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 SEPTEMBER 30, 2001 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)
CALIFORNIA 94-2918118
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FOUR EMBARCADERO CENTER, SUITE 3700, 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 October 23, 2001 there are outstanding 3,524,853 shares of the
Registrant's common stock.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (audited)
ASSETS Sep. 30, 2001 Dec. 31, 2000
- ---------------------------------------- ------------- -------------
Current assets:
Cash and cash equivalents $11,549,000 $12,421,000
Restricted cash 50,000 50,000
Accounts receivable, net of allowance for
doubtful accounts of $70,000 in 2001
and $0 in 2000 2,446,000 2,207,000
Prepaid expenses and other assets 509,000 573,000
----------- -----------
TOTAL CURRENT ASSETS 14,554,000 15,251,000
Property and equipment:
Medical equipment and facilities 34,529,000 29,942,000
Office equipment 237,000 225,000
Deposits and construction in progress 1,103,000 1,819,000
----------- -----------
35,869,000 31,986,000
Accumulated depreciation and
amortization (9,422,000) (7,237,000)
----------- -----------
Net property and equipment 26,447,000 24,749,000
Other assets 250,000 209,000
----------- -----------
TOTAL ASSETS $41,251,000 $40,209,000
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $259,000 $81,000
Accrued interest 213,000 153,000
Employee compensation and benefits 145,000 190,000
Other accrued liabilities 343,000 546,000
Current portion of long-term debt 4,184,000 4,126,000
--------- ---------
TOTAL CURRENT LIABILITIES 5,144,000 5,096,000
Long-term debt, less current portion 21,068,000 20,300,000
Deferred income taxes 294,000 0
Minority interest 1,169,000 1,155,000
Shareholders' equity:
Common stock, without par value:
authorized shares - 10,000,000; issued
and outstanding shares, 3,525,000 in
2001 and 3,711,000 in 2000 9,240,000 9,746,000
Common stock options issued to officer 2,414,000 2,414,000
Additional paid-in capital 740,000 814,000
Retained earnings 1,182,000 684,000
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 13,576,000 13,658,000
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $41,251,000 $40,209,000
=========== ===========
See accompanying notes
2
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months ended Sep.30, Nine Months ended Sep.30,
----------------------------- -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES:
Medical services $ 3,050,000 $ 2,536,000 $ 8,729,000 $ 6,707,000
COSTS AND EXPENSES:
Costs of operations:
Maintenance and supplies 90,000 44,000 257,000 108,000
Depreciation and amortization 788,000 585,000 2,160,000 1,662,000
Other 188,000 293,000 727,000 659,000
----------- ----------- ----------- -----------
1,066,000 922,000 3,144,000 2,429,000
Selling and administrative 798,000 654,000 2,379,000 1,913,000
Interest 652,000 547,000 1,875,000 1,591,000
----------- ----------- ----------- -----------
Total costs and expenses 2,516,000 2,123,000 7,398,000 5,933,000
----------- ----------- ----------- -----------
534,000 413,000 1,331,000 774,000
Interest and other income 100,000 197,000 388,000 631,000
Minority interest (208,000) (186,000) (566,000) (454,000)
----------- ----------- ----------- -----------
Income before income taxes 426,000 424,000 1,153,000 951,000
Income tax (expense) (170,000) 0 (294,000) 0
----------- ----------- ----------- -----------
Net income $ 256,000 $ 424,000 $ 859,000 $ 951,000
=========== =========== =========== ===========
Net income per share:
Earnings per common share - basic $ 0.07 $ 0.11 $ 0.24 $ 0.25
=========== =========== =========== ===========
Earnings per common share -
assuming dilution $ 0.05 $ 0.08 $ 0.17 $ 0.17
=========== =========== =========== ===========
See accompanying notes
3
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended Sep. 30,
2001 2000
------------ ------------
OPERATING ACTIVITIES:
Net income $ 859,000 $ 951,000
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization 2,212,000 1,718,000
Deferred income taxes 294,000 0
Changes in operating assets and liabilities:
(Increase) in accounts receivable (239,000) (660,000)
(Increase) decrease in prepaid expenses and other assets (5,000) 115,000
(Decrease) in accounts payable and accrued liabilities (10,000) (146,000)
------------ ------------
Net cash from operating activities 3,111,000 1,978,000
INVESTING ACTIVITIES:
Purchase of property and equipment (net of financing) (694,000) (267,000)
Increase in minority interest 14,000 264,000
------------ ------------
Net cash from investing activities (680,000) (3,000)
FINANCING ACTIVITIES:
Payment of dividends (361,000) 0
Payment received for exercise of stock options 15,000 149,000
Repurchase of options/warrants (74,000) 0
Repurchase of common stock (521,000) (198,000)
Principal payments on long-term debt and capitalized leases (2,362,000) (1,704,000)
------------ ------------
Net cash from financing activities (3,303,000) (1,753,000)
------------ ------------
Net (decrease) in cash and cash equivalents (872,000) 222,000
Cash and cash equivalents at beginning of period 12,421,000 12,903,000
------------ ------------
Cash and cash equivalents at end of period $ 11,549,000 $ 13,125,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid during the period for:
Interest paid $ 1,815,000 $ 1,517,000
Income taxes paid $ 23,000 $ 13,000
See accompanying notes
4
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, 2001 and the
results of its operations for the three and nine month periods ended September
30, 2001 and 2000, which results are not necessarily indicative of results on an
annualized basis. Consolidated balance sheet amounts as of December 31, 2000
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 Ltd.; American Shared Radiosurgery Services;
OR21, Inc. ("OR21"); MedLeader.com, Inc. ("MedLeader"); and the Company's
majority-owned subsidiary, GK Financing, LLC ("GK Financing"). European Shared
Medical Services, Ltd. was dissolved on April 28, 2000.
The Company through its majority-owned subsidiary, GK Financing, provided
Gamma Knife units to twelve medical centers as of September 30, 2001 in
Arkansas, California, Connecticut, Illinois, Massachusetts, Mississippi, Nevada,
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, 2001 basic earnings per share was
computed using 3,549,000 and 3,581,000 common shares, and diluted earnings per
share was computed using 5,126,000 and 5,148,000 common shares and equivalents,
respectively. 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.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Standards Accounting Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.
141 addresses financial accounting and reporting for business combinations and
supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased
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Enterprises". SFAS No. 141 is effective for transactions initiated after June
30, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. SFAS No. 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. The Company does not expect the adoption of these
statements to have a material effect on its consolidated results of operations
or financial position.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt the provisions of SFAS No. 143 no later than the beginning of
fiscal year 2003, with early adoption permitted. The Company does not expect the
adoption of this statement to have a material effect on its consolidated results
of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement. SFAS No. 144
becomes effective for fiscal years beginning after December 15, 2001, with early
applications encouraged. The Company does not expect the adoption of this
statement to have a material effect on its consolidated results of operations or
financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Medical services revenues increased $514,000 and $2,022,000 for the three
and nine month periods ended September 30, 2001 from $2,536,000 and $6,707,000
for the three and nine month periods ended September 30, 2000. The increase in
third quarter 2001 compared to third quarter 2000 reflects the addition of three
new Gamma Knife units. The Company had twelve Gamma Knife units in operation at
September 30, 2001 compared to nine at September 30, 2000. For the nine months
ended September 30, 2001, the increase is due to three new gamma knife units and
an increase in revenue at Gamma Knife centers in operation more than one year of
4%. Ten of the Company's customers are under fee-per-use contracts, and two
customers are under revenue sharing agreements ("retail"). For retail units, the
Company receives all or a percentage of the reimbursement (exclusive of
physician fees) received by the customer, and is responsible for all or a
percentage of the operating expenses of the Gamma Knife.
Total costs of operations increased $144,000 and $715,000 for the three
and nine month periods ended September 30, 2001 from $922,000 and $2,429,000 for
the three and nine month
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periods ended September 30, 2000. Maintenance and supplies increased $46,000 and
$149,000 for the three and nine month periods ended September 30, 2001 compared
to the same periods in the prior year due to additional Gamma Knife units that
started contract maintenance after the expiration of each unit's warranty
period. There were nine Gamma Knife units covered under contract maintenance as
of September 30, 2001 compared to six as of September 30, 2000. Depreciation and
amortization increased $203,000 and $498,000 for the three and nine month
periods ended September 30, 2001 compared to the same periods in the prior year
due to the three additional Gamma Knife units. Other operating costs decreased
$105,000 and increased $68,000 for the three and nine month periods ended
September 30, 2001 compared to the same periods in the prior year. The decrease
for the third quarter was primarily due to an $80,000 credit to property tax
expense, as well as a decrease in certain operating expenses of one of the
retail Gamma Knife units due to a corresponding decrease in revenue. The
increase for the nine month period was primarily due to increases in insurance
and sales/use tax.
Selling and administrative costs increased $144,000 and $466,000 for the
three and nine month periods ended September 30, 2001 from $654,000 and
$1,913,000 for the three and nine month periods ended September 30, 2000. For
both the three and nine month periods this increase is primarily due to
increased investor relations costs, accounting fees, and sales, business
development and marketing costs. For the nine month period ended September 30,
2001 there was $164,000 of development costs for the Company's two startup
businesses, OR21 and MedLeader, compared to $119,000 in the prior year.
Interest expense increased $105,000 and $284,000 for the three and nine
month periods ended September 30, 2001 from $654,000 and $1,913,000 for the
three and nine month periods ended September 30, 2000. This is due to three
additional Gamma Knife units during the three and nine month periods compared to
the prior year, all of which were financed with long-term debt, resulting in
additional interest expense. In addition, the newer Gamma Knife units have
higher interest expense at the beginning of their loan term than more mature
units because interest expense decreases as the outstanding balance of each loan
is reduced.
Interest and other income decreased $97,000 and $243,000 for the three and
nine month periods ended September 30, 2001 from $197,000 and $631,000 for the
three and nine month periods ended September 30, 2000 due to lower interest
rates on invested cash balances. In addition, for the nine month period ended
September 30, 2001 there was a decrease of approximately $73,000 of other income
compared to the same period in the prior year. Other income in the prior year
consisted primarily of state income tax refunds.
Minority interest increased $22,000 and $112,000 for the three and nine
month periods ended September 30, 2001 from $186,000 and $454,000 for the three
and nine month periods ended September 30, 2000 due to increased profitability
of GK Financing. Minority interest represents the 19% interest of GK Financing
owned by a third party.
The Company recorded $170,000 and $294,000 of income tax expense for the
three and nine month periods ended September 30, 2001 compared to no expense for
the three and nine month periods ended September 30, 2000. The Company did not
record any income tax expense during 2000 or the first three months of 2001 due
to net operating loss carryforwards available
7
for tax purposes. The Company expects that it will continue to record an
estimated 40% income tax provision for the remainder of the year.
The Company had net income of $256,000 ($0.07 per basic share) and
$859,000 ($0.24 per basic share) for the three and nine month periods ended
September 30, 2001 compared to net income of $424,000 ($0.11 per basic share)
and $951,000 ($0.25 per basic share) in the same periods in the prior year. This
decrease for both the three and nine month periods ended September 30, 2001 is
primarily because the Company began recording a 40% income tax provision in the
second quarter, 2001. The effects of the tax provision were partially offset by
increased operating results due to three additional Gamma Knife units compared
to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $11,549,000 at September 30,
2001 compared to $12,421,000 at December 31, 2000. The Company's cash position
decreased by $872,000 because the Company made deposits of $575,000 on future
Gamma Knife purchases, paid its first annual dividend of $0.10 per share
($361,000) to shareholders of record on March 15, 2001, and repurchased 196,000
shares and 69,000 options to purchase shares of Company stock ($595,000).
The Company as of September 30, 2001 had shareholders' equity of
$13,576,000, working capital of $9,410,000 and total assets of approximately
$41,251,000.
The Company has scheduled interest and principal payments under its debt
obligations of approximately $7,212,000 during the next 12 months. The Company
believes that its cash flow from operations and cash resources is adequate to
meet its scheduled debt obligations during the next 12 months.
The Company is investing its cash in an institutionally priced money
market fund pending use in the Company's operations. The investment objective of
the money market fund is to maintain a stable net asset value, in order to
maximize yield while preserving principal value.
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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 exhibit is filed herewith:
Exhibit Number Description
-------------- -----------
10.36 American Shared Hospital Services 2001 Stock
Option Plan
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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, 2001 /s/ Ernest A. Bates
----------------------------------------
Ernest A. Bates, M.D.
Chairman of the Board and
Chief Executive Officer
Date: November 13, 2001 /s/ Craig K. Tagawa
----------------------------------------
Craig K. Tagawa
Senior Vice President
Chief Operating and Financial Officer
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