<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 September 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 November 8, 1996: there are outstanding 4,769,384 shares of the
Registrant's common stock.
-1-
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AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION - CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS September 30, 1996 Dec. 31, 1995
- -------------------------------------- ------------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 264,000 $452,000
Restricted cash 932,000 493,000
Receivables, less allowance for
uncollectible accounts of
$1,202,000 ($1,448,000 in 1995):
Trade accounts receivable 6,432,000 6,251,000
Other receivables 146,000 202,000
Note receivable from officer 0 57,000
------------ ------------
6,578,000 6,510,000
Inventories 45,000 67,000
Prepaid expenses and other current assets 826,000 1,124,000
------------ ------------
TOTAL CURRENT ASSETS 8,645,000 8,646,000
Note Receivable from officer, less
current portion 0 191,000
Property and equipment:
Land, buildings and improvements 1,474,000 1,560,000
Medical, transportation & office equipment 10,059,000 7,453,000
Capitalized lease equipment 29,283,000 24,673,000
------------ ------------
40,816,000 33,686,000
Accumulated depreciation & amortization (17,518,000) (14,015,000)
------------ ------------
Net property and equipment 23,298,000 19,671,000
Intangible assets, less accumulated amortization 1,295,000 1,462,000
Other assets 1,485,000 1,375,000
------------ ------------
TOTAL ASSETS $ 34,723,000 $ 31,345,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) September 30, 1996 Dec. 31, 1995
- --------------------------------------------- ------------------ -------------
<S> <C> <C>
Current liabilities:
Accounts payable $4,536,000 $3,524,000
Accrued interest 98,000 170,000
Employee compensation and benefits 1,102,000 1,175,000
Other accrued liabilities 1,122,000 1,077,000
Current portion of long-term debt 7,074,000 2,796,000
Current portion of obligations
under capital leases 6,234,000 5,924,000
Senior subordinated notes 360,000 773,000
------------ ------------
TOTAL CURRENT LIABILITIES 20,526,000 15,439,000
Long-term debt, less current portion 5,992,000 9,278,000
Obligations under capital leases,
less current portion 17,893,000 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, 4,769,000
in 1996 & 4,244,000 in 1995 11,089,000 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 (24,967,000) (24,555,000)
------------ ------------
Total stockholders' equity (net capital deficiency) (10,534,000) (10,576,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $34,723,000 $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 September 30, Nine months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Medical Services $9,584,000 $8,377,000 $27,725,000 $25,517,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,957,000 1,739,000 5,515,000 5,212,000
Maintenance and supplies 1,649,000 1,679,000 5,070,000 5,091,000
Depreciation and amortization 1,681,000 2,032,000 5,089,000 6,655,000
Write-down of equipment 0 0 0 3,825,000
Equipment rental 816,000 814,000 2,654,000 2,022,000
Other 1,067,000 833,000 3,002,000 2,738,000
-------------- -------------- -------------- --------------
7,170,000 7,097,000 21,330,000 25,543,000
Selling and administrative 1,362,000 1,313,000 3,848,000 4,271,000
Interest 1,108,000 959,000 3,180,000 4,233,000
Write-down of intangible assets 0 0 0 600,000
-------------- -------------- -------------- --------------
Total costs and expenses 9,640,000 9,369,000 28,358,000 34,647,000
Equity in earnings (losses) of partnerships (14,000) 13,000 27,000 36,000
Gain (loss) on sale of assets 3,000 262,000 27,000 216,000
Interest and other income 105,000 33,000 162,000 141,000
-------------- -------------- -------------- --------------
Income (loss) before income taxes &
extraordinary item 38,000 (684,000) (417,000) (8,737,000)
Income tax expense (benefit) 1,000 0 (5,000) 0
-------------- -------------- -------------- --------------
Income (loss) before extraordinary item 37,000 (684,000) (412,000) (8,737,000)
Extraordinary item - gain on early
extinguishment of debt 0 0 0 20,378,000
-------------- -------------- -------------- --------------
Net income (loss) $37,000 ($684,000) ($412,000) $11,641,000
============== ============== ============== ==============
Income (loss) per share:
Income (loss) before extraordinary item $0.01 ($0.16) ($0.09) ($2.43)
Extraordinary Item $0.00 $0.00 $0.00 $5.68
-------------- -------------- -------------- --------------
Net income (loss) $0.01 ($0.16) ($0.09) $3.25
============== ============== ============== ==============
Common shares and equivalents used in
computing per share amounts 6,297,000 4,217,000 4,407,000 3,586,000
-------------- -------------- -------------- --------------
</TABLE>
See Accompanying Notes
3
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
($412,000) $11,641,000
Net income (loss)
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 (27,000) (216,000)
Depreciation and amortization 5,343,000 7,060,000
Write-down of equipment 0 3,825,000
Write-down of intangible assets 0 600,000
Equity in (earnings) of partnerships (27,000) (36,000)
Compensation expense related to stock grants 0 265,000
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (439,000) 0
(Increase) decrease in accounts receivable (125,000) 622,000
Decrease in inventories 22,000 48,000
Decrease in prepaid expenses and other assets 298,000 165,000
Increase (decrease) in accounts payable and accrued liabilities 912,000 397,000
----------- -----------
Net cash provided by operating activities 5,545,000 3,993,000
INVESTING ACTIVITIES:
Payment for purchase of property and equipment (162,000) (158,000)
Proceeds from sale and disposition of property and equipment 701,000 108,000
Increase in minority interest 489,000 0
Distributions received from partnership 15,000 0
Other (114,000) (128,000)
----------- -----------
Net cash provided by (used in) investing activities 929,000 (178,000)
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 (6,663,000) (7,667,000)
Other 0 113,000
----------- -----------
Net cash used in financing activities (6,662,000) (4,447,000)
----------- -----------
Net decrease in cash and cash equivalents (188,000) (632,000)
Cash and cash equivalents at beginning of period 452,000 1,225,000
----------- -----------
Cash and cash equivalents at end of period $ 264,000 $ 593,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 3,236,000 $ 3,731,000
=========== ===========
Income taxes $22,000 $55,000
======= =======
</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 September 30, 1996 and the results of its
operations for the three and nine month periods ended September 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 September 30, 1996, the Company has a working
capital deficiency of $11,881,000 and a net capital deficiency of
$10,534,000. 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 $1,207,000 and $2,208,000 for
the three and nine month periods ended September 30, 1996 from
$8,377,000 and $25,517,000 for the three and nine month periods ended
September 30, 1995.
Revenues from Magnetic Resonance Imaging (MRI) service increased
$870,000 and $2,461,000 for the three and nine month periods ended
September 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 23 new MRI customer contracts as of September 30, 1996 compared to
September 30, 1995.
Computed Tomography (CT) revenues increased $52,000 and $4,000 for the
three and nine month periods ended September 30, 1996 compared to the
same periods in the prior year due to consistent revenue generation
from mobile routes and an increase in interim rentals. Nuclear
Medicine and Ultrasound revenues increased $37,000 and decreased
$111,000 for the three and nine months periods ended September 30,
1996 compared to the same periods in the prior year. The third quarter
1996 revenue increase was due to higher ultrasound revenues compared
to the third quarter of 1995.
Contract Service Revenues consisting of respiratory therapy services
and cardiac catheterization laboratory revenues decreased $20,000 and
$572,000 for the three and nine month periods ended September 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 $263,000 and $416,000 for the three and
nine month periods ended September 30, 1996 compared to the same
periods in the prior year. The revenue increase was due to the
commencement in service of a second Gamma Knife unit, offset by
reduced revenues from the Company's first Gamma Knife unit as a result
of reduced pricing in connection with a contract extension. The
Company entered into contracts with two hospitals to place Gamma Knife
units in service during mid to late 1997.
Total cost of operations, exclusive of write-down of equipment and
intangible assets, increased $73,000 and decreased $388,000 for the
three and nine month periods ended September 30, 1996 compared to the
same periods in the prior year. Medical services payroll increased
$218,000 and $303,000 for the three and nine month periods ended
September 30, 1996 compared to the same periods in the prior year
primarily due to the staffing increases to operate additional MRI
units
6
<PAGE> 7
for additional customers. Maintenance and supplies decreased $30,000
and $21,000 for the three and nine month periods ended September 30,
1996 compared to the same periods in the prior year principally as a
result of cost savings associated with MRI maintenance contracts.
Depreciation and amortization decreased $351,000 and $1,566,000 for
the three and nine month periods ended September 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 (leased assets are depreciated based on lease terms) and
decreasing depreciation expense. Equipment rental increased $2,000
and $632,000 for the three and nine months periods ended September 30,
1996 compared to the same periods in the prior year. The year to date
increase is primarily reflected in the first quarter prior to the
company returning four rental units. Other operating costs increased
$234,000 and $264,000 for the three and nine month periods ended
September 30, 1996 compared to the same period in the prior year.
The increases are primarily due to increases in fuel costs, 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 increased $49,000 and decreased
$423,000 for the three and nine month periods ended September 30, 1996
compared to the same periods in the prior year. The third quarter
increase was primarily due to an increase in salary and wages and
travel expenses related to GK Financing and ACHES Insurance Services.
The year to date decrease is primarily due to a second quarter 1995
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 and reduced
1996 legal costs of approximately $120,000.
Interest expense increased $149,000 and decreased $1,053,000 for the
three and nine month periods ended September 30, 1996 compared to the
same periods in the prior year. The third quarter increase reflects
the Company's higher indebtedness levels and the year to date decrease
is 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 $37,000 and a loss of $412,000 for the
three and nine months periods ended September 30, 1996 compared to net
loss of $684,000 and net income of $11,641,000 for the same periods in
the prior year. The nine month period ended September 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 $264,000 at September 30,
1996 compared to $452,000 at December 31, 1995. The Company's cash
position decreased due to its net loss of $412,000 in the first nine
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 (the "GE Notes") 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 due at 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 and September 26, 1996,
97,853 and 127,147 of the GE Warrants were exercised to purchase
97,853 and 127,147 Common Shares, respectively.
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 $4,824,000. In
order to generate sufficient cash to satisfy these obligations as they
become due, the Company's management decided to 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
8
<PAGE> 9
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, the company in March
1996 sold its Modesto buildings for $650,000 in cash, and negotiated
an increase of $500,000 in its working capital line of credit and the
Company completed an exchange offer (the "Exchange Offer") for
$413,000 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 was 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. In
the exchange offer, the Company issued approximately 287,000
additional shares of Common Stock. The remaining $360,000 of the
Subordinated Notes were paid at maturity on October 16, 1996.
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 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: November 14, 1996 /s/ Ernest A. Bates
-------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: November 14, 1996 /s/ Craig K. Tagawa
-------------------------------------
Craig K. Tagawa
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,196
<SECURITIES> 0
<RECEIVABLES> 7,511
<ALLOWANCES> 1,079
<INVENTORY> 45
<CURRENT-ASSETS> 8,645
<PP&E> 40,816
<DEPRECIATION> 17,518
<TOTAL-ASSETS> 34,723
<CURRENT-LIABILITIES> 20,526
<BONDS> 23,885
0
0
<COMMON> 11,089
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 34,723
<SALES> 27,725
<TOTAL-REVENUES> 27,725
<CGS> 0
<TOTAL-COSTS> 21,330
<OTHER-EXPENSES> 3,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,180
<INCOME-PRETAX> (417)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
