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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 SEPTEMBER 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
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AMERICAN SHARED HOSPITAL SERVICES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
CALIFORNIA 94-2918118
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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<TABLE>
<S> <C>
TWO EMBARCADERO CENTER, SUITE 2370, SAN FRANCISCO, CALIFORNIA 94111-3823
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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 NOVEMBER 3, 2000, THERE ARE OUTSTANDING 3,780,792 SHARES OF THE
REGISTRANT'S COMMON STOCK.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
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(unaudited) (audited)
ASSETS Sep. 30, 2000 Dec. 31, 1999
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Current assets:
Cash and cash equivalents $ 13,125,000 $ 12,903,000
Restricted cash 50,000 50,000
Trade accounts receivable 1,801,000 982,000
Other receivables 85,000 244,000
Prepaid expenses and other assets 393,000 516,000
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TOTAL CURRENT ASSETS 15,454,000 14,695,000
Property and equipment:
Medical equipment and facilities 26,463,000 23,560,000
Office equipment 706,000 617,000
Deposits and construction in progress 551,000 3,276,000
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27,720,000 27,453,000
Accumulated depreciation and
amortization (7,071,000) (5,397,000)
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Net property and equipment 20,649,000 22,056,000
Other assets 200,000 235,000
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TOTAL ASSETS $ 36,303,000 $ 36,986,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 91,000 $ 101,000
Interest payable 303,000 229,000
Employee compensation and benefits 57,000 87,000
Other accrued liabilities 421,000 597,000
Current portion of accrued exit costs 7,000 11,000
Current portion of long-term debt 3,928,000 2,545,000
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TOTAL CURRENT LIABILITIES 4,807,000 3,570,000
Long-term debt, less current portion 16,801,000 19,887,000
Minority interest 1,154,000 890,000
Shareholders' equity:
Common stock, without par value:
authorized shares - 10,000,000; issued
and outstanding shares, 3,823,000 in
2000 and 3,813,000 in 1999 9,990,000 10,036,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 814,000 817,000
Retained earnings (accumulated deficit) 323,000 (628,000)
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TOTAL SHAREHOLDERS' EQUITY 13,541,000 12,639,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,303,000 $ 36,986,000
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</TABLE>
See accompanying notes
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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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<CAPTION>
Three Months ended Sep. 30, Nine Months ended Sep. 30,
2000 1999 2000 1999
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REVENUES:
Medical services $ 2,536,000 $ 1,991,000 $ 6,707,000 $ 5,269,000
COSTS AND EXPENSES:
Costs of operations:
Maintenance and supplies 44,000 34,000 108,000 102,000
Depreciation and amortization 585,000 396,000 1,662,000 1,158,000
Other 293,000 109,000 659,000 234,000
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922,000 539,000 2,429,000 1,494,000
Selling and administrative 654,000 565,000 1,913,000 1,505,000
Interest 547,000 342,000 1,591,000 846,000
----------- ----------- ----------- -----------
Total costs and expenses 2,123,000 1,446,000 5,933,000 3,845,000
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413,000 545,000 774,000 1,424,000
Interest and other income 197,000 179,000 631,000 452,000
Minority interest (186,000) (154,000) (454,000) (368,000)
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Income before income taxes 424,000 570,000 951,000 1,508,000
Income tax benefit 0 238,000 0 283,000
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Net income $ 424,000 $ 808,000 $ 951,000 $ 1,791,000
=========== =========== =========== ===========
Net income per share:
Earnings per common share - basic $ 0.11 $ 0.21 $ 0.25 $ 0.45
=========== =========== =========== ===========
Earnings per common share - assuming
dilution $ 0.08 $ 0.15 $ 0.17 $ 0.32
=========== =========== =========== ===========
</TABLE>
See accompanying notes
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AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine Months ended Sep. 30,
2000 1999
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OPERATING ACTIVITIES:
Net income $ 951,000 $ 1,791,000
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 1,718,000 1,162,000
(Gain) on disposal of assets 0 (6,000)
Changes in operating assets and liabilities:
Decrease in restricted cash 0 2,176,000
(Increase) in accounts receivable (660,000) (63,000)
Decrease (increase) in prepaid expenses and other assets 115,000 (64,000)
(Decrease) in accounts payable and accrued liabilities (146,000) (2,771,000)
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Net cash from operating activities 1,978,000 2,225,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (267,000) 14,000
Proceeds from sale of property and equipment 0 7,000
Increase in minority interest 264,000 139,000
Other 0 0
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Net cash from investing activities (3,000) 160,000
FINANCING ACTIVITIES:
Payment for exercise of stock options 149,000 0
Repurchase of common stock (198,000) (1,095,000)
Principal payments on long-term debt and capitalized leases (1,704,000) (1,421,000)
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Net cash from financing activities (1,753,000) (2,516,000)
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Net increase (decrease) in cash and cash equivalents 222,000 (131,000)
Cash and cash equivalents at beginning of period 12,903,000 11,114,000
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Cash and cash equivalents at end of period $ 13,125,000 $ 10,983,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest paid $ 1,517,000 $ 817,000
Income taxes paid $ 13,000 $ 1,280,000
</TABLE>
See accompanying notes
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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 September 30, 2000 and the
results of its operations for the three and nine month periods ended September
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 September 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 nine months ended September 30, 2000 basic earnings per share was computed
using 3,836,000 and 3,820,000 common shares, and diluted earnings per share was
computed using 5,418,000 and 5,465,000 common shares and equivalents,
respectively. For the three and nine months ended September 30, 1999 basic
earnings per share was computed using 3,841,000 and 4,016,000 common shares, and
diluted earnings per share was computed using 5,526,000 and 5,625,000 common
shares and equivalents, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Medical services revenues increased $545,000 and $1,438,000 for the three and
nine month periods ended September 30, 2000 from $1,991,000 and $5,269,000 for
the three and nine month periods ended September 30, 1999. The increase in
revenues for both periods in 2000 reflects increased utilization at Gamma Knife
centers in operation for longer than one year (15% revenue increase for both the
three and nine month periods ended September 30, 2000) and an additional two new
Gamma Knife units in operation. The revenue increases for the three and nine
month periods were lessened because a mature Gamma Knife unit was sold at the
end of its contractual
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term in November 1999. The Company had nine Gamma Knife units in operation at
September 30, 2000 compared to eight at September 30, 1999.
Effective August 1, 2000, the Department of Health and Human Services
implemented the Ambulatory Product Classifications ("APC") Medicare outpatient
payment system. Gamma Knife patients, with Medicare as their primary insurer and
treated on either 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 $383,000 and $935,000 for the three and nine
month periods ended September 30, 2000 from $539,000 and $1,494,000 for the
three and nine month periods ended September 30, 1999. Maintenance and supplies
increased $10,000 and $6,000 for the three and nine month periods ended
September 30, 2000 compared to the same periods in the prior year, primarily
because seven Gamma Knife units were subject to maintenance costs (compared to
four in 1999), after having completed their one year warranty period. This
increase was partially offset by lower negotiated maintenance contract rates.
Depreciation and amortization increased $189,000 and $504,000 for the three and
nine month periods ended September 30, 2000 compared to the same periods in the
prior year. These increases were due to the addition of two new Gamma Knife
units during mid and late third quarter 1999 (and, accordingly, less than a full
quarter's depreciation was booked on these units), and the addition of two new
Gamma Knife units that became operational after third quarter 1999. This
increase was also higher because one of the Company's Gamma Knife units was
depreciated to its salvage value in mid third quarter 1999. Other operating
costs increased $184,000 and $425,000 for the three and nine month periods ended
September 30, 2000 compared to the same periods 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 "retail" Gamma Knife unit which started in September 1999. For
the retail 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. Total operational costs on this unit
for the three and nine month periods ended September 30, 2000 were $138,000 and
$269,000, respectively.
Selling and administrative costs increased $89,000 and $408,000 for the three
and nine month periods ended September 30, 2000 from $565,000 and $1,505,000 for
the three and nine month periods ended September 30, 1999. For the three month
period ended September 30, 2000, these increases were primarily due to increased
travel related costs and startup costs for the Company's newest ventures, OR21
and MedLeader. For the nine month period ended September 30, 2000, these
increases were primarily due to increased administrative payroll costs, OR21 and
MedLeader startup costs, and approximately $120,000 of one time charges related
to a restructuring of operations resulting in the elimination of two senior
management positions.
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Startup costs for OR21 and MedLeader are approximately $64,000 and $112,000 for
the three and nine month periods ended September 30, 2000.
Interest expense increased $205,000 and $745,000 for the three and nine month
periods ended September 30, 2000 from $342,000 and $846,000 for the three and
nine month periods ended September 30, 1999 due to the addition of four new
Gamma Knife units since August 1999. All of these new Gamma Knife units were
financed with long-term debt. The newer Gamma Knife units have higher interest
expense than more mature units because interest expense decreases as the
outstanding balance of each loan is reduced.
Interest and other income increased $18,000 and $179,000 for the three and nine
month periods ended September 30, 2000 from $179,000 and $452,000 for the three
and nine month periods ended September 30, 1999 primarily due to higher cash
balances and higher interest rates on invested cash balances.
Minority interest increased $32,000 and $86,000 for the three and nine month
periods ended September 30, 2000 from $154,000 and $368,000 for the three and
nine month periods ended September 30, 1999. These increases reflect the
increased overall profitability of GK Financing. Minority interest represents
the 19% interest in GK Financing owned by the Company's partner.
The Company recorded no income tax expense or benefit in the three and nine
month periods ended September 30, 2000 compared to an income tax benefit of
$238,000 and $283,000 for the three and nine month periods ending September 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 $424,000 ($0.11 per basic share) and $951,000
($0.25 per basic share) for the three and nine month periods ended September 30,
2000 compared to net income of $808,000 ($0.21 per basic share) and $1,791,000
($0.45 per basic share) in the same periods in 1999. The decrease for the
quarter was primarily due to four of the Gamma Knife units being startups (in
operation less than one year as of the beginning of the third quarter) which
have not yet reached the revenue and earnings potential of more mature systems,
compared to two startup units for the third quarter in the prior year. In
addition, the Company recorded startup costs of $64,000 for the Company's two
new subsidiaries, MedLeader and OR21 during the current year third quarter, and
an income tax benefit of $238,000 in the third quarter of 1999. Third quarter
1999 profitability was aided by the contribution from a mature system that was
sold in late 1999 at the end of its five year contract term. The decrease in net
income for the nine month period ended September 30, 2000 was due to the number
of startup Gamma Knife units as described above, the sale of the mature Gamma
Knife in late 1999, approximately $120,000 of one time charges related to a
restructuring resulting in the elimination of two senior management positions,
startup costs ($112,000) for the Company's two new subsidiaries, MedLeader and
OR21, and an income tax benefit for the nine months ended September 30, 1999 of
$283,000.
The Company's operating margin (medical services revenues less costs of
operations) as a percentage of medical services revenues decreased from 73% in
third quarter 1999 to 64% in third quarter 2000, and from 72% for the nine
months ended September 30, 1999 to 64% for the
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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 nine month periods ended September 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 $13,125,000 at September 30, 2000
compared to $12,903,000 at December 31, 1999. The increase of $222,000 is
primarily due to cash generated from operations. The Company's cash increase was
lessened due to an increase in accounts receivable of $660,000. This increase in
accounts receivable is due to overall increased revenues and an increase in the
percentage of revenues contributed by the Company's two retail sites compared to
the prior year periods. The Company's retail sites have longer collection cycles
(approximately 115 days) compared to its seven fee for service sites
(approximately 45 days). The Company's accounts receivable decreased $380,000
from second quarter 2000 primarily due to a reduction in the collection cycle
for the retail sites. The Company as of September 30, 2000 had shareholders'
equity of $13,541,000, working capital of $10,647,000 and total assets of
approximately $36,303,000.
The Company has scheduled interest and principal payments under its debt
obligations of approximately $5,820,000 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 its operations.
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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.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed with this report:
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Exhibit Number Description
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27 Financial Data Schedule
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(b) Report on Form 8-K
None.
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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: November 13, 2000 /s/ Ernest A. Bates
-------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: November 13, 2000 /s/ Craig K. Tagawa
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Craig K. Tagawa
Senior Vice President
Chief Operating and Financial
Officer
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