<PAGE> 1
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 March 31, 1996
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
- --------------------------------------------------------------------------------
(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 May 14,
1996 was 9,713,647.
The number of pages in this Form 10-Q is 19.
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
- -------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets,
March 31, 1996, and December 31, 1995 3-4
Consolidated Statements of Operations,
for the three months ended March 31,
1996 and 1995 5
Consolidated Statements of Cash Flows,
for the three months ended March 31,
1996 and 1995 6
Notes to Consolidated Financial Statements 7-10
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-17
PART II -- OTHER INFORMATION
- ----------------------------
ITEM 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 5,782,121 $ 6,175,842
Accounts receivable, net of an allowance for doubtful
accounts and contractual discounts of $3,923,791
and $3,793,780 at March 31, 1996 and December 31, 1995
respectively, and an allowance for professional fees of
$1,673,812 and $1,567,308 at March 31, 1996 and
December 31, 1995, respectively 6,763,417 6,892,436
Prepaid expenses and other 456,398 447,726
----------- -----------
Total current assets 13,001,936 13,516,004
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization of $14,499,812 and
$13,513,147 at March 31, 1996 and December 31, 1995,
respectively 19,619,656 20,169,446
OTHER ASSETS 2,945,167 2,754,904
----------- -----------
$35,566,759 $36,440,354
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
<PAGE> 4
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,144,105 $ 2,917,800
Accrued payroll and related costs 783,783 924,986
Professional fees payable 425,266 544,705
Current portion of deferred rent expense 455,091 485,740
Current portion of reserve for center terminations 452,296 630,000
Current portion of long-term debt 18,824,216 19,207,076
------------ ------------
Total current liabilities 24,084,757 24,710,307
------------ ------------
DEFERRED RENT EXPENSE 265,417 286,928
------------ ------------
RESERVE FOR CENTER TERMINATIONS 635,078 635,078
------------ ------------
LONG-TERM DEBT 21,491,897 21,307,834
------------ ------------
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST 1,545,529 1,602,240
------------ ------------
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 March 31, 1996 and
December 31, 1995 stated at 6,075,107 6,075,107
Common stock, $.03 par value-
Authorized--25,000,000 shares
Outstanding--9,713,647 and 9,683,647 at March 31, 1996 and
December 31, 1995, respectively 291,409 290,509
Common stock warrants 1,115,569 1,115,569
Additional paid-in capital 9,350,265 9,343,665
Accumulated deficit (29,288,269) (28,926,883)
------------ ------------
(12,455,919) (12,102,033)
------------ ------------
$ 35,566,759 $ 36,440,354
============ ============
</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 Three Months Ended
March 31, 1996 March 31, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Center revenues $8,676,944 $9,357,901
EXPENSES:
Center expenses 6,545,110 7,470,752
Provision for doubtful accounts 249,836 234,714
Provision for center profit distributions 202,457 179,468
---------- ----------
Income from center operations 1,679,541 1,472,967
CORPORATE OPERATING EXPENSES 1,026,164 829,895
---------- ----------
Income from operations
before interest 653,377 643,072
INTEREST INCOME AND OTHER 43,036 41,267
INTEREST EXPENSE (1,057,799) (966,873)
---------- ----------
Net loss $ (361,386) $ (282,534)
========== ==========
EARNINGS (LOSS) PER SHARE:
Loss per common share $ (0.04) $ (0.03)
========== ==========
Weighted average number of common
shares outstanding 9,698,482 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>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (361,386) $ (282,534)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,123,821 1,320,845
Deferred rent expense (52,160) (109,494)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 129,019 20,373
Increase in prepaid expenses and other (8,672) (4,826)
Increase in other assets (313,839) (390,416)
Increase in accounts payable and accrued expenses 85,102 679,508
Increase (decrease) in professional fees payable (119,439) 25,367
Decrease in reserve for center terminations (177,704) --
---------- ----------
Net cash provided by operating activities 304,742 1,258,823
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (450,455) (67,578)
Investment in radiation oncology center -- (408,221)
---------- ----------
Net cash used in investing activities (450,455) (475,799)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (596,409) (1,063,972)
Increase in principal under long-term obligations 397,612 1,151,331
Proceeds from issuance of common stock 7,500 --
Decrease in minority interest (56,711) (54,524)
---------- ----------
Net cash provided by (used in) financing activities (248,008) 32,835
---------- ----------
NET INCREASE (DECREASE) IN CASH (393,721) 815,859
CASH, beginning of period 6,175,842 3,663,795
---------- ----------
CASH, end of period $5,782,121 $4,479,654
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
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AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (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, 1995 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 27, 1996.
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 March 31, 1996, the results of
operations and changes in cash flows for the three month periods ended
March 31, 1996 and 1995 have been included.
The results of operations of the three month period ended March 31,
1996 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:
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2. Canadian Accounting Principles (cont.)
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:
Exchange Rates
(Canadian Dollars per U.S. Dollar)
<TABLE>
<CAPTION>
Average for
Three
Months Ended
Year March 31 March 31
---- -------- ------------
<S> <C> <C>
1994 1.340 1.356
1995 1.399 1.404
1996 1.359 1.371
</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
1996 and 1995 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")
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pursuant to which the Company recorded the benefit of its net
operating loss carryforwards and also recorded a valuation reserve for
the entire amount.
5. Summarized Combined Financial Data of Controlled Entities
The summarized combined financial data of the Company's three 50
percent or less owned and controlled entities for the three months
ended March 31, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Condensed Combined Statement
of Operations Data:
Center revenues $1,606,177 $1,648,409
Center expenses 1,262,583 1,225,012
Provision for doubtful
account 36,974 42,345
Provision for center
profit distribution 153,833 187,057
---------- ----------
Income from center operations $ 152,787 $ 193,995
========== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Condensed Combined
Balance Sheet Data:
Current assets $1,961,087 $1,944,849
Total assets 3,652,414 3,701,452
Current liabilities 685,622 683,383
Long-term debt 488,407 480,016
Minority interest equity 1,407,364 1,432,721
</TABLE>
The provision for center profit distribution shown above represents
the minority interest in the income of these combined entities.
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6. Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS
No. 121) in March 1995. The Company adopted SFAS No. 121 in 1996,
which did not have a material effect on the Company's financial
statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123) in October 1995. The Company adopted the provisions of
SFAS No. 123 during 1996.
7. Reclassifications
Certain reclassifications have been made to the 1995 consolidated
financial statements to make them conform with the current year
presentations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to March 31, 1995
The Company reported revenues from the operation of its centers for
the three months ended March 31, 1996 of approximately $8,677,000, compared to
approximately $9,358,000 for the three months ended March 31, 1995,
representing a decrease of approximately 7%. The decrease in reported revenues
of approximately $681,000 is due to the sale or closure of three centers and
the expiration of operating agreements relating to three centers subsequent to
December 31, 1994 (approximately $1,000,000), offset by increased revenues
generated by centers which existed as of March 31, 1995 (approximately
$319,000). 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
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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, including the provision for doubtful accounts, for
the three months ended March 31, 1996, aggregated approximately $6,795,000,
compared to approximately $7,705,000 for the three months ended March 31, 1995.
This decrease of approximately $910,000, or 12%, is due primarily to the
elimination of expenses at the six terminated centers discussed above.
The Company has agreements with its partners at certain co-venture
centers which provide for contingent payments based on annual pre-tax profits,
as defined, of the individual center. The contingent payments, which are
charged to operations as they become accruable, are included in the provision
for center profit distributions. Provision for center profit distributions was
approximately $202,000 for the three months ended March 31, 1996, compared to
approximately $179,000 for the three months ended March 31, 1995. This
represents an increase of approximately $23,000, or 13%. This increase is due
primarily to the elimination of an operating loss at one of the terminated
centers discussed above, offset by reduced income at certain of the Company's
other cooperative venture centers.
The Company reported income from center operations of approximately
$1,680,000 for the three months ended March 31, 1996, compared to approximately
$1,473,000 for the three months ended March 31, 1995, representing an increase
of approximately $207,000, or 14%. This increase in income from center
operations is due primarily to increased income at a majority of the Company's
existing centers (approximately $277,000), offset by the loss of income from
center operations in 1996 at the six terminated centers discussed above
(approximately $47,000) and the increase in provision for center profit
distributions.
For the three month period ended March 31, 1996, the Company recorded
corporate operating expenses of approximately $1,026,000, compared to corporate
operating expenses of approximately $830,000 for the three month period ended
March 31, 1995, an increase of approximately 24%. This increase of
approximately $196,000 is due
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primarily to increases in consulting, legal, personnel and travel costs related
to the merger and debt restructuring negotiations discussed below and business
development.
Interest expense was approximately $1,058,000 during the three months
ended March 31, 1996, compared to approximately $967,000 for the three months
ended March 31, 1995, an increase of approximately $91,000, or 9%. This
increase was due primarily to increased interest as a result of the April 12,
1994 restructuring agreement discussed below, offset by reduced interest
related to amortizations of long-term obligations.
For the three months ended March 31, 1996, the Company reported a net
loss of approximately $361,000 compared to a net loss of approximately $283,000
for the three months ended March 31, 1995. This increase is the result of an
increase in net interest expense and an increase in corporate operating
expenses, offset by increased income from center operations.
Net loss per share for the three months ended March 31, 1996, was
$0.04, compared to a net loss per share of $0.03 for the three months ended
March 31, 1995. 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 three months ended March 31,
1996 and 1995, respectively, no dividend has been subtracted from net loss to
determine loss per share for each of the three months ended March 31, 1996 and
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to a deficit of approximately $11,083,000 at
March 31, 1996 from a deficit of approximately $11,194,000 at March 31, 1995.
This reduction of deficit of approximately $111,000 is primarily due to net
income before depreciation and amortization, offset by principal payments on
long-term obligations. During the past three years, the Company has financed
its operations primarily through internally generated funds and the credit
arrangements discussed below.
Cash decreased to approximately $5,782,000 at March 31, 1996 from
approximately $6,176,000 at December 31, 1995, a decrease of
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approximately $394,000, or 6%. This decrease resulted from (i) an increase in
other assets (approximately $314,000), (ii) principal payments on long-term
debt obligations (approximately $596,000), (iii) the decrease in reserve for
center terminations (approximately $178,000), and (iv) payments made to
minority interest partners (approximately $57,000). The decrease was offset by
(i) net income before depreciation and amortization and deferred rent expense
(approximately $710,000), and (ii) a decrease in accounts receivable
(approximately $129,000). The Company currently has no lines of credit
available to borrow against for working capital purposes.
The Company (i) reported losses from 1992 to 1996 (including a loss of
approximately $361,000 for the three months ended March 31, 1996), (ii) expects
to continue to experience cash flow shortfalls and losses in 1996, (iii) has
certain balloon payments of approximately $12,252,000 and $1,500,000 pursuant
to its long-term debt obligations with its primary creditor maturing in June
and August 1996, respectively, and (iv) has a net capital deficiency of
approximately $12,432,000 at March 31, 1996. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern.
On February 26, 1996, the Company entered into an Agreement and Plan
of Merger (the Merger Agreement) with Maxum Health Corp., a Delaware
corporation (Maxum). In anticipation of the Merger Agreement, the Company and
Maxum jointly formed InSight Health Services Corp. (InSight). The Merger
Agreement provides for the Company and Maxum to merge with newly-formed
acquisition subsidiaries of InSight. As a result, the Company and Maxum will
each become wholly-owned subsidiaries of InSight.
The Company and Maxum also entered into a Preferred Stock Acquisition
Agreement with GE and InSight. In exchange for a comprehensive debt and lease
restructuring of the existing obligations of the Company and Maxum, GE Medical
Systems ("GE") will receive non-voting preferred stock of InSight, convertible
into approximately forty-eight percent (48%) of the common stock of InSight on
a fully-diluted basis. The terms and conditions of the debt and lease
restructuring include, among other things, (i) an extension of the Company's
balloon payments totaling approximately $11,619,000 in 1996 until December
2002, (ii) a reduction of the Company's long-term debt by approximately
$10,685,000, (iii) a
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restructure of certain operating lease arrangements, (iv) the surrender by GE
of warrants to purchase 1,589,072 shares of the Company's common stock at $0.10
per share and (v) similar restructuring for Maxum.
In addition, in connection with the restructure of the Company's and
Maxum's master equipment service contracts, GE will be entitled to receive an
amount equal to approximately 14 percent of income before provision for taxes,
as defined in the agreement, from the consolidated income statement of the
Company, Maxum and InSight.
The Boards of Directors and management of the Company and Maxum,
having received fairness opinions from their respective investment banking
consultants, have recommended approval of the merger to their respective
stockholders. The obligations of the Company and Maxum to consummate the
merger are subject to the satisfaction of certain conditions set forth in the
Merger Agreement, including the approval of the merger by the stockholders of
the Company and Maxum and consummation of the debt and lease restructuring.
Under the Merger Agreement, each share of the Company's common stock
will be converted into the right to receive approximately .100 shares of
InSight common stock, and each share of the Company's Series B Convertible
Preferred Stock shall be converted into the right to receive approximately ten
(10) shares of InSight common stock. Each share of Maxum common stock shall be
converted into the right to receive approximately .598 shares of InSight common
stock. Immediately upon consummation of the merger, approximately one-half of
the issued and outstanding common stock of InSight will be held by former
stockholders of the Company and approximately one-half will be held by former
Maxum stockholders.
The Merger Agreement may be terminated if the merger has not been
consummated, or the approval of the Company's and Maxum's stockholders has not
been obtained, by September 30, 1996. There can be no assurance that these
transactions may be consummated in a timely manner.
Pursuant to the terms of an April 12, 1994 agreement between the
Company and GE, the maturity of a balloon principal payment of approximately
$9,600,000 which was due in May 1994, was extended
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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. As a result, the Company was
required to make certain balloon principal payments pursuant to its loan
agreements with its primary lender as follows: $10,500,000 in June 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 in 1995. Finally, GE agreed to provide three deferred payments to be
used in 1995, under certain circumstances. During 1995, the Company utilized
all of its deferrals which totaled approximately $2,133,000. 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 in
technical violation of several of these covenants and ratios, but upon
consummation of the restructuring described above, GE will agree to eliminate
these covenants and ratios.
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 and merger 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 1995 the Company sold or closed several 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 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 raising new capital for future
operations.
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The Company believes that it will be able to meet its long-term debt,
operating lease and other ongoing obligations through June 1996; however, the
Company believes that its ability to meet its long-term debt obligations beyond
June 1996 is contingent upon the consummation of the long-term restructuring
and merger plans discussed above. However, there can be no assurances that any
of these transactions may be consummated in a timely manner.
Effective March 1, 1996, Radiosurgery Centers, Inc., the Company's
wholly owned subsidiary, refinanced a Gamma Knife equipment loan
(approximately $2,075,000) with GE on terms substantially equivalent to the
original equipment loan. This loan is secured by all of the assets of the
Gamma Knife center, as well as by a letter of credit of $400,000 which is
guaranteed by the estate of Cal Kovens.
In connection with the Company's expansion plans, the Company has
reviewed several diagnostic imaging centers as acquisition candidates. In
1995, the Company purchased an interest in a radiation oncology treatment
facility in Valparaiso, Indiana. The cash needed to purchase this center was
made available from long-term notes with GE. 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 prohibits referring
physician ownership of diagnostic imaging centers after December 31, 1994. The
Company no longer has any cooperative ventures with referring physician
ownership.
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
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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 three months ended
March 31, 1996.
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes ("SFAS 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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121") in March
1995. The Company adopted SFAS No. 121 in 1996, which did not have a material
effect on the Company financial statements.
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.
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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 March 31, 1996, the Company filed a
current report on Form 8-K on March 12, 1996, with respect to
Item 5 "Other Information" regarding the Agreement and Plan of
Merger with Maxum Health Corp dated February 26, 1996.
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<PAGE> 19
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: May 15, 1996
19
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