<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, 1999
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 JULY 23, 1999, THERE ARE OUTSTANDING 3,834,205 SHARES OF THE REGISTRANT'S
COMMON STOCK.
<PAGE> 2
AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS June 30, 1999 Dec. 31, 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,430,000 $ 11,114,000
Restricted cash 50,000 2,226,000
Receivables, less allowance for
uncollectible accounts of
$0 in 1999 and 1998
Trade accounts receivable 1,094,000 1,228,000
Other 157,000 104,000
------------ ------------
1,251,000 1,332,000
Prepaid expenses, inventories and
other current assets 227,000 285,000
------------ ------------
TOTAL CURRENT ASSETS 11,958,000 14,957,000
Property and equipment:
Land, buildings & improvements 247,000 247,000
Medical and transportation equipment 18,538,000 15,447,000
Capitalized leased equipment 83,000 83,000
Deposits and construction in progress 3,554,000 1,079,000
------------ ------------
22,422,000 16,856,000
Accumulated depreciation and
amortization (5,856,000) (5,097,000)
------------ ------------
Net property & equipment 16,566,000 11,759,000
Other assets 214,000 183,000
Deferred taxes, net of allowance 80,000 0
Intangible assets, less accumulated
amortization 16,000 20,000
------------ ------------
TOTAL ASSETS $ 28,834,000 $ 26,919,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 321,000 $ 338,000
Interest payable 127,000 54,000
Employee compensation 163,000 814,000
Other accrued liabilities 512,000 519,000
Accrued exit costs 184,000 595,000
Income taxes payable 490,000 1,664,000
Current portion of long-term debt 1,355,000 1,873,000
Current portion of obligations
under capital leases 13,000 12,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,165,000 5,869,000
Long-term debt, less current portion 13,466,000 8,792,000
Obligations under capital leases,
less current portion 26,000 31,000
Accrued exit costs, less current portion 350,000 400,000
Minority interest 717,000 731,000
Shareholders' equity:
Common stock, without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 3,838,000 in
1999 and 4,544,000 in 1998 10,231,000 11,087,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 817,000 930,000
Accumulated deficit (2,352,000) (3,335,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 11,110,000 11,096,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 28,834,000 $ 26,919,000
============ ============
</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,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Medical services $ 1,712,000 $ 9,857,000 $ 3,278,000 $ 19,179,000
COSTS AND EXPENSES:
Costs of operations:
Medical services payroll 0 2,067,000 4,000 4,018,000
Maintenance and supplies 40,000 1,482,000 68,000 2,907,000
Depreciation and amortization 381,000 1,500,000 762,000 2,954,000
Equipment rental 0 1,164,000 0 2,102,000
Other 63,000 1,084,000 121,000 2,235,000
----------- ----------- ------------ ------------
484,000 7,297,000 955,000 14,216,000
Selling and administrative 514,000 1,464,000 940,000 2,821,000
Interest 249,000 891,000 504,000 1,727,000
----------- ----------- ------------ ------------
Total costs and expenses 1,247,000 9,652,000 2,399,000 18,764,000
----------- ----------- ------------ ------------
465,000 205,000 879,000 415,000
Gain on sale of assets and
early termination of capital leases 5,000 102,000 5,000 96,000
Interest and other income 149,000 17,000 268,000 28,000
Minority interest (124,000) (23,000) (214,000) (33,000)
----------- ----------- ------------ ------------
Income before income taxes 495,000 301,000 938,000 506,000
Income tax benefit (expense) 0 (1,000) 45,000 (1,000)
----------- ----------- ------------ ------------
Net income $ 495,000 $ 300,000 $ 983,000 $ 505,000
=========== =========== ============ ============
Net income per share:
Earnings per common share - basic $ 0.13 $ 0.06 $ 0.24 $ 0.11
=========== =========== ============ ============
Earnings per common share - assuming
dilution $ 0.09 $ 0.05 $ 0.17 $ 0.08
=========== =========== ============ ============
</TABLE>
See accompanying notes
3
<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 983,000 $ 505,000
Adjustments to reconcile net cash
provided by (used in) operating activities:
Disposal of property and equipment (5,000) 6,000
Gain on early termination of capital leases 0 (102,000)
Depreciation and amortization 764,000 3,115,000
Changes in operating assets and liabilities:
Decrease in restricted cash 2,176,000 45,000
Decrease in accounts receivable 81,000 594,000
(Increase) decrease in prepaid expenses, inventories and
other assets (58,000) 3,000
(Decrease) increase in accounts payable and accrued
liabilities (2,237,000) 2,323,000
------------ -----------
Net cash provided by operating activities 1,704,000 6,489,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (201,000) (268,000)
Proceeds from sale of property and equipment 5,000 1,000
(Decrease) increase in minority interest (14,000) 34,000
Other 8,000 (697,000)
------------ -----------
Net cash (used in) investing activities (202,000) (930,000)
FINANCING ACTIVITIES:
Payment for repurchase of stock (969,000) 0
Net (payments) on revolving line of credit 0 (998,000)
Principal payments on long-term debt and capitalized leases (1,217,000) (4,504,000)
------------ -----------
Net cash (used in) financing activities (2,186,000) (5,502,000)
------------ -----------
Net (decrease) increase in cash and cash equivalents (684,000) 57,000
Cash and cash equivalents at beginning of period 11,114,000 17,000
------------ -----------
Cash and cash equivalents at end of period $ 10,430,000 $ 74,000
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 431,000 $ 1,637,000
Income taxes $ 1,210,000 $ 25,000
</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 June 30, 1999
and the results of its operations for the three and six month periods ended June
30, 1999 and 1998, which results are not necessarily indicative of results on an
annualized basis. Consolidated balance sheet amounts as of December 31, 1998
have been derived from audited financial statements. These financial statements
include the accounts of the Company and its wholly-owned subsidiaries: CuraCare,
Inc. (included through November 12, 1998); 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 ("GKF").
The Company, through GKF, provides Gamma Knife units to six medical centers in
California, Connecticut, Ohio and Texas. The Company provided shared diagnostic
imaging and respiratory therapy services to health care providers located in
various geographic regions of the United States through November 1998. The
diagnostic imaging services provided by the Company were Magnetic Resonance
Imaging (MRI), Computed Axial Tomography Scanning (CT), Ultrasound, Nuclear
Medicine, and Cardiac Catheterization Laboratory services. On November 13, 1998,
the stock of Curacare, Inc. and the assets of the diagnostic imaging services
product line were sold to a third party ("Sale").
All significant intercompany accounts and transactions have been eliminated in
consolidation.
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 decreased $8,145,000 and $15,901,000 for the three and
six month periods ended June 30, 1999 from $9,857,000 and $19,179,000 for the
three and six month periods ended June 30,1998. Revenues from Gamma Knife
services increased $903,000 and $1,840,000 for the three and six month periods
ended June 30, 1999 compared to the same periods in the prior year. The
increases reflect increased utilization at centers in operation for longer than
one year (41%) and the addition of three new Gamma Knife units. The Company's
sixth and newest Gamma Knife unit commenced operation in mid-June 1999. The
Company's
5
<PAGE> 6
second Gamma Knife unit's contract terminates in third quarter 1999. The Company
is negotiating with the customer to sell them the unit, extend the contract or
remove the unit. Diagnostic imaging and respiratory therapy services revenues
decreased $9,045,000 and $17,731,000 for the three and six month periods ended
June 30, 1999 compared to the same periods in the prior year, due to the Sale.
The Company has transferred its ownership in the revenue stream from ACHES
Insurance Services, Inc. ("AIS") to unrelated third parties. Revenues from AIS
were immaterial to the Company.
Total Costs of operations decreased $6,813,000 and $13,261,000 for the three and
six month periods ended June 30, 1999 compared to the same periods in the prior
year. Medical services payroll decreased $2,067,000 and $4,014,000 for the three
and six month periods ended June 30, 1999 compared to the same periods in the
prior year. The decreases are attributable to the Sale and the fact that the
Company does not currently provide labor as a component of its Gamma Knife
services. Maintenance and supplies decreased $1,442,000 and $2,839,000 for the
three and six month periods ended June 30, 1999 compared to the same period in
the prior year due to the Sale. Maintenance and supplies for Gamma Knife
services increased $13,000 and $22,000 for the three and six month periods ended
June 30, 1999 compared to the same periods in the prior year primarily due to
the expiration of the warranty period of two units. Depreciation and
amortization decreased $1,119,000 and $2,192,000 for the three and six month
periods ended June 30, 1999 compared to the same periods in the prior year due
to the Sale. Depreciation and amortization for Gamma Knife services increased
$190,000 and $409,000 for the three and six month periods ended June 30, 1999
compared to the same periods in the prior year primarily due to two additional
units. Equipment rental decreased $1,164,000 and $2,102,000 for the three and
six month periods ended June 30, 1999 compared to the same period in the prior
year due to the Sale. Gamma Knife services had zero Equipment rental expenses.
Other operating costs decreased $1,021,000 and $2,114,000 for the three and six
month periods ended June 30, 1999 compared to the same periods in the prior year
due to the Sale. Other operating costs for Gamma Knife services increased
approximately $50,000 and $60,000 for the three and six month periods ended June
30, 1999 primarily due to an increase in insurance and personal property tax
expenses because of more units in service.
Selling and administrative costs decreased $950,000 and $1,881,000 for the three
and six month periods ended June 30, 1999 compared to the same periods in the
prior year primarily due to personnel reductions in the areas of sales and
marketing, accounting and finance, administration, and the other expenses
related to those functions.
Interest expense decreased $642,000 and $1,223,000 for the three and six month
periods ending June 30, 1999 compared to the same periods in the prior year due
to the assumption of debt by the purchaser in the Sale. Interest expense for
Gamma Knife services increased $79,000 and $236,000 for the three and six month
periods ending June 30, 1999 primarily due to two additional units.
Interest and other income increased $132,000 and $240,000 for the three and six
month periods ending June 30, 1999 compared to
6
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the same periods in the prior year. Minority interest increased $101,000 and
$181,000 for the three and six month periods ending June 30, 1999 compared to
the same periods in the prior year. Minority interest represents the pre-tax
income earned by the minority member's 19% interest in GKF. The increase in
minority interest reflects the increased profitability of GKF.
The Company recorded $0 Income tax expense for the three-month period ended June
30, 1999 and a $45,000 Income tax benefit for the six month period ended June
30, 1999 due to a reduction in the valuation allowance against deferred tax
assets. The valuation allowance was reduced based on the Company's assessment of
the reliability of its deferred tax assets given its income through June 30,
1999 and its expectation of future profitability.
The Company had Net income of $495,000 ($0.13 per basic share) and $983,000
($0.24 per basic share) for the three and six month periods ended June 30, 1999
compared to Net income of $300,000 ($0.06 per basic share) and $505,000 ($0.11
per basic share) in the same periods in the prior year. The increases were
primarily due to increased operating margins. The Company's Gross margin
(Medical services revenues less Costs of operations) as a percentage of Medical
services revenues increased to 72% in second quarter 1999 from 26% in second
quarter 1998.
Liquidity and Capital Resources
The Company had Cash and cash equivalents and Restricted cash of $10,480,000 at
June 30, 1999 compared to $13,340,000 at December 31, 1998. The Company's cash
position decreased $2,860,000 due primarily to the payment of federal and state
income taxes ($1,210,000) primarily related to the Sale, the Company's
repurchase of common stock ($969,000), payment of exit and other Sale related
costs ($1,062,000), and the pay-off of a Gamma Knife loan ($347,000).
Restricted cash of $50,000 at June 30, 1999 reflects the minimum cash balance
that must be maintained for the operations of GKF. $1,000,000 previously
restricted under terms of the Sale was released from restriction on April 16,
1999. GKF has distributed $972,000 to the Company and $228,000 to the minority
member of GKF from Restricted cash in 1999.
The Company as of June 30, 1999 had Shareholders' equity of $11,110,000, working
capital of $8,793,000 and Total assets of $28,834,000.
The Company is investing its cash in overnight repurchase agreements and
commercial paper pending use in the Company's operations. The Company believes
its cash position combined with its working capital is adequate to service the
Company's cash requirements in 1999.
The Year 2000 ("Y2K") issue results from programs written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
7
<PAGE> 8
Due to the Sale, the Company is restructuring its computer operations by
replacing and upgrading most of its computer hardware and programs with
equipment and programs with more flexibility and that are Y2K compatible. This
replacement and upgrade process is expected to be completed in the third quarter
of 1999 and the cost is not expected to exceed $80,000.
The Company's current revenue source, the Gamma Knife, is Y2K compliant. The
Company's six current operational customers, which are large urban medical
centers, all have disbursement systems that reportedly are or will be Y2K
compliant during 1999.
Should the disbursement systems of the Company's operating customers not be Y2K
compliant, the Company would be materially impacted. The Company would exercise
its contractual rights due to nonpayment, if necessary.
The Company believes that the Y2K issue, except for any customer disbursement
systems which are not Y2K compliant on January 1, 2000, and for which the
customer cannot produce manual checks, will not materially affect the Company's
business, results of operations, or financial condition.
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.
The Company's Annual Meeting of Shareholders was held on May 21, 1999.
There were present in person or by proxy at said Meeting shareholders
holding 3,612,848 shares which represented 90.9% of the 3,972,372 shares
outstanding and entitled to vote at the Meeting, and which represented a
quorum. At the Meeting, the shareholders:
1. Approved an amendment to Article IV, Section 1 of the Company's
By-laws to provide that the number of Directors constituting the
Board shall be no less than five and no more than nine, by the
following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
2,068,989 820 830
</TABLE>
8
<PAGE> 9
2. Voted on the Election of Directors as follows:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
Ernest A. Bates, M.D. 3,611,147 1,701
Willie R. Barnes 3,610,747 2,101
John F. Ruffle 3,611,147 1,701
Stanley S. Trotman, Jr. 3,611,147 1,701
Charles B. Wilson, M.D. 3,611,147 1,701
</TABLE>
Dr. Bates, Mr. Barnes, Mr. Ruffle, Mr. Trotman 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.
The Company filed a Report on Form 8-K during the quarter ended
June 30, 1999 reporting adoption on March 22, 1999 by the Company's
Board of Directors of a Shareholder Rights Plan.
9
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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 5, 1999 /s/ Ernest A. Bates, M.D.
-------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: August 5, 1999 /s/ Craig K. Tagawa
-------------------------------------
Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF AMERICAN SHARED HOSPITAL
SERVICES ("COMPANY") EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE
SHEETS AS OF JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998 (AUDITED) AND FROM
THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE PERIODS ENDED
JUNE 30, 1999 AND JUNE 30, 19998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS IN PART I, ITEM 1 OF THE COMPANY'S REPORT ON
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,480
<SECURITIES> 0
<RECEIVABLES> 1,251
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,958
<PP&E> 22,422
<DEPRECIATION> 5,856
<TOTAL-ASSETS> 28,834
<CURRENT-LIABILITIES> 3,165
<BONDS> 13,492
0
0
<COMMON> 10,231
<OTHER-SE> 3,231
<TOTAL-LIABILITY-AND-EQUITY> 28,834
<SALES> 3,278
<TOTAL-REVENUES> 3,278
<CGS> 0
<TOTAL-COSTS> 955
<OTHER-EXPENSES> 940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504
<INCOME-PRETAX> 938
<INCOME-TAX> (45)
<INCOME-CONTINUING> 983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 983
<EPS-BASIC> .24
<EPS-DILUTED> .17
</TABLE>
