<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 JUNE 30, 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 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 AUGUST 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 June 30, 1998 Dec. 31, 1997
------- ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 74,000 $ 17,000
Restricted cash 606,000 651,000
Receivables, less allowance for
uncollectible accounts of $1,464,000
($1,302,000 in 1997)
Trade accounts receivable 6,367,000 6,658,000
Other 169,000 472,000
------------ ------------
6,536,000 7,130,000
Prepaid expenses, inventories and other
current assets 705,000 708,000
------------ ------------
TOTAL CURRENT ASSETS 7,921,000 8,506,000
Property and equipment:
Land, buildings & improvements 1,622,000 1,572,000
Medical, transportation & office equipment 15,353,000 12,202,000
Capitalized leased medical and
transportation equipment 27,011,000 26,410,000
Deposits and construction in progress 2,138,000 1,901,000
------------ ------------
46,124,000 42,085,000
Accumulated depreciation & amortization (24,740,000) (21,983,000)
------------ ------------
Net property & equipment 21,384,000 20,102,000
Other assets 938,000 563,000
Intangible assets, less accumulated amortization 756,000 1,038,000
------------ ------------
TOTAL ASSETS $ 30,999,000 $ 30,209,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY (unaudited) (audited)
NET CAPITAL DEFICIENCY) June 30, 1998 Dec. 31, 1997
- ---------------------------------------------- ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 5,557,000 $ 3,693,000
Accrued interest 122,000 32,000
Employee compensation and benefits 1,007,000 1,050,000
Other accrued liabilities 1,253,000 841,000
Current portion of long-term debt 8,345,000 4,784,000
Current portion of obligations
under capital leases 5,991,000 6,145,000
------------ ------------
TOTAL CURRENT LIABILITIES 22,275,000 16,545,000
Long-term debt, less current portion 8,614,000 11,936,000
Obligations under capital leases,
less current portion 7,498,000 9,633,000
Deferred gain on early lease termination 274,000 296,000
Deferred income taxes 164,000 164,000
Minority interest 622,000 588,000
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 (22,881,000) (23,386,000)
------------ ------------
Total stockholders' equity
(net capital deficiency) (8,448,000) (8,953,000)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY) $ 30,999,000 $ 30,209,000
============ ============
</TABLE>
See Accompanying Notes
-2-
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30 Six Months ended June 30
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Medical services $ 9,857,000 $ 9,245,000 $ 19,179,000 $ 18,341,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 2,067,000 1,883,000 4,018,000 3,804,000
Maintenance and supplies 1,482,000 1,492,000 2,907,000 2,959,000
Depreciation and amortization 1,500,000 1,619,000 2,954,000 3,269,000
Equipment rental 1,164,000 615,000 2,102,000 1,293,000
Other 1,084,000 1,117,000 2,235,000 2,190,000
------------ ------------ ------------ ------------
7,297,000 6,726,000 14,216,000 13,515,000
Selling and administrative 1,464,000 1,520,000 2,821,000 2,950,000
Interest 891,000 920,000 1,727,000 1,926,000
------------ ------------ ------------ ------------
Total costs and expenses 9,652,000 9,166,000 18,764,000 18,391,000
Gain on sale of assets and
early termination of capital leases 102,000 388,000 96,000 527,000
Interest and other income (6,000) 65,000 (5,000) 94,000
------------ ------------ ------------ ------------
Income before income taxes 301,000 532,000 506,000 571,000
Income tax expense 1,000 0 1,000 0
------------ ------------ ------------ ------------
Net income $ 300,000 $ 532,000 $ 505,000 $ 571,000
============ ============ ============ ============
Net income per share:
Net income per common share $ 0.06 $ 0.11 $ 0.11 $ 0.12
Net income per common
share assuming dilution $ 0.05 $ 0.09 $ 0.08 $ 0.09
</TABLE>
See Accompanying Notes
-3-
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 505,000 $ 571,000
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Loss on sale of assets 6,000 2,000
Gain on early termination of capital leases (102,000) (529,000)
Depreciation and amortization 3,115,000 3,431,000
Changes in operating assets and liabilities:
Decrease(increase) in restricted cash 45,000 (339,000)
Decrease in accounts receivable 594,000 202,000
Decrease in prepaid expenses, inventories and other assets 3,000 52,000
Increase in accounts payable and accrued liabilities 2,323,000 165,000
----------- -----------
Net cash provided by operating activities 6,489,000 3,555,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (268,000) (223,000)
Deposits on Gamma Knife units (500,000) 0
Proceeds from sale of property and equipment 1,000 26,000
Increase (decrease) in minority interest 34,000 (30,000)
Other (197,000) (9,000)
----------- -----------
Net cash (used in) investing activities (930,000) (236,000)
FINANCING ACTIVITIES:
Net (payments) proceeds under revolving line of credit (998,000) 845,000
Principal payments on long-term debt and capitalized leases (4,504,000) (4,512,000)
----------- -----------
Net cash (used in) financing activities (5,502,000) (3,667,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 57,000 (348,000)
Cash and cash equivalents at beginning of period 17,000 368,000
----------- -----------
Cash and cash equivalents at end of period $ 74,000 $ 20,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 1,637,000 $ 1,933,000
=========== ===========
Income taxes $ 25,000 $ 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 June 30, 1998
and the results of its operations for the three and six month periods ended June
30, 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 June 30, 1998, the Company had a working capital deficiency of $14,354,000
and a net capital deficiency of $8,448,000. 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 $612,000 and $838,000 for the three and six
month periods ended June 30, 1998 from $9,245,000 and $18,341,000 for the three
and six month periods ended June 30,1997. Revenues from Magnetic Resonance
Imaging (MRI) services increased $633,000 and $1,165,000 for the three and six
month periods ended June 30, 1998 compared to the same periods in the prior
year. The increase reflects the addition of two MRI units and performance of
more diagnostic procedures per MRI unit due to enhanced sales and marketing
efforts.
Computed Tomography (CT) revenues decreased $260,000 and $534,000 for the three
and six month periods ended June 30, 1998 compared to the same periods in the
prior year primarily due to the termination of one in-house customer following
the first quarter of 1997, one less CT unit and fewer interim rental customers
in 1998. Nuclear Medicine and Ultrasound revenues decreased $61,000 and $283,000
for the three and six month periods ended June 30, 1998
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<PAGE> 6
compared to the same periods in the prior year due primarily to the 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 $1,000 and $58,000 for the three
and six month periods ended June 30, 1998 compared to the same period in the
prior year primarily due to increased utilization.
Gamma Knife revenues increased $303,000 and $435,000 for the three and six month
periods ended June 30, 1998 compared to the same periods 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 $571,000 and $701,000 for the three and six
month periods ended June 30, 1998 compared to the same periods in the prior
year. Medical services payroll increased $184,000 and $214,000 for the three and
six month periods ended June 30, 1998 compared to the same periods in the prior
year. The increase is primarily attributable to increased MRI staffing due to an
increase in MRI units and utilization. Maintenance and supplies decreased
$10,000 and $52,000 for the three and six month periods ended June 30, 1998
compared to the same periods in the prior year primarily due to decreased MRI
cryogen costs. Depreciation and amortization decreased $119,000 and $315,000 for
the three and six month periods ended June 30, 1998 compared to the same periods
in the prior year. The decrease is primarily attributable to fewer MRI units
accounted for as capitalized leases in 1998. Equipment rental increased $549,000
and $809,000 for the three and six month periods ended June 30, 1998 compared to
the same period in the prior year. The increase is primarily due to two
replacements and two new MRI units accounted for as operating leases during
fourth quarter 1997 and 1998. Other operating costs decreased $33,000 and
increased $45,000 for the three and six month periods ended June 30, 1998
compared to the same periods in the prior year. The decrease in the second
quarter is primarily due to decreased property taxes and other fees. The
increase for the six month period is primarily due to increased site rental,
physician reading fees and insurance costs.
Selling and Administrative costs decreased $56,000 and $129,000 for the three
and six month periods ended June 30, 1998 compared to the same periods in the
prior year. The decrease was primarily due to decreased salary, investor
relations and legal expenses.
Interest expense decreased $29,000 and $199,000 for the three and six month
periods ending June 30, 1998 compared to the same periods in the prior year. The
decrease was the result of decreased capitalized lease related interest. This
decrease was partially offset by increased interest cost associated with the
Company's two additional Gamma Knife units.
Gain (loss) on sale of assets and early termination of capital leases decreased
in the second quarter from a gain of $388,000 to a gain of $102,000 and in the
six month period from a gain of $527,000 to a gain of $96,000, as compared to
the three and six month periods ending June 30, 1997. The 1997 gains were the
result of a gain on the early termination of a capital lease
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<PAGE> 7
($141,000) when the customer's in-house nuclear medicine contract was terminated
during March of 1997 and an insurance settlement ($388,000) following the loss
of a mobile MRI Unit in an accident during Second Quarter 1997. The gain in 1998
was primarily due to an early termination of capital lease. The Company can
experience material fluctuations in this item depending on the timing of asset
dispositions.
The Company had net income of $300,000 ($0.06 per common share) and $505,000
($0.11 per common share) for the three and six month periods ended June 30, 1998
compared to net income of $532,000 ($0.11 per common share) and $571,000 ($.12
per common share) for the same periods in the prior year. These decreases in net
income were primarily due to the decrease in the gain on sale of assets and
early termination of capital leases which was partially offset by increased
operating margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $74,000 at June 30, 1998 compared
to $17,000 at December 31, 1997. The Company's cash position increased $57,000
due primarily to the Company's extension of payment terms on certain payables
and leases and net collections of $303,000 in other receivables.
Restricted cash at June 30, 1998 and December 31, 1997 reflects cash that may
only be used for the operations of GK Financing, LLC without the approval of
both members. The decrease in restricted cash is due to a net increase in
equipment deposits of $250,000 and a $124,000 cash distribution to members of GK
Financing, LLC, offset by 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 $7,318,000 and $3,093,000, 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 $4,669,000 which excludes the Company's
revolving line of credit balance of $4,439,000 at June 30, 1998 the maturity of
which has been extended to May 31, 1999. Current
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<PAGE> 8
portion of long-term debt increased $3,186,000 in second quarter 1998 due to a
reclassification of that portion of the revolving line of credit not previously
classified as a short term obligation, from a long term to a short term
obligation because it is now due in less than one year. 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. The inability of the
Company to meet its obligations when due would result in a default which would
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 liquidation under Chapter 7 or
reorganization under Chapter 11 of the United States Bankruptcy Code, if it
could not satisfactorily restructure its obligations with creditors outside of
bankruptcy proceedings.
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 the 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, which at June 30,
1998 consisted of $23,348,000 in debt and $6,304,000 in other liabilities.
-8-
<PAGE> 9
The Company entered into 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. On May 29, 1998, the Company and the Purchaser received a request from
the Federal Trade Commission ("FTC") for additional information regarding the
proposed sale. The Company and the Purchaser have been working with the FTC's
staff and have been able to significantly narrow the scope of inquiry and
satisfactorily answer many of the staff's questions. The Company believes that
it will be able to resolve the remaining issues with the FTC in the near future,
which will permit the Company to seek shareholder approval and consummate the
transaction prior to the end of the year. There can be no assurance that the
transaction will be consummated. If the transaction is not consummated, the
Company will continue to operate as an independent entity, and will have to
restructure its obligations with creditors or continue to face the serious
liquidity and other problems referred to above.
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<PAGE> 10
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
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 29, 1998
(reporting a request from the Federal
Trade Commission for additional
information in connection with the
Company's proposed sale of its medical
diagnostic imaging assets to an affiliate
of Alliance Imaging, Inc.)
</TABLE>
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<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: August 13, 1998 /s/ Ernest A. Bates, M.D.
------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1998 /s/Craig K. Tagawa
------------------------------------
Craig K. Tagawa
Senior Vice President
Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 680
<SECURITIES> 0
<RECEIVABLES> 8,000
<ALLOWANCES> 1,464
<INVENTORY> 0
<CURRENT-ASSETS> 7,921
<PP&E> 46,124
<DEPRECIATION> 24,740
<TOTAL-ASSETS> 30,999
<CURRENT-LIABILITIES> 22,275
<BONDS> 16,112
0
0
<COMMON> 11,089
<OTHER-SE> 3,344
<TOTAL-LIABILITY-AND-EQUITY> 30,999
<SALES> 19,179
<TOTAL-REVENUES> 19,179
<CGS> 0
<TOTAL-COSTS> 14,216
<OTHER-EXPENSES> 2,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,727
<INCOME-PRETAX> 506
<INCOME-TAX> 1
<INCOME-CONTINUING> 505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505
<EPS-PRIMARY> .11
<EPS-DILUTED> .08
</TABLE>
