<PAGE> 1
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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, 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 MAY 3, 1999: THERE ARE OUTSTANDING 3,904,572 SHARES OF THE REGISTRANT'S
COMMON STOCK.
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AMERICAN SHARED HOSPITAL SERVICES
PART I - FINANCIAL INFORMATION - CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS Mar. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,772,000 $ 11,114,000
Restricted cash 2,299,000 2,226,000
Receivables, less allowance for
uncollectible accounts of
$0 in 1999 and 1998
Trade accounts receivable 1,000,000 1,228,000
Other 235,000 104,000
------------ ------------
1,235,000 1,332,000
Prepaid expenses, inventories and other
current assets 204,000 285,000
------------ ------------
TOTAL CURRENT ASSETS 12,510,000 14,957,000
Property and equipment:
Land, buildings & improvements 247,000 247,000
Medical and transportation equipment 15,470,000 15,447,000
Capitalized leased equipment 83,000 83,000
Deposits and construction in progress 2,123,000 1,079,000
------------ ------------
17,923,000 16,856,000
Accumulated depreciation and
amortization (5,475,000) (5,097,000)
------------ ------------
Net property & equipment 12,448,000 11,759,000
Other assets 199,000 183,000
Deferred taxes, net of allowance 80,000 0
Intangible assets, less accumulated
amortization 18,000 20,000
------------ ------------
TOTAL ASSETS $ 25,255,000 $ 26,919,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current liabilities:
Accounts payable $ 515,000 $ 338,000
Interest payable 108,000 54,000
Employee compensation 226,000 814,000
Other accrued liabilities 429,000 519,000
Accrued exit costs 478,000 595,000
Income taxes payable 508,000 1,664,000
Current portion of long-term debt 1,647,000 1,873,000
Current portion of obligations
under capital leases 12,000 12,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,923,000 5,869,000
Long-term debt, less current portion 9,504,000 8,792,000
Obligation under capital leases,
less current portion 30,000 31,000
Accrued exit costs, less current portion 375,000 400,000
Minority interest 631,000 731,000
Shareholders' equity:
Common stock,without par value:
authorized shares - 10,000,000; issued
& outstanding shares, 3,909,000 in
1999 and 4,544,000 in 1998 10,408,000 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 (2,847,000) (3,335,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 10,792,000 11,096,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 25,255,000 $ 26,919,000
============ ============
</TABLE>
See Accompanying Notes.
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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Medical services $ 1,566,000 $ 9,322,000
COSTS AND EXPENSES
Costs of operations:
Medical services payroll 4,000 1,951,000
Maintenance and supplies 28,000 1,425,000
Depreciation and amortization 381,000 1,454,000
Equipment rental 0 938,000
Other 58,000 1,151,000
----------- -----------
471,000 6,919,000
Selling and administrative 426,000 1,357,000
Interest 255,000 836,000
----------- -----------
Total costs and expenses 1,152,000 9,112,000
----------- -----------
414,000 210,000
Gain (Loss) on sale of assets and early termination of capital leases 0 (6,000)
Interest and other income 29,000 1,000
----------- -----------
Income before income taxes 443,000 205,000
Income tax benefit 45,000 0
----------- -----------
Net income $ 488,000 $ 205,000
=========== ===========
Earnings per common share:
Earnings per common share - basic $ 0.11 $ 0.04
=========== ===========
Earnings per common share - assuming dilution $ 0.08 $ 0.03
=========== ===========
</TABLE>
See Accompanying Notes
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<PAGE> 4
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 488,000 $ 205,000
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Disposal of property and equipment 0 6,000
Depreciation and amortization 380,000 1,537,000
Changes in operating assets and liabilities:
(Increase) in restricted cash (73,000) (224,000)
Decrease in accounts receivable 97,000 541,000
(Increase) decrease in prepaid expenses, inventories and
other assets (15,000) 82,000
(Decrease) increase in accounts payable and accrued
liabilities (1,745,000) 1,143,000
------------ ------------
Net cash (used in) provided by operating activities (868,000) 3,290,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (67,000) (42,000)
Proceeds from sale of property and equipment 0 1,000
(Decrease) increase in minority interest (100,000) 11,000
Other 0 (131,000)
------------ ------------
Net cash (used in) investing activities (167,000) (161,000)
FINANCING ACTIVITIES:
Payment for repurchase of stock (792,000) 0
Net (payments) on revolving line of credit 0 (888,000)
Principal payments on long-term debt and capitalized leases (515,000) (2,234,000)
------------ ------------
Net cash (used in) financing activities (1,307,000) (3,122,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,342,000) 7,000
Cash and cash equivalents at beginning of period 11,114,000 17,000
------------ ------------
Cash and cash equivalents at end of period $ 8,772,000 $ 24,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest $ 201,000 $ 828,000
Income taxes $ 1,192,000 $ 19,000
</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, 1999
and the results of its operations for the three month periods ended March 31,
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.; 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.
American Shared Hospital Services ("the Company") through its majority-owned
subsidiary, GK Financing, LLC, provides Gamma Knife units to five medical
centers in California, Texas, and Connecticut. The Company provided shared
diagnostic imaging services to health care providers located in various
geographic regions of the United States through November of 1998. The five
diagnostic imaging services provided by the Company were Magnetic Resonance
Imaging (MRI), Computed Axial Topography 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 $7,756,000 for the three month period ended
March 31, 1999 from $9,322,000 for the three month period ended March 31,1998.
Revenues from Gamma Knife services increased $930,000 for the three month period
ended March 31, 1999 compared to the same period in the prior year. The increase
reflects increased utilization at centers in operation for longer than one year
(58%) and the addition of two new Gamma Knife units. Diagnostic imaging services
(MRI, CT, Ultrasound and Nuclear Medicine) and contract service (Cardiac
Catheterization Laboratory and Respiratory Therapy) revenues decreased
$8,686,000 for the three month period ended March 31, 1999 compared to the same
period in the prior year, due to the Sale.
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<PAGE> 6
Total costs of operations decreased $6,448,000 for the three month period ended
March 31, 1999 compared to the same period in the prior year. Medical services
payroll decreased $1,947,000 for the three month period ended March 31, 1999
compared to the same period in the prior year. The decrease is 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
$1,397,000 for the three month period ended March 31, 1999 compared to the same
period in the prior year due to the Sale. Maintenance and supplies for Gamma
Knife services increased $9,000 for the three month period ended March 31, 1999
compared to the same period in the prior year primarily due to the expiration of
the warranty period of a unit. Depreciation and amortization decreased
$1,073,000 for the three month period ended March 31, 1999 compared to the same
period in the prior year due to the Sale. Depreciation and amortization for
Gamma Knife services increased $219,000 primarily due to two additional units in
1999. Equipment rental decreased $938,000 for the three month period ended March
31, 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 $1,093,000 for the three month period ended March 31, 1999 compared to
the same period in the prior year due to the Sale. Other operating costs for
Gamma Knife services increased approximately $10,000 primarily due to an
increase in insurance and tax expenses.
Selling and administrative costs decreased $931,000 for the three month period
ended March 31, 1999 compared to the same period in the prior year primarily due
to personnel reductions in the areas of sales and marketing, accounting and
finance and administration and the other expenses related to those functions.
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 recognize 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.
Due to the Sale, the Company is in the process of downsizing its computer
operations. The Company is in the process of replacing and upgrading much of its
computer hardware and programs with equipment and programs that are Y2K
compatible. This replacement and upgrade process is expected to be completed in
the second quarter of 1999 and the cost is not expected to exceed $70,000.
The Company's current revenue source, the Gamma Knife, is Y2K compliant. The
Company's five current operational customers, which are large urban medical
centers, all have disbursement systems that 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
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<PAGE> 7
checks, will not materially affect the Company's business, results of
operations, or financial condition.
Interest expense decreased $581,000 for the three month period ending March 31,
1999 compared to the same period in the prior year due to the Sale. Interest
expense for Gamma Knife services increased $148,000 primarily due to the
addition of two additional units.
Interest and other income increased $28,000 for the three month period ending
March 31, 1999 compared to the same period in the prior year. Interest income in
first quarter 1999 was approximately $119,000 and was offset by a charge for
minority interest of approximately $90,000.
The Company realized a net income tax benefit of $45,000 for the three month
period ending March 31, 1999 compared to the same period in the prior year. The
federal income tax benefit of $80,000 was offest by state income taxes of
$35,000.
The Company had net income of $488,000 ($0.11 per basic share) for the three
month period ended March 31, 1999 compared to net income of $205,000 ($.04 per
basic share) in the same period in the prior year. The increase was primarily
due to increased operating margins. The Company's operating margin (Medical
services revenues less Costs of operations) as a percentage of Medical services
revenues increased from 26% in first quarter 1998 to 70% in first quarter 1999.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $8,772,000 at March 31, 1999
compared to $11,114,000 at December 31, 1998. The Company's cash position
decreased $2,342,000 due primarily to the payment of federal and state income
taxes ($1,192,000) primarily related to the Sale, Company's repurchase of common
stock ($792,000) and the payment of accounts payable and accrued liabilities. An
additional $1,000,000 is classified under Restricted cash until April 15, 1999
under the terms of the Sale. The $1,000,000 was released from restriction on
April 16, 1999.
Restricted cash of $2,299,000 at March 31, 1999 and $2,226,000 at December 31,
1998 reflects cash that may only be used for the operations of GK Financing, LLC
(GKF) and the $1,000,000 previously described as restricted under terms of the
Sale. The increase in Restricted cash of $73,000 is primarily due to cash flow
from Gamma Knife operations. The increase in Restricted cash was lessened by
GKF's cash distributions of $810,000 to the Company and $190,000 to the other
member of GKF in the first quarter of 1999.
The Company as of March 31, 1999 had shareholders' equity of approximately
$10,800,000, working capital of approximately $8,600,000 and total assets of
approximately $25,300,000.
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.
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<PAGE> 8
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:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Report on Form 8-K dated March 22, 1999 (reporting
adoption of a Shareholder Rights Plan)
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<PAGE> 9
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 12, 1999 /s/ Ernest A. Bates
----------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: May 12, 1999 /s/ Craig K. Tagawa
----------------------------------------
Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
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<PAGE> 10
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,071
<SECURITIES> 0
<RECEIVABLES> 1,235
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,510
<PP&E> 17,923
<DEPRECIATION> 5,475
<TOTAL-ASSETS> 25,255
<CURRENT-LIABILITIES> 3,923
<BONDS> 9,534
10,408
0
<COMMON> 0
<OTHER-SE> 3,231
<TOTAL-LIABILITY-AND-EQUITY> 25,255
<SALES> 1,566
<TOTAL-REVENUES> 1,566
<CGS> 0
<TOTAL-COSTS> 471
<OTHER-EXPENSES> 426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 443
<INCOME-TAX> (45)
<INCOME-CONTINUING> 488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488
<EPS-PRIMARY> .11
<EPS-DILUTED> .08
</TABLE>
