<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, 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 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 MAY 9, 1997: THERE ARE OUTSTANDING 4,769,384 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 March 31, 1997 Dec. 31, 1996
------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 192,000 $ 368,000
Restricted cash 546,000 218,000
Receivables, less allowance for
uncollectible accounts of
$1,271,000 ($1,240,000 in 1996):
Trade accounts receivable 6,499,000 6,341,000
Other receivables 112,000 207,000
------------ ------------
6,611,000 6,548,000
Prepaid expenses, inventories and other
current assets 688,000 698,000
------------ ------------
TOTAL CURRENT ASSETS 8,037,000 7,832,000
Property and equipment:
Land, buildings and improvements 1,226,000 1,226,000
Medical, transportation & office equipment 9,960,000 9,880,000
Capitalized lease equipment 29,160,000 29,318,000
Deposits and construction in progress 1,571,000 1,530,000
------------ ------------
41,917,000 41,954,000
Accumulated depreciation & amortization (19,923,000) (18,523,000)
------------ ------------
Net property and equipment 21,994,000 23,431,000
Intangible assets, less accumulated amortization 1,196,000 1,238,000
Other assets 424,000 468,000
------------ ------------
TOTAL ASSETS $ 31,651,000 $ 32,969,000
============ ============
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) March 31, 1997 Dec. 31,1996
- ------------------------ -------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,191,000 $ 3,705,000
Accrued interest 117,000 50,000
Employee compensation 1,030,000 944,000
Other accrued liabilities 691,000 839,000
Current portion of long-term debt 7,138,000 6,816,000
Current portion of obligations
under capital leases 6,275,000 6,366,000
------------ ------------
TOTAL CURRENT LIABILITIES 19,442,000 18,720,000
Long-term debt, less current portion 6,984,000 7,690,000
Obligations under capital leases,
less current portion 14,889,000 16,245,000
Deferred income taxes 164,000 164,000
Minority interest 608,000 625,000
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 (24,869,000) (24,908,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (10,436,000) (10,475,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $ 31,651,000 $ 32,969,000
============ ============
</TABLE>
See Accompanying Notes
2
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
REVENUES:
Medical services $ 9,096,000 $ 8,939,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,921,000 1,768,000
Maintenance and supplies 1,467,000 1,785,000
Depreciation and amortization 1,650,000 1,661,000
Equipment rental 678,000 1,034,000
Other 1,073,000 941,000
----------- -----------
6,789,000 7,189,000
Selling and administrative 1,430,000 1,223,000
Interest 1,006,000 1,076,000
----------- -----------
Total costs and expenses 9,225,000 9,488,000
----------- -----------
Gain on sale of assets and early
termination of capital leases 139,000 11,000
Interest and other income 29,000 52,000
----------- -----------
Income (loss) before income taxes 39,000 (486,000)
Income tax expense (benefit) 0 (6,000)
----------- -----------
Net income (loss) $ 39,000 ($ 480,000)
=========== ===========
Net income (loss) per share $ 0.01 ($ 0.11)
=========== ===========
Common shares and equivalents used
in computing per share amounts 6,490,000 4,282,000
=========== ===========
</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,
-----------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 39,000 ($ 480,000)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Loss (gain) on sale of property and equipment 2,000 (11,000)
Gain on early termination of capital leases (141,000) 0
Depreciation and amortization 1,730,000 1,762,000
Changes in operating assets and liabilities:
(Increase) in restricted cash (328,000) (306,000)
(Increase) decrease in accounts receivable (63,000) 143,000
Decrease in prepaid expenses, inventories and other assets 10,000 641,000
Increase in accounts payable and accrued liabilities 491,000 883,000
----------- -----------
Net cash provided by operating activities 1,740,000 2,632,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (160,000) (31,000)
Proceeds from sale of property and equipment 24,000 25,000
(Decrease) increase in minority interest (17,000) 453,000
Other 23,000 (2,000)
----------- -----------
Net cash (used in) provided by investing activities (130,000) 445,000
FINANCING ACTIVITIES:
Payment for exercise of warrants 0 1,000
Net proceeds (payment) under revolving line of credit 455,000 (907,000)
Principal payments on long-term debt (2,241,000) (2,113,000)
----------- -----------
Net cash (used in) financing activities (1,786,000) (3,019,000)
----------- -----------
Net (decrease) increase in cash and cash equivalents (176,000) 58,000
Cash and cash equivalents at beginning of period 368,000 452,000
----------- -----------
Cash and cash equivalents at end of period $ 192,000 $ 510,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for
Interest $ 939,000 $ 1,165,000
=========== ===========
Income taxes $ 23,000 $ 19,000
=========== ===========
</TABLE>
See Accompanying Notes
4
<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 March 31, 1997 and the results of its operations for the
three months ended March 31, 1997 and 1996, which results are not
necessarily indicative of results on an annual 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 and transactions have been eliminated.
At March 31, 1997, the Company had a working capital deficiency of
$11,405,000 and a net capital deficiency of $10,436,000. 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, 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 impact is not expected to result in an
increase in primary earnings (loss) per share for the first quarter
ended March 31, 1997 and March 31, 1996. Statement 128 is not expected
to have an impact on the calculation of fully diluted earnings per share
for these quarters.
5
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Medical Services revenues increased $157,000 to $9,096,000 for the three
months ended March 31, 1997 compared to $8,939,000 for the three months
ended March 31, 1996. Revenues from Magnetic Resonance Imaging (MRI)
service decreased $211,000 or 3% compared to the same period in the
prior year due primarily to the utilization of five (5) fewer MRI units
during 1997. Utilization per MRI unit increased compared to the same
period in the prior year. The Company had a net increase of
approximately 3 new MRI customer contracts as of March 31, 1997 compared
to March 31, 1996.
Computed Tomography (CT) revenues decreased $52,000 compared to the same
period in the prior year due to fewer interim rentals in 1997. Nuclear
Medicine and Ultrasound revenues increased $28,000 compared to the same
period in the prior year. In March 1997 the company terminated an
in-house nuclear medicine contract and sold the equipment to the
hospital.
Contract Services revenues increased $246,000 during the first quarter
of 1997 compared to the same period in the prior year primarily due to
revenues from a cardiac catheterization laboratory contract which
commenced May, 1996.
Gamma Knife revenues increased $146,000 during the first quarter of 1997
compared to the same period in the prior year due to a full quarter of
operation from the Company's second Gamma Knife and increased
utilization from the second Gamma Knife.
Total cost of operations decreased $400,000 from $7,189,000 for the
three months ended March 31, 1996 to $6,789,000 for the three months
ended March 31, 1997. This decrease resulted primarily from decreases in
maintenance and supplies, depreciation and equipment rental which have
been partially offset by an increase in medical services payroll and
other costs of operation. Medical services payroll costs increased
$153,000 from $1,768,000 in 1996 compared to $1,921,000 in 1997. The
increase is primarily attributable to increased utilization of staffed
mobile MRI units and increased travel time to service customers.
Maintenance and supplies decreased $318,000 from $1,785,000 in 1996
compared to $1,467,000 in 1997 due to a reduction in MRI maintenance
costs. Equipment rental decreased $356,000 from $1,034,000 in 1996 to
$678,000 in 1997 primarily due to the return of five MRI rental units.
Other operating costs increased $132,000 from $941,000 in 1996 to
$1,073,000 in 1997 primarily due to an increase in fuel costs.
Selling and Administrative costs increased $207,000 from $1,223,000 in
1996 to $1,430,000 in 1997 due primarily to increased sales costs and
legal fees.
Interest expense decreased $70,000 from $1,076,000 in 1996 to $1,006,000
in 1997 primarily due to the Company's exchange for common shares
($413,000 aggregate principal amount) and payment at termination
($360,000 aggregate principal amount) of its Senior Subordinated Notes
in the third and fourth quarters of 1996, respectively.
6
<PAGE> 7
Gain on sale of assets and early termination of capital leases increased
$128,000 primarily due to the gain on the early termination of a capital
lease to a customer whose in-house nuclear medicine contract was
terminated during March of 1997. Gain on sale of assets and early
termination of capital leases fluctuate depending on the timing of asset
dispositions.
The Company had a net profit of $39,000 for the three month period ended
March 31, 1997 compared to a net loss of $480,000 primarily due to
increased medical services revenues and decreased costs of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $192,000 at March 31, 1997
compared to $368,000 at December 31, 1996. The Company's cash position
decreased $176,000 due primarily to the Company's payment of interest and
principal on its outstanding leases and credit agreements.
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 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 resulted in payment reductions of approximately
$1,200,000 for the Company in 1996.
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 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 $4,154,000 which excludes the Company's revolving line
of credit of $4,043,000 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 meets 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.
7
<PAGE> 8
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 of
$500,000 in its working capital line of credit and extended its maturity
date by two years to May 31, 1999. The Company also 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 were to 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.
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. The
Company in late 1996 entered 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 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.
Item 4. Submission of Matters to a Vote of Securities Holders.
None
Item 5. Other Information.
None.
8
<PAGE> 9
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.
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 13, 1997 /s/ Ernest A. Bates, M.D.
--------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: May 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 748
<SECURITIES> 0
<RECEIVABLES> 7,652
<ALLOWANCES> 1,153
<INVENTORY> 0
<CURRENT-ASSETS> 8,037
<PP&E> 41,917
<DEPRECIATION> 19,923
<TOTAL-ASSETS> 31,651
<CURRENT-LIABILITIES> 19,442
<BONDS> 21,873
0
0
<COMMON> 11,089
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 31,651
<SALES> 9,096
<TOTAL-REVENUES> 9,096
<CGS> 0
<TOTAL-COSTS> 6,789
<OTHER-EXPENSES> 1,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,006
<INCOME-PRETAX> 39
<INCOME-TAX> 0
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
