-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iBxtDaEX5dAXh8VAVXBNNFP4fSVy0ivbPMzQfYf8C2c7y4ODOFli4mpHhMhF4MNb uJxwG8RA8Dc5EjrF7nRbQg== 0000892569-95-000387.txt : 19950814 0000892569-95-000387.hdr.sgml : 19950814 ACCESSION NUMBER: 0000892569-95-000387 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN HEALTH SERVICES CORP /DE/ CENTRAL INDEX KEY: 0000712194 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 521278857 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14380 FILM NUMBER: 95561411 BUSINESS ADDRESS: STREET 1: 4440 VON KARMAN STE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7144760733 MAIL ADDRESS: STREET 1: 4440 VON KARMAN AVE STREET 2: SUITE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FORMER COMPANY: FORMER CONFORMED NAME: NMR CENTERS INC DATE OF NAME CHANGE: 19870616 10-Q 1 FORM 10-Q 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, 1995 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 0-14380 ----------------------------------------------------------------- American Health Services Corp. ----------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 52-1278857 ------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4440 Von Karman, Suite 320, Newport Beach, CA 92660 - ----------------------------------------------------------------- (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code 714/476-0733 -------------- N/A ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 ----- ----- The number of shares of the Registrant's common stock outstanding as of August 1, 1995 was 9,683,647. The number of pages in this Form 10-Q is 17. 2 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES INDEX PAGE ---- PART I -- FINANCIAL INFORMATION - ------------------------------- ITEM 1. Financial Statements -------------------- Consolidated Balance Sheets, June 30, 1995, and December 31, 1994 3 - 4 Consolidated Statements of Operations, for the three and six months ended June 30, 1995 and 1994 5 Consolidated Statements of Cash Flows, for the six months ended June 30, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 - 8 ITEM 2. Management's Discussion and Analysis ------------------------------------- of Financial Condition and Results ----------------------------------- of Operations 8 - 15 ------------- PART II -- OTHER INFORMATION - ---------------------------- ITEM 6. Exhibits and Reports on Form 8-K 16 -------------------------------- 2 3 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND DECEMBER 31, 1994 ASSETS
June 30, December 31, 1995 1994 ----------- ------------ (unaudited) CURRENT ASSETS: Cash $ 3,767,062 $ 3,663,795 Accounts receivable, net of an allowance for doubtful accounts and contractual discounts of $4,183,717 and $3,691,466 at June 30, 1995 and December 31, 1994 respectively, and an allowance for professional fees of $1,933,979 and $1,862,399 at June 30, 1995 and December 31, 1994, respectively 8,681,021 8,587,288 Prepaid expenses and other 514,090 345,040 ----------- ----------- Total current assets 12,962,173 12,596,123 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and amortization of $14,203,997 and $12,348,486 at June 30, 1995 and December 31, 1994, respectively 23,878,027 25,521,012 OTHER ASSETS 3,077,292 2,105,802 ----------- ----------- $39,917,492 $40,222,937 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 3 4 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - JUNE 30, 1995 AND DECEMBER 31, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, December 31, 1995 1994 ----------- ------------ (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 3,735,990 $ 3,319,079 Accrued payroll and related costs 794,134 700,916 Professional fees payable 318,171 306,446 Current portion of deferred rent expense 550,188 665,343 Current portion of reserve for center terminations 619,164 690,000 Current portion of long-term debt 15,469,238 4,326,816 ----------- ----------- Total current liabilities 21,486,885 10,008,600 ----------- ----------- DEFERRED RENT EXPENSE 339,679 443,513 ----------- ----------- RESERVE FOR CENTER TERMINATIONS 1,222,471 1,253,130 ----------- ----------- LONG-TERM DEBT 27,220,963 39,400,171 ----------- ----------- CONTINGENCIES AND COMMITMENTS MINORITY INTEREST 985,496 81,145 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIT): 10 percent convertible Series B preferred stock with a liquidation preference of $185 per share plus declared and unpaid dividends Authorized--5,000,000 shares Outstanding--37,837.83 at June 30, 1995 and December 31, 1994 stated at 6,075,107 6,075,107 Common stock, $.03 par value-- Authorized--25,000,000 shares Outstanding--9,683,647 at June 30, 1995 and December 31, 1994 290,509 290,509 Common stock warrants 1,115,569 1,115,569 Additional paid-in capital 9,343,665 9,343,665 Accumulated deficit (28,162,852) (27,788,472) ----------- ----------- (11,338,002) (10,963,622) ----------- ----------- $39,917,492 $40,222,937 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 4 5 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 ---------- ---------- ----------- ----------- (unaudited) (unaudited) REVENUES: Center revenues $9,708,114 $9,370,071 $19,066,015 $18,577,136 EXPENSES: Center expenses 7,667,258 7,517,631 15,372,724 14,813,012 Provision for center profit distributions 196,276 224,465 375,744 457,212 ---------- ---------- ----------- ----------- Income from center operations 1,844,580 1,627,975 3,317,547 3,306,912 ---------- ---------- ----------- ----------- CORPORATE OPERATING EXPENSES 1,071,390 899,562 1,951,965 1,798,157 ---------- ---------- ----------- ----------- Income from operations before interest 773,190 728,413 1,365,582 1,508,755 INTEREST INCOME AND OTHER 36,143 23,006 77,410 52,579 INTEREST EXPENSE (901,179) (1,000,319) (1,817,372) (2,154,349) ---------- ---------- ----------- ----------- Loss before extraordinary item (91,846) (248,900) (374,380) (593,015) EXTRAORDINARY ITEM: Gain on restructuring of long-term debt -- 305,985 -- 305,985 ---------- ---------- ----------- ----------- Net income (loss) $ (91,846) $ 57,085 $ (374,380) $ (287,030) ========== ========== =========== =========== EARNINGS (LOSS) PER COMMON SHARE (Note 3): Loss before extraordinary item $ (0.01) $ (0.02) $ (0.04) $ (0.06) Extraordinary item -- 0.03 -- 0.03 ---------- ---------- ----------- ----------- Net income (loss) per common share $ (0.01) $ 0.01 $ (0.04) $ (0.03) ========== ========== =========== =========== Weighted average number of common shares outstanding (Note 3) 9,683,647 9,683,647 9,683,647 9,683,647 ========== ========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 6 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended Six Months Ended June 30, 1995 June 30, 1994 --------------- --------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (374,380) $ (287,030) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,617,406 2,411,497 Deferred rent expense (218,989) 102,501 Gain on restructuring of long-term debt -- (305,985) Changes in operating assets and liabilities: Increase in accounts receivable, net (93,733) (248,766) (Increase) decrease in prepaid expenses and other (160,300) 181,011 (Increase) decrease in other assets (426,350) 98,865 Increase in accounts payable and accrued expenses 510,129 54,105 Increase (decrease) in professional fees payable 11,725 (33,670) Decrease in reserve for center terminations (101,495) (289,324) ----------- ----------- Net cash provided by operating activities 1,764,013 1,683,204 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (79,259) (551,125) Investment in radiation oncology center (408,221) -- ------------ ------------ Net cash used in investing activities (487,480) (551,125) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments under long-term obligations (2,283,448) (1,869,126) Increase in principal under long-term obligations 1,151,331 1,299,153 Decrease in minority interest (41,149) (137,783) ------------ ------------ Net cash used in financing activities (1,173,266) (707,756) ------------ ------------ NET INCREASE IN CASH 103,267 424,323 CASH, beginning of period 3,663,795 4,339,445 ------------ ------------ CASH, end of period $ 3,767,062 $ 4,763,768 ============ ============
During 1994, the Company issued a warrant to purchase 372,524 shares of the Company's common stock which was valued at $29,802. The accompanying notes are an integral part of these consolidated statements. 6 7 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 (UNAUDITED) 1. Basis of Preparation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes for the year ended December 31, 1994 included as part of the Company's Annual Report on Form 10-K (File No. 0-14380) filed with the Securities and Exchange Commission on March 31, 1995. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position at June 30, 1995, the results of operations and changes in cash flows for the six month periods ended June 30, 1995 and 1994 have been included. The results of operations of the six month period ended June 30, 1995 are not necessarily indicative of the results to be expected for the full fiscal year. 2. Canadian Accounting Principles The Company's common stock is listed with the Ontario Securities Commission (OSC) and the Company is required to file its financial statements with OSC. Although the accompanying financial statements and notes thereto have been prepared in accordance with generally accepted accounting principles applicable in the United States, the primary difference between these accounting principles and those applicable in Canada is as follows: Currency Translation The accompanying financial statements are stated in United States dollars. Translation of the financial statements into Canadian dollars would be performed using the historical rate in effect on the dates transactions occurred. No translation gains or losses would result from the translation. The rates of exchange in effect at the end of each of the reporting periods and the average exchange rate for those periods are as follows: 7 8 2. Canadian Accounting Principles (cont.)
Exchange Rates (Canadian Dollars per U.S. Dollar) ----------------------------------- Average for Six Months Ended Year June 30 June 30 ---- ------- ------------ 1993 1.258 1.266 1994 1.340 1.356 1995 1.374 1.389
3. Loss Per Common Share The number of shares used in computing loss per common share is equal to the totals of the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents relating to options, warrants and convertible preferred stock have not been included in the computation of loss per share in 1995 and 1994 due to their antidilutive effect. Preferred stock dividends have not been considered in the calculation of loss per common share since the shares are non-cumulative and no dividends have been declared. 4. Income Taxes The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes ("FAS No. 109") pursuant to which the Company recorded the benefit of its net operating loss carryforwards and also recorded a valuation reserve for the entire amount. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Six Months Ended June 30, 1995 Compared to June 30, 1994 The Company reported revenues from the operation of its diagnostic imaging and gamma knife centers for the six months ended June 30, 1995 of approximately $19,066,000, compared to approximately $18,577,000 for the six months ended June 30, 1994, representing an increase of approximately 3%. The increase in reported revenues of approximately $489,000 is due to revenues generated by three new centers (approximately $1,966,000), offset by the sale or closure of four centers and the expiration of 8 9 operating agreements relating to five centers subsequent to December 31, 1993 (approximately $1,396,000). Management believes that any future increases in revenues from existing centers can only be achieved by higher utilization and not by increases in procedure prices since reimbursement is declining; however, excess capacity of diagnostic imaging equipment, increased competition, anticipated healthcare reform and the expansion of managed care may impact utilization and make it difficult for the Company to achieve revenue increases in the future, absent the negotiation of provider agreements with managed care companies and other payors, acquisition of profitable diagnostic imaging centers and development of management services which are not capital intensive. Center expenses for the six months ended June 30, 1995, aggregated approximately $15,373,000, compared to approximately $14,813,000 for the six months ended June 30, 1994. This increase of approximately $560,000, or 4%, is due to (i) increased expenses related to the Company's three new centers (approximately $1,582,000) and (ii) increased expenses related to the development of an outside billing service (approximately $92,000). This increase is substantially offset by (i) the elimination of expenses at the nine terminated centers discussed above (approximately $690,000) and (ii) a decrease in costs at the majority of the Company's remaining centers (approximately $424,000) primarily related to reductions in payroll costs, equipment maintenance and medical supplies. Provision for center profit distributions was approximately $376,000 for the six months ended June 30, 1995, compared to approximately $457,000 for the six months ended June 30, 1994. This represents a decrease of approximately $81,000, or 18%. This decrease is due primarily to (i) the purchase of the physician limited partnership interests in 1994 discussed below, and (ii) reduced income at the Company's cooperative venture centers. This decrease is partially offset by income at the Company's new cooperative venture centers. The Company reported income from center operations of approximately $3,318,000 for the six months ended June 30, 1995, compared to approximately $3,307,000 for the six months ended June 30, 1994, representing an increase of approximately $11,000, or less than 1%. This increase in income from center operations is due primarily to (i) increased income at the Company's centers which existed at June 30, 1994 (approximately $252,000), (ii) income from center operations at the Company's three new centers (approximately $384,000), and (iii) the decrease in provision for center profit distributions. The increase was substantially offset by the loss of income from center operations at the terminated centers discussed above (approximately $706,000). For the six month period ended June 30, 1995, the Company recorded corporate operating expenses of approximately $1,952,000, 9 10 compared to corporate operating expenses of approximately $1,798,000 for the six month period ended June 30, 1994, an increase of approximately 9%. This increase of approximately $154,000 is due primarily to increases in legal, consulting and travel costs related to acquisition and debt restructure negotiations. Interest expense was approximately $1,817,000 during the six months ended June 30, 1995, compared to approximately $2,154,000 for the six months ended June 30, 1994, a decrease of approximately $337,000, or 16%. This decrease was primarily due to (i) reduced interest related to amortization of long-term obligations, and (ii) reduced interest as a result of the April 12, 1994 restructuring agreement discussed below, partially offset by long-term debt incurred at the Company's new centers. For the six months ended June 30, 1995, the Company reported a net loss before extraordinary item of approximately $374,000 compared to a net loss before extraordinary item of approximately $593,000 for the six months ended June 30, 1994. This decrease in net loss before extraordinary item of approximately $219,000 is the result of increased income from center operations and a decrease in net interest expense, offset by a slight increase in corporate operating expenses. As a result of the April 12, 1994 restructuring agreement discussed below, an extraordinary gain on restructuring of long-term debt of approximately $306,000 was recorded in 1994. Net loss per share before extraordinary item for the six months ended June 30, 1995, was ($0.04), compared to a net loss per share of ($0.06) for the six months ended June 30, 1994. As discussed below under "Liquidity and Capital Resources," dividends on the Series B Preferred stock are non-cumulative. Since the Board of Directors did not declare a dividend for the six months ended June 30, 1995 and 1994, respectively, no dividend has been subtracted from net loss to determine loss per share for each of the six months ended June 30, 1995 and 1994, respectively. Three Months Ended June 30, 1995 Compared to June 30, 1994 The Company reported revenues from the operation of its diagnostic imaging and gamma knife centers for the three months ended June 30, 1995 of approximately $9,708,000, compared to approximately $9,370,000 for the three months ended June 30, 1994, representing an increase of 4%. The increase in reported revenues of approximately $338,000 is due primarily to revenues generated by three new centers (approximately $936,000) which began operations subsequent to April 1, 1994, offset by the sale or closure of four centers and the expiration of operating agreements relating to four centers subsequent to June 30, 1993 (approximately $509,000). Management believes that any future increases in revenues from existing centers can only be achieved by higher utilization and not 10 11 by increases in procedure prices since reimbursement is declining; however, excess capacity of diagnostic imaging equipment, increased competition, anticipated healthcare reform and the expansion of managed care may impact utilization and make it difficult for the Company to achieve revenue increases in the future, absent the negotiation of provider agreements with managed care companies and other payors, acquisition of profitable diagnostic imaging centers and development of management services which are not capital intensive. Center expenses for the three months ended June 30, 1995, aggregated approximately $7,667,000, compared to approximately $7,518,000 for the three months ended June 30, 1994. This increase of approximately $149,000, or 2%, is due to increased expenses related to the Company's three new centers (approximately $704,000), substantially offset by (i) the elimination of expenses at the eight terminated centers discussed above (approximately $166,000), and (ii) a decrease in costs at the majority of the Company's remaining centers primarily due to reductions in payroll, equipment maintenance and medical supplies (approximately $389,000). Provision for center profit distributions was approximately $196,000 for the three months ended June 30, 1995, compared to approximately $224,000 for the three months ended June 30, 1994. This represents a decrease of approximately $28,000, or 13%. This decrease is due primarily to (i) the purchase of the physician limited partnership interests in 1994 discussed below, and (ii) reduced income at the Company's cooperative venture centers. This decrease is partially offset by income at the Company's new cooperative venture centers. The Company reported income from center operations of approximately $1,845,000 for the three months ended June 30, 1995, compared to approximately $1,628,000 for the three months ended June 30, 1994, representing an increase of approximately $217,000, or 13%. This increase in income from center operations is due primarily to (i) increased income at the Company's centers which existed at June 30, 1993 (approximately $300,000), (ii) income from center operations at the Company's three new centers (approximately $232,000), and (iii) the decrease in provision for center profit distributions, partially offset by the loss of income from center operations at the eight terminated centers discussed above (approximately $343,000). For the three month period ended June 30, 1995, the Company recorded corporate operating expenses of approximately $1,071,000, compared to corporate operating expenses of approximately $900,000 for the three month period ended June 30, 1994, an increase of approximately 19%. This increase of $171,000 is due primarily to increases in legal, consulting and travel costs related to acquisition and debt restructure negotiations. 11 12 Interest expense was approximately $901,000 during the three months ended June 30, 1995 compared to approximately $1,000,000 for the three months ended June 30, 1994, a decrease of approximately $99,000, or 10%. This decrease was primarily due to (i) reduced interest related to amortization of long-term obligations, and (ii) reduced interest as a result of the April 12, 1994 restructuring agreement discussed below, partially offset by long-term debt incurred at the Company's new centers. For the three months ended June 30, 1995, the Company reported a net loss before extraordinary item of approximately $92,000, compared to a net loss before extraordinary item of approximately $249,000 for the three months ended June 30, 1994. This decrease in net loss before extraordinary item of approximately $157,000 is the result of (i) increased income from center operations, and (ii) a decrease in net interest expense, offset by an increase in corporate operating expenses. As a result of the April 12, 1994 restructuring agreement discussed below, an extraordinary gain on restructuring of long-term debt of approximately $306,000 was recorded. Net loss per share before extraordinary item for the three months ended June 30, 1995, was ($0.01) compared to a net loss per share before extraordinary item of ($0.02) for the three months ended June 30, 1994. As discussed below under "Liquidity and Capital Resources", dividends on the Series B Preferred stock are non-cumulative. Since the Board of Directors did not declare a dividend for the quarters ended June 30, 1995 and 1994, respectively, no dividend has been subtracted from net loss to determine loss per share for each of the three months ended June 30, 1995 and 1994, respectively. LIQUIDITY AND CAPITAL RESOURCES Working capital decreased to a deficit of approximately $8,525,000 at June 30, 1995 from approximately $2,588,000 at December 31, 1994. This decrease of $11,113,000 is primarily due to the reclassification of long-term obligations to current liabilities as a result of scheduled debt maturities and principal payments on long-term obligations. This decrease was partially offset by net income before depreciation and amortization. During the past three years, the Company has financed its operations primarily through internally generated funds and the credit arrangements discussed below. Cash increased to approximately $3,767,000 at June 30, 1995 from approximately $3,664,000 at December 31, 1994, an increase of approximately $103,000, or 3%. This increase resulted from (i) net income before depreciation and amortization and deferred rent expense (approximately $2,024,000), and (ii) an increase in accounts payable and accrued expenses (approximately $510,000). This increase was offset by (i) an increase in other assets 12 13 (approximately $426,000), (ii) the investment in a radiation oncology treatment center (approximately $408,000), (iii) purchases of property and equipment (approximately $79,000), and (iv) a net decrease in long-term debt obligations net of the deferred payment discussed below (approximately $1,132,000). Except for the remaining deferred payment discussed below, the Company currently has no lines of credit available to borrow against for working capital purposes except for two working capital loans advanced to Radiosurgery Centers, Inc., the Company's wholly owned subsidiary ("RCI"), in connection with its operation of two Gamma Knife centers as discussed below. Pursuant to the terms of an April 12, 1994 agreement between the Company and its primary lender, GE Capital Corporation and GE Medical Systems ("GE"), the maturity of a balloon principal payment of approximately $9,600,000 which was due in May 1994, was extended until January 1, 1996 and the principal payment was reduced from $9,600,000 to $8,000,000. In addition, the interest rate on the note related thereto was reduced from 12.75% per annum to 9.25% per annum which resulted in monthly cash savings of approximately $140,000. As a result, the Company is required to make certain balloon principal payments pursuant to its loan agreements with its primary lender as follows: $10,050,000 in January 1996 and $1,500,000 in August 1996. GE also agreed to restructure the monthly payments under a $15,200,000 equipment loan which resulted in monthly cash savings of $75,000. Finally, GE agreed to provide three deferred payments to be used through December 31, 1995, under certain circumstances. Each deferred payment will result in a monthly cash savings of approximately $700,000. These deferred payments will become due in January 1996. In January 1995, the Company utilized the first of its three deferrals. Subsequent to June 30, 1995, the Company utilized the second of its deferrals. Further, the Company is required to maintain, under the terms of its loan agreements with its primary lender, certain financial covenants and ratios. The Company is not in compliance with several of these covenants and ratios but has received a written waiver of the violations from its primary lender through January 1996. The healthcare industry is highly regulated and changes in laws and regulations can be significant. The Company believes that the expanding managed care environment accompanied by cost containment pressures may have a materially adverse impact on the Company's business, since they may directly affect the utilization of the Company's centers and reimbursement for those procedures performed at the Company's centers; however, the Company believes that as long as the Company is able to negotiate provider agreements with the managed care companies and other payors to provide productive and cost efficient services with measurable outcomes, the Company's business should not be negatively impacted. In addition to the restructuring arrangements discussed above, 13 14 the Company is also taking certain other actions to achieve profitability. First, if utilization at certain underperforming centers continues to deteriorate, those centers will be considered for closure and/or disposition. Second, the Company has sold or negotiated the termination of leases of all its idle diagnostic imaging equipment and has renegotiated its equipment maintenance contracts and contracts with vendors of medical supplies and film. Third, the Company is continuing to develop a long-term restructuring plan which includes (i) changes in the Company's debt and capital structure, and (ii) raising additional working capital. In this regard, the Company has engaged outside professional assistance and continues to explore (i) negotiations with its primary lender, (ii) debt restructuring, (iii) dispositions of certain assets, (iv) raising new capital for future operations, and/or (v) a merger. The Company believes that it will be able to meet its long-term debt, operating lease and other ongoing obligations through January 1996; however, the Company believes that its ability to meet its long-term debt obligations beyond January 1996 is contingent upon the consummation of the long-term restructuring plan discussed above, which may include, among others, refinancing its long-term debt, a public or private offering, or a merger. However, there can be no assurances that any of these transactions may be consummated in a timely manner and on terms reasonably acceptable to the Company. In connection with the operation of a Gamma Knife center in Seattle, Washington, RCI has received a working capital loan for an amount up to $800,000 from the Company's primary lender to fund the operations of the center, of which $200,000 is still available. In 1994, in connection with the operation of a Gamma Knife center in Miami, Florida, RCI entered into a loan agreement ($2,900,000) with a bank which provided $500,000 of working capital for operations of the center and which loan was guaranteed by Mr. Cal Kovens, then a director of the Company (deceased February 6, 1995). In addition, RCI has received a working capital loan for an amount up to $500,000 from the Company's primary lender to fund the operations of the center, of which $250,000 is still available, which loan is secured by the accounts receivable of the center. RCI commenced operations at the center in March 1994. In connection with the Company's expansion plans, the Company has reviewed several diagnostic imaging centers as acquisition candidates. In 1994, the Company purchased a majority interest in a diagnostic imaging center in Monterey Park, California. Additionally, in January 1995, the Company purchased an interest in a radiation oncology treatment facility in Valparaiso, Indiana. The cash needed to purchase these centers was made available from a non-revolving line of credit with G.E. The Company's ability to borrow under the non-revolving line of credit expired on March 31, 1995. Borrowings under this line in the approximate amount of $1,359,000 were converted to term notes. The Company continues to review diagnostic imaging centers as acquisition candidates but has 14 15 not entered into any letters of intent or definitive agreements. Approval of the Company's primary lender is required for any equipment purchase financing in connection with any acquisitions by the Company. The Omnibus Budget Reconciliation Act of 1993 ("OBRA") prohibits referring physician ownership of diagnostic imaging centers after December 31, 1994. In 1994, the Company evaluated its own cooperative ventures and has purchased the physician limited partnership interests at four of its cooperative ventures and has dissolved the physician limited partnership interests at two other ventures. As a result, the Company no longer has any cooperative ventures with referring physician ownership. The cash needed for these buyouts was made available from internally generated funds. Subject to the limitations described above, the Company expects to finance the development and other start-up costs and the costs of equipment and site improvements at any new centers through (i) financing arrangements with the manufacturers of the equipment utilized at such centers, and (ii) other financing sources utilized by the Company. The ability of the Company to establish such centers and to expand operations is dependent upon the availability of financing on terms reasonably acceptable to the Company. Dividends on the Series B Preferred Stock are non-cumulative so long as the Series B Preferred Stockholders control a majority of the Board of Directors of the Company. In addition, any dividends declared on the Series B Preferred Stock may be paid in cash or shares of common stock at the discretion of the Board of Directors. No dividend was declared by the Board of Directors for the quarter ended June 30, 1995. The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes ("FAS No. 109"), pursuant to which the Company recorded the benefit of its net operating loss carryforwards and also recorded a valuation reserve for the entire amount. Inflation has not had a significant impact on the Company's operations and, in management's opinion, based upon current trends will not have an adverse impact on operations in the near future. 15 16 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K During the quarter ended June 30, 1995, the Company did not file any current report on Form 8-K with the Securities and Exchange Commission. 16 17 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 thereto duly authorized. American Health Services Corp. (Registrant) /s/ Thomas V. Croal - ---------------------------- Thomas V. Croal, Vice President Chief Financial Officer /s/ E. Larry Atkins - ---------------------------- E. Larry Atkins, President Chief Executive Officer Date: August 11, 1995 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 US 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 1 3,767,062 0 12,864,738 4,183,717 0 12,962,173 38,082,024 14,203,997 39,917,492 21,486,885 0 290,509 0 6,075,107 (17,703,618) (39,917,492) 19,066,015 19,066,015 0 0 15,748,468 0 1,817,372 (374,380) 0 (374,380) 0 0 0 (374,380) (04) (.00)
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