<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 JUNE 30, 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 0-12849
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 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
----- -----
AS OF AUGUST 7, 1996: THERE ARE OUTSTANDING 4,629,190 SHARES OF THE
REGISTRANT'S COMMON STOCK.
-1-
<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION - CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS June 30, 1996 Dec. 31, 1995
- ------------------------------------------------- ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 327,000 $ 452,000
Restricted cash 827,000 493,000
Receivables, less allowance for
uncollectible accounts of
$1,258,000 ($1,448,000 in 1995):
Trade accounts receivable 6,318,000 6,251,000
Other receivables 178,000 202,000
Note receivable from officer 0 57,000
------------ ------------
6,496,000 6,510,000
Inventories 45,000 67,000
Prepaid expenses and other current assets 627,000 1,124,000
------------ ------------
TOTAL CURRENT ASSETS 8,322,000 8,646,000
Note Receivable from officer, less current portion 0 191,000
Property and equipment:
Land, buildings and improvements 1,508,000 1,560,000
Medical, transportation & office equipment 10,185,000 7,453,000
Capitalized lease equipment 27,111,000 24,673,000
------------ ------------
38,804,000 33,686,000
Accumulated depreciation & amortization (16,966,000) (14,015,000)
------------ ------------
Net property and equipment 21,838,000 19,671,000
Intangible assets, less accumulated amortization 1,336,000 1,462,000
Other assets 1,501,000 1,375,000
------------ ------------
TOTAL ASSETS $ 32,997,000 $ 31,345,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) June 30, 1996 Dec. 31,1995
------------------------ ------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,244,000 $ 3,524,000
Accrued interest 72,000 170,000
Employee compensation 854,000 1,175,000
Other accrued liabilities 1,124,000 1,077,000
Current portion of long-term debt 6,913,000 2,796,000
Current portion of obligations
under capital leases 6,287,000 5,924,000
Senior subordinated notes 773,000 773,000
------------ ------------
TOTAL CURRENT LIABILITIES 20,267,000 15,439,000
Long-term debt, less current portion 6,631,000 9,278,000
Obligations under capital leases,
less current portion 16,277,000 16,847,000
Deferred income taxes 164,000 164,000
Minority interest 682,000 193,000
Stockholders' equity (net capital deficiency):
Common stock, without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 4,342,000
in 1996 & 4,244,000 in 1995 10,636,000 10,635,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 930,000 930,000
Accumulated deficit (25,004,000) (24,555,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (11,024,000) (10,576,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $ 32,997,000 $ 31,345,000
============ ============
</TABLE>
See Accompanying Notes
2
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Medical Services $ 9,202,000 $ 8,468,000 $ 18,141,000 $ 17,140,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,790,000 1,762,000 3,558,000 3,473,000
Maintenance and supplies 1,636,000 1,748,000 3,421,000 3,412,000
Depreciation and amortization 1,747,000 2,283,000 3,408,000 4,623,000
Write-down of equipment 0 3,825,000 0 3,825,000
Equipment rental 804,000 775,000 1,838,000 1,208,000
Other 994,000 1,047,000 1,935,000 1,905,000
------------ ------------ ------------ ------------
6,971,000 11,440,000 14,160,000 18,446,000
Selling and administrative 1,263,000 1,656,000 2,486,000 2,958,000
Interest 996,000 1,524,000 2,072,000 3,274,000
Write-down of intangible assets 0 600,000 0 600,000
------------ ------------ ------------ ------------
Total costs and expenses 9,230,000 15,220,000 18,718,000 25,278,000
Equity in earnings (losses) of partnerships (1,000) 7,000 41,000 23,000
Gain (loss) on sale of assets 13,000 (54,000) 24,000 (46,000)
Interest and other income 47,000 29,000 57,000 108,000
------------ ------------ ------------ ------------
Income (loss) before income taxes &
extraordinary item 31,000 (6,770,000) (455,000) (8,053,000)
Income tax expense (benefit) 0 0 (6,000) 0
------------ ------------ ------------ ------------
Income (loss) before extraordinary item 31,000 (6,770,000) (449,000) (8,053,000)
Extraordinary item - gain on early
extinguishment of debt 0 20,378,000 0 20,378,000
------------ ------------ ------------ ------------
Net income (loss) $ 31,000 $ 13,608,000 ($ 449,000) $ 12,325,000
============ ============ ============ ============
Income (loss) per share:
Income (loss) before extraordinary item $ 0.01 ($ 1.50) ($ 0.10) ($ 2.18)
Extraordinary Item $ 0.00 $ 4.52 $ 0.00 $ 5.51
------------ ------------ ------------ ------------
Net income (loss) $ 0.01 $ 3.02 ($ 0.10) $ 3.33
============ ============ ============ ============
Common shares and equivalents used in
computing per share amounts 6,135,000 4,506,000 4,312,000 3,700,000
------------ ------------ ------------ ------------
</TABLE>
See Accompanying Notes
3
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($ 449,000) $ 12,325,000
Adjustment to reconcile net loss to net
cash provided by (used in) operating activities:
Extraordinary gain after income taxes 0 (20,378,000)
(Gain) loss on sale of assets (24,000) 46,000
Depreciation and amortization 3,578,000 4,928,000
Write-down of equipment 0 3,825,000
Write-down of intangible assets 0 600,000
Equity in (earnings) of partnerships (41,000) (23,000)
Compensation expense related to stock grants 0 265,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (43,000) 798,000
Decrease in inventories 22,000 33,000
Decrease in prepaid expenses and other assets 497,000 208,000
Increase (decrease) in accounts payable and accrued liabilities 348,000 (377,000)
(Increase) decrease in restricted cash (334,000) 0
------------ ------------
Net cash provided by operating activities 3,554,000 2,250,000
INVESTING ACTIVITIES:
Payment for purchase of property and equipment (33,000) 209,000
Proceeds from sale and disposition of property and equipment 696,000 63,000
Increase in minority interest 489,000 0
Distributions received from partnership 15,000 0
Other (138,000) (111,000)
------------ ------------
Net cash provided by investing activities 1,029,000 161,000
FINANCING ACTIVITIES:
Payment for repurchase of bonds 0 (3,893,000)
Proceeds from loan agreement 0 7,000,000
Payment for exercise of warrants 1,000 0
Principal payments on long-term debt and obligations
under capital leases (4,709,000) (5,719,000)
Other 0 (563,000)
------------ ------------
Net cash used in financing activities (4,708,000) (3,175,000)
------------ ------------
Net decrease in cash and cash equivalents (125,000) (764,000)
Cash and cash equivalents at beginning of period 452,000 1,225,000
------------ ------------
Cash and cash equivalents at end of period $ 327,000 $ 461,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 2,171,000 $ 2,770,000
============ ============
Income taxes $ 19,000 $ 54,000
============ ============
</TABLE>
See accompanying notes
4
<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 June 30, 1996
and the results of its operations for the three and six month periods ended June
30, 1996 and 1995, which results are not necessarily indicative of results on an
annual basis. Consolidated balance sheet amounts as of December 31, 1995 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, American Shared
Radiosurgery Services, African American Church Health and Economic Services,
Inc., ACHES Insurance Services, Inc. and the Company's majority-owned
subsidiary, GK Financing, LLC. All significant intercompany accounts and
transactions have been eliminated.
The Company has incurred net losses before extraordinary items of $12,459,000,
$5,537,000 and $15,644,000 in 1995, 1994 and 1993, respectively. At June 30,
1996, the Company has a working capital deficiency of $11,945,000 and a net
capital deficiency of $11,024,000. In addition the Company will not have
sufficient cash resources to repay its debt obligations at maturity and will be
required to seek new financing. There can be no assurance that such financing
will be available or that the terms of any such financing will be acceptable to
the Company.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
Note 2. Per Share Amounts
Per share information has been computed based on the weighted average number of
common shares and dilutive common share equivalents outstanding.
5
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Medical Services revenues increased $734,000 and $1,001,000 for the three and
six month periods ended June 30, 1996 from $8,468,000 and $17,140,000 for the
three and six month periods ended June 30, 1995.
Revenues from Magnetic Resonance Imaging (MRI) service increased $671,000 and
$1,591,000 for the three and six month periods ended June 30, 1996 compared to
the same periods in the prior year. The increases are primarily due to the
commencement of new customer contracts on four additional units and increased
utilization from contracts commenced in prior periods. The Company had a net
increase of approximately 11 new MRI customer contracts as of June 30, 1996
compared to June 30, 1995.
Computed Tomography (CT) revenues decreased $20,000 and $48,000 for the three
and six month periods ended June 30, 1996 compared to the same periods in the
prior year due to lower revenue generation from mobile routes and conversion of
certain units from mobile routes to interim rentals. Nuclear Medicine and
Ultrasound revenues decreased $26,000 and $148,000 for the three and six months
periods ended June 30, 1996 compared to the same periods in the prior year as a
result of utilization decreases in mobile Ultrasound and Nuclear Medicine.
Contract Service Revenues consisting of respiratory therapy services and cardiac
catheterization laboratory revenues decreased $140,000 and $552,000 for the
three and six month periods ended June 30, 1996 compared to the same periods in
the prior year due to the termination of four respiratory therapy contracts. The
decrease in respiratory therapy services revenues was partially offset by the
commencement of a cardiac catheterization laboratory contract in second quarter
1996.
Gamma Knife revenues increased $248,000 and $153,000 for the three and six month
periods ended June 30, 1996 compared to the same periods in the prior year. The
revenue increase was due to inclusion of a second Gamma Knife unit, offset by
reduced revenues from the Company's first Gamma Knife unit as a result of a
contract extension and reduced pricing.
Total cost of operations, exclusive of write-down of equipment and intangible
assets, decreased $644,000 and $461,000 for the three and six month periods
ended June 30, 1996 compared to the same periods in the prior year. Medical
services payroll increased $28,000 and $85,000 for the three and six month
periods ended June 30, 1996 compared to the same periods in the prior year
primarily due to the increase in MRI revenues. Maintenance and supplies
decreased $112,000 and increased $9,000 for the three and six month periods
ended June 30, 1996 compared to the same periods in the prior year. The decrease
in second quarter 1996 maintenance and supplies is a result of cost savings
associated with MRI maintenance contracts. Depreciation and
6
<PAGE> 7
amortization decreased $536,000 and $1,215,000 for the three and six month
periods ended June 30, 1996 compared to the same periods in the prior year. The
decrease is primarily attributable to the adoption of Financial Accounting
Standards No. 121 (FAS 121) during the second quarter 1995 as explained in
further detail below. In addition, the majority of capital leases were extended
as of October 1, 1995 thereby extending the depreciable life of the asset (as
leased assets are depreciated based on lease terms) and decreasing depreciation
expense. Equipment rental increased $29,000 and $630,000 for the three and six
months periods ended June 30, 1996 compared to the same periods in the prior
year. The second quarter increase was significantly less than that for the six
month period as the Company returned four rental units. Other operating costs
decreased $53,000 and increased $30,000 for the three and six month periods
ended June 30, 1996 compared to the same period in the prior year. The second
quarter decrease results from reduced regional office costs and a reduction in
costs associated with Certificate of Need applications, offset by increased fuel
costs. The six month 1996 increase is due to increases in MRI space rental costs
and physician reading fees.
In connection with the early adoption of FAS 121 during the second quarter of
1995, management reviewed the recoverability of the carrying value of long-lived
assets, primarily fixed assets, goodwill and deferred costs. Following its
review, management concluded that there was an impairment in the recorded value
of fixed assets, goodwill and deferred costs under FAS 121 based on management's
estimate of future undiscounted cash flows over the estimated remaining useful
life of certain assets.
Accordingly, an impairment loss of $4,425,000 was recorded in the second quarter
of 1995 based on the differences between the fair value of such assets as
determined by third parties and the recorded values. The impairment loss is
comprised of a charge for the write-downs of equipment and deferred assets of
$3,825,000 (primarily MRI, CT and nuclear medicine) and goodwill of $600,000.
Selling and Administrative costs decreased $393,000 and $472,000 for the three
and six month periods ended June 30, 1996 compared to the same period in the
prior year due primarily to employee medical insurance related savings and
favorable resolutions of insurance claims and of a terminated building lease.
Additionally, second quarter 1995 results include a charge of $265,000 to salary
and wage expense for the 184,000 shares of common stock issued to the Company's
Chairman and CEO, Ernest A. Bates, M.D. for his continued services to the
Company and his personal guarantee of $6,500,000 of indebtedness of the Company.
Interest expense decreased $528,000 and $1,202,000 for the three and six month
periods ended June 30, 1996 compared to the same periods in the prior year
primarily due to the Company's repurchase in May 1995 of $17,694,000 aggregate
principal amount of its Senior Subordinated Notes.
7
<PAGE> 8
The Company has net income of $31,000 and a loss of $449,000 for the three and
six months periods ended June 30, 1996 compared to net income of $13,608,000 and
$12,325,000 for the same periods in the prior year. The three month and six
month periods ended June 30, 1995 include an extraordinary gain on early
extinguishment of debt of $20,378,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $327,000 at June 30, 1996 compared
to $452,000 at December 31, 1995. The Company's cash position decreased due to
its net loss of $449,000 in the first six months of 1996.
On May 17, 1995, the Company repurchased (the "Notes Repurchase") for cash and
securities approximately 96% of its outstanding Senior Subordinated Notes (the
"Subordinated Notes"). The Notes Repurchase, together with a December 1994 lease
restructuring and the availability of up to $8,000,000 of new debt financing,
concluded a broad restructuring of the Company's obligations as more fully
explained in the Company's 1995 Form 10-K.
On December 29, 1995 and March 1, 1996, the Company further restructured certain
of its medical equipment leases and its outstanding notes, in a principal amount
of $2,361,000 (the "GE Notes") as of June 30, 1996, to extend the terms of the
leases for periods of up to an additional 26 months, to defer certain monthly
lease payments and to defer certain installment payments on the GE Notes in the
beginning of 1996. This further restructuring results in payment reductions of
approximately $1,200,000 for the Company in 1996.
In connection with the issuance of the GE Notes, the Company issued warrants to
GE to purchase an aggregate of 225,000 Common Shares for $0.01 per share.
Effective March 5, 1996, 97,853 of the GE Warrants were exercised to purchase
97,853 Common Shares.
In March, 1996 the Company sold its Modesto buildings for $650,000 in cash and
also negotiated an increase of $500,000 in its working capital revolving line of
credit. These two items will increase the Company's working capital.
The various restructuring transactions described above cured all of the
Company's outstanding defaults relating to its debt and lease obligations. The
Company nevertheless remains highly leveraged and has significant cash payment
requirements under its equipment leases and credit facilities. Scheduled cash
equipment capital lease payments and operating lease payments during the 12
months ending December 31, 1996 are $8,313,000 and $834,000, respectively, with
related maintenance commitments of approximately $1,847,000. Scheduled interest
and principal payments under the Company's other debt obligations during such
period are approximately
8
<PAGE> 9
$4,824,000. In order to generate sufficient cash to satisfy these obligations as
they become due, the Company's management will do the following: (i) continue to
implement its program of expense reductions; (ii) enhance revenues by increasing
customer contracts and equipment utilization; (iii) negotiate favorable
concessions from major creditors; and (iv) offer to exchange equity in the
Company for interest bearing debt. There can be no assurance that these measures
will generate sufficient cash to enable the Company to meet its scheduled
obligations. Any inability of the Company to meet its obligations when due would
result in a default which could permit the relevant obligor to accelerate the
obligation and seek other remedies including seizure of the Company's medical
imaging equipment. In such event, the Company would be forced to seek a
liquidation under Chapter 7 or a reorganization under Chapter 11 of the United
States Bankruptcy Code.
As part of its strategic efforts outlined above, on June 21, 1996 the Company
commenced an exchange offer (the "Exchange Offer") for its $773,000 aggregate
principal amount of Subordinated Notes. In the Exchange Offer, the Company
offered to exchange approximately 700 shares of its Common Stock for each $1,000
principal amount of Subordinated Notes (and all accrued interest thereon). The
purpose of the Exchange Offer is to improve the Company's capital structure and
relieve the Company of the requirement to pay $836,000 of principal and interest
in October, 1996 when the Subordinated Notes mature. The Exchange Offer was
originally schedule to expire on July 15, 1996, but the Company has extended the
expiration date to August 9, 1996. As of August 1, 1996, $413,000 aggregate
principal amount of Subordinated Notes had been accepted for exchange, which
will result in the issuance of approximately 287,000 additional shares of Common
Stock.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
9
<PAGE> 10
Item 4. Submission of Matters to a Vote of Securities Holders.
The Company's annual meeting of shareholders was held on June 28, 1996.
At the meeting, the Election of Directors was voted upon by the
shareholders with the results set forth below:
<TABLE>
<CAPTION>
Election of Directors In Favor Withheld
--------------------- -------- --------
<S> <C> <C>
Ernest A. Bates, M.D. 2,908,187 29,931
Willie R. Barnes 2,908,187 29,931
Matthew Hills 2,908,187 29,931
John F. Ruffle 2,908,187 29,931
Stanley S. Trotman, Jr. 2,908,187 29,931
Augustus A. White, III, M.D. 2,908,187 29,931
Charles B. Wilson, M.D. 2,907,687 30,431
</TABLE>
Dr. Bates, Mr. Barnes, Mr. Hills, Mr. Ruffle, Mr. Trotman, Dr. White and
Dr. Wilson were elected to the Board of Directors.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibit is filed herewith:
Exhibit
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
<PAGE> 11
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: August 13, 1996 /s/ Ernest A. Bates, M.D.
------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1996 /s/ Craig K. Tagawa
------------------------------------
Craig K. Tagawa
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1154
<SECURITIES> 0
<RECEIVABLES> 7453
<ALLOWANCES> 1135
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<CURRENT-ASSETS> 8322
<PP&E> 38804
<DEPRECIATION> 16966
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<BONDS> 22908
0
0
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