<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, 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 0-12849
AMERICAN SHARED HOSPITAL SERVICES
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2918118
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Four Embarcadero Center, Suite 3620, San Francisco, California 94111
- - -------------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415) 788-5300
Indicate by check mark whether the registrant (1) has filed all reports
required to be fi2led 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
--- ---
As of May 10, 1995: there are outstanding 2,867,401 shares of the
Registrant's common stock.
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AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS March 31, 1995 Dec. 31, 1994
- - ------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 742,000 $ 1,225,000
Receivables, less allowance for
uncollectible accounts of
$1,251,000 ($1,424,000 in
1994):
Trade accounts receivable 5,611,000 6,183,000
Other receivables 439,000 537,000
Note receivable from officer 54,000 54,000
------------ ------------
6,846,000 7,999,000
Inventories 125,000 146,000
Prepaid Expenses and other current assets 609,000 758,000
------------ ------------
TOTAL CURRENT ASSETS 7,580,000 8,903,000
Note Receivable from Officer, less current portion 231,000 248,000
Property and equipment:
Land buildings and improvements 2,352,000 2,351,000
Medical, transportation & office equipment 9,620,000 9,670,000
Capitalized lease equipment 38,293,000 38,271,000
------------ ------------
50,265,000 50,292,000
Accumulated depreciation & amortization (20,493,000) (18,165,000)
------------ ------------
Net Property and Equipment 29,772,000 32,127,000
Intangible assets, less accumulated
amortization 2,066,000 2,118,000
Other Assets 963,000 943,000
------------ ------------
TOTAL ASSETS 40,612,000 44,339,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
- - ------------------------
Current liabilities:
Accounts payable $ 3,900,000 $ 4,450,000
Accrued interest 9,027,000 8,497,000
Employee compensation 1,131,000 1,210,000
Other accrued liabilities 1,182,000 1,317,000
Current portion of long-
term debt 193,000 196,000
Current portion of obligations
under capital leases 8,016,000 8,135,000
Senior subordinated notes 18,467,000 18,467,000
------------ ------------
TOTAL CURRENT LIABILITIES 41,916,000 42,272,000
Long-term debt, less current portion 2,513,000 2,539,000
Obligations under capitalleases
less current portion 19,643,000 21,705,000
Deferred income taxes 164,000 164,000
Stockholders' equity (Net Capital
Deficiency):
Common stock, without par value:
authorized shares - 10,000,000
issued & outstanding shares,
2,867,000 in 1995 & 1994 8,795,000 8,795,000
Additional paid-in capital 763,000 763,000
Accumulated deficit (33,182,000) (31,899,000)
------------ ------------
Total stockholders' equity
(Net Capital Deficiency) (23,624,000) (22,341,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NETCAPITAL DEFICIENCY) 40,612,000 44,339,000
============ ============
</TABLE>
See Accompanying Notes
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<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1995 1994
-------- --------
<S> <C> <C>
REVENUES:
Medical services $ 8,672,000 $ 9,873,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,711,000 2,670,000
Maintenance and supplies 1,664,000 1,732,000
Depreciation and amortization 2,340,000 2,009,000
Equipment rental 433,000 1,220,000
Other 858,000 1,026,000
----------- -----------
7,006,000 8,657,000
Selling and administrative 1,302,000 1,394,000
Interest 1,750,000 1,563,000
----------- -----------
TOTAL COSTS AND EXPENSES 10,058,000 11,614,000
=========== ===========
Equity in earnings of partnerships 16,000 18,000
Gain on sale of assets and equipment 8,000 84,000
Interest and other income 79,000 21,000
----------- -----------
Loss before income taxes (1,283,000) (1,618,000)
Income tax provision 0 (13,000)
----------- -----------
Net loss ($1,283,000) ($1,631,000)
=========== ===========
Net loss per share ($0.45) ($0.57)
=========== ===========
Common shares and equivalents used
in computing per share amounts 2,867,000 2,867,000
=========== ===========
</TABLE>
See Accompanying Notes
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<PAGE> 4
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss (1,283,000) (1,631,000)
Adjustment to reconcile net loss to net
cash provided by operating activities:
Gain on sale of assets (8,000) (84,000)
Depreciation and amortization 2,502,000 2,190,000
Equity in (earnings) of partnerships (16,000) (18,000)
Changes in operating assets and liabilities:
Decrease (increase) in receivable 670,000 (450,000)
Decrease (increase) in inventory 21,000 (38,000)
Decrease in prepaid
expenses & other assets 149,000 67,000
(Decrease) increase in account payable &
and accrued liabilities (234,000) 1,432,000
--------- ---------
Net cash provided by operating activities 1,801,000 1,468,000
INVESTING ACTIVITIES
Proceeds from sale and disposition of equipment 15,000 296,000
Payment for purchase of property and equipment (32,000) (299,000)
Other (59,000) (3,000)
--------- ---------
Net cash provided in investing activities (76,000) (6,000)
FINANCING ACTIVITIES
Principal payments on long-term debt and
obligations under capital leases (2,208,000) (931,000)
--------- ---------
Net cash used in financing activities (2,208,000) (931,000)
Net (decrease) increase in cash and cash equivalents (483,000) 531,000
Cash and cash equivalents at beginning of period 1,225,000 957,000
--------- ---------
Cash and cash equivalents at end of period 742,000 1,488,000
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid 1,220,000 204,000
========= =========
Income taxes paid 54,000 13,000
========= =========
</TABLE>
See Accompanying Notes
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<PAGE> 5
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly American Shared
Hospital Services' (the "Company") consolidated financial position as of
March 31, 1995 and the results of its operations for the three months
ended March 31, 1995 and 1994, which results are not necessarily indicative
of results on an annual basis. Consolidated balance sheet amounts as of
December 31, 1994 have been derived from audited financial statements.
These financial statements include the accounts of the Company and its
wholly owned subsidiaries, CuraCare, Inc., MMRI, Inc., European Shared
Medical Services Limited and American Shared Radiosurgery Services. All
significant intercompany accounts and transactions have been eliminated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Medical Services revenues declined $1,201,000 to $8,672,000 for the three
months ended March 31, 1995 compared to $9,873,000 for the three months
ended March 31, 1994. Revenues from Magnetic Resonance Imaging (MRI)
service increased $691,000 compared to the same period in the prior year
due primarily to the commencement of new customer contracts and increased
utilization from contracts commenced in prior periods. The Company had a
net increase of approximately 5 new MRI customer contracts as of March 31,
1995 compared to March 31, 1994.
Computed Tomography (CT) revenues decreased $295,000 compared to the same
period in the prior year due to the operation of two fewer scanners and
lower revenue generation from mobile routes. Nuclear Medicine and
Ultrasound revenues decreased $285,000 compared to the same period in the
prior year as a result of the December 31, 1994 sale of two Ultrasound
Department contracts as a part of its Respiratory Therapy Department
contract sale and the continued reduction in mobile ultrasound revenues.
Respiratory Therapy Services revenues decreased $1,407,000 during the first
quarter of 1995 compared to the same period in the prior year due to the
December 31, 1994 sale of eight Respiratory Therapy Department contracts,
its Respiratory Registry and the
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termination of two contracts. During the second quarter of 1995 an
additional two contracts will terminate.
Gamma Knife revenues increased $95,000 during the first quarter of 1995
compared to the same period in the prior year due to increased utilization.
Gamma Knife revenues are not currently a significant component of the
Company's revenues.
Total costs of operations decreased $1,651,000 from $8,657,000 for the
three months ended March 31, 1994 to $7,006,000 for the three months ended
March 31, 1995. Payroll, the largest component of costs of operations,
decreased $959,000 from $2,670,000 for the three months ended March 31,
1995. The decrease is primarily attributable to the Company's sale of its
Respiratory Therapy Department and related contracts during the fourth
quarter of 1994. Maintenance and supplies decreased $68,000 from
$1,732,000 in 1994 compared to $1,664,000 in 1995 primarily due to pricing
reductions on MRI maintenance contracts and a decrease in supply usage
associated with the sale and termination of Respiratory Therapy contracts.
Depreciation and amortization increased $331,000 from 2,009,000 in 1994 to
$2,340,000 in 1995. The increase is primarily attributable to the
Company's lease restructuring with its primary equipment lessor which was
effective January 1, 1994 but recorded cumulatively in the fourth quarter
of 1994. Equipment leases previously accounted for as rentals were
accounted for as capitalized leases (increased depreciation and interest
expense) due to the lease restructuring. Equipment rental decreased
$787,000 from $1,220,000 in 1994 to $433,000 in 1995 as a result of the
Company's aforementioned lease restructuring with its primary equipment
lessor. Other operating costs decreased $168,000 from $1,026,000 in 1994
to $858,000 in 1995 primarily due to a reduction in regional office and
property related costs.
Selling and Administrative costs decreased $92,000 from $1,394,000 in 1994
to $1,302,000 in 1995 due primarily to reduced salary and wage expenses.
Interest expense increased $187,000 from $1,563,000 in the first quarter of
1994 to $1,750,000 in 1995 primarily due to the Company's aforementioned
lease restructuring with its primary equipment lessor.
The Company had a net loss of $1,283,000 for the period ending March 31,
1995 compared to a net loss of $1,631,000 for the same period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $742,000 at March 31, 1995
compared to $1,225,000 at December 31, 1994. The Company's cash position
decreased in 1995 as a result of its operating losses.
Under their then existing terms, the Company's equipment leases required
cash payments in 1993 of approximately $18,625,000, and
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the Company's 16-1/2% Senior Subordinated Exchangeable Reset Notes due 1996
and the Company's 14-3/4% Senior Subordinated Notes due 1996 (referred to
collectively as the "Subordinated Notes") would have required cash interest
payments in 1993 of $3,062,000. Lease and Subordinated Note payments
totaling approximately $20,460,000 would have been due in 1994 under
original terms. The Company determined during the second half of 1992 that
it would not generate sufficient revenues or sufficiently reduce expenses
from operations to meet in full its obligations under the Subordinated
Notes and equipment leases. Accordingly, the Company suspended interest
payments under the Subordinated Notes beginning with the October 15, 1992
semi-annual interest payment, and suspended lease payments on a significant
portion of its leases from December 1, 1992. The Company on December 31,
1994 restructured its leases with its primary lessor.
As a result of the Company's non-payment of interest, the Subordinated
Notes are in default and the holders have the right to declare principal
and accrued interest immediately due and payable. The amount of interest
under the Subordinated Notes that was due but not paid on October 15, 1992,
April 15, 1993, October 15, 1993, April 15, 1994, October 15, 1994 and
April 15, 1995 is approximately $9,046,000. As of May 10, 1995, the holders
had not exercised their right to demand repayment.
In the event that the holders of Subordinated Notes exercise their rights
to accelerate the Subordinated Notes, the Company would be forced to
liquidate under Chapter 7 of the U.S. Bankruptcy Code or to seek to
reorganize under Chapter 11 of the U.S. Bankruptcy Code.
On April 4, 1994 the Company reached an agreement in principle with the
holders of approximately 96% in outstanding principal amount of the
Subordinated Notes to exchange such obligations (including accrued and
unpaid interest through the date of the exchange) for Common Stock. A
shareholder vote to approve a restructuring that would include such
exchange was scheduled for April 7, 1995, and was subsequently adjourned to
May 18, 1995. Concurrently with the agreement in principle, the Company
also announced the terms of a restructuring with its primary equipment
lessor and the extension of the Company's secured credit facility.
Under the lease restructuring, the leases covering substantially all of the
Company's medical equipment were modified to extend the lease terms and to
reduce scheduled lease payments. The restructuring resulted in lease
payment reductions of approximately $300,000 per month for a cash savings
of $3,600,000 in 1994. During 1994, the Company made monthly aggregate
payments based on the estimated restructured lease payments. The reduction
in lease payments is after inclusion of approximately $2,000,000 in capital
costs incurred during 1993 to upgrade five of the Company's MRI units, in
an effort to increase the revenue generating capacity of those units. In
addition, certain accrued and unpaid lease and service payments were
converted into a $2,000,000 secured seven (7) year note (the "Lessor's
Note").
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<PAGE> 8
The Lessor's Note will bear interest at an annual rate of 4%, payable in
arrears, and will mature on the last day of the 86th month following its
issuance. Monthly payments of interest only will be due on the last day of
each of the first 11 months following issuance. Thereafter the principal
balance of the Lessor's Note will amortize in 75 equal monthly installments
until maturity. The Lessor's Note is secured by a lien on the Accounts
Receivable of CuraCare, Inc. and American Shared-CuraCare. The Lessor's
Note is also secured by a lien on two CT units and one Ultrasound unit.
As part of the agreement in principle to restructure the Company's
obligations, Foothill extended its $5 million credit facility through
February 28, 1995 and established the Company's borrowing capacity at the
lesser of (i) 65% of eligible receivables or (ii) cash collections during
the preceding 45 day period. As of December 31, 1994, the Company had
borrowings under the Foothill credit facility of approximately $2,883,000.
As a part of the Company's sale of its Respiratory Therapy contracts on
December 31, 1994, the Company provided cash collateral to Foothill of an
amount equal to its borrowings under its credit facility. The credit
facility was terminated and repaid in full in accordance with its terms on
February 28, 1995.
In the proposed restructuring, the Principal Noteholders who own
approximately $17,700,000 (after giving effect to the recent redemption of
$321,000 of Subordinated Notes) in outstanding principal amount of the
Subordinated Notes, would agree to exchange their securities (including all
claims for accrued and unpaid interest of approximately $8,670,000 as of
April 15, 1995) for newly issued Common Stock of the Company. If the
Principal Noteholders exchange their obligations for Common Stock such
holders would own approximately 89.4% of the fully diluted shares of the
Common Stock of the Company following this restructuring.
The proposed restructuring will result in annual interest savings from the
Subordinated Notes of approximately $2,890,000. In addition, under the
terms of the Subordinated Notes, the Subordinated Notes would have matured
in October 1996. If the proposed exchange is accepted by the Principal
Noteholders (i) there would still remain outstanding approximately $773,000
of Subordinated Notes with required annual interest payments of $125,000
and (ii) the Company would pay accrued and unpaid interest through April
15, 1995 of approximately $460,000 to holders of unexchanged Subordinated
Notes.
The proposed restructuring was the result of lengthy and difficult
negotiations and remains subject to the satisfaction of many conditions.
The Company distributed proxy statements to shareholders on February 14,
1995 and scheduled a shareholder meeting on April 7, 1995, which was
subsequently adjourned to May 18, 1995.
8
<PAGE> 9
On May 5, 1995 the Company entered into a revised debt restructuring
agreement with four holders of approximately 96% of its Senior Subordinated
Notes, to repurchase their Notes (including accrued, unpaid interest) for a
combination of cash and equity equal to approximately 25% of the Company's
fully diluted outstanding shares.
At the scheduled May 17 closing date for this transaction, the four
Noteholders will receive of approximately $3,900,000 in cash, plus a total
of 819,000 shares of common stock (equal to approximately 20% of the
Company's then fully diluted outstanding common shares), and warrants for
an additional 216,000 shares of common stock (equal to approximately 5% of
the then fully diluted common shares). The warrants will be immediately
exercisable at $0.75 per share in cash.
The closing of the Notes repurchase is subject to funding of two new credit
facilities totalling $8,000,000, which the Company has obtained. Proceeds
of the new credit facilities will be used for the Notes repurchase, for
reduction of other term debt, for refinancing certain equipment, and for
working capital. The closing also is subject to definitive agreements and
documentation for the credit facilities, the Notes repurchase and related
transactions.
Following the closing of the Notes repurchase the existing shareholders of
the Company other than Ernest A. Bates, M.D., the Company's chairman and
CEO, would own approximately 43% of its fully diluted shares.
Simultaneously with the Notes repurchase, Dr. Bates will be issued an
additional 184,000 shares of the Company's common stock, as partial
consideration for his personal guarantees of the new credit facilities, and
for agreeing to enter into an employment agreement with the Company. Such
shares constitute 5% of the Company's fully diluted shares following the
repurchase of the Notes, and will result in Dr. Bates owning 28% of the
Company on a fully diluted basis, compared with approximately 34% prior to
the Notes repurchase. Warrants to purchase approximately 127,000 additional
shares of the Company's common stock also will be issued at the May 17
closing to the Company's equipment lessor, in return for new financing
being provided by it, and for the lessor's agreement with certain terms of
the other new credit facility.
The Company intends that remaining holders of its 14 3/4% Senior
Subordinated Notes Due 1996 and of its 16 1/2% Senior Subordinated
Exchangeable Reset Notes Due 1996 which are not repurchased pursuant to
this agreement will be paid their past due interest following the May 17
scheduled closing.
The closing of the above transactions remains subject to numerous
conditions and there can be no assurance that such transactions will close.
9
<PAGE> 10
The Company also intends to call another shareholder meeting as soon as
possible in 1995, to obtain shareholder approval for the issuance of
additional shares of common stock to Dr. Bates, as further consideration
for his personal guarantees of the Company's new credit facilities, and for
agreeing to enter into an employment agreement with the Company. If
shareholders approve that proposal, Dr. Bates would hold approximately 43%
of the Company's then fully diluted outstanding shares, and the selling
Noteholders would receive additional shares and warrants to maintain
approximately a 25% fully diluted ownership of the Company's common stock.
If the proposal for issuance of additional shares and warrants is approved,
existing shareholders then would own approximately 30% of the Company's
issued and outstanding stock. The four selling Noteholders have agreed to
vote their shares in favor of issuing the additional stock to Dr. Bates and
in favor of a new Employee Stock Option Plan to succeed one which expired
in 1994.
Even with the cash savings resulting from the proposed restructuring, the
Company will continue to face uncertainty during the next 12 months unless
it is able to increase revenues and reduce its cost structure.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
The Company did not make the semi-annual interest payments due
October 15, 1992, April 15, 1993, October 15, 1993, April 15,
1994, October 15, 1994 and April 15, 1995 on its 16 1/2%
Senior Subordinated Exchangeable Reset Notes Due 1996 (the
"16 1/2% Notes") and 14 3/4% Senior Subordinated Notes Due
1996 (the "14 3/4% Notes"). As a result, the Company is in
default under both the 16 1/2% Notes and the 14 3/4% Notes.
On and as of May 10, 1995, the total arrearage of interest on
the 16 1/2% Notes is $8,429,000 and on the 14 3/4% Notes is
$823,000.
Item 4. Submission of Matters to a Vote of Securities Holders.
The Company's annual meeting of shareholders scheduled to meet
on April 7, 1995 to consider and vote on the Company's proxy
statement dated February 14,1995 was adjourned until May 18,
1995.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
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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 thereunto duly authorized.
AMERICAN SHARED HOSPITAL SERVICES
Registrant
Date: May 13, 1995 /s/ Ernest A. Bates, M.D.
------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1995 /S/ Craig K. Tagawa
------------------------------
Craig K. Tagawa
Senior Vice President - Chief
Financial Officer (Principal
Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
EX 27. FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 742
<SECURITIES> 0
<RECEIVABLES> 7,648
<ALLOWANCES> 1,037
<INVENTORY> 0
<CURRENT-ASSETS> 7,580
<PP&E> 50,265
<DEPRECIATION> 20,493
<TOTAL-ASSETS> 40,612
<CURRENT-LIABILITIES> 41,916
<BONDS> 22,156
<COMMON> 8,795
0
0
<OTHER-SE> 763
<TOTAL-LIABILITY-AND-EQUITY> 40,612
<SALES> 8,672
<TOTAL-REVENUES> 8,672
<CGS> 0
<TOTAL-COSTS> 7,006
<OTHER-EXPENSES> 1,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,750
<INCOME-PRETAX> (1,283)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,283)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
