<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, 1998
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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 8, 1998: 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 March 31, 1998 Dec. 31, 1997
------ -------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,000 $ 17,000
Restricted cash 875,000 651,000
Receivables, less allowance for
uncollectible accounts of
$1,436,000 ($1,302,000 in 1997)
Trade accounts receivable 6,329,000 6,658,000
Other 260,000 472,000
------------ ------------
6,589,000 7,130,000
Prepaid expenses, inventories and other
current assets 626,000 708,000
------------ ------------
TOTAL CURRENT ASSETS 8,114,000 8,506,000
Property and equipment:
Land, buildings & improvements 1,524,000 1,572,000
Medical, transportation & office equipment 15,195,000 12,202,000
Capitalized leased medical and
transportation equipment 27,098,000 26,410,000
Deposits and construction in progress 1,702,000 1,901,000
------------ ------------
45,519,000 42,085,000
Accumulated depreciation & amortization (23,337,000) (21,983,000)
------------ ------------
Net property & equipment 22,182,000 20,102,000
Other assets 668,000 563,000
Intangible assets, less accumulated amortization 988,000 1,038,000
------------ ------------
TOTAL ASSETS $ 31,952,000 $ 30,209,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS EQUITY (unaudited) (audited)
(NET CAPITAL DEFICIENCY) March 31, 1998 Dec. 31, 1997
------------------------ -------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,915,000 $ 3,693,000
Accrued interest 40,000 32,000
Employee compensation 1,151,000 1,050,000
Other accrued liabilities 653,000 841,000
Current portion of long-term debt 4,863,000 4,784,000
Current portion of obligations
under capital leases 6,237,000 6,145,000
------------ ------------
TOTAL CURRENT LIABILITIES 17,859,000 16,545,000
Long-term debt, less current portion 12,810,000 11,936,000
Obligations under capital leases,
less current portion 8,981,000 9,633,000
Deferred gain on early lease termination 287,000 296,000
Deferred income taxes 164,000 164,000
Minority interest 599,000 588,000
Stockholders' equity (net capital deficiency):
Common stock, without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 4,769,000
in 1998 and 1997 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 (23,181,000) (23,386,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (8,748,000) (8,953,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $ 31,952,000 $ 30,209,000
============ ============
</TABLE>
See Accompanying Notes
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<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Medical services $ 9,322,000 $ 9,096,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 1,951,000 1,921,000
Maintenance and supplies 1,425,000 1,467,000
Depreciation and amortization 1,454,000 1,650,000
Equipment rental 938,000 678,000
Other 1,151,000 1,073,000
----------- -----------
6,919,000 6,789,000
Selling and administrative 1,357,000 1,430,000
Interest 836,000 1,006,000
----------- -----------
Total costs and expenses 9,112,000 9,225,000
(Loss) gain on sale of assets and
early termination of capital leases (6,000) 139,000
Interest and other income
1,000 29,000
----------- -----------
Income before income taxes 205,000 39,000
Income tax expense
0 0
----------- -----------
Net income $ 205,000 $ 39,000
=========== ===========
Net income per share:
Net income per common share $ 0.04 $ 0.01
Net income per common share assuming dilution $ 0.03 $ 0.01
</TABLE>
See Accompanying Notes
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<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
-------------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 205,000 $ 39,000
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Disposal of property and equipment 6,000 2,000
Gain on early termination of capital leases 0 (141,000)
Depreciation and amortization 1,537,000 1,730,0000
Changes in operating assets and liabilities:
(Increase) in restricted cash (224,000) (328,000)
Decrease (increase) in accounts receivable 541,000 (63,000)
Decrease in prepaid expenses, inventories and other assets 82,000 10,000
Increase in accounts payable and accrued liabilities 1,143,000 491,000
----------- -----------
Net cash provided by operating activities 3,290,000 1,740,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (42,000) (160,000)
Proceeds from sale of property and equipment 1,000 24,000
Increase (decrease) in minority interest 11,000 (17,000)
Other (131,000) 23,000
----------- -----------
Net cash (used in) investing activities (161,000) (130,000)
FINANCING ACTIVITIES:
Net (payments) proceeds under revolving line of credit (888,000) 455,000
Principal payments on long-term debt and capitalized leases (2,234,000) (2,241,000)
----------- -----------
Net cash (used in) financing activities (3,122,000) (1,786,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 7,000 (176,000)
Cash and cash equivalents at beginning of period 17,000 368,000
----------- -----------
Cash and cash equivalents at end of period $ 24,000 $ 192,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 828,000 $ 939,000
Income taxes $ 19,000 $ 23,000
</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 March 31, 1998 and the results of its operations for the three
month period ended March 31, 1998 and 1997, which results are not
necessarily indicative of results on an annualized basis. Consolidated
balance sheet amounts as of December 31, 1997 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 March 31, 1998, the Company had a working capital deficiency of
$9,745,000 and a net capital deficiency of $8,748,000. 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Medical Services revenues increased $226,000 for the three month period
ended March 31, 1998 from $9,096,000 for the three month period ended
March 31,1997. Revenues from Magnetic Resonance Imaging (MRI) services
increased $532,000 for the three month period ended March 31, 1998
compared to the same period in the prior year. The increase reflects the
performance of more diagnostic procedures per MRI unit due to enhanced
sales and marketing efforts.
Computed Tomography (CT) revenues decreased $274,000 for the three month
period ended March 31, 1998 compared to the same period in the prior
year primarily due to the termination of one in-house customer following
the first quarter of 1997 and fewer interim rental customers in 1998.
Nuclear Medicine and Ultrasound revenues decreased $222,000 for the
three month period ended March 31, 1998 compared to the same period in
the prior year due primarily to the
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<PAGE> 6
termination of an in-house nuclear medicine contract in March, 1997 and
one less mobile SPECT unit in 1998.
Contract Service revenues consisting of respiratory therapy services and
cardiac catheterization laboratory revenues increased $57,000 for the
three month period ended March 31, 1998 compared to the same period in
the prior year primarily due to increased utilization.
Gamma Knife revenues increased $132,000 for the three month period ended
March 31, 1998 compared to the same period in the prior year. The
revenue increase was due to the commencement of the Company's third
Gamma Knife unit in late September 1997 and the Company's fourth Gamma
Knife unit in late March 1998. The increase in revenues was partially
offset by a volume associated rate decrease on the Company's first Gamma
Knife unit. The Company extended its first Gamma Knife unit Agreement
through September 2008.
Total costs of operations increased $130,000 for the three month period
ended March 31, 1998 compared to the same period in the prior year.
Medical services payroll increased $30,000 for the three month period
ended March 31, 1998 compared to the same period in the prior year. The
increase is primarily attributable to increased MRI staffing which
reflects the increase in utilization. Maintenance and supplies decreased
$42,000 for the three month period ended March 31, 1998 compared to the
same period in the prior year primarily due to fewer CT units.
Depreciation and amortization decreased $196,000 for the three month
period ended March 31, 1998 compared to the same period in the prior
year. The decrease is primarily attributable to fewer MRI units
accounted for as capitalized leases in 1998. Equipment rental increased
$260,000 for the three month period ended March 31, 1998 compared to the
same period in the prior year. The increase is primarily due to more MRI
units accounted for as operating leases in 1998. Other operating costs
increased $78,000 for the three month period ended March 31, 1998
compared to the same period in the prior year. The increase is primarily
due to increased site rental, physician reading fee and insurance costs.
Selling and Administrative costs decreased $73,000 for the three month
period ended March 31, 1998 compared to the same period in the prior
year. The decrease was primarily due to decreased travel, investor
relations and legal expenses.
Interest expense decreased $170,000 for the three month period ending
March 31, 1998 compared to the same period in the prior year. The
decrease was the result of decreased capitalized lease-related interest.
Gain (loss) on sale of assets and early termination of capital leases
decreased from a gain of $139,000 in first quarter 1997 to a loss of
$6,000 for the three month period ending March 31, 1998. The 1997 gain
was 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. The Company can experience material
fluctuations in this item depending on the timing of asset dispositions.
The Company had net income of $205,000 ($0.04 per share) for the three
month period ended March 31, 1998 compared to net income of $39,000
($.01 per share) in the same period in the prior year. The increase was
primarily due to increased operating margins.
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<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $24,000 at March 31, 1998
compared to $17,000 at December 31, 1997. The Company's cash position
increased $7,000 due primarily to the Company's extension of payment
terms on certain payables and leases.
Restricted cash at March 31, 1998 and December 31, 1997 reflects cash
that may only be used for the operations of GK Financing, LLC. The
increase in restricted 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 then-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, 1998
are $7,487,000 and $2,551,000, respectively, with related maintenance
commitments of approximately $1,916,000. Scheduled interest and
principal payments under the Company's other debt obligations during
such period are approximately $4,855,000 which excludes the Company's
revolving line of credit balance of $4,549,000 at March 31, 1998 the
maturity of which 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 negotiated an increase in its
working capital line of credit to $5,500,000 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
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<PAGE> 8
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 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 was 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 larger enterprises 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. In late 1996 and early 1997, the
Company unsuccessfully pursued a merger with a larger industry
participant. In late 1997, the Company was approached by Alliance
Imaging, Inc., another major industry participant, with respect to a
sale of the Company's medical diagnostic imaging business.
On March 12, 1998, the Company and MMRI, Inc. entered into a Securities
Purchase Agreement (the "Purchase Agreement") with Alliance Imaging,
Inc., and two of its subsidiaries (collectively, the "Purchaser").
Pursuant to the Purchase Agreement, the Purchaser would acquire all of
the outstanding common stock of CuraCare, Inc. and all of the
partnership interests in American Shared-CuraCare. These entities
together constitute the Company's diagnostic imaging business through
which it provides MRI, CT, Ultrasound, Nuclear Medicine services, as
well as Cardiac Catheterization Laboratory, and Respiratory Therapy
services. The purchase price is $13,552,000 in cash and the assumption
by the Purchaser of the liabilities of the Company's diagnostic imaging
business, including approximately $26.1 million in debt. The Company
accepted the proposed transaction in response to the industry trend
toward consolidation, the increasingly difficult competitive environment
for smaller participants, such as the Company, and to provide capital
for the expansion of the Company's radiosurgery services business
operated through its 81% interest in GK Financing, LLC. The proposed
transaction is subject to customary conditions, including receipt of
regulatory approvals and the approving vote of the holders of a majority
of the Company's outstanding common shares. The Company will seek the
approval of its shareholders in the near future, and expects the
transaction to be consummated in the third quarter of 1998. There can be
no assurance that the transaction will be consummated. If the
transaction is not consummated, the Company will be required to continue
to operate as an independent entity, and to face the serious liquidity
and other problems referred to above.
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<PAGE> 9
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.
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
Report on Form 8-K dated March 12, 1998
(reporting a proposed transaction with Alliance
Imaging, Inc.)
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<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 14, 1998 /s/ Ernest A. Bates
--------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 /s/ Craig K. Tagawa
-------------------
Craig K. Tagawa
Senior Vice President
Chief Financial Officer
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 899
<SECURITIES> 0
<RECEIVABLES> 8,025
<ALLOWANCES> 1,436
<INVENTORY> 0
<CURRENT-ASSETS> 8,114
<PP&E> 45,519
<DEPRECIATION> 23,337
<TOTAL-ASSETS> 31,952
<CURRENT-LIABILITIES> 17,859
<BONDS> 21,791
0
0
<COMMON> 11,089
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 31,952
<SALES> 9,322
<TOTAL-REVENUES> 9,322
<CGS> 0
<TOTAL-COSTS> 6,919
<OTHER-EXPENSES> 1,357
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<INTEREST-EXPENSE> 836
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