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.
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Net loss per share for the three months ended September 30, 1995, was
($0.02) compared to a net loss per share of ($0.02) for the three months ended
September 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
September 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
September 30, 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital decreased to a deficit of approximately $9,840,000 at
September 30, 1995 from approximately $2,588,000 at December 31, 1994. This
decrease of $12,428,000 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 $4,975,000 at September 30, 1995 from
approximately $3,664,000 at December 31, 1994, an increase of approximately
$1,311,000, or 36%. This increase resulted from (i) net income before
depreciation and amortization and deferred rent expense (approximately
$2,890,000),(ii) an increase in accounts payable, accrued expenses and
professional fees payable (approximately $455,000), and (iii) net proceeds from
the sale of property and equipment (approximately $679,000). This increase was
offset by (i) an increase in other assets (approximately $435,000), (ii) the
investment in a radiation oncology treatment center (approximately $408,000),
and (iii) a net decrease in long-term debt obligations net of the deferred
payment discussed below (approximately $2,104,000). 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 a working
capital loan advanced to Radiosurgery Centers, Inc., the Company's wholly owned
subsidiary ("RCI"), in connection with its operation of a Gamma Knife center 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
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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. During 1995, the Company utilized two of its three
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, 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. During the
third quarter of 1995 the Company sold or closed two underperforming centers.
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
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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 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, which loan is secured by the accounts receivable of
the center. Subsequent to September 30, 1995, the Company borrowed the
remaining amounts available under the working capital loan.
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 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
14
<PAGE> 15
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 September 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
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 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: November 13, 1995
17
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