<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2000 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 (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TWO EMBARCADERO CENTER, SUITE 2370, SAN FRANCISCO, CALIFORNIA 94111-3823
(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 25, 2000, there are outstanding 3,830,142 shares of the Registrant's
common stock.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited) (audited)
ASSETS June 30, 2000 Dec. 31, 1999
---------------------------------------------- ---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,263,000 $ 12,903,000
Restricted cash 50,000 50,000
Trade accounts receivable 2,167,000 982,000
Other receivables 99,000 244,000
Prepaid expenses and other assets 434,000 516,000
------------ ------------
TOTAL CURRENT ASSETS 15,013,000 14,695,000
Property and equipment:
Medical equipment and facilities 26,426,000 23,560,000
Office equipment 657,000 617,000
Deposits and construction in progress 550,000 3,276,000
------------ ------------
27,633,000 27,453,000
Accumulated depreciation and
amortization (6,481,000) (5,397,000)
------------ ------------
Net property and equipment 21,152,000 22,056,000
Other assets 260,000 235,000
------------ ------------
TOTAL ASSETS $ 36,425,000 $ 36,986,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND (unaudited) (audited)
SHAREHOLDERS' EQUITY June 30, 2000 Dec. 31, 1999
------------------------------------------ --------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 420,000 $ 101,000
Interest payable 145,000 229,000
Employee compensation and benefits 66,000 87,000
Other accrued liabilities 401,000 597,000
Current portion of accrued exit costs 8,000 11,000
Current portion of long-term debt 2,976,000 2,545,000
------------ ------------
TOTAL CURRENT LIABILITIES 4,016,000 3,570,000
Long-term debt, less current portion 18,256,000 19,887,000
Minority interest 968,000 890,000
Shareholders' equity:
Common stock, without par value:
authorized shares - 10,000,000; issued
and outstanding shares, 3,833,000 in
2000 and 3,813,000 in 1999 10,055,000 10,036,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 817,000 817,000
Accumulated deficit (101,000) (628,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 13,185,000 12,639,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,425,000 $ 36,986,000
============ ============
</TABLE>
See accompanying notes
2
<PAGE> 3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Medical services $ 2,073,000 $ 1,712,000 $ 4,171,000 $ 3,278,000
COSTS AND EXPENSES:
Costs of operations:
Maintenance and supplies 34,000 40,000 64,000 68,000
Depreciation and amortization 563,000 381,000 1,077,000 762,000
Other 196,000 63,000 366,000 125,000
----------- ----------- ----------- -----------
793,000 484,000 1,507,000 955,000
Selling and administrative 711,000 514,000 1,259,000 940,000
Interest 543,000 249,000 1,044,000 504,000
----------- ----------- ----------- -----------
Total costs and expenses 2,047,000 1,247,000 3,810,000 2,399,000
----------- ----------- ----------- -----------
26,000 465,000 361,000 879,000
Interest and other income 230,000 154,000 434,000 273,000
Minority interest (120,000) (124,000) (268,000) (214,000)
----------- ----------- ----------- -----------
Income before income taxes 136,000 495,000 527,000 938,000
Income tax benefit 0 0 0 45,000
----------- ----------- ----------- -----------
Net income $ 136,000 $ 495,000 $ 527,000 $ 983,000
=========== =========== =========== ===========
Net income per share:
Earnings per common share - basic $ 0.04 $ 0.13 $ 0.14 $ 0.24
=========== =========== =========== ===========
Earnings per common share - assuming
dilution $ 0.02 $ 0.09 $ 0.10 $ 0.17
=========== =========== =========== ===========
</TABLE>
See accompanying notes
3
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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 527,000 $ 983,000
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 1,109,000 764,000
(Gain) on disposal of assets 0 (5,000)
Changes in operating assets and liabilities:
Decrease in restricted cash 0 2,176,000
(Increase) decrease in accounts receivable (1,040,000) 81,000
Decrease (increase) in prepaid expenses and other assets 32,000 (58,000)
Increase (decrease) in accounts payable and accrued liabilities 15,000 (2,237,000)
------------ ------------
Net cash from operating activities 643,000 1,704,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (180,000) (201,000)
Proceeds from sale of property and equipment 0 5,000
Increase (decrease) in minority interest 78,000 (14,000)
Other 0 8,000
------------ ------------
Net cash from investing activities (102,000) (202,000)
FINANCING ACTIVITIES:
Payment for exercise of stock options 45,000 0
Repurchase of common stock (26,000) (969,000)
Principal payments on long-term debt and capitalized leases (1,200,000) (1,217,000)
------------ ------------
Net cash from financing activities (1,181,000) (2,186,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents (640,000) (684,000)
Cash and cash equivalents at beginning of period 12,903,000 11,114,000
------------ ------------
Cash and cash equivalents at end of period $ 12,263,000 $ 10,430,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest paid $ 1,128,000 $ 431,000
Income taxes paid $ 10,000 $ 1,210,000
</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' consolidated financial position as of June 30, 2000 and the results of
its operations for the three and six month periods ended June 30, 2000 and 1999,
which results are not necessarily indicative of results on an annualized basis.
Consolidated balance sheet amounts as of December 31, 1999 have been derived
from audited financial statements. These financial statements include the
accounts of American Shared Hospital Services (the "Company") and its
wholly-owned subsidiaries: MMRI, Inc.; European Shared Medical Services Limited;
American Shared Radiosurgery Services; African American Church Health and
Economic Services, Inc.; ACHES Insurance Services, Inc.; OR21, Inc. ("OR21");
Medleader.com, Inc. ("MedLeader"); and the Company's majority-owned subsidiary,
GK Financing, LLC ("GK Financing").
The Company through its majority-owned subsidiary, GK Financing provided Gamma
Knife units to nine medical centers as of June 30, 2000 in Arkansas, California,
Connecticut, Massachusetts, New Jersey, Ohio, Texas and Wisconsin.
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. For the three
and six months ended June 30, 2000 basic earnings per share was computed using
3,813,000 common shares, and diluted earnings per share was computed using
5,473,000 and 5,489,000 common shares and equivalents, respectively. For the
three and six months ended June 30, 1999 basic earnings per share was computed
using 3,865,000 and 4,124,000 common shares, and diluted earnings per share was
computed using 5,444,000 and 5,695,000 common shares and equivalents,
respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Medical services revenues increased $361,000 and $893,000 for the three and six
month periods ended June 30, 2000 from $1,712,000 and $3,278,000 for the three
and six month periods ended June 30, 1999. The increase in revenues for the
three and six month periods ended June 30, 2000 reflects increased utilization
at Gamma Knife centers in operation for longer than one year (5% and 15% for the
three and six month periods ended June 30, 2000 respectively) and an additional
three new Gamma Knife units. The Company's newest Gamma Knife unit commenced
operation in late April 2000. The increases for the three and six month periods
were mitigated
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by the sale of a mature Gamma Knife unit at the end of its contractual term that
operated in first and second quarter 1999. The Company had nine Gamma Knife
units in operation at June 30, 2000 compared to six at June 30, 1999.
It is anticipated that effective August 1, 2000, the Department of Health and
Human Services will implement the Ambulatory Product Classifications ("APC")
Medicare outpatient payment system. Gamma Knife patients with Medicare as their
primary insurer, treated on an in-patient or out-patient basis, comprise an
estimated 20% to 30% of the total patients treated. The reimbursement for
Medicare patients receiving Gamma Knife services on an outpatient basis may
decrease an estimated 60% to 70%. The Company currently has two contracts from
which revenues are directly affected by changes in payment rates by Medicare.
Currently, these two contracted hospitals are primarily treating Medicare Gamma
Knife patients on an in-patient basis and therefore the Company believes that
adoption of APC's will not have a significant impact on the revenues of the
Company. However, there can be no assurance that the adoption of APC's will not
have a negative impact on the Company's revenues in the future.
Total costs of operations increased $800,000 and $1,411,000 for the three and
six month periods ended June 30, 2000 from $1,247,000 and $2,399,000 for the
three and six month periods ended June 30, 1999. Maintenance and supplies
decreased $6,000 and $4,000 for the three and six month periods ended June 30,
2000 compared to the same period in the prior year primarily due to lower
negotiated contract maintenance rates. Depreciation and amortization increased
$182,000 and $315,000 for the three and six month periods ended June 30, 2000
compared to the same period in the prior year due to the net increase of three
additional Gamma Knife units. Other operating costs increased $133,000 and
$241,000 for the three and six month periods ended June 30, 2000 compared to the
same period in the prior year due to an increase in insurance, marketing and
personal property tax expenses related to the increase in Gamma Knife units, as
well as the addition of certain operating expenses of one Gamma Knife unit,
which started in September 1999. For the Gamma Knife unit that started in
September 1999, the Company receives all of the Gamma Knife revenues, exclusive
of physician fees, and is responsible for all operational costs of the Gamma
Knife unit (this type of account is referred to as a "retail" site). Total
operational costs on this unit for the three and six month periods ended June
30, 2000 were $79,000 and $131,000, respectively.
Selling and administrative costs increased $197,000 and $319,000 for the three
and six month periods ended June 30, 2000 from $514,000 and $940,000 for the
three and six month periods ended June 30, 1999. These increases were primarily
due to increased administrative payroll costs, startup costs for the Company's
newest ventures, OR21 and MedLeader (approximately $40,000 for the three months
and $50,000 for the six months ended June 30, 2000) and approximately $120,000
of one time charges related to a restructuring of operations resulting in the
elimination of two senior management positions.
Interest expense increased $294,000 and $540,000 for the three and six month
periods ended June 30, 2000 from $249,000 and $504,000 for the three and six
month periods ended June 30, 1999 due to a net increase of three additional
Gamma Knife units, all of which were financed with long-term debt. The newer
Gamma Knife units have higher interest expense than more mature units because
interest expense decreases with each subsequent loan payment.
6
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Interest and other income increased $76,000 and $161,000 for the three and six
month periods ended June 30, 2000 from $154,000 and $273,000 for the three and
six month periods ended June 30, 1999 primarily due to higher cash balances and
higher interest rates on invested cash balances.
Minority interest decreased $4,000 and increased $54,000 for the three and six
month periods ended June 30, 2000 from $124,000 and $214,000 for the three and
six month periods ended June 30, 1999. The $4,000 decrease in minority interest
for second quarter 2000 compared to the same period in the prior year reflects
lower profitability for GK Financing primarily due to the impact from the
addition of newer, less mature Gamma Knife units. The increase for the six month
period ended June 30, 2000 compared to the same period in the prior year
reflects the increased overall profitability of GK Financing. Minority interest
represents the 19% interest of GK Financing's minority ownership.
The Company recorded no income tax expense or benefit in the three and six month
periods ended June 30, 2000. There was no income tax expense for second quarter
1999 and an income tax benefit of $45,000 for the six months ended June 30,
1999. The Company does not expect to record any income tax expense for the
current year due to net operating loss carryforwards available for tax purposes.
The Company had net income of $136,000 ($0.04 per basic share) and $527,000
($0.14 per basic share) for the three and six month periods ended June 30, 2000
compared to net income of $495,000 ($0.13 per basic share) and $983,000 ($0.24
per basic share) in the same periods ended June 30, 1999. The decrease was
primarily due to five of the Gamma Knife units being startups which have not yet
reached the revenue and earnings potential of more mature systems. In addition,
as described above, a mature system that was in operation during first and
second quarter 1999 was sold in late 1999 at the end of its five year contract
term. Also, startup costs for the Company's two new subsidiaries, MedLeader and
OR21, and a one time charge during second quarter 2000 of approximately $120,000
due to the elimination of two senior management positions were recorded in the
three and six month periods ended June 30, 2000.
The Company's operating margin (medical services revenues less costs of
operations) as a percentage of medical services revenues decreased from 72% in
second quarter 1999 to 62% in second quarter 2000, and from 71% for the six
months ended June 30, 1999 to 64% for the same period in the current year. This
is primarily due to a larger proportion of more mature units being in operation
in 1999 compared to 2000, as well as the inclusion for the three and six month
periods ended June 30, 2000 of operational costs at the Company's "retail" site
that started operations in September 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $12,263,000 at June 30, 2000
compared to $12,903,000 at December 31, 1999. The Company's cash position
decreased $640,000 primarily due to an increase of $1,040,000 in accounts
receivable associated with increased revenues and large volumes at the Company's
two Gamma Knife centers where the Company indirectly
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receives payment from insurers. The payments to GK Financing are higher and the
payment cycles are longer at retail sites (approximately 155 days) compared to
fee for service sites (approximately 45 days). The Company also made a cash
distribution of $190,000 to GK Financing's minority partner. The Company as of
June 30, 2000 had shareholders' equity of $13,185,000, working capital of
$10,997,000 and total assets of approximately $36,425,000.
The Company has scheduled interest and principal payments under its debt
obligations of approximately $5,026,000 during the next 12 months. The Company
believes that its cash flow from operations and cash resources are adequate to
meet its scheduled debt obligations during the next 12 months.
The Company is investing its cash in overnight repurchase agreements and
commercial paper pending use in the Company's operations.
8
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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 19,
2000. There were present in person or by proxy at said Meeting
shareholders holding 3,394,649 shares which represented 89% of
the 3,810,042 shares outstanding and entitled to vote at the
Meeting, which represented a quorum. At the Meeting, the
shareholders:
1) Voted on the Election of Directors as follows:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
Ernest A. Bates, M.D. 3,392,709 1,940
Willie R. Barnes 3,392,709 1,940
John F. Ruffle 3,392,709 1,940
Stanley S. Trotman, Jr. 3,392,709 1,940
Charles B. Wilson, M.D. 3,392,709 1,940
</TABLE>
Dr. Bates, Mr. Barnes, Mr. Ruffle, Mr. Trotman and
Dr. Wilson were elected to the Board of Directors.
2) Voted on the ratification of Moss Adams, LLP as the
Company's independent accountants for the year ended
December 31, 2000. There were 3,381,424 votes for, 2,100
votes against and 11,125 votes abstained.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.30 Lease Agreement for a Gamma Knife
Unit dated as of December 11, 1996
between The Community Hospital
Group, Inc. dba JFK Medical Center
and GK Financing, LLC. (Confidential
material appearing in this document
has been omitted and filed
separately with the Securities and
Exchange Commission in accordance
with Rule 24b-2, promulgated under
the Securities and Exchange Act of
1934, as amended. Omitted
information has been replaced with
asterisks.)
27 Financial Data Schedule
</TABLE>
(b) Report on Form 8-K
None.
10
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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 11, 2000 /s/ Ernest A. Bates
-------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: August 11, 2000 /s/ Craig K. Tagawa
-------------------
Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
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<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.30 Lease Agreement for a Gamma Knife
Unit dated as of December 11, 1996
between The Community Hospital
Group, Inc. dba JFK Medical Center
and GK Financing, LLC. (Confidential
material appearing in this document
has been omitted and filed
separately with the Securities and
Exchange Commission in accordance
with Rule 24b-2, promulgated under
the Securities and Exchange Act of
1934, as amended. Omitted
information has been replaced with
asterisks.)
27 Financial Data Schedule
</TABLE>
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