<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 0-12849
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 Of (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 May 10, 1996: there are outstanding 4,342,254 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 March 31, 1996 Dec. 31, 1995
------------------------------------------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 510,000 $ 452,000
Restricted cash 799,000 493,000
Receivables, less allowance for
uncollectible accounts of
$1,407,000 ($1,448,000 in 1995):
Trade accounts receivable 6,132,000 6,251,000
Other receivables 178,000 202,000
Note receivable from officer 0 57,000
------------ ------------
6,310,000 6,510,000
Inventories 45,000 67,000
Prepaid expenses and other current assets 505,000 1,124,000
------------ ------------
TOTAL CURRENT ASSETS 8,169,000 8,646,000
Note Receivable from officer, less current portion 0 191,000
Property and equipment:
Land, buildings and improvements 1,275,000 1,560,000
Medical, transportation & office equipment 10,013,000 7,453,000
Capitalized lease equipment 25,704,000 24,673,000
------------ ------------
36,992,000 33,686,000
Accumulated depreciation & amortization (15,323,000) (14,015,000)
------------ ------------
Net property and equipment 21,669,000 19,671,000
Intangible assets, less accumulated amortization 1,340,000 1,462,000
Other assets 1,502,000 1,375,000
------------ ------------
TOTAL ASSETS $ 32,680,000 $ 31,345,000
============ ============
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) March 31, 1996 Dec. 31, 1995
------------------------ -------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,544,000 $ 3,524,000
Accrued interest 81,000 170,000
Employee compensation 1,184,000 1,175,000
Other accrued liabilities 828,000 1,077,000
Current portion of long-term debt 3,463,000 2,796,000
Current portion of obligations
under capital leases 6,109,000 5,924,000
Senior subordinated notes 773,000 773,000
TOTAL CURRENT LIABILITIES 16,982,000 15,439,000
Long-term debt, less current portion 9,747,000 9,278,000
Obligations under capital leases,
less current portion 16,160,000 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 (25,035,000) (24,555,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (11,055,000) (10,576,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $ 32,680,000 $ 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 March 31
1996 1995
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<S> <C> <C>
REVENUES:
Medical services $ 8,939,000 $ 8,672,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,768,000 1,711,000
Maintenance and supplies 1,785,000 1,664,000
Depreciation and amortization 1,661,000 2,340,000
Equipment rental 1,034,000 433,000
Other 941,000 858,000
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7,189,000 7,006,000
Selling and administrative 1,223,000 1,302,000
Interest 1,076,000 1,750,000
----------- ------------
Total costs and expenses 9,488,000 10,058,000
----------- ------------
Equity in earnings of partnerships 42,000 16,000
Gain on sale of assets and equipment 11,000 8,000
Interest and other income 10,000 79,000
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Loss before income taxes (486,000) (1,283,000)
Income tax expense (benefit) (6,000) 0
----------- ------------
Net loss ($ 480,000) ($ 1,283,000)
=========== ============
Net loss per share ($ 0.11) ($ 0.45)
=========== ============
Common shares and equivalents used
in computing per share amounts 4,282,000 2,867,000
----------- ------------
</TABLE>
See Accompanying Notes
3
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
OPERATING ACTIVITIES: 1996 1995
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<S> <C> <C>
Net Loss $ (480,000) $(1,283,000)
Adjustment to reconcile net loss to net
cash provided by (used in) operating activities:
Gain on sale of property & equipment (11,000) (8,000)
Depreciation and amortization 1,762,000 2,502,000
Equity in (earnings) losses of partnerships (42,000) (16,000)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 143,000 670,000
Decrease (increase) in prepaid expenses 619,000 149,000
Decrease in inventories 22,000 21,000
Increase (decrease) in accounts payable and accrued liabilities 691,000 (234,000)
(Increase) decrease in restricted cash (306,000) 0
----------- -----------
Net cash provided by operating activities 2,398,000 1,801,000
INVESTING ACTIVITIES
Purchase of property & equipment (net of financing) (31,000) (32,000)
Proceeds from sale of property & equipment 675,000 15,000
Increase in minority interest 489,000 0
Other (73,000) (59,000)
----------- -----------
Net cash provided by (used in) investing activities 1,060,000 (76,000)
FINANCING ACTIVITIES
Payment for exercise of warrants 1,000 0
Principal payments on long-term debt (3,401,000) (2,208,000)
----------- -----------
Net cash provided by (used in) financing activities (3,400,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 58,000 (483,000)
Cash and cash equivalents at beginning of period 452,000 1,225,000
----------- -----------
Cash and cash equivalents at end of period $ 510,000 $ 742,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest $ 1,165,000 $ 1,220,000
=========== ===========
Income taxes $ 19,000 $ 54,000
=========== ===========
</TABLE>
See accompanying notes
4
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AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. 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, 1996 and the results of its operations for the three months ended
March 31, 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 its 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 March 31, 1996, the Company has a working capital
deficiency of $8,813,000 and a net capital deficiency of $11,055,000. 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Medical Services revenues increased $267,000 to $8,939,000 for the three
months ended March 31, 1996 compared to $8,672,000 for the three months
ended March 31, 1995.
5
<PAGE> 6
Revenues from Magnetic Resonance Imaging (MRI) service increased $920,000 or 15%
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 16 new MRI
customer contracts as of March 31, 1996 compared to March 31, 1995.
Computed Tomography (CT) revenues decreased $28,000 compared to the same period
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 $122,000 compared to the same period
in the prior year as a result of a reduction in mobile ultrasound revenues, one
less in-house ultrasound contract, and a reduction in mobile nuclear medicine
revenues.
Respiratory Therapy Services revenues decreased $412,000 during the first
quarter of 1996 compared to the same period in the prior year due to the
termination of four contracts.
Gamma Knife revenues decreased $95,000 during the first quarter of 1996 compared
to the same period in the prior year due to decreased utilization.
Total cost of operations increased $183,000 from $7,006,000 for the three months
ended March 31, 1995 to $7,189,000 for the three months ended March 31, 1996.
This resulted primarily from increases in medical services payroll costs,
maintenance and supplies, equipment rental and other operating costs partially
offset by a decrease in depreciation and amortization. Medical services payroll
costs increased $57,000 from $1,711,000 in 1995 compared to $1,768,000 in 1996.
The increase is primarily attributable to the commencement of a new mobile route
and two staffed interim rental units. Maintenance and supplies increased
$121,000 from $1,664,000 in 1995 compared to $1,785,000 in 1996 primarily due to
the commencement of one new MRI mobile unit and five MRI rental units.
Depreciation and amortization decreased $679,000 from $2,340,000 in 1995 to
$1,661,000 in 1996. The decrease is primarily attributable to the adoption of
Financial Accounting Standards No. 121 (FAS 121) during 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 $601,000 from $433,000 in 1995
to $1,034,000 in 1996 primarily due to the commencement of eight MRI rental
units. Other operating costs increased $83,000 from $858,000 in 1995 to $941,000
in 1996 primarily due to an increase 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.
6
<PAGE> 7
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 $79,000 from $1,302,000 in 1995 to
$1,223,000 in 1996 due primarily to reduced amortization of goodwill and
deferred costs.
Interest expense decreased $674,000 from $1,750,000 in the first quarter of 1995
to $1,076,000 in 1996 primarily due to the Company's repurchase in May 1995 of
$17,694,000 aggregate principal amount of its Senior Subordinated Notes.
The Company had a net loss of $480,000 for the three month period ended March
31, 1996 compared to a net loss of $1,283,000 for the same period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $510,000 at March 31, 1996 compared
to $452,000 at December 31, 1995. The Company's cash position increased $58,000
in the first quarter of 1996 due primarily to increased collections on its trade
receivables.
On May 17, 1995, the Company repurchased for cash and securities approximately
96% of its outstanding Subordinated Notes. This purchase, together with the
various amendments to the Company's equipment leases, 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 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 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 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 the latter part of March, 1996 the Company sold its Modesto buildings for
$650,000 in cash. The cash proceeds were used to reduce the Company's borrowings
under its revolving line of credit.
7
<PAGE> 8
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 will do the
following: (i) continue to implement its program of expense reductions;
(ii) identify and sell non-essential assets; (iii) negotiate favorable
concessions from major creditors; (iv) enhance revenues by increasing
customer contracts and equipment utilization; and (v) offer to exchange
equity in the Company for interest bearing debt. There can be no assurance
that these measures will defer or eliminate cash payments sufficient 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
8
<PAGE> 9
Item 5. Other Information.
On May 13, 1996 the U.S. Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1 (File No.
33-63721), registering for re-sale by certain security holders
1,290,853 common shares, 441,147 Warrants, and the 441,147 common
shares underlying such Warrants. The Company is contractually
obligated to keep such Registration Statement effective for three
years.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibit is filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
9
<PAGE> 10
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 15, 1996 /s/ Ernest A. Bates, M.D.
------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1996 /s/ James A. Gordin
------------------------------
James A. Gordin
Vice President - Acting
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,309
<SECURITIES> 0
<RECEIVABLES> 7,404
<ALLOWANCES> 1,272
<INVENTORY> 45
<CURRENT-ASSETS> 8,169
<PP&E> 36,992
<DEPRECIATION> 15,323
<TOTAL-ASSETS> 32,680
<CURRENT-LIABILITIES> 16,982
<BONDS> 25,907
0
0
<COMMON> 10,636
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 32,680
<SALES> 8,939
<TOTAL-REVENUES> 8,939
<CGS> 0
<TOTAL-COSTS> 7,189
<OTHER-EXPENSES> 1,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,076
<INCOME-PRETAX> (486)
<INCOME-TAX> (6)
<INCOME-CONTINUING> (480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
