-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nam7K6IIzuRQqyxMCZqgGu0vE8qXEGmhymqiVV+EuQ8lB/yrrzcOsL5wwbhUdbXz GxehKpvbXsqMWyuedf+9Iw== 0000950149-98-001456.txt : 19980814 0000950149-98-001456.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950149-98-001456 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: AMEX SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SHARED HOSPITAL SERVICES CENTRAL INDEX KEY: 0000744825 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 942918118 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08789 FILM NUMBER: 98685139 BUSINESS ADDRESS: STREET 1: 4 EMARCADERO CENTER STE 3620 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4157885300 MAIL ADDRESS: STREET 1: 4 EMBARCADERO CENTER CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 6-30-98 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. 2 AMERICAN SHARED HOSPITAL SERVICES PART I - FINANCIAL INFORMATION - CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited) ASSETS June 30, 1998 Dec. 31, 1997 ------- ------------- ------------- 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 ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) (audited) NET CAPITAL DEFICIENCY) June 30, 1998 Dec. 31, 1997 - ---------------------------------------------- ------------ ------------ 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 ============ ============
See Accompanying Notes -2- 3 AMERICAN SHARED HOSPITAL SERVICES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months ended June 30 Six Months ended June 30 ------------------------------ ------------------------------ 1998 1997 1998 1997 ------------ ------------ ------------ ------------ 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
See Accompanying Notes -3- 4 AMERICAN SHARED HOSPITAL SERVICES Condensed Consolidated Statement of Cash Flows (Unaudited)
Six Months ended June 30 ---------------------------- 1998 1997 ----------- ----------- 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 =========== ===========
See Accompanying Notes -4- 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 -5- 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 -6- 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 -7- 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- 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. -9- 10 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: 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.)
-10- 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- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 680 0 8,000 1,464 0 7,921 46,124 24,740 30,999 22,275 16,112 0 0 11,089 3,344 30,999 19,179 19,179 0 14,216 2,821 0 1,727 506 1 505 0 0 0 505 .11 .08
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