<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, 1997
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 1-8789
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 REPORT
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 11, 1997: THERE ARE OUTSTANDING 4,769,384 SHARES OF THE
REGISTRANT'S COMMON STOCK.
<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION - CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS September 30,1997 December 31,1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,000 $ 368,000
Restricted cash 707,000 218,000
Receivables, less allowance for
uncollectible accounts of
$ 1,273,000 ($1,240,000 in 1996)
Trade accounts receivable 6,218,000 6,341,000
Other receivables 355,000 207,000
------------ ------------
6,573,000 6,548,000
Prepaid expenses, inventories and other
current assets 646,000 698,000
------------ ------------
TOTAL CURRENT ASSETS $ 7,949,000 $ 7,832,000
Property and equipment:
Land, buildings & improvements 1,345,000 1,226,000
Medical, transportation & office equipment 12,118,000 9,880,000
Capitalized lease equipment 27,065,000 29,318,000
Deposits and construction in progress 1,574,000 1,530,000
------------ ------------
42,102,000 41,954,000
Accumulated depreciation & amortization (21,049,000) (18,523,000)
------------ ------------
Net property & equipment 21,053,000 23,431,000
Intangible assets, less accumulated amortization 1,096,000 1,238,000
Other assets 487,000 468,000
------------ ------------
TOTAL ASSETS: $ 30,585,000 $ 32,969,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) September 30, 1997 December 31, 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,607,000 $ 3,705,000
Accrued interest 60,000 50,000
Employee compensation 1,067,000 944,000
Other accrued liabilities 817,000 839,000
Current portion of long-term debt 3,086,000 6,816,000
Current portion of obligations
under capital leases 6,375,000 6,366,000
------------ ------------
TOTAL CURRENT LIABILITIES $ 16,012,000 $ 18,720,000
Long-term debt, less current portion 11,956,000 7,690,000
Obligations under capital leases,
less current portion 11,325,000 16,245,000
Deferred income taxes 164,000 164,000
Minority interest 586,000 625,000
Stockholders' equity (net capital deficiency):
Common stock, without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 4,769,000
in 1997 & 4,769,000 in 1996 11,089,000 11,089,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 930,000 930,000
Accumulated deficit (23,891,000) (24,908,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (9,458,000) (10,475,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $30,585,000 $ 32,969,000
============ ============
</TABLE>
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended September 30, Nine months ended September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Medical services $ 9,361,000 $ 9,584,000 $ 27,702,000 $ 27,725,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,943,000 1,957,000 5,747,000 5,515,000
Maintenance and supplies 1,499,000 1,649,000 4,458,000 5,070,000
Depreciation and amortization 1,524,000 1,681,000 4,793,000 5,089,000
Equipment rental 637,000 816,000 1,930,000 2,654,000
Other 1,172,000 1,067,000 3,362,000 3,002,000
------------ ------------ ------------ ------------
6,775,000 7,170,000 20,290,000 21,330,000
Selling and administrative 1,478,000 1,362,000 4,428,000 3,848,000
Interest 871,000 1,108,000 2,797,000 3,180,000
------------ ------------ ------------ ------------
Total costs and expenses 9,124,000 9,640,000 27,515,000 28,358,000
Gain (loss) on sale of assets and
early termination of capital leases 178,000 3,000 705,000 27,000
Interest and other income 41,000 91,000 135,000 189,000
------------ ------------ ------------ ------------
Income (loss) before income taxes 456,000 38,000 1,027,000 (417,000)
Income tax expense (benefit) 10,000 1,000 10,000 (5,000)
------------ ------------ ------------ ------------
Net income (loss) $ 446,000 $ 37,000 $ 1,017,000 $ (412,000)
============ ============ ============ ============
Net income (loss) per share: $ 0.07 $ 0.01 $ 0.16 $ (0.09)
============ ============ ============ ============
Common shares and equivalents
used in computing share amounts 6,390,000 6,297,000 6,309,000 4,407,000
------------ ------------ ------------ ------------
</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,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,017,000 $ (412,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of assets (155,000) (27,000)
Gain on early termination of capital leases (551,000) 0
Depreciation and amortization 5,055,000 5,343,000
Changes in operating assets and liabilities:
(Increase) in restricted cash (489,000) (439,000)
Decrease (increase) in accounts receivable 115,000 (125,000)
Decrease in prepaid expenses, inventories and other assets 52,000 320,000
Increase in accounts payable and accrued liabilities 1,013,000 1,104,000
----------- -----------
Net cash provided by operating activities 6,057,000 5,764,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (237,000) (162,000)
Proceeds from sale of property and equipment 56,000 51,000
(Decrease) increase in minority interest (39,000) 456,000
Other (75,000) (16,000)
----------- -----------
Net cash (used in) provided by investing activities (295,000) 329,000
FINANCING ACTIVITIES:
Net proceeds (payments) under revolving line of credit 543,000 (208,000)
Payment for exercise of warrants 0 1,000
Principal payments on long-term debt and capitalized leases (6,650,000) (6,074,000)
----------- -----------
Net cash used in financing activities (6,107,000) (6,281,000)
----------- -----------
Net decrease in cash and cash equivalents (345,000) (188,000)
Cash and cash equivalents at beginning of period 368,000 452,000
----------- -----------
Cash and cash equivalents at end of period $ 23,000 $ 264,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 2,787,000 $ 3,236,000
=========== ===========
Income taxes $ 25,000 $ 22,000
=========== ===========
</TABLE>
See Accompanying Notes
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<PAGE> 5
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 September 30,
1997 and the results of its operations for the three and nine month periods
ended September 30, 1997 and 1996, which results are not necessarily indicative
of results on an annualized basis. Consolidated balance sheet amounts as of
December 31, 1996 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 have been eliminated.
At September 30, 1997, the Company had a working capital deficiency of
$8,063,000 and a net capital deficiency of $9,458,000. 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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (SFAS 128), Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options and warrants will be excluded. The
implementation of SFAS 128 is expected to result in an increase in primary
earnings (loss) per share for the three and nine month periods ended September
30, 1997 of approximately $0.02 and $0.05, respectively, and is not expected to
have a material impact for the three and nine month periods ended September 30,
1996. Statement 128 is not expected to have an impact on the calculation of
fully diluted earnings per share for these periods.
-5-
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Medical Services revenues decreased $223,000 and $23,000 for the three and nine
month periods ended September 30, 1997 from $9,584,000 and $27,725,000 for the
three and nine month periods ended September 30, 1996. Revenues from Magnetic
Resonance Imaging (MRI) services increased $159,000 and $242,000 for the three
and nine month periods ended September 30, 1997 compared to the same periods in
the prior year. The increases reflect increased equipment utilization per MRI
unit due to enhanced sales and marketing efforts. The Company utilized on
average five (5) fewer MRI units in 1997 compared to 1996.
Computed Tomography (CT) revenues decreased $244,000 and $421,000 for the three
and nine month periods ended September 30, 1997 compared to the same periods in
the prior year primarily due to utilization of two (2) fewer CT units. Nuclear
Medicine and Ultrasound revenues decreased $175,000 and $336,000 for the three
and nine month periods ended September 30, 1997 compared to the same periods in
the prior year due primarily to the termination of an in-house nuclear medicine
contract in March, 1997.
Contract Service revenues consisting of respiratory therapy services and cardiac
catheterization laboratory revenues increased $16,000 and $384,000 for the three
and nine month periods ended September 30, 1997 compared to the same periods in
the prior year primarily due to revenues from two cardiac catheterization
laboratory contracts which commenced May, 1996 and December 1996, respectively.
Gamma Knife revenues increased $21,000 and $104,000 for the three and nine month
periods ended September 30, 1997 compared to the same periods in the prior year.
The third quarter revenue increase was due to the commencement of the Company's
third Gamma Knife unit in late September 1997. The increase in revenues for the
first nine months of 1997 results from the Company operating two Gamma Knife
units during only eight of the nine months of 1996 and the commencement of the
Company's third Gamma Knife unit in 1997.
Total costs of operations decreased $395,000 and $1,040,000 for the three and
nine month periods ended September 30, 1997 compared to the same periods in the
prior year. Medical services payroll decreased $14,000 and increased $232,000,
respectively, for the three and nine month periods ended September 30, 1997
compared to the same periods in the prior year. The nine month increase is
primarily attributable to increased MRI and cardiac catheterization laboratory
staffing. Maintenance and supplies decreased $150,000 and $612,000 for the
three and nine month periods ended September 30, 1997 compared to the same
periods in the prior year primarily due to MRI maintenance cost savings.
Depreciation and amortization decreased $157,000 and $296,000 for the three and
nine month periods ended September 30, 1997 compared to the same periods in the
prior year. The decrease is primarily attributable to decreased MRI
depreciation. Equipment rental decreased $179,000 and $724,000 for the three and
nine month periods ended September 30, 1997 compared to the same periods in the
prior year. The decrease is primarily due to the return of five MRI rental units
which resulted from mobile route consolidation and customer contract
terminations. Other operating costs increased $105,000 and $360,000 for the
three and nine month periods ended September 30, 1997 compared to the same
periods in the prior year. The increase is primarily due to increased fuel
costs, personal property tax costs and bad debt expenses.
Selling and Administrative costs increased $116,000 and $580,000 for the three
and nine month periods ended September 30, 1997 compared to the same periods in
the prior year. The increase
-6-
<PAGE> 7
was primarily due to increased sales costs, building rental costs as a result of
the sale of the Company's Modesto building, audit and tax fees and legal fees
associated with a proposed acquisition of the Company which was not consummated.
Interest expense decreased $237,000 and $383,000 for the three and nine month
periods ending September 30, 1997 compared to the same periods in the prior
year. The decrease was the result of a lower outstanding amount of interest
bearing debt due to the Company's exchange for common shares ($413,000 aggregate
principal amount) and payment at maturity ($360,000 aggregate principal amount)
of its Senior Subordinated Notes in the third and fourth quarters of 1996,
respectively and decreased capitalized lease-related interest.
Gain (loss) on sale of assets and early termination of capital leases increased
from a gain of $3,000 to a gain of $178,000 and from a gain of $27,000 to a gain
of $705,000 for the three and nine month periods ending September 30, 1997
compared to the same periods in 1996. These increases were the result of a gain
on the early termination of a capital lease ($141,000) when the customer's
in-house nuclear medicine contract was terminated during March of 1997, an
insurance settlement ($388,000) following the loss of a mobile MRI unit in an
accident during second quarter 1997 and a gain on sale of another MRI unit of
$140,000. The Company can experience material fluctuations in this item
depending on the timing of asset dispositions.
The Company had net income of $446,000 ($.07) and $1,017,000 ($.16) for the
three and nine month periods ended September 30, 1997 compared to net income of
$37,000 ($.01) and a net loss of $412,000 ($.09) in the same periods in the
prior year. These increases were caused in part by increased operating margins
and in part by gains from early terminations of capital leases and sale of
assets .
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $23,000 at September 30, 1997
compared to $368,000 at December 31, 1996. The Company's cash position decreased
$345,000 due primarily to the Company's working capital needs.
Restricted cash at September 30, 1997 and December 31, 1996 reflects cash that
may only be used for the operations of GK Financing, LLC. The increase in cash
is due to cash flow from Gamma Knife operations.
On May 17, 1995, the Company repurchased (the "Notes Repurchase") for cash and
securities approximately 96% of its outstanding Senior Subordinated Notes
("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 1996 Form 10-K.
On December 29, 1995 and March 1, 1996, the Company further restructured certain
of its medical equipment leases and related 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 resulted in payment reductions
of approximately $1,200,000 for the Company in 1996 and subsequent years.
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
-7-
<PAGE> 8
facilities. Scheduled equipment capital lease payments and operating lease
payments during the 12 months ending December 31, 1997 are $8,606,000 and
$1,641,000, respectively, with related maintenance commitments of approximately
$1,685,000. Scheduled principal and interest payments under the Company's other
debt obligations during such period are approximately $4,357,000 which excludes
the Company's revolving line of credit balance of $4,418,000 at September 30,
1997 whose maturity has been extended to May 31, 1999. Although the Company's
operating performance has improved, the Company is uncertain it will have the
cash resources to pay all of its obligations when they are due. Accordingly, the
Company will continue its program of expense reductions, revenue enhancements
and asset sales as well as refinancing or renegotiating the terms of its fixed
obligations ("Program"). The Company's ability to meet its obligations when due
are dependent upon the success of the Company's Program. 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 obligations 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 the Program, the Company in March 1996 sold its Modesto buildings for
$650,000 in cash, and also has negotiated an increase in its working capital
line of credit to $5,000,000 and extended its maturity date by two years to May
31, 1999. The Company also completed in August 1996 an exchange offer (the
"Exchange Offer") for $413,000 aggregate principal amount of Subordinated Notes.
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 were scheduled to mature.
In the Exchange Offer, the Company issued approximately 287,000 additional
shares of Common Stock for $413,000 principal amount of Subordinated Notes. The
remaining $360,000 of the Subordinated Notes were paid at maturity on October
16, 1996.
In the long term, the Company believes that it must respond to fundamental
changes in the industry. The medical diagnostic imaging business, both mobile
and fixed, is in a period of consolidation as a result of the growth of managed
care and other competitive forces. Smaller companies, such as the Company, must
either grow through acquisitions or become part of a larger enterprise in order
to compete successfully and achieve acceptable returns for their shareholders.
In light of the unavailability of capital to the Company and continuing weakness
in the price of its common stock, the Company has been willing to entertain
acquisition offers. The Company in late 1996 entered into an agreement in
principle to be acquired by a larger entity. The transaction was terminated in
April 1997 as a result of the inability of the acquiring entity to proceed with
negotiations within a reasonable time period and on satisfactory terms. As a
result, the Company must continue at this time to operate on an independent
basis and there can be no assurance of its ability to successfully respond to
fundamental industry changes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
-8-
<PAGE> 9
Item 4. Submission of Matters to a Vote of Securities Holders.
The Company's annual meeting of shareholders was held on September 26,
1997. 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 3,783,727 47,605
Willie R. Barnes 3,782,527 48,805
Matthew Hills 3,785,027 46,305
John F. Ruffle 3,785,027 46,305
Stanley S. Trotman, Jr 3,785,027 46,305
Augustus A. White, III, M.D 3,783,027 48,305
Charles B. Wilson, M.D 3,782,527 48,805
</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:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<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: November 13, 1997 /s/ Ernest A. Bates
--------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1997 /s/ Craig K. Tagawa
--------------------
Craig K. Tagawa
Senior Vice President
Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 730
<SECURITIES> 0
<RECEIVABLES> 7,491
<ALLOWANCES> 1,273
<INVENTORY> 0
<CURRENT-ASSETS> 7,949
<PP&E> 42,102
<DEPRECIATION> 21,049
<TOTAL-ASSETS> 30,585
<CURRENT-LIABILITIES> 16,012
<BONDS> 23,281
0
0
<COMMON> 11,089
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 30,585
<SALES> 27,702
<TOTAL-REVENUES> 27,702
<CGS> 0
<TOTAL-COSTS> 20,290
<OTHER-EXPENSES> 4,428
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,797
<INCOME-PRETAX> 1,027
<INCOME-TAX> 10
<INCOME-CONTINUING> 1,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,017
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
