UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
| ☒ | |||||
| ANNUALREPORT PURSUANT TO SECTION 13 OR 15 | ||||
FOR THE FISCAL YEAR ENDED December 31, 2022
or
| ☐ | |||||
| TRANSITION REPORT PURSUANT To SECTION 13 or
FOR THE TRANSITION PERIOD FROM _______________T | ||||
Commission file number 1-08789
American Shared Hospital Services
(Exact name of registrant as specified in its charter)
California | 94-2918118 | |||||||||||||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||||||||
601 Montgomery | Suite | San Francisco, | California | 94111-2619 | ||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (415) 788-5300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||||
Common Stock No Par Value | AMS | NYSEAMER | ||||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☒ Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý
As of June 30, 2019,2022, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $12,757,000.
Number of shares of common stock of the registrant outstanding as of March 20, 2020: 5,817,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 20202023 Annual Meeting of Shareholders are incorporated by reference into Part II, Item 5 and Part III of this report.
Certain matters discussed in this Annual Report on Form 10-K other than statements of historical information are “forward-looking statements.” The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe”, “anticipate”, “target”, “expect”, “pro forma”, “estimate”, “intend”, “will”, “is designed to”, “plan” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions concerning and include, but are not limited to, such things as:
• | capital expenditures |
• | earnings |
• | liquidity and capital resources |
• | financing of our business |
• | government programs and regulations |
• | legislation affecting the health care industry |
• | the expansion of our proton beam radiation therapy business |
• | accounting matters |
• | compliance with debt covenants |
• | competition |
• | customer concentration |
• | contractual obligations |
• | timing of payments |
• | technology |
• | interest rates |
These forward-looking statements involve known and unknown risks that may cause our actual results in future periods to differ materially from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to, such things as:
• | our high level of debt |
• | the limited market for our capital-intensive services |
• | the impact of lowered federal reimbursement rates |
• | the impact of recent U.S. health care reform legislation |
• | competition and alternatives to our services |
• | technological advances and the risk of equipment obsolescence |
• | our significant investment in the proton beam radiation therapy business |
• | the small and illiquid market for our stock |
• | effects of public health crises, pandemics and epidemics, such as COVID-19 |
These lists are not all-inclusive because it is not possible to predict all factors. A discussion of some of these factors is included in this document under the headings “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” “–Application of Critical Accounting Policies” and “–Liquidity and Capital Resources.” This report should be read in its entirety. No one section of this report deals with all aspects of the subject matter. Any forward-looking statement speaks only as of the date such statement was made, and we are not obligated to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made, except as required by applicable laws or regulations.
GENERAL
American Shared Hospital Services (“ASHS” and, together with its subsidiaries, the “Company”) provides Gamma Knife stereotactic radiosurgery equipment and advanced radiation therapy and related equipmentequipment. The Company provides Gamma Knife units to fifteen (15)twelve medical centers in fourteen (14)eleven states in the United States and onetwo Gamma Knife unitunits at a stand-alone facilityfacilities in Lima, Peru and Guayaquil, Ecuador as of March 1, 2020.2023. The Company provides Gamma Knife services through its 81% indirect interest in GK Financing, LLC, a California limited liability company (“GKF”). The remaining 19% of GKF is owned by GKV Investments, Inc. (“GKV Investments”), a wholly-owned U.S. subsidiary of Elekta AG, a Swedish company (“Elekta”). Elekta is the manufacturer of the Leksell Gamma Knife® (the “Gamma Knife”). GKF is a non-exclusive provider of alternative financing services for Leksell Gamma Knife units.
The Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), OR21, Inc. and MedLeader.com, Inc. (“MedLeader”). ASRS is the majority-owner of GKF.
GKF has established the wholly-owned subsidiarysubsidiaries Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and HoldCo GKC S.A (“HoldCo”) for the purpose of providing similar Gamma Knife services in Peru.
GKF also owns a 51% interest in Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville GK Equipment, LLC (“JGKE”). The remaining 49% in each of these two companies is owned by radiation oncologists.
The Company is also the sole owner of PBRT Orlando, LLC (“Orlando”) and the majority owner of Long Beach Equipment, LLC (“LBE”) which were formed to provide proton beam radiation therapy services in Orlando, Florida and Long Beach, California. A 40% minority ownership in LBE is owned by radiation oncologists.
On April 27, 2022, the Company signed a Joint Venture Agreement (the “Agreement”) with the principal owners of Guadalupe Amor Y Bien (“Guadalupe”) to establish AB Radiocirugia Y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients. The Company and Guadalupe will hold 85% and 15% ownership interests, respectively, in Puebla. Under the Agreement, the Company will be responsible for providing a linear accelerator upgrade to an Elekta Versa HD, and Guadalupe will be accountable for all site modification costs. The Company formed ASHS-Mexico, S.A. de C.V. on October 3, 2022 to establish Puebla in order to provide radiation therapy and radiosurgery services locally in Mexico. Puebla was formed on December 15, 2022.
The Company continues to develop its design and business model for “The Operating Room for the 21st21st Century”SM through its 50% owned OR21, LLC (“OR21”). The remaining 50% of OR21 is owned by an architectural design company. OR21 is not expected to generate significant revenue within the next two years.
The Company was incorporated in the State of California in 1983 and its predecessor, Ernest A. Bates, M.D., Ltd. (d/b/a American Shared Hospital Services), a California limited partnership, was formed in June 1980.
OPERATIONS
Gamma Knife Operations
Gamma Knife stereotactic radiosurgery, a non-invasive procedure, is an alternative to conventional brain surgery and/or radiation therapy. It can be an adjunct to conventional brain surgery, radiation therapy, or chemotherapy. Compared to conventional surgery, Gamma Knife radiosurgery usually is an out-patient procedure with lower risk of complications and can be provided at a lower cost. Typically, Gamma Knife patients resume their pre-surgical activities one or two days after treatment. The Gamma Knife Perfexion unit, which was introduced by Elekta in 2006, treats patients with 192 single doses of gamma rays that are focused with great precision on small and medium sized, well circumscribed and critically located structures in the brain. The Cobalt-60 sources converge at the target area and deliver a dose that is high enough to destroy the diseased tissue without damaging the surrounding healthy tissue. In 2015, Elekta introduced an upgrade to the Gamma Knife Perfexion unit called Icon. In 2022, Elekta introduced an upgrade to the Icon, called the Esprit. As of March 1, 2020,2023, all of the Company’s fifteen (15)twelve Gamma Knife units in the United States are Gamma Knife Perfexion units and one (1)two of these Perfexion units hashave the Icon upgrade. The Company’s Gamma Knife units in Peru and Ecuador are Model 4(C)s. The Company expects to replace the unit in Ecuador with an Icon in mid-2023.
The Gamma Knife treats selected malignant and benign brain tumors, arteriovenous malformations, and functional disorders including trigeminal neuralgia (facial pain). Research is being conducted to determine whether the Gamma Knife can be effective in the treatment of epilepsy, tremors, and other functional disorders.
As of December 31, 2019,2022, there were approximately 120118 Gamma Knife sites in the United States and more than 340360 units in operation worldwide. Based on recent2021 case mix data, an estimated percentage breakdown of Gamma Knife procedures performed in the U.S. by indications treated is as follows: malignant (63%) and benign (23%(22%) brain tumors, vascular disorders (4%), and functional disorders (10%(11%).
The Company, as of March 1, 2020,2023, had fifteen (15)twelve operating Gamma Knife units located in the United States and onetwo in South America in Lima, Peru.Peru and Guayaquil, Ecuador, respectively. The Company’s first Gamma Knife commenced operation in September 1991. The Company’s Gamma Knife units performed 1,4981,286 procedures in 20192022 for a cumulative total of approximately 42,00046,200 procedures from commencement through December 31, 2019.
Revenue from Gamma Knife services for the Company during each of the last five (5)two years ended December 31, and the percentage of total revenue of the Company represented by the Gamma Knife for each of the last fivetwo years, are set forth below:
Year Ended December 31, | Total Gamma Knife Revenue (in thousands) | Gamma Knife % of Total Revenue | ||||||||||||
| 2019 | $ | 13,551 | 65.8 | % | ||||||||||
| 2018 | $ | 13,578 | 68.9 | % | ||||||||||
| 2017 | $ | 14,848 | 75.9 | % | ||||||||||
| 2016 | $ | 16,076 | 86.0 | % | ||||||||||
| 2015 | $ | 16,077 | 97.2 | % | ||||||||||
Year Ended | Total Gamma Knife | Gamma Knife % of | ||||||
December 31, | Revenue (in thousands) | Total Revenue | ||||||
2022 | $ | 10,794 | 54.7 | % | ||||
2021 | $ | 11,629 | 66.0 | % | ||||
The Company conducts its Gamma Knife business through its 81% indirect interest in GKF. The remaining 19% interest is indirectly owned by Elekta.Elekta through its wholly-owned subsidiary, GKF Investments. GKF, formed in October 1995, is managed by its policy committee. The policy committee is composed of one representative from the Company, Ernest A. Bates, M.D.,Craig Tagawa, ASHS’s ChairmanPresident and CEO,Chief Financial Officer, and one representative from Elekta. The policy committee sets the operating policy for GKF. The policy committee may act only with the unanimous approval of both of its members. The policy committee selects a manager to handle GKF’s daily operations. Craig K. Tagawa, Chief Executive Officer of GKF and President and Chief Operating and Financial Officer of ASHS, serves as GKF’s manager.
GKF’s profits and/or losses and any cash distributions are allocated based on membership interests. GKF’s operating agreement requires that it have a cash reserve of at least $50,000 before cash distributions are made to its members. From inception to December 31, 2019,2022, GKF has distributed $49,600,000$50,410,000 to the Company and $11,635,000$11,825,000 to the non-controlling member.
Advanced Radiation Therapy Operations (“IGRT”)
The Company’sCompany is continuing its efforts to contract new radiation therapy business currently consists of one IGRT systemcustomers both domestically and internationally. The Company has increased its product offerings from standard linear accelerators to more advanced linear accelerators that began operation in September 2007 at an existing Gamma Knife customer site. Revenue generated under IGRT services accounted for approximately 4.1% of the Company’s total revenue in 2019. This contract is currently on a month-to-month basisincorporate Magnetic Resonance Imaging (“MRI”) and thepotentially Positron Emission Tomography (“PET”) imaging technologies. The Company expects it will terminate during the second quarter of 2020.
Additional information on our operations can be found in Item 6– “Selected Financial Data”, Item 7– “Management’s“Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note“Note 1 - Business And Basis of ourPresentation” of the consolidated financial statements.
Proton Beam Radiation Therapy Operations (“PBRT”(“PBRT”)
PBRT is an alternative to traditional external beam, photon-based radiation delivered by linear accelerators. PBRT, first clinically introduced in the 1950s, has physics advantages compared to photon-based systems which allow PBRT to deliver higher radiation doses to the tumor with less radiation to healthy tissue. PBRT currently treats prostate, brain, spine, head and neck, lung, breast, gastrointestinal tract and pediatric tumors. More than 200,000 patientsApproximately 280,000 patients have been treated with protons worldwide.
Introduction of PBRT in the United States, until recently, has been limited due to the high capital costs of these projects. The Company believes that the current development of one and two treatment room PBRT systems at lower capital costs and the level of reimbursement for PBRT from the Centers for Medicare & Medicaid Services (“CMS”) will help make this technology available to a larger segment of the market.
Additional information on our operations can be found in Item 6– “Selected Financial Data”, Item 7– “Management’s“Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note“Note 1 - Business And Basis of ourPresentation” of the consolidated financial statements.
The Company’s current business is the outsourcing of stereotactic radiosurgery services and radiation therapy services. The Company typically provides the equipment, as well as planning, installation, reimbursement and marketing support services. The majority of the Company’s customers pay the Company on a revenue sharing basis. The market for these services primarily consists of large and medium sized medical centers. The business is capital intensive; the total cost of a Gamma Knife or IGRT facility usually ranges from $3.0 million to $5.5$4.5 million, including equipment, site construction and installation; the total cost of a single room PBRT system usually ranges from $30.0M$30.0 million to $40.0M,$50.0 million, inclusive of equipment, site construction and installation. The Company pays for the equipment and the medical center generally pays for site and installation costs. The following is a listing of the Company’s sites as of March 1, 2020:
Original Term of | Year Contract | ||||||||
Customers (Gamma Knife except as noted) | Contract (in years) | Began | Basis of Payment | ||||||
Southwest Texas Methodist Hospital San Antonio, Texas | 10 | 1998 | Fee per use | ||||||
Kettering Medical Center Kettering, Ohio | 10 | 1999 | Revenue sharing | ||||||
Central Mississippi Medical Center Jackson, Mississippi | 10 | 2001 | Fee per use | ||||||
OSF Saint Francis Medical Center Peoria, Illinois | 10 | 2001 | Fee per use | ||||||
Albuquerque Regional Medical Center Albuquerque, New Mexico | 10 | 2003 | Fee per use | ||||||
Northern Westchester Hospital Mt. Kisco, New York | 10 | 2005 | Fee per use | ||||||
USC University Hospital Los Angeles, California | 10 | 2008 | Fee per use | ||||||
St. Vincent’s Medical Center Jacksonville, Florida | 10 | 2011 | Revenue Sharing | ||||||
Sacred Heart Medical Center Pensacola, Florida | 10 | 2013 | Revenue Sharing | ||||||
PeaceHealth Sacred Heart Medical Center at RiverBend Eugene, Oregon | 10 | 2014 | Revenue Sharing | ||||||
Orlando Health Cancer Institute Orlando, Florida (PBRT) | 10 | 2016 | Revenue Sharing | ||||||
Bryan Medical Center Lincoln, Nebraska | 10 | 2017 | Revenue Sharing | ||||||
Methodist Hospital Merrillville, Indiana | 10 | 2019 | Revenue Sharing | ||||||
The Company’s typical fee per use agreement is for a ten-year term. The fixed fee per use reimbursement amount that the Company receives from the customer is based on the Company’s cost to provide the service and the anticipated volume of the customer. The Gamma Knife contracts signed by the Company typically call for a fee ranging from $6,000$4,500 to $9,300 per$9,000 per procedure. There are no minimum volume guarantees required of the customer. In most cases, GKF is responsible for providing the Gamma Knife and related ongoing Gamma Knife equipment expenses (i.e., personal property taxes, insurance, and equipment maintenance) and helps fund the customer’s Gamma Knife marketing. The customer generally is obligated to pay site and installation costs and the costs of operating the Gamma Knife. The customer can either renew the agreement or terminate the agreement at the end of the contractual term. If the customer chooses to terminate the agreement, then GKF removes the equipment from the medical center for possible placement at another site.
The Company’s typical revenue sharing agreements (“retail”) are for a period of ten years. Instead of receiving a fixed fee, the Company receives all or a percentage of the reimbursement (exclusive of physician fees) received by the customer. The Company is at risk for any reimbursement rate changes for radiosurgery or radiation therapy services by the government or other third-party payors. There are no minimum volume guarantees required of the customer.
One customer accounted for approximately 30%, 26%,45% and 21%34% of the Company’s total revenue in 2019, 20182022 and 2017,2021, respectively. At December 31, 2019 and 2018, three2022, four customers each individually accounted for more than 10%12%, 14%, 16% and 22% of total accounts receivable, in the respective years.
MARKETING
The Company markets itsfinancial and turnkey solutions to cancer treatment centers, hospitals, and large cancer networks worldwide. The Company works closely with major global Original Equipment Manufacturers (“OEM’s”) that provide leading edge clinical treatment systems and software that treat cancer using radiation therapy and radiosurgery. The major products the Company is able to provide creative financial and turnkey services for are; MR Guided Radiation Therapy Linacs, Advanced Linear Accelerators, Proton Beam Therapy systems, Brachytherapy systems, and through our GK Financing partnership with Elekta, the Leksell Gamma Knife services through its preferred provider status with Elektaproduct and a direct sales effort led by its Vice President of Sales and Business Development, its Chief Operating Officer and its Chief Executive Officer. services.
The Company marketsis product agnostic and works with all major OEMs to provide financial solutions to the end users for the products and services they desire. The Company has enhanced and expanded its PBRTsales and marketing team and efforts to better provide sales and customer service through a directto the healthcare community. The Company’s CEO manages directly the day to day operations as well as all sales, effort led by its Vice Presidentmarketing, and customer service teams to ensure close contact with the Company’s customer installed base and management of Sales and Business Development, its Chief Operating Officer and its Chief Executive Officer. the sales pipeline.
The major advantages to a health care provider in contracting with the Company for its financial and turnkey services include:
▪
The cancer care center/medical center avoids the high cost of owning the equipment. By not acquiring the equipment supplied by the Company, the cancer care/medical center is able to allocate the funds otherwise required to purchase and/or finance the equipment to other▪
The Company does not have minimum volume requirements, so the cancer care/medical center avoids the risk of equipment under-utilization. The cancer care/medical center pays the Company only for each procedure performed on a patient.▪For contracts under revenue sharing arrangements, the Company assumes all or a portion of the risk of reimbursement rate changes. The cancer care/medical center pays the Company only the contracted portion of revenue received from each procedure.
▪
The cancer care/medical center transfers the risk of technological obsolescence to the Company. The cancer care/medical center and its physicians are not under any obligation to utilize technologically obsolete cancer treatment equipment.▪
The Company provides planning, installation, operating and marketing assistance and support to itsFINANCING
The Company’s Gamma Knife business is operated through GKF. Prior to April 2021, GKF generally financesfinanced its U.S. Gamma Knife units, upgrades and additions with loans or finance leases from various finance companies for typically 100% of the cost of each Gamma Knife, plus any sales tax, customs, and duties. The financing is predominantly fully amortized over an 84-month period and is collateralized by the equipment, customer contracts and accounts receivable, and is generally without recourse toOn April 9, 2021, the Company and Elekta.certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A. (the “Credit Agreement”), which refinanced its existing domestic Gamma Knife portfolio. The lease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement. The Credit Agreement includes a $7,000,000 revolving line of credit that the Company has not drawn on as of December 31, 2022. The Credit Agreement is guaranteed48% amortized over a 58-month period with a balloon payment upon maturity and is secured by a lien on substantially all of the assets of the Company and collateralized bycertain of its domestic subsidiaries. The Company’s Gamma Knife unit in Ecuador is financed with United States Development Finance Corporation (“DFC”). See Note 5 - Long Term Debt to the equipment, customer contract and accounts receivable related to this project.
COMPETITION
Conventional neurosurgery, radiation therapy and other radiosurgery devices are the primary competitors of Gamma Knife radiosurgery. Gamma Knife radiosurgery has gained acceptance as an alternative and/or adjunct to conventional surgery due to its more favorable morbidity outcomes for certain procedures as well as its non-invasiveness. Utilization of the Company’s Gamma Knife units is contingent on the acceptance of Gamma Knife radiosurgery by the customer’s neurosurgeons, radiation oncologists and referring physicians. In addition, the utilization of the Company’s Gamma Knife units is impacted by the proximity of competing Gamma Knife centers and providers using other radiosurgery devices.
Conventional linear accelerator-based radiation therapy is the primary competitor of the Company’s proton therapy system at Orlando Health.Health Cancer Institute (“Orlando Health”). Although proton beam radiation therapy has been available for many years, it is only recently emerging as a more clinically beneficial alternative to conventional linear accelerators for certain tumors. Utilization of the Company’s proton therapy system is dependent on the acceptance of this technology by Orlando Health’s radiation oncologists and referring physicians, as well as patient self-referrals. There are currently no competing proton therapy facilities near the Company’s site.
There are several competing manufacturers of PBRT systems, including Mevion, IBA Particle Therapy Inc., Varian Medical Systems, Inc., Hitachi Ltd., ProNova Solutions, LLC, Sumitomo Heavy Industries, Ltd., ProTom International, Inc. and Mitsubishi Electric.Electric Corp. The Company has purchased one MEVION S250 and has made deposits towards the purchase of two additional MEVION S250i systems. The Mevion system, as well as single room proton therapy systems from other manufacturers, potentially provides cancer centers the opportunity to introduce single treatment room PBRT services with a cost in the range of approximately $30 to $40$50 million versus four and five PBRT treatment room programs costing in excess of $120 million.million including facility costs. The MEVION S250 system received FDA approval in the second quarter of 2012 and the first clinical treatment occurred in December 2013 at Barnes-Jewish Hospital. The MEVION S250i (Hyperscan) unit, which includes pencil beam scanning, was FDA approved in December 2017. The Company’s first MEVION S250 system in operation at Orlando Health treated its first patient in April 2016. The Company currently does not have customer contracts for its second and third PBRT units.
The Company believes the business model it has developed for use in its Gamma Knifestereotactic radiosurgery equipment and IGRTadvanced radiation therapy placements can be tailored for the PBRT market segment. The Company is targeting large, hospital-based cancer programs. The Company’s ability to develop a successful PBRT financing entity depends on the decision of cancer centers to self-fund or to fund the PBRT through conventional financing vehicles rather than the Company, the Company’s ability to capture market share from competing alternative PBRT financing entities, and the Company’s ability to raise capital to fund PBRT projects.
The Company’s ability to secure additional customers for Gamma Knifestereotactic radiosurgery equipment, advanced radiation therapy equipment and services and other proton beam radiation therapy services, or other equipment, is dependent on its ability to effectively compete against the manufacturers of these systems selling directly to potential customers and other companies that outsource these services. The Company does not have an exclusive relationship with any manufacturer and has previously lost sales to customers that chose to purchase equipment directly from manufacturers. The Company may continue to lose future sales to such customers and to the Company’s competitors.
GOVERNMENT PROGRAMS
The Medicare program is administered by CMS of the U.S. Department of Health and Human Services. Medicare is a health insurance program primarily for individuals 65 years of age and older, certain younger people with disabilities, and people with end-stage renal disease, and is provided without regard to income or assets.
The Medicare program is subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect the cost of providing services to patients and the timing of payments to our client hospitals.
The Company’s Gamma Knife PBRT and IGRTPBRT customers receive payments for patient care from federal government and private insurer reimbursement programs. Currently in the United States, Gamma Knife and proton therapy and IGRT services are performed primarily on an out-patient basis. Gamma Knife patients with Medicare as their primary insurer, treated on either an in-patient or out-patient basis, comprise an estimatedestimated 35%-45% of the total Gamma Knife patients treated nationwide. PBRT and IGRT patients with Medicare as their primary insurer are treated primarily on an out-patient basis and comprise an estimated 45% to 50% of the total radiation therapy patients treated.
On July 10, 2019,September 18, 2020, CMS issued a proposedthe final rule that would implementhave implemented a new mandatory payment model for radiation oncology services: the Radiation Oncology Alternative Payment ModelMethod (“RO APM”). The proposed RO APM, would treat prospective episode paymentswhich was to hospital outpatient departments and freestanding radiation therapy centersbe in effect for radiation therapy as episodes of care. Thea five year period, has been delayed indefinitely. If the RO APM had not been delayed, it would have significantly alteraltered CMS’ payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation oncology services.services provided within a 90 day episode of care. Under the RO APM, payment would be determined by the patient’s cancer type, as opposed to a traditional volume-based fee-for-service model,hospital based and would include select radiation therapy services provided within a 90-day episode. If the RO APM is finalized as proposed,free-standing radiation therapy providers and suppliers may be mandatorilywould have been required to participate in the model based on whether the radiation therapy provider is providedlocated within a randomly selected geographic areas.core-based statistical area. CMS projects that providers treating approximately 40%30% of the radiation oncology patients would have been selected to participate in the RO APM. The remaining providers within randomly selected Core Based Statistical Areas (CBSAs) will benot included in the model and approximately 60% will continueRO APM would have continued to receive reimbursement based on a fee-for-service methodology. The Company, along with other interested parties, submitted commentsRO APM would have included but would not have been limited to CMS on the proposed rule as partPBRT and Gamma Knife services. Three of the notice-and-comment rulemaking process. The comment period concluded on September 16, 2019. It is uncertain whether CMS will finalize the rule as proposed. As a result, the Company cannot estimate the potential impact of adoption of the proposed rule. However, reductions in the reimbursement rates or changes in reimbursement methodology or administration for radiosurgery and radiation therapy could adversely affect the Company’s revenues and financial results. ForCompany's Gamma Knife centers notwere expected to be included in the proposed model,RO APM. It was not anticipated that inclusion in the RO APM would have a significant impact on the Company's Gamma Knife revenues. The Company's PBRT center was not selected for inclusion in the RO APM. Medicare reimbursement in 20202023 for the most commonly used proton therapyPBRT delivery codes has recently been established by CMS and is expected to increaseincreased by approximately 15.5%3.2% and 0.2% and decreased by approximately 3.6%3.2% for Gamma Knife. See additional discussion under “Item 1A Risk Factors.”
On August 29, 2022, CMS published a final rule that delayed the start date of Contents
The average Medicare reimbursement delivery rate trends from 20162021 to 20202023 are outlined below:
Average Medicare Reimbursement Delivery Rate Trends - Gamma Knife
| 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||||||||
| $ | 8,800 | $ | 9,000 | $ | 9,100 | $ | 9,300 | $ | 9,600 | |||||||||||||||||
2021 | 2022 | 2023 | ||||||||
| $7,773 | $7,943 | $7,691 | ||||||||
The average Medicare reimbursement delivery rate trends for PBRT from 20162021 to 20202023 are outlined below. Patients typically undergo 25-40 delivery sessions.
Average Medicare Reimbursement Delivery Rate Trends - PBRT
| 2016 | 2017 | 2018 | 2019 | 2020 | |||||||||||||||||||||||||
| Simple without Compensation | $ | 506 | $ | 494 | $ | 522 | $ | 520 | $ | 539 | |||||||||||||||||||
| Simple with Compensation, Intermediate, or Complex | $ | 1,051 | $ | 994 | $ | 1,053 | $ | 1,079 | $ | 1,246 | |||||||||||||||||||
2021 | 2022 | 2023 | ||||||||||
Simple without Compensation | $ | 543 | $ | 554 | $ | 572 | ||||||
Simple with Compensation, Intermediate, or Complex | $ | 1,298 | $ | 1,321 | $ | 1,323 | ||||||
We are unable to predict the effect of future government health care funding policy changes on operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers is limited, or if one or more of our hospital clients are excluded from participation in the Medicare program or any other government health care program, there could be a material adverse effect on our business.
Affordable Care Act and Subsequent Regulation
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, was enacted as amended by the Health Care and Education Reconciliation Act of 2010, (“Affordable Care Act”), which has resulted in significant changes to the health care industry. The primary goal of the legislation was to extend health care coverage to uninsured legal U.S. residents through both an expansion of public programs and reforms to private sector health insurance. The expansion of insurance coverage was expected to be funded in part by measures designed to promote quality and cost efficiency in health care delivery and by budgetary savings in the Medicare and Medicaid programs. Because the Company is not a health care provider, we were not directly affected by the law, but we could be indirectly affected principally as follows:
• | The repeal of the Affordable Care Act's individual mandate requirement pursuant to the Tax Cuts and Jobs Act of 2017 could results in a decrease in the number of insured patients seeking Gamma Knife or radiation therapy treatment. |
• | The Company’s retail contracts are subject to reimbursement rate changes for radiosurgery or radiation therapy services by the government or other third-party payors. Any changes to Medicare or Medicaid reimbursement through the repeal or modification of the Affordable Care Act could affect revenue generated from these sites. |
Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges as well as recent efforts by the current U.S. President’s administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017, the current U.S. President has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act.challenges. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the Affordable Care Act such as removing penalties, starting January 1, 2019, for not complying with the Affordable Care Act’s individual mandate to carry health insurance and delaying the implementation of certain Affordable Care Act-mandated fees. Several states sought the repeal of the Affordable Care Act, arguing in part that the individual mandate is not severable from the Affordable Care Act, and that the removal of the individual mandate should invalidate the Affordable Care Act entirely. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the Affordable Care Act, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the Affordable Care Act are invalid as well. WhileThe Supreme Court of the Texas District Court Judge, as well as the current U.S. President’s administration and CMS, have statedUnited States ruled on appeal that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals,plaintiffs lacked standing to challenge the individual mandate and other efforts to repeal and replaceits severability from the Affordable Care Act will impactAct. Notably, the Supreme Court’s ruling addressed standing and did not discuss the constitutionality of the individual mandate or its severability. The focus of the Supreme Court’s ruling on standing leaves open the opportunity for additional challenges on the same issues which may yet affect the validity of the Affordable Care Act.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013, and, due to subsequent legislative amendments, will stay in effect through 2027 unless additional Congressional action is taken. The Coronavirus Aid, Relief and Economic Security Act of 2020 subsequently extended Medicare sequestration cuts through fiscal year 2030. On January 2, 2013, the then-U.S. President signed into law the American Taxpayer Relief Act of 2012, which, among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. It is unclear what effect, if any, the shifting legislative and other governmental proposals would have on our business.
GOVERNMENT REGULATION
The payment of remuneration to induce the referral of health care business has been a subject of increasing governmental and regulatory focus in recent years. Section 1128B(b) of the Social Security Act (sometimes referred to as the “federal anti-kickback statute”) provides criminal penalties and fines for individuals or entities that offer, pay, solicit or receive remuneration in order to induce referrals for items or services for which payment may be made under the Medicare and Medicaid programs and certain other government funded programs. The Affordable Care Act amended the anti-kickback statute to eliminate the requirement of actual knowledge, or specific intent to commit a violation, of the anti-kickback statute. The Social Security Act authorizes the Office of Inspector General through civil proceedings to exclude an individual or entity from participation in the Medicare and state health programs if it is determined any such party has violated Section 1128B(b) of the Social Security Act. However, the federal anti-kickback statute is subject to evolving interpretations. In the past, the government has enforced the federal anti-kickback statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act. The Company believes that it is in compliance with the federal anti-kickback statute. Additionally, the majority of states also have anti-kickback laws, which establish similar prohibitions and, in some cases, may apply to items or services reimbursed by any third-party payor, including commercial insurers.
Additionally, the Omnibus Budget Reconciliation Act of 1993, often referred to as “Stark II”, bans physician self-referrals to providers of designated health services with which the physician has a financial relationship. On September 5, 2007, the third and final phase of the Stark regulations (Phase III) was published. The term “designated health services” includes, among others, radiation therapy services and in-patient and out-patient hospital services. On January 1, 1995, the Physician Ownership and Referral Act of 1993 became effective in California. This legislation prohibits physician self-referrals for covered goods and services, including radiation oncology, if the physician (or the physician's immediate family) concurrently has a financial interest in the entity receiving the referral. The Company believes that it is in compliance with these rules and regulations.
On August 19, 2008, the CMS published a final rule relating to inpatient hospital services paid under the Inpatient Prospective Payment System for discharges in the Fiscal Year 2009 (the “Final Rule”). Among other things, the Final Rule prohibits “per-click payments” to certain physician lessors for services rendered to patients who were referred by the physician lessor. This prohibition on per-click payments for leased equipment used in the treatment of a patient referred to a hospital lessee by a physician lessor applies regardless of whether the physician himself or herself is the lessor or whether the lessor is an entity in which the referring physician has an ownership or investment interest. The effective date of this prohibition was October 1, 2009. However, referrals made by a radiation oncologist for radiation therapy or ancillary services necessary for, and integral to, the provision of radiation therapy (such as Gamma Knife services) are not subject to this prohibition so long as certain conditions are met. GK Financing’s majority owned subsidiaries, AGKE and JGKE have minority ownership interests that are held solely by radiation oncologists, who are otherwise exempt from the referral prohibition under the Final Rule. The Company believes it is in compliance with the Final Rule.
A range of federal civil and criminal laws target false claims and fraudulent billing activities. One of the most significant is the Federal False Claims Act, which prohibits the submission of a false claim or the making of a false record or statement in order to secure a reimbursement from a government-sponsored program. In recent years, the federal government has launched several initiatives aimed at uncovering practices which violate false claims or fraudulent billing laws. Claims under these laws may be brought either by the government or by private individuals on behalf of the government, through a “whistleblower” or “qui tam” action. The Company believes that it is in compliance with the Federal False Claims Act; however, because such actions are filed under seal and may remain secret for years, there can be no assurance that the Company or one of its affiliates is not named in a material qui tam action.
Legislation in various jurisdictions requires that health facilities obtain a Certificate of Need (“CON”) prior to making expenditures for medical technology in excess of specified amounts. Four of the Company’s existing customers were required to obtain a CON or its equivalent. The CON procedure can be expensive and time consuming and may impact the length of time before Gamma Knife services commence. CON requirements vary from state to state in their application to the operations of both the Company and its customers. In some jurisdictions the Company is required to comply with CON procedures to provide its services and in other jurisdictions customers must comply with CON procedures before using the Company's services. The Company is unable to predict if any jurisdiction will eliminate or alter its CON requirements in a manner that will increase competition and, thereby, affect the Company's competitive position.
The Company'sCompany’s Gamma Knife units contain Cobalt 60 radioactive sources. The medical centers that house the Company's Gamma Knife units are responsible for obtaining possession and user's licenses for the Cobalt 60 source from the Nuclear Regulatory Commission. The Company’s Gamma Knife center in Peru was responsible for obtaining possession and user’s licenses for the Cobalt-60 sources from the Peruvian Regulatory Agencies.
Standard linear accelerator equipment utilized to treat patients is regulated by the FDA. The licensing is obtained by the individual medical center operating the equipment.
The Company believes it is in substantial compliance with the various rules and regulations that affect its businesses.
INSURANCE AND INDEMNIFICATION
The Company'sCompany’s contracts with equipment vendors generally do not contain indemnification provisions. The Company maintains a comprehensive insurance program covering the value of its property and equipment, subject to deductibles, which the Company believes are reasonable.
The Company'sCompany’s customer contracts generally contain mutual indemnification provisions. The Company maintains general and professional liability insurance in the United States. The Company is not involved in the practice of medicine and therefore believes its present insurance coverage and indemnification agreements are adequate for its business. The Company’s Peruvian and Ecuadorian Gamma Knife center is acenters are free-standing facilityfacilities operated by GKPeru. GKPeru’sGKPeru and GKCE, respectively. The treating physicians and clinical staff at these facilities are independent contractors. The Company maintains general and professional liability insurance consistent with the operations of this facilitythese facilities and believes its present coverage is adequate for its business.
HUMAN CAPITAL RESOURCES
At December 31, 2019,2022, the Company employed nine (9)had a workforce of ten people on a full-time basis and one person on a temporary basis in the United States, and five (5)thirteen people on a full-time basis in Lima, Peru.Peru, and five people on a full-time basis in Guayaquil, Ecuador. None of these employees isare subject to a collective bargaining agreement and there is no union representation within the Company. The Company maintains various employee benefit plans and believes that its employee relations are good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table provides current information concerning those persons who serve as executive officers of the Company. The executive officers were appointed by the Board of Directors and serve at the discretion of the Board of Directors.
Name: | Age: | Position: | ||||||||||||||||||||||
Raymond C. Stachowiak | 64 | |||||||||||||||||||||||
Executive Chairman of the Board | ||||||||||||||||||||||||
Peter Gaccione | 64 | Chief Executive Officer | ||||||||||||||||||||||
| Craig K. Tagawa | 69 | President and Chief | ||||||||||||||||||||||
Raymond C. Stachowiak was appointed the Company, has served in the positions listed above since the incorporation of the Company. A board-certified neurosurgeon, Dr. Bates is Emeritus ViceExecutive Chairman of the Board of Trustees at Johns Hopkins Universitythe Company on March 7, 2023. Mr. Stachowiak previously served as Chief Executive Officer of the Company from October 1, 2020 to March 7, 2023 and serves onas Interim President and Chief Executive Officer effective as of May 4, 2020 through September 30, 2020. Mr. Stachowiak joined the Johns Hopkins Neurosurgery Advisory Board. He also serves on the boardsBoard in 2009. Mr. Stachowiak previously served as President and Chief Executive Officer of Shared Imaging, a preferred independent provider of CT, MRI and The SchoolPET/CT equipment and services, from its inception in December 1991 until his retirement in March 2013. In 2008, Mr. Stachowiak sold 50% of Nursing Dean’s Advisory Council at UCSF. Dr. Bates currently serveshis interest in Shared Imaging to Lubar Equity Fund and remains a 50% owner of Shared Imaging. Mr. Stachowiak is the sole owner of RCS Investments, Inc., and owner-manager of Stachowiak Equity Fund, both of which are private equity funds. Mr. Stachowiak received a B.S. in Business and an M.B.A. from Indiana University. He is a Certified Public Accountant (inactive), Certified Internal Auditor (inactive) and holds a Certification in Production and Inventory Management.
Peter Gaccione was appointed the Chief Executive Officer of the Company on March 7, 2023. Mr. Gaccione previously served as Chief Operating Officer of the Company from September 2022 through March 2023. He joined the Company in September 2022 and has over 40 years of experience in the global Radiation Oncology and Imaging business. Most recently, Mr. Gaccione served as President and Directora Member of the Ernest Bates Foundation. From 1981-1987 he was a member of theExecutive Management Board of GovernorsMyocardial Solutions Inc., a medical technology company in the cardiology and cardio-oncology field, where he led the product commercialization, sales, marketing development, and clinical teams. Prior to that, Mr. Gaccione held various positions within Elekta AB, a provider of the California Community Colleges,precision radiation oncology treatment systems, brachytherapy, neuroscience, and he served on the California High Speed Rail Authoritysoftware solutions from 1997 to 2003. Dr. Bates is2020, that culminated with his position as President and Chief Executive Officer of Elekta Inc. and Elekta Medical S.A. de C.V. (Mexico), as well as Executive Vice President of Elekta North and Latin America Regions and a memberMember of the Board of Overseers at the University of California, San Francisco, School of Nursing. He is a graduate of the School of Arts and Sciences of the Johns Hopkins University, and he earned his medical degree at the University of Rochester School of Medicine and Dentistry.
Craig K. Tagawa has servedserves as the President and Chief Financial Officer. Mr. Tagawa was also the Chief Operating Officer sincefrom February 1999 in addition to serving as Chief Financial Officer since May 1996.through September 2022. Mr. Tagawa alsoassumed the title of President on October 1, 2020. Mr. Tagawa has served as Chief Financial Officer from January 1992 through October 1995.1995 and May 1996 to the present. Previously a Vice President in such capacity, Mr. Tagawa became a Senior Vice President on February 28, 1993. He is also the Chief Executive Officer and policy committee member of GKF. From September 1988 through January 1992, Mr. Tagawa served in various positions with the Company. Mr. Tagawa currently serves as Chief Financial Officer and Secretary of the Ernest A. Bates Foundation. He is a former Chair of the Industrial Policy Advisory Committee of the Engineering Research Center for Computer-Integrated Surgical Systems and Technology at The Johns Hopkins University. He received his undergraduate degree from the University of California at Berkeley and his M.B.A. from Cornell University.
AVAILABLE INFORMATION
Our Internet address is
www.ashs.com. We make available free of charge, through our Internet website under the “Investor Center” tab in the “Corporate” section, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual proxy reports, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information contained on our Internet website is not part of this document.In addition to the other information in this report, the following factors could affect our future business, results of operations, cash flows or financial position, and could cause future results to differ materially from those expressed in any of the forward-looking statements contained in this report.
Company, Industry and Economic Risk
If the Company is not successful at diversifying its business model, its revenues and profitability may decline.
The Company has historically relied on Gamma Knife unit placement and a PBRT system to provide its revenues. Currently, there is a limited market for Gamma Knife equipment and PBRT systems. As a result, we plan to adapt our business model to place other types of COVID-19stereotactic radiosurgery and advanced radiation therapy equipment in addition to Gamma Knife units and PBRT systems. This will negatively impact our resultsconstitute an expanded product mix for the following reasons: (i) operations at medical facilities, including medical professionalsCompany and other medical facility employees, may continuethere can be no assurance that we can successfully adapt our historical business model to be subject to prolonged closure or shut down; (ii) medical facilities may continue to deferthese new product offerings. If we are not successful, our revenues and profitability could decline substantially as existing contracts expire and are not renewed.
The Federal reimbursement rate for Gamma Knife proton and image guided radiation therapy treatments for non-urgent patient cases in order to allocate resources to the care of patients with COVID-19; (iii) patients may continue to defer Gamma Knife, proton and image guided radiation therapy treatments due to real or perceived concerns about the potential spread of COVID-19 in a medical facility setting; (iv) deferred Gamma Knife, proton and image guided radiation therapy treatments may not be rescheduled for a later date; (v)provide the outbreak materially impacts our operations for a sustained period of time due to the current travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns, including at our corporate headquarters in San Francisco, California, which is currently subject to a shelter-in-place order that remains in force until April 7, 2020 and may be extended; and/or (vi) members of the board, management or employee team, some of whom are particularly at-risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facilities.
Congress enacted legislation in 2013 that significantly reduced the Medicare reimbursement rate for outpatient Gamma Knife treatment by setting it at the same amount paid for linear accelerator-based radiosurgery treatment. Prior to April 1, 2013, Medicare’s reimbursement rate for Gamma Knife treatment hadhas been relatively stable.stable during the last five years. There can be no assurance that CMS reimbursement levels will be maintained at levels providing the Company an adequate return on its investment. Any future reductions in the reimbursement rate would adversely affect the Company’s revenues and financial results.
Introduction of the RO APM reimbursement rate trends from 2016 tomodel could negatively impact the Company's revenue and financial results.
On September 18, 2020, are outlined below:
| 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||||||||
| $ | 8,800 | $ | 9,000 | $ | 9,100 | $ | 9,300 | $ | 9,600 | |||||||||||||||||
On August 29, 2022, CMS published a final rule that delayed the start date of the RO APM to a date to be determined through future rulemaking and amended the definition of “model performance period” to provide that the start and end dates of the five-year model performance period will be established by CMS through future rulemaking. At this time, it is not clear if the RO APM will be implemented and, if it is implemented, the timing for implementation and detailsin what form it will be implemented. If a start date for the RO APM is proposed, CMS will provide at least six months’ notice in advance of the payment model are uncertain. Any reductions inproposed start date, and the reimbursement rates or changes in reimbursement methodology or administration for radiosurgeryproposed start date will be subject to public comment.
The impact of the COVID-19 pandemic and radiation therapy couldassociated economic disruptions may continue to adversely affect the Company’s business operations and financial condition.
Our operations and those of our suppliers and customers were negatively impacted by the COVID-19 pandemic. While the progressive lifting of COVID-related restrictions led to a rebound in procedure volumes for our Gamma Knife business and our PBRT business, the secondary and tertiary effects of the COVID-19 pandemic could continue to present challenges for our business and industry. Such effects may include lingering disruptions in the global supply chain, delays in the manufacturing, delivery, and repair of the equipment we provide, increases in the prices for purchased services and capital acquisition, potential volatility or timing in the demand for Gamma Knife and PBRT treatments, slow recovery in workforce participation, constraints on access to capital, general economic volatility, and pandemic-related inflationary pricing.
The magnitude of the continued impact of COVID-19 on our business and operations are largely dependent on external factors and future developments that are beyond our control, such as the extent and duration of any COVID-19 resurgence, the spread of new variants, the occurrence of other severe health events or similar unprecedented outbreaks, the response to any such resurgence, new variant, or outbreak by government and regulatory agencies, such as the potential reinstatement of “shelter-in-place” lockdown orders, the efficacy and implementation of vaccinations and boosters to counter the virus, the availability of Gamma Knife and PBRT treatments, patients’ assessment of the risks of prioritizing rather than delaying such treatments in the event of any COVID-19 resurgence, new variant, or outbreak, the worsening of current economic conditions, and the severity of ongoing supply-chain disruptions. If there are regressions in our global progress to combat the COVID-19 pandemic or if any similar global public-health events develop, the scope and nature of the impact on our business, results of operations, financial condition, liquidity and cash flows would be uncertain and potentially materially adverse.
We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.
The Company's retail revenue is subject to payor mix variability which could negatively impact the Company's revenue and financial results.
The Company’s average reimbursement rate for its retail and international customers is dependent on the percentage mix of government associated payors and commercial managed care payors. Commercial and managed care payors tend to reimburse at a higher level than government payors. Therefore, a shift in payor mix to a higher level of government payors will reduce the Company’s average reimbursement rate per treatment.
The Company’s capital investment at each site is substantial and the Company may not be able to fully recover its costs or capital investment which could have a material negative impact on its revenues and financial results.
Each Gamma Knife, PBRT or IGRTadvanced LINEAR accelerator device requires a substantial capital investment. In some cases, we contribute additional funds for capital costs and/or annual operating and equipment related costs such as marketing, maintenance, insurance and property taxes. Due to the structure of our contracts with medical centers, there can be no assurance that these costs will be fully recovered or that we will earn a satisfactory return on our investment.
The Marketmarket for the Gamma Knife is Limited
There is a limited market for the Gamma Knife, and the market in the United States may be mature. The Company has begun and continued operation at only seven (7) new Gamma Knife sites in the United States since 2011. Due to the substantial costs of acquiring a Gamma Knife unit, we must identify medical centers that possess neurosurgery and radiation oncology departments capable of performing a large number of Gamma Knife procedures. As of December 31, 2019,2022, there were approximately 120118 operating Gamma Knife units in the United States, of which fifteen (15)twelve units were owned by the Company. As of December 31, 2019, the Company has two idle Gamma Knife units with a cumulative net book value of $943,000. There are currently no commitments to place into service or trade these units in during 2020. There can be no assurance that we will be successful in placing these idle units or additional units at any sites in the future. In recognition of the Gamma Knife's limited growth opportunity, the Company has expanded its product mix to include LINACs, MRI LINACs, PET LINACs and is continuing to market PBRT units, but there can be no assurance that the Company will be successful in placing these products with customers. The Company’s existing contracts with its customers are fixed in length and there can be no assurance that the customers will wish to extend the contract beyond the end of the term.
The Company Hashas a High Levelhigh level of Debtdebt and May Incur Additional Debtmay incur additional debt to Financefinance its Operations
The Company’s business is capital intensive. TheOn April 9, 2021, the Company financesand certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A., which refinanced its existing domestic Gamma Knife units through its GKF subsidiary.portfolio. The amounts financed through GKF have been generally non-recourse to ASHS. Thelease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement. In June 2020, the Company financed its first proton therapy unit through its wholly-owned subsidiary, Orlando, and guaranteedentered into the lease financing.DFC Loan in connection with the acquisition of GKCE. The Company’s combined long-term debt, and finance leasesnet, totaled $15,366,000$13,467,000 as of December 31, 2019 and2022. The Credit Agreement is collateralizedsecured by its Gamma Knife, MEVION S250 and othera lien on substantially all of the assets including accounts receivable and future proceeds from any contract betweenof the Company and any end usercertain of its domestic subsidiaries and the financed equipment.DFC Loan is secured by a lien on GKCE’s assets. The Credit Agreement includes a line of credit of $7,000,000 that it has not drawn on as of December 31, 2022. Depending on the Company’s financing requirements and market conditions, the Company may seek to finance its operations by incurring additional long-term debt in the future. The Company’s current level of debt may adversely affect the Company’s ability to secure additional credit in the future, and as a result may affect operations and profitability. If a default on debt occurs in the future, the Company’s creditors would have the ability to accelerate the defaulted loan, to seize the Gamma Knife or MEVION S250 units or other equipmentCompany’s assets with respect to which default has occurred, and to apply any collateral they may have at the time to cure the default.
A Small Numbersmall number of Customers Accountcustomers account for a Major Portionmajor portion of our Revenues
A limited number of customers have historically accounted for a substantial portion of the Company’s total revenue, and the Company expects such customer concentration to continue for the foreseeable future. For example, in 2019, three (3) customers2022, one customer in total accounted for approximately 50%45% of the Company’s revenue.revenue. The loss of a significant customer or a significant decline in the business from the Company’s largest customers could have a material adverse effect on the Company’s business and results of operations.
The Market market for the Company’s ServicesCompany’s services is Competitive
The Company estimates that there are two other companies that actively provide alternative, non-conventional Gamma Knife financing to potential customers. We believe there are no competitor companies that currently have more than three (3) Gamma Knife units in operation. The Company’s relationship with Elekta, the manufacturer of the Leksell Gamma Knife unit, is non-exclusive, and in the past the Company has lost sales to customers that chose to purchase a Gamma Knife unit directly from Elekta. The Company also has several competitors in the financing of proton therapy projects. The Company’s business model differs from its competitors, but there can be no assurances that the Company will not lose placements to its competitors. In addition, the Company may continue to lose future sales to customers purchasing equipment directly from manufacturers. There can be no assurance that the Company will be able to successfully compete against others in placing future units.
There are Alternativesalternatives to the Gamma Knife
Other radiosurgery devices and conventional neurosurgery compete against the Gamma Knife. Each of the medical centers targeted by the Company could decide to acquire another radiosurgery device instead of a Gamma Knife.Knife to perform cranial radiosurgery. In addition, neurosurgeons who are responsible for referring patients for Gamma Knife surgery may not be willing to make such referrals for various reasons, instead opting for invasive surgery. ThereBecause of these competing alternatives, there can be no assurance that the Company will be able to secure a sufficient number of future sites or Gamma Knife procedures to sustain its profitability and growth.
International Operations
The Company installed a Gamma Knife unit in Lima, Peru in 2017.2017 and acquired a Gamma Knife unit operation in Guayaquil, Ecuador in 2020. International operations can be subject to exchange rate volatility, which could have an adverse effect on our financial results and cash flows. In addition, international operations can be subject to legal and regulatory uncertainty and political and economic instability, which could result in problems asserting property or contractual rights, potential tariffs, increased compliance costs, increased regulatory scrutiny, potential adverse tax consequences, the inability to repatriate funds to the United States, and the Company’s inability to operate in those locations.
New Technologytechnology and Products Could Resultproducts could result in Equipment Obsolescence
There is constant change and innovation in the market for highly sophisticated medical equipment. New and improved medical equipment can be introduced that could make the Gamma Knife technology obsolete and that would make it uneconomical to operate. During 2000, Elekta introduced an upgraded Gamma Knife which cost approximately $3.6 million plus applicable tax and duties. This upgrade includes an Automatic Positioning System™ (“APS”), and therefore involved less health care provider intervention. In early 2005, Elekta introduced a new upgrade, the Gamma Knife Model 4C (“Model 4C”). The cost to upgrade existing units to the Model 4C with APS was approximately $200,000 to $1,000,000, depending on the current Gamma Knife configuration. In 2006, Elekta introduced a new model of the Gamma Knife, the Perfexion, which costs approximately $4.5 million plus applicable taxes and duties.the Company has implemented at all of its domestic sites. The Perfexion can perform procedures faster than previous Gamma Knife models and it involves less health care personnel intervention. In 2015, Elekta introduced the Leksell Gamma Knife Icon
The Company Has Investedhas invested in a Proton Beam Business
We have committed a substantial amount of our financial resources to next-generation proton beam technology. The first MEVION S250 system began treating patients in December 2013. The Company’s first MEVION S250 system began treating patients in April 2016. The Company has committed to purchase two (2) additional MEVION S250i systems and has already made deposits of $2,250,000 towards this commitment. As of December 31, 2020, the Company determined these deposits were impaired and wrote their value down to $0. See Note 3 - Property and Equipment to the consolidated financial statements for further discussion. There can be no assurance that we will be able to obtain additional customers or be able to finance the two additional systems.
Stock Ownership Risk
The Trading Volume of Our Common Stock is Low
Although our common stock is listed on the NYSE American, our common stock has historically experienced low trading volume. Reported average daily trading volume in our common stock for the three-month period ended December 31, 20192022 was approximately 10,00012,000 shares. There is no reason to think that a more significantfurther increase in an active trading market in our common stock will develop in the future. Limited trading volume subjects our common stock to greater price volatility and may make it difficult for you to sell your shares in a quantity or at a price that is attractive to you.
None.
The Company's corporate offices are located at 601 Montgomery Street, Suite 1112, San Francisco, California, where it leases approximately 900 square feet for $4,500 per month with a lease expiration date in November 2024. The Company subleased its prior corporate offices located at Two Embarcadero Center, Suite 410, San Francisco, California, where it leases approximately 3,253 square feet for $20,143$22,011 per month with a lease expiration date in August 2023. The Company has a satellite office in Fairfield, California, where it leases 895 square feet for $2,940 per monthmonthly lease expense is offset by sublease income of $16,195. The sublease term is consistent with athe existing lease expiration date in April 2020.term. The Company does not plan to renew this lease upon expiration. The Company also owns and operates a stand-alone Gamma Knife facility in Lima, Peru where it leases approximately 1,600 square feet for approximately $5,000$8,850 per month with a lease expiration date in January 2024.
There are no material pending legal proceedings involving the Company or any of its property. The Company knows of no legal or administrative proceedings against the Company contemplated by governmental authorities.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Dividend Policy
The Company's common shares, no par value (the “Common Shares”), are currently traded on the NYSE American. At December 31, 2019,2022, the Company had 5,817,0006,184,000 issued and outstanding common shares, 450,00095,000 common shares reserved for options, 3,0006,000 unvested restricted stock units, and 123,000 vested, but not issued 309,000 vested restricted stock units and 129,000 restricted stock awards reserved for issuance.
| Prices for Common Shares | ||||||||||||||||||||
| Quarter Ending | High | Low | ||||||||||||||||||
| March 31, 2018 | $ | 2.87 | $ | 2.50 | ||||||||||||||||
| June 30, 2018 | $ | 2.89 | $ | 2.30 | ||||||||||||||||
| September 30, 2018 | $ | 3.50 | $ | 2.65 | ||||||||||||||||
| December 31, 2018 | $ | 3.89 | $ | 2.33 | ||||||||||||||||
| March 31, 2019 | $ | 2.95 | $ | 2.33 | ||||||||||||||||
| June 30, 2019 | $ | 3.21 | $ | 2.58 | ||||||||||||||||
| September 30, 2019 | $ | 3.09 | $ | 2.44 | ||||||||||||||||
| December 31, 2019 | $ | 2.68 | $ | 2.34 | ||||||||||||||||
The Company estimates that there were approximately 1,100 beneficialbeneficial holders of its Common Shares at December 31, 2019.
There were no dividends declared or paid during 2019, 2018, or 2017.
Stock Repurchase Program
In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its common stock on the open market from time to time at prevailing prices, and in 2008 the Board of Directors reaffirmed these authorizations. In 2019, 2018,2022 and 20172021, there were no shares repurchased by the Company. A total of approximately 928,000 shares have been repurchased in the open market pursuant to these authorizations at a cost of approximately $1,957,000. As of December 31, 2019,2022, there were approximately 72,000 shares remaining under the repurchase authorizations.
Equity Compensation Plans
During 2019, 3,0002022, 11,000 restricted stock units, 33,000 restricted stock units120,000 shares for deferredexecutive compensation, and 18,00050,000 options were issued.granted. Additional information regarding our equity compensation plans is incorporated herein by reference from the 20202023 Proxy Statement. Also, see Note 98 - “Shareholders’ Equity”Stock-Based Compensation Expense to the Consolidated Financial Statements.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands except per share data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 20,605 | $ | 19,714 | $ | 19,556 | $ | 18,700 | $ | 16,548 | |||||||||||||||||||||||||||||||||||||||||||
| Costs of revenue | 13,685 | 12,228 | 10,893 | 9,905 | 9,833 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Selling and administrative expense | 4,060 | 3,994 | 4,323 | 3,802 | 3,496 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 1,318 | 1,631 | 1,927 | 1,707 | 1,239 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 19,063 | 17,853 | 17,143 | 15,414 | 14,568 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations | 1,542 | 1,861 | 2,413 | 3,286 | 1,980 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds received from investment in equity securities | 0 | 22 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) on write-down investment in equity securities | 0 | 0 | (579) | 0 | (2,140) | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) on early extinguishment of debt | 0 | 0 | 0 | (108) | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other income | 16 | 198 | 3 | 15 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 1,558 | 2,081 | 1,837 | 3,193 | (142) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 128 | 451 | (1,103) | 943 | 434 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | 1,430 | 1,630 | 2,940 | 2,250 | (576) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Less net income attributable to non-controlling interest | (771) | (607) | (1,017) | (1,320) | (946) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to ASHS | $ | 659 | $ | 1,023 | $ | 1,923 | $ | 930 | $ | (1,522) | |||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) per common share attributable to ASHS: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.11 | $ | 0.18 | $ | 0.33 | $ | 0.17 | $ | (0.28) | |||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.11 | $ | 0.17 | $ | 0.33 | $ | 0.17 | $ | (0.28) | |||||||||||||||||||||||||||||||||||||||||||
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,429 | $ | 1,442 | $ | 2,152 | $ | 2,871 | $ | 2,209 | |||||||||||||||||||||||||||||||||||||||||||
| Restricted cash | 350 | 350 | 350 | 250 | 50 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Working capital (deficit) | 2,528 | 472 | (114) | (815) | (2,691) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | 53,783 | 57,502 | 58,176 | 60,598 | 54,114 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Current portion of long-term debt and finance leases | 5,235 | 6,526 | 7,273 | 7,078 | 7,005 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt/finance leases, less current portion | 10,131 | 13,640 | 15,870 | 19,958 | 16,113 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' equity | $ | 31,811 | $ | 31,048 | $ | 29,885 | $ | 27,137 | $ | 25,180 | |||||||||||||||||||||||||||||||||||||||||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
American Shared Hospital Services is a leading provider of turnkey technology solutions for stereotactic radiosurgery and advanced radiation therapy equipment and services. The World Health Organization has declaredCompany’s domestic Gamma Knife business operates by fee-per-use contracts or retail contracts where the recent COVID-19 outbreak a public health emergency. The extentCompany shares in the revenue and operating costs of the equipment. The Company, through GKF, also owns and operates single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. These units economically function similar to the Company’s turn-key retail arrangements. The Company’s PBRT system at Orlando Health, is also considered a retail arrangement. The main drivers of the Company’s revenue are numbers of sites, procedure volume and reimbursement. A summary of the sites is set forth in the table below.
Number of Sites
12/31/2022 | 12/31/2021 | |||||||
Retail/Turn-key | 6 | 7 | ||||||
Fee Per Use | 6 | 6 | ||||||
Domestic Gamma Knife | 12 | 13 | ||||||
International Gamma Knife | 2 | 2 | ||||||
Total Gamma Knife | 14 | 15 | ||||||
PBRT | 1 | 1 | ||||||
The Company removed one Gamma Knife unit in January 2022, whose contract expired in the fourth quarter of 2021. Another Gamma Knife contract expired in the second quarter of 2022 is currently leased on a month-to-month basis and the Company is in negotiations with this site to renew the lease. The next customer contract expirations are in the first and fourth quarters of 2023. The Company is in active negotiations with both of these sites as well. A summary of the Company’s procedure volumes for fiscal years 2022 and 2021 are set forth in the table below.
Volume
| Increase | Increase | |||||||||||||||
Gamma Knife | 12/31/2022 | 12/31/2021 | (Decrease) | (Decrease) | ||||||||||||
Total Procedures | 1,286 | 1,436 | (150 | ) | (10.4 | )% | ||||||||||
Same Centers Procedures | 1,286 | 1,360 | (74 | ) | (5.4 | )% | ||||||||||
PBRT Procedures | 5,296 | 4,426 | 870 | 19.7 | % |
The decrease in Gamma Knife volume during 2022 was primarily due to the expiration of two contracts in the first and fourth quarters of 2021. Same center procedures decreased 5% compared to 2021 due to temporary staffing shortages at several of the Company’s domestic customers and normal, cyclical fluctuations. The increase in PBRT volume was due to lower volumes during 2021 driven by the continued impact from the COVID-19 pandemic and down-time for repair of system components.
Reimbursement
CMS established a 2023 delivery code reimbursement rate of approximately $7,691 ($7,943 in 2022) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of PBRT for a simple treatment without compensation for 2023 is $572 ($554 in 2022) and $1,323 ($1,321 in 2022) for simple with compensation, intermediate and complex treatments, respectively.
On September 18, 2020, CMS issued the final rule that would have implemented a new mandatory payment model for radiation oncology services: the Radiation Oncology Alternative Payment Method (“RO APM”). The RO APM, which was to be in effect for a five year period, has been delayed indefinitely. If the RO APM had not been delayed, it would have significantly altered CMS’ payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation services provided within a 90 day episode of care. Under the RO APM, hospital based and free-standing radiation therapy providers would have been required to participate in the model based on whether the radiation therapy provider is located within a randomly selected core-based statistical area. CMS projects that providers treating approximately 30% of radiation oncology patients would have been selected to participate in the RO APM. The remaining providers not included in the RO APM would have continued to receive reimbursement based on a fee-for-service methodology. The RO APM would have included, but would not have been limited to, PBRT and Gamma Knife services. Three of the Company's Gamma Knife centers were expected to be included in the RO APM. It was not anticipated that inclusion in the RO APM would have a significant impact on the Company's Gamma Knife revenues. The Company's PBRT center was not selected for inclusion in the RO APM. Medicare reimbursement in 2023 for the most commonly used PBRT delivery codes increased by approximately 3.2% and 0.2% and decreased by approximately 3.2% for Gamma Knife.
On August 29, 2022, CMS published a final rule that delayed the start date of the RO APM to a date to be determined through future rulemaking and amended the definition of “model performance period” to provide that the start and end dates of the five-year model performance period will be established by CMS through future rulemaking. At this time, it is not clear if the RO APM will be implemented and, if it is implemented, the timing for implementation and in what form it will be implemented. If a start date for the RO APM is proposed, CMS will provide at least six months’ notice in advance of the proposed start date, and the proposed start date will be subject to public comment.
Impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, includingPandemic
In 2021, following the duration and spreaddissemination of the outbreak and its impact on our customers, which are uncertain and cannot be fully predicted at this time. We will continue to actively monitorvaccine for the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine areCOVID-19 virus in the best interestsUnited States, there was a scale back of our employees,the safety measures put into place throughout 2020. Some of the Company’s customers still experienced some delays and stockholders. At this point,restrictions in providing service, but not to the extentsame degree that occurred during 2020. Procedure volumes for the Company’s domestic Gamma Knife business for the year ended December 31, 2021, began to whichrebound to pre-pandemic levels. The Company’s PBRT business was impacted by COVID-19, and other factors, during 2021 as treatment volumes continued to lag from pre-pandemic levels. The Company’s business has been impacted differently at each of the COVID-19 outbreak may impact our financial condition or results of operations is uncertain. The effectCompany’s various locations as a result of the COVID-19 outbreak willpandemic and related governmental actions.
Despite a decrease in volumes for the year ended December 31, 2022 compared to the same period in the prior year, domestic Gamma Knife volumes for existing customers rebounded to pre-pandemic levels. This decrease in volume was due to normal, cyclical fluctuations and the Company does not be fully reflectedanticipate a significant impact on domestic Gamma Knife volumes from the COVID-19 pandemic going forward. The Company’s stand-alone facilities in our resultsPeru and Ecuador have also begun to return to pre-pandemic levels for the year ended December 31, 2022 and the Company expects this trend to continue through 2023. The Company’s PBRT business was impacted by COVID-19, and other factors, during 2021 as treatment volumes continued to lag from pre-pandemic levels. However, for the year ended December 31, 2022, the Company’s PBRT site also returned to pre-pandemic levels. As the COVID-19 pandemic evolves and new strains of operations untilthe virus develop, additional impacts may arise which may have a material impact on the Company’s future periods.business.
The COVID-19 pandemic has led to supply chain disruptions for many of the Company’s suppliers. These disruptions have resulted in price increases for purchased services and capital acquisitions. To mitigate its cost increases, the Company has in many cases aggregated its purchase of services and capital goods to minimize these price increases.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, consolidated the financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
The most significant accounting policies followed by the Company are presented in Note 2 – Accounting Policies to the consolidated financial statements. These policies along with the disclosures presented in the other consolidated financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of the consolidated financial statement amounts, and the methods, assumptions and estimates underlying those amounts, management has identified revenue recognition and costs of sales for turn-key and revenue sharing arrangements, and the carrying value of fixed assets and useful lives, and as such the aforementioned could be most subject to revision as new information becomes available. The following are our critical accounting policies in which management’s estimates, assumptions and judgments most directly and materially affect the consolidated financial statements:
The Company recognizes revenues under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”). The Company had sixteentwelve domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system and one IGRT machine inin operation as of December 31, 2019. Three2022. Four of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Seven (7)Six of the Company’s sixteen currenttwelve domestic Gamma Knife customers are under fee-per-use contracts, and eight (8)six customers are under retail arrangements. The Company, through GKF, also owns and operates atwo single-unit Gamma Knife facilityfacilities in Lima, Peru. This unitPeru and Guayaquil, Ecuador. These units economically functions similarlyfunction similar to the Company’s turn-key retail arrangements. The Company’s contracts to provide radiation therapy and related equipment services to an existing Gamma Knife customer and the Company’s PBRT system at Orlando Health – UF Health Cancer Center (“Orlando Health”), areis also considered a retail arrangements.
Rental Income from Medical Services
The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s contracts are typically for a ten-year term and are classified as either fee per use or retail. Retail arrangements are further classified as either turn-key or revenue sharing. Revenues from fee per use contracts is determined by each hospital’s contracted rate. Revenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate and the number of procedures performed. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the Company receives payment from the hospital in the amountat an agreed upon percentage share of the hospital’s reimbursement from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs. For turn-key sites, the Company also shares a percentage of net operating profit. The Company records an estimate of net operating profit based on estimated revenues, less estimated operating costs. The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations. As of December 31, 2019,2022 and 2021, the Company recognized revenues of approximately $19,396,000$16,655,000 and $14,719,000 under ASC 842.
Revenue from retail arrangements amounted to approximately 64%, 70%67% and 64%60% of total revenue for the years ended December 31, 2019, 20182022 and 2017,2021, respectively. Because the revenue estimates are reviewed on a quarterly basis, any adjustments required for past revenue estimates would result in an increase or reduction in revenue during the current quarterly period. Payor mix is a significant variable in the Company’s estimate for retail revenues. Fluctuations in payor mix that may result in a 5% to 10% change in the estimate could increase or decrease revenues as of December 31, 2022, by approximately $114,000 to $227,000.
The Company has a stand-alone facilityfacilities in Lima, Peru and Guayaquil, Ecuador, where a contract exists between GKPeruthe Company’s facilities and the individual patient treated at the facility. Under ASC 606, the Company acts as the principal in this transaction and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment. Revenue related to a Gamma Knife treatment is recognized on a gross basis at the time when the patient receives treatment. There is no variable consideration present in the Company’s performance obligation and the transaction price is agreed upon per the stated contractual rate. PaymentGKPeru's payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net 30 days. GKCE's patient population is primarily covered by a government payor and payments are paid approximately 30 to 60 days upon invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable earned by GKPeru were not significant as offor the years ended December 31, 2019.2022 and 2021. GKCE’s accounts receivable were $862,000 and $435,000 for the years ended December 31, 2022 and 2021. As of December 31, 2019,2022 and 2021, the Company recognized revenues of approximately $1,209,000$3,091,000 and $2,909,000 under ASC 606.
Salvage Value on Equipment
Salvage value is based on the estimated fair value of the equipment at the end of its useful life. The Company determines salvage value based on the estimated fair value of the equipment at the end of its useful life. There is no active resale market of Gamma Knife or PBRT equipment, but the Company believes its salvage value estimates were a reasonable assessment of the economic value of the equipment when the contract ends. There is no salvage value assigned to the two Gamma Knife units in Peru or Ecuador because these are Model 4(C) units. The Company has not assigned salvage value to its PBRT equipment.
As of April 1, 2021, the Company reduced its estimate for salvage value for nine of its domestic Gamma Knife Perfexion units. As of October 1, 2022, the Company further reduced its estimate for salvage value for one of its domestic Gamma Knife Perfexion units. The net effect of the change in estimate made October 1, 2022, for the year ended December 31, 2022, was a decrease in net income of approximately $17,000 or $0.00 per diluted share. This change in estimate will also impact future periods. See Note 3 - Property and Equipment to the consolidated financial statements for further discussion on salvage value. As of December 31, 2022, the Company has seven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000. A further change in estimate for salvage value could have an impact on future earnings of the Company. For example, if the Company determined the salvage value of the existing seven domestic Gamma Knife units should be $0, there could be an annual increase to depreciation expense of approximately $514,000.
2022 Results
For the year ended December 31, 2019,2022, 55% of the Company’s revenue was derived from its Gamma Knife business and 45% was derived from the PBRT system. For the year ended December 31, 2021, 66% of the Company’s revenue was derived from its Gamma Knife business 30%and 34% was derived from the PBRT system, and the remaining 4% from its IGRT business. For the year ended December 31, 2018, 69% of the Company’s revenue was derived from its Gamma Knife business, 26% was derived from the PBRT system, and the remaining 5% from its IGRT business. For the year ended December 31, 2017, 76% of the Company’s revenue was derived from its Gamma Knife business, 21% was derived from the PBRT system, and the remaining 3% from its IGRT business.
TOTAL REVENUE
| (in thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | ||||||||||||||||||||||||
| Total revenue | $ | 20,605 | 4.5 | % | $ | 19,714 | 0.8 | % | $ | 19,556 | |||||||||||||||||||
Increase | ||||||||||||
(in thousands) | 2022 | (Decrease) | 2021 | |||||||||
Total revenue | $ | 19,746 | 12.0 | % | $ | 17,628 | ||||||
Total revenue in 20192022 increased 4.5%12.0% compared to 20182021 primarily due an increase in PBRT revenues, offset by a decrease in domestic Gamma Knife revenue. Domestic Gamma Knife volumes were down compared to the prior year, offset by an increase in average reimbursement. Revenues from the Company’s domestic segment increased $1,936,000 in 2022 compared to 2021 due to an increase in PBRT volumes and PBRT and Gamma Knife average reimbursement, offset by lower Gamma Knife volumes. Total revenueRevenues from the Company’s international segment increased by $182,000 in 2018 was generally consistent with 2017.
Gamma Knife Revenue
| 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||
| Revenue from Gamma Knife (in thousands) | $ | 13,551 | (0.2) | % | $ | 13,578 | (8.6) | % | $ | 14,848 | |||||||||||||||||||
| Number of Gamma Knife procedures | 1,498 | 2.6 | % | 1,460 | (10.5) | % | 1,631 | ||||||||||||||||||||||
| Average revenue per procedure | $ | 9,046 | (2.7) | % | $ | 9,300 | 2.2 | % | $ | 9,104 | |||||||||||||||||||
Increase | ||||||||||||
2022 | (Decrease) | 2021 | ||||||||||
Revenue from Gamma Knife (in thousands) | $ | 10,794 | (7.2 | )% | $ | 11,629 | ||||||
Number of Gamma Knife procedures | 1,286 | (10.4 | )% | 1,436 | ||||||||
Average revenue per procedure | $ | 8,393 | 3.6 | % | $ | 8,098 | ||||||
Gamma Knife revenue for 20192022 was $13,551,000$10,794,000 compared to $13,578,000$11,629,000 in 2018.2021. Gamma Knife revenue for 2018 was $13,578,0002022 decreased $835,000 compared to $14,848,000 in 2017. Gamma Knife revenue for 2019 decreased $27,000 compared to 20182021 due to a lowerdecrease in procedures, offset by an increase in average reimbursement at the Company's retail sites. Gamma Knife revenue for 2018 decreased $1,270,000 compared to 2017 due to three customer contracts that expired in April 2017, August 2017 and April 2018, respectively.
The number of Gamma Knife procedures performed in 2019 increased 382022 decreased 150 compared to 2018 due to the Company's new site in Merrillville, Indiana which began treating patients in January 2019 and the Company's stand-alone facility in Lima, Peru. The number of Gamma Knife procedures performed in 2018 decreased 171 compared to 2017, due to three customer contracts that expired in April 2017, August 2017, and April 2018, respectively.
Revenue per procedure increased by $295 in 2022 compared to 2021. This increase was due to higher reimbursement at the Company’s retail sites, driven by several large reimbursements from commercial payors at a high volume, low reimbursement ratefew of the customer contract in April 2017.
Proton Therapy Revenue
Increase | ||||||||||||
2022 | (Decrease) | 2021 | ||||||||||
Revenue from PBRT (in thousands) | $ | 8,952 | 47.8 | % | $ | 6,058 | ||||||
Number of PBRT fractions | 5,296 | 19.7 | % | 4,426 | ||||||||
Average revenue per fraction | $ | 1,690 | 23.5 | % | $ | 1,369 | ||||||
| 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||
| Revenue from PBRT (in thousands) | $ | 6,214 | 23.2 | % | $ | 5,042 | 22.4 | % | $ | 4,120 | |||||||||||||||||||
| Number of PBRT fractions | 6,018 | 17.1 | % | 5,141 | 12.9 | % | 4,554 | ||||||||||||||||||||||
| Average revenue per fraction | $ | 1,033 | 5.3 | % | $ | 981 | 8.4 | % | $ | 905 | |||||||||||||||||||
PBRT revenue for 20192022 was $6,214,000$8,952,000 compared to $5,042,000 and $4,120,000$6,058,000 in 2018 and 2017, respectively.2021. The number of PBRT fractions performed in 20192022 was 6,0185,296 compared to 5,141 and 4,5544,426 in 2018 and 2017.2021. Revenue per fraction in 20192022 was $1,033$1,690 compared to $981 and $905$1,369 in 2018 and 2017, respectively.2021. The Company’s first MEVION S250 systemincrease in PBRT volume was placed at Orlando Health and treated its first patient in April 2016 and revenues and volumes have continued to increase since its first year of operations.
| (in thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Revenue from IGRT | $ | 840 | (23.2) | % | $ | 1,094 | 86.1 | % | $ | 588 | ||||||||||||||||||||||
COSTS OF REVENUE
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Total costs of revenue | $ | 13,685 | 11.9 | % | $ | 12,228 | 12.3 | % | $ | 10,893 | ||||||||||||||||||||||
| Percentage of total revenue | 66.4 | % | 62.0 | % | 55.7 | % | ||||||||||||||||||||||||||
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Total costs of revenue | $ | 11,364 | 4.2 | % | $ | 10,902 | ||||||
Percentage of total revenue | 57.6 | % | 61.8 | % | ||||||||
The Company'sCompany’s costs of revenue, consisting of maintenance and supplies, depreciation and amortization, and other operating expenses (such as insurance, property taxes, sales taxes, marketing costs and operating costs from the Company’s retail sites) increased by $1,457,000$462,000 in 2019 and $1,335,000 in 20182022 compared to 2018 and 2017, respectively.
Maintenance and supplies and other direct operating costs, related party as a percentage of total revenue were 12.7%, 12.2%,15.1% and 6.9%14.1% in 2019, 2018,2022 and 2017,2021, respectively. Maintenance and supplies and other direct operating costs, related party increased by $219,000 and $1,040,000$482,000 in 2019 and 20182022 compared to 2018 and 2017, respectively.2021. The increase in 2019 and 20182022 compared to 2018 and 2017, respectively, was2021was primarily due to a maintenance contract for one of the Company’s PBRTGamma Knife Icon upgrades, which commenced in the fourth quarter of 2021 and maintenance contractcontracts for existing domestic customers, which begancommenced in September 2017. The PBRT maintenance contract renews annually every September2021 and is for a five (5) year period. On December 20, 2018, the Company signed a Second Amendment to the Mevion Service Agreement (defined below), where the Company agreed to increase the annual service payment by $250,000, effective for the second service year, and for each year thereafter.
Depreciation and amortization costs as a percentage of total revenue were 35.6%, 34.2%,23.9% and 33.8%27.5% in 2019, 20182022 and 2017, respectively.2021. Depreciation and amortization costs increased $596,000 and $144,000decreased $130,000 in 2019 and 20182022 compared to 2018 and 2017, respectively.2021. The increasedecrease in 20192022 compared to 2018 was2021was due to depreciation incurredthe expiration of one contract in each of the first and fourth quarters of 2021, offset by the Company’s change in estimate for salvage value. As of April 1, 2021, the Company reduced its estimate for salvage value for nine of its Gamma Knife units. As of October 1, 2022, the Company further reduced its estimate for salvage value for one of its domestic Gamma Knife Perfexion units. The net effect of the change in estimate made October 1, 2022, for the year ended December 31, 2022, was a decrease in net income of approximately $17,000 or $0.00 per diluted share. Salvage value is based on the Company's Gamma Knife and IGRTestimated fair value of the equipment at the end of its locationuseful life. This change in Boston, Massachusetts. These contracts are set to expire in the second quarter of 2020. The increase in 2018 compared to 2017 was due to depreciation incurred on the Company’s Gamma Knife in Peru, which began operations in July 2017, and depreciation incurred on the PBRT system.
Other direct operating costs as a percentage of total revenue were 18.1%, 15.6%,18.6% and 15.0%20.2% in 2019, 20182022 and 2017,2021, respectively. Other direct operating costs increased by $642,000 and $151,000$110,000 in 2019 and 20182022 compared to 2018 and 2017, respectively.2021. The increase in 2019 and 2018 is2022 was primarily due to increased operating costs incurred byat the Company’s PBRT system and operating costs for the Company’s Gamma Knife site in Peru, which began treating patients in July 2017.
SELLING AND ADMINISTRATIVE EXPENSE
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Selling and administrative costs | $ | 4,060 | 1.7 | % | $ | 3,994 | (7.6) | % | $ | 4,323 | ||||||||||||||||||||||
| Percentage of total revenue | 19.7 | % | 20.3 | % | 22.1 | % | ||||||||||||||||||||||||||
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Selling and administrative expense | $ | 5,145 | 13.6 | % | $ | 4,531 | ||||||
Percentage of total revenue | 26.1 | % | 25.7 | % | ||||||||
The Company'sCompany’s selling and administrative costs increased $66,000 and decreased $329,000$614,000 in 2019 and 20182022 compared to 2018 and 2017, respectively.2021. The increase in 20192022 was due to salarieshigher sales and wages. The decrease in 2018 was driven by legalrelated fees severance expense incurred in 2017, and stock-based compensation incurred in 2017, related to performance awards.
INTEREST EXPENSE
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Interest expense | $ | 1,318 | (19.2) | % | $ | 1,631 | (15.4) | % | $ | 1,927 | ||||||||||||||||||||||
| Percentage of total revenue | 6.4 | % | 8.3 | % | 9.9 | % | ||||||||||||||||||||||||||
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Interest expense | $ | 806 | 9.1 | % | $ | 739 | ||||||
Percentage of total revenue | 4.1 | % | 4.2 | % | ||||||||
The Company's interest expense decreased $313,000 and $296,000increased $67,000 in 2019 and 20182022 compared to 2018 and 2017, respectively. The decrease in 2019 and 2018 compared to 2018 and 2017 is primarily due to a lower average principal base for the Company’s lease and debt portfolio, effectively reducing interest expense.
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Proceeds received from investment in equity securities | $ | 0 | * | $ | 22 | * | $ | 0 | ||||||||||||||||||||||||
| Percentage of total revenue | 0.0 | % | 0.1 | % | 0.0 | % | ||||||||||||||||||||||||||
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| (Loss) on write down investment in equity securities | $ | 0 | * | $ | 0 | * | $ | (579) | ||||||||||||||||||||||||
| Percentage of total revenue | 0.0 | % | 0.0 | % | (3.0) | % | ||||||||||||||||||||||||||
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Interest and other income | $ | 16 | (91.9) | % | $ | 198 | 6,500.0 | % | $ | 3 | ||||||||||||||||||||||
| Percentage of total revenue | 0.1 | % | 1.0 | % | 0.0 | % | ||||||||||||||||||||||||||
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Income tax expense (benefit) | $ | 128 | (71.6) | % | $ | 451 | 140.9 | % | $ | (1,103) | ||||||||||||||||||||||
| Percentage of total revenue | 0.6 | % | 2.3 | % | (5.6) | % | ||||||||||||||||||||||||||
| Percentage of income, after net income attributable to non-controlling interests, and before income taxes | 16.3 | % | 30.6 | % | (134.5) | % | ||||||||||||||||||||||||||
(LOSS) ON WRITE DOWN OF IMPAIRED ASSETS AND ASSOCIATED REMOVAL COSTS
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Loss on write down of impaired assets | $ | — | * | $ | 105 | |||||||
Percentage of total revenue | 0.0 | % | 0.6 | % | ||||||||
As of December 31, 2022 and 2021, the Company recognized a loss on the write down of impaired assets of $0 and $105,000, respectively. The Company reviewed its Gamma Knife and PBRT equipment, in light of available information as of December 31, 2022 and 2021 and concluded no additional impairment exists. As of December 31, 2021, the Company recognized an additional $105,000 related to the removal costs of one of the unit that was impaired in 2020 and removed in January 2022.
(LOSS) ON EARLY EXTINGUISHMENT OF DEBT
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
(Loss) on extinguishment of debt | $ | — | * | $ | (401 | ) | ||||||
Percentage of total revenue | * | (2.3 | )% | |||||||||
The Company recorded a loss on the extinguishment of debt of $401,000 for the year ended December 31, 2021. On April 9, 2021, the Company refinanced the majority of its existing debt and finance lease portfolio with a new lender. The prepayment penalties charged by the existing lenders of $401,000 was recorded as a loss on extinguishment during the year ended December 31, 2021.
INCOME TAX EXPENSE
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Income tax expense | $ | 963 | 258.0 | % | $ | 269 | ||||||
Percentage of total revenue | 4.9 | % | 1.5 | % | ||||||||
Percentage of income, after net income attributable to non-controlling interests, and before income taxes | 42.0 | % | 58.1 | % | ||||||||
Income tax expense increased $694,000 in 2017.
The Company anticipates that it will continue to record income tax expense if it operates profitably in the future. Currently there are state income tax payments required for most states in which the Company operates. At December 31, 2019,2022, the Company exhausted the remainder of its net operating loss carryforward for federal income tax return purposes. The Company has net operating loss carryforwards for state income tax purposes.
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
| (In thousands) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | $ | 771 | 27.0 | % | $ | 607 | (40.3) | % | $ | 1,017 | ||||||||||||||||||||||
| Percentage of total revenue | 3.7 | % | 3.1 | % | 5.2 | % | ||||||||||||||||||||||||||
Increase | ||||||||||||
(In thousands) | 2022 | (Decrease) | 2021 | |||||||||
Net income attributable to non-controlling interests | $ | 227 | (53.1 | )% | $ | 484 | ||||||
Percentage of total revenue | 1.1 | % | 2.7 | % | ||||||||
Net income attributable to non-controlling interests increased $164,000 and decreased $410,000$257,000 in 2019 and 20182022 compared to 2018 and 2017, respectively.2021. Net income attributable to non-controlling interests represents the pre-tax income earned by the 19% non-controlling interest in GKF, and the pre-tax income or losses of the non-controlling interests in various subsidiaries controlled by GKF. The decrease or increase in net income attributable to non-controlling interests reflects the relative profitability of GKF. The increasedecrease in 20192022 compared to 20182021 was primarily driven by one of GKF's subsidiares of whichdue to lower pre-tax income for GKF owns 51%.
NET INCOME ATTRIBUTABLE TO AMERICAN SHARED HOSPITAL SERVICES
(In thousands, except per share amounts) | 2019 | Increase (Decrease) | 2018 | Increase (Decrease) | 2017 | |||||||||||||||||||||||||||
| Net income attributable to ASHS | $ | 659 | (35.6) | % | $ | 1,023 | (46.8) | % | $ | 1,923 | ||||||||||||||||||||||
| Net income per share attributable to ASHS, diluted | $ | 0.11 | (35.3) | % | $ | 0.17 | (48.5) | % | $ | 0.33 | ||||||||||||||||||||||
(In thousands, | Increase | |||||||||||
except per share amounts) | 2022 | (Decrease) | 2021 | |||||||||
Net income attributable to ASHS | $ | 1,328 | 584.5 | % | $ | 194 | ||||||
Net income per share attributable to ASHS, diluted | $ | 0.21 | 600.0 | % | $ | 0.03 | ||||||
Net income attributable to American Shared Hospital Services was $659,000increased $1,134,000 in 20192022 compared to $1,023,0002021. The increase in 2018, and $1,923,000 in 2017. Net income decreased $364,000 in 20192022 compared to 20182021 was primarily due to increased operating costs associated with the Company's stand-alone facilityrevenues in Lima, Peru and depreciation expense incurred at one of the Company's Gamma Knife2022 and the Company's IGRT site. Excluding the adjustmentloss on extinguishment of debt recorded in 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary liquidity needs are to fund capital expenditures as well as support working capital requirements. In general, the Company’s income tax provision, becauseprincipal sources of the Tax Actliquidity are cash and cash equivalents on hand and a $7,000,000 revolving line of $1,546,000, and the write-down of the Company’s investment in Mevion of $579,000 in 2017, net income in 2018 increased $45,000 compared to 2017.
Operating activities providedprovided $7,235,000 of cash of $8,047,000 in 2019,2022, which was driven by net income of $1,430,000,$1,555,000, non-cash charges for depreciation and amortization of $7,411,000, net accrued interest on lease financing of $29,000,$4,783,000, stock-based compensation expense of $230,000, non-cash lease expense$399,000, amortization of $256,000, interest expense associated withdeferred issuance costs of $84,000, deferred income taxes of $344,000, income taxes payable of $159,000 changes in payables and other accrued liabilities of $608,000, and changes in receivables of $696,000. These were offset by net changes in Right-of-Use assets and lease liabilities of $76,000,$40,000, changes in prepaidprepaids and other assets of $260,000,$111,000, changes in other accrued liabilities and deferred revenue of $28,000, net insurance proceeds of $160,000 and income taxes payable of $130,000. These were partially offset by an income tax benefit of $444,000, changes in receivables of $1,187,000, and net leaserelated party liabilities of $332,000.
The Company’s trade accounts receivable increaseddecreased by $1,392,000$410,000 to $6,894,000$3,801,000 at December 31, 20192022 from $5,502,000$4,211,000 at December 31, 2018, primarily due to accounts receivable related to the ramping up of revenues for the PBRT system which began operations in April 2016 and an outstanding payment related to a contractual Medicare adjustment for one of the Company's Gamma Knife contracts, which was collected in January 2020.2021. The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31, 2019 increased to 1222022 was 70 days compared to 10287 days at December 31, 2018.2021. DSO can and does fluctuate depending on timing of customer payments received and the mix of fee per use versus retail customers. Retail sites generally have longer collection periods than fee per use sites.
Investing activities used $990,000$388,000 of cash in 20192022, due to payments made towards the purchase of property and equipment.
Financing activities used $7,070,000$2,657,000 of cash during 2019, primarily due to principal2022, which was driven by payments on long-term debt of $1,980,000, principal payments towards finance leases$2,032,000, distributions to non-controlling interests of $4,142,000, principal$573,000, debt issuance costs of $9,000 and payments on short-term financing of $51,000, and distributions to non-controlling interestsinsurance premiums of $939,000. These decreases were$48,000. This was offset by $5,000 in proceeds from options exercised of $42,000.
Working Capital
The Company had working capital at December 31, 20192022 of $2,528,000$13,548,000 compared to working capital of $472,000$9,196,000 at December 31, 2018.2021. The $2,056,000$4,352,000 increase in net working capital was primarily due to an increaseincreased cash generation from a lower DSO and the refinancing that occurred during the second quarter of 2021. The refinancing decreased the Company’s current debt and finance obligations in accounts receivable and other receivablesaddition to providing excess working capital. The Company also secured a $7,000,000 revolving line of $1,322,000, increases in prepaid and other assetscredit as part of $624,000, decrease in accrued liabilitiesthe refinancing. The Company has not drawn on the line as of $25,000, decreases in finance leases of $698,000, and decreases in long term debt of $593,000. This was offset by a decrease in cash of $13,000, net decrease in insurance receivable of $160,000, increase in accounts payable of $122,000, income taxes payable of $130,000, increase in short-term financing of $475,000, increase in lease liabilities of $279,000, and an increase in employee compensation and benefits of $27,000.December 31, 2022. The Company believes that its cash flow from operations, cash on hand operations, and other cash resources are adequate to meet its scheduled debt and finance lease obligations during the next 12 months. See additional discussion below related to commitments.
The Company, in the past, has secured financing for its Gamma Knife and radiation therapy units. The Company has secured financing for its projects from several lenders and anticipates that it will be able to secure financing on future projects from these or other lending sources, but there can be no assurance that financing will continue to be available on acceptable terms.
Prior to April 2021, GKF generally financed its U.S. Gamma Knife units, upgrades and additions with loans or finance leases from various finance companies for typically 100% of the costscost of each Gamma Knife, plus any sales tax, customs, and duties. On April 9, 2021, the Company and certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A., which refinanced its existing domestic Gamma Knife portfolio. The lease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement. The Credit Agreement includes a $7,000,000 revolving line of credit that it incurs under its customer contracts are fixed through the term of the contract.
As of December 31, 2021, LIBOR will no longer be used to price new loans, but 1-month, 3-month, 6-month and 12-month maturities will continue to be published through 2023. The Company is working with Fifth Third Bank to determine an alternative base rate. The Revolving Line is charged an unused line fee of 0.25% per annum. The Term Loan and DDTL have interest and principal payments due quarterly. Principal amortization on an annual basis for the notesTerm Loan and DDTL equates to 48% of the original principal loan commitments in years one through five and an end of term payment of the remaining principal balance. See Note 5 - Long Term Debt to the consolidated financial statements referenced below.
| Payments Due by Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contractual Obligations | Total amounts committed | Less than 1 year | 1-3 years | 4-5 years | After 5 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt (includes interest) | $ | 3,922,000 | 1,689,000 | 1,480,000 | 335,000 | 418,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance leases (includes interest) | 13,580,000 | 4,610,000 | 8,449,000 | 521,000 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Future equipment purchases | 40,910,000 | 1,750,000 | 39,160,000 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Equipment service contracts | 10,096,000 | 1,847,000 | 4,655,000 | 1,734,000 | 1,860,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating leases | 1,180,000 | 319,000 | 856,000 | 5,000 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total contractual obligations | $ | 69,688,000 | $ | 10,215,000 | $ | 54,600,000 | $ | 2,595,000 | $ | 2,278,000 | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments
As of December 31, 2019,2022, the Company had commitments after deposits, to purchase two MEVION S250i PBRT systems for $34,000,000, and the Company had $2,250,000 in non-refundable deposits toward the purchase of these two PBRT systems from Mevion Medical Systems, Inc. (“Mevion”). The non-refundable deposits are recorded in the Consolidated Balance Sheets as deposits and construction in progress.
The Company paid the additional $250,000 owed for the second service year on September 6, 2019.
Related Party Transactions
The Company’s Gamma Knife business is operated through its 81% indirect interest in its GKF subsidiary. The remaining 19% of GKF is owned by a wholly owned U.S. subsidiary of Elekta, which is the manufacturer of the Gamma Knife. Since the Company purchases its Gamma Knife units from Elekta, there are significant related party transactions with Elekta such as equipment purchases, commitments to purchase and service equipment, and costs to maintain the equipment.
The following summarizes related party activity for the years ended December 31, 2022 and 2021:
December 31, | ||||||||
2022 | 2021 | |||||||
Equipment purchases and de-install costs | $ | 1,844,000 | $ | 1,906,000 | ||||
Costs incurred to maintain equipment | 1,094,000 | 759,000 | ||||||
Total related party transactions | $ | 2,938,000 | $ | 2,665,000 | ||||
The Company estimatesalso had related party commitments to purchase one Icon, install four Icon upgrades, purchase two Gamma Plan workstations, purchase two LINACs, and service the following commitments for eachrelated equipment of the equipment systems, with expected timing of payments as follows$17,407,000 as of December 31, 2019:
| 2020 | Thereafter | Total | |||||||||||||||
| Proton Beam Units | $ | — | $ | 34,000,000 | $ | 34,000,000 | |||||||||||
| Gamma Knife & LINAC Units | 1,750,000 | 5,160,000 | 6,910,000 | ||||||||||||||
| Service Contracts | 1,847,000 | 8,249,000 | 10,096,000 | ||||||||||||||
| Total Commitments | $ | 3,597,000 | $ | 47,409,000 | $ | 51,006,000 | |||||||||||
Related party liabilities on the consolidated balance sheets consist of the following as of December 31, 2022 and 2021:
December 31, | ||||||||
2022 | 2021 | |||||||
Accounts payable and other accrued liabilities | $ | 497,000 | $ | 1,992,000 | ||||
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Exchange Act, the Company is not required to provide the information about certain market-sensitive financial instruments as of December 31, 2019. The fair values were determined based on quoted market prices for the same or similar instruments.
| Payments Due by Period | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | 2020 | 2021 | 2022 | 2023 | 2024 | There- after | Total | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate long-term debt and present value of finance leases | $ | 5,237 | $ | 6,409 | $ | 1,439 | $ | 1,073 | $ | 808 | $ | 400 | $ | 15,366 | $ | 15,371 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rates | 8.3 | % | 8.7 | % | 6.5 | % | 6.1 | % | 6.1 | % | 6.3 | % | 7.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See the Index to Consolidated Financial Statements and Financial Statement Schedules included at page F-1 of this report.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) | Evaluation of disclosure controls and procedures. |
| Our Executive Chairman and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e)) of the Exchange Act) as of the end of the period covered by this annual report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. | |
| (b) | Management’s report on internal control over financial reporting. |
| The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to its management and Board of Directors regarding the preparation and fair presentation of published financial statements. | |
| All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. | |
| Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on this assessment management believes that, as of December 31, 2022, the Company’s internal control over financial reporting is effective based on those criteria. |
(c) | Changes in internal controls over financial reporting. |
| Our Executive Chairman and our Chief Financial Officer have evaluated the changes to the Company’s internal control over financial reporting that occurred during our last fiscal quarter ended December 31, 2022, as required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15, and have concluded that there were no such changes that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
None.
Information regarding directors is incorporated herein by reference from the Company’s definitive Proxy Statement for the 20202023 Annual Meeting of Shareholders (the “2020“2023 Proxy Statement”). Information regarding executive officers of the Company, included herein under the caption “Executive Officers of the Company” in Part“Part I, Item 11. Business” above, is incorporated herein by reference.
Information concerning the identification of our standing audit committee required by this Item is incorporated by reference from the 20202023 Proxy Statement.
Information concerning our audit committee financial experts required by this Item is incorporated by reference from the 20202023 Proxy Statement.
Information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference from the 20202023 Proxy Statement.
We have adopted a Code of Ethics that is available on our website at
www.ashs.com. The information on our website is not part of this report. You may also request a copy of this document free of charge by writing our Corporate Secretary.Information required by this Item is incorporated herein by reference from the 20202023 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item is incorporated herein by reference from the 20202023 Proxy Statement.
Information required by this Item is incorporated herein by reference from the 20202023 Proxy Statement.
The information required by this Itemitem is incorporated herein by reference fromto the 2020section entitled “Ratification of the Appointment of Our Independent Registered Public Accounting Firm” in our Proxy Statement.Statement for the 2023 Annual Meeting of Stockholders.
Auditor Firm Id: | 659 | Auditor Name: | Moss Adams LLP | Auditor Location: | Seattle, WA United States |
(a) | Financial Statements and Schedules. | ||||||||||||||||||||||||||||||||||
Number | |||||||||||||||||||||||||||||||||||
| The following Financial Statements and Schedules are filed with this Report: | |||||||||||||||||||||||||||||||||||
| Report of Independent Registered Public Accounting Firm | |||||||||||||||||||||||||||||||||||
| Audited Consolidated Financial Statements | |||||||||||||||||||||||||||||||||||
| Consolidated Balance Sheets | |||||||||||||||||||||||||||||||||||
| Consolidated Statements of Income | |||||||||||||||||||||||||||||||||||
| Consolidated Statement of Shareholders' Equity | |||||||||||||||||||||||||||||||||||
| Consolidated Statements of Cash Flows | |||||||||||||||||||||||||||||||||||
| Notes to Consolidated Financial Statements | |||||||||||||||||||||||||||||||||||
| Financial Statement Schedules- no schedules are included since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto. | |||||||||||||||||||||||||||||||||||
| Articles of Incorporation of the Company. | 10-Q 001-08789 | 3.1 | 5/15/2017 | |||||||||||||||||||||||
| Articles of Incorporation of the Company, as amended. | 10-K 001-08789 | 3.1 | 3/27/2017 | |||||||||||||||||||||||
| By-laws of the Company, as amended and restated dated as of June 21, 2016. | 10-Q 001-08789 | 3.2 | 5/15/2017 | |||||||||||||||||||||||
| Rights Agreement dated as of March 22, 1999 between American Shared Hospital Services and American Stock Transfer & Trust Company, as Rights Agent. | 8-K 001-08789 | 4 | 4/1/1999 | |||||||||||||||||||||||
| First Amendment to Rights Agreement dated as of March 12, 2009 between American Shared Hospital Services and American Stock Transfer & Trust Company, as Rights Agent. | 8-K 001-08789 | 3.1 | 3/13/2009 | |||||||||||||||||||||||
| 10.1 | Operating Agreement for GK Financing, LLC dated as of October 17, 1995 between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1 033-63721 | 10.12 | 10/26/1995 | ||||||||||||||||||||||
| 10.1a | Amendment Agreement dated as of October 26, 1995 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1/A 033-63721 | 10.13 | 3/29/1996 | ||||||||||||||||||||||
| 10.1b | Second Amendment Agreement dated as of December 20, 1995 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1/A 033-63721 | 10.13 | 3/29/1996 | ||||||||||||||||||||||
| 10.1c | Third Amendment Agreement dated as of October 16, 1996 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.13b | 3/31/1998 | ||||||||||||||||||||||
| 10.1d | Fourth Amendment Agreement dated as of March 31, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.8 | 3/31/1999 | ||||||||||||||||||||||
| 10.1e | Fifth Amendment Agreement dated as of March 31, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.9 | 3/31/1999 | ||||||||||||||||||||||
| 10.1f | Sixth Amendment Agreement dated as of June 5, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.10 | 3/31/1999 | ||||||||||||||||||||||
| Seventh Amendment Agreement dated as of October 18, 2006 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.52 | 4/2/2007 | |||||||||||||||||||||||
| Eighth Amendment Agreement dated as of April 28, 2010 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.1h | 3/30/2016 | |||||||||||||||||||||||
| Ninth Amendment Agreement dated as of May 16, 2011 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.1i | 3/30/2016 | |||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of October 29, 1996 between GK Financing, LLC and Methodist Healthcare Systems of San Antonio, Ltd., dba Southwest Texas Methodist Hospital. | 10-K 001-08789 | 10.2 | 3/30/2016 | |||||||||||||||||||||||
(b) | Exhibits. |
| The following Exhibits are filed with this Report. |
Exhibit | Incorporated by reference herein | |||||||||||||||||||||||||
| Number | Description | Form | Exhibit | Date | ||||||||||||||||||||||
Articles of Incorporation of the Company. | 10-Q 001-08789 | 3.1 | 5/15/2017 | |||||||||||||||||||||||
Certificate of Amendment to Articles of Incorporation of the Company. | 10-K 001-08789 | 3.1 | 3/27/2017 | |||||||||||||||||||||||
By-laws of the Company, as amended to date. | 10-Q | 3.2 | 8/15/2022 | |||||||||||||||||||||||
| Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | 10-K | 4.1 | 4/6/2021 | ||||||||||||||||||||||
10.1 | Operating Agreement for GK Financing, LLC dated as of October 17, 1995 between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1 033-63721 | 10.12 | 10/26/1995 | ||||||||||||||||||||||
10.1a | Amendment Agreement dated as of October 26, 1995 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1/A 033-63721 | 10.13 | 3/29/1996 | ||||||||||||||||||||||
10.1b | Second Amendment Agreement dated as of December 20, 1995 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | S-1/A 033-63721 | 10.13 | 3/29/1996 | ||||||||||||||||||||||
10.1c | Third Amendment Agreement dated as of October 16, 1996 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.13b | 3/31/1998 | ||||||||||||||||||||||
10.1d | Amendment Four Agreement dated as of March 31, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.8 | 3/31/1999 | ||||||||||||||||||||||
10.1e | Fifth Amendment Agreement dated as of March 31, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.9 | 3/31/1999 | ||||||||||||||||||||||
10.1f | Sixth Amendment Agreement dated as of June 5, 1998 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.10 | 3/31/1999 | ||||||||||||||||||||||
Seventh Amendment Agreement dated as of October 18, 2006 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.52 | 4/2/2007 | |||||||||||||||||||||||
Eighth Amendment Agreement dated as of April 28, 2010 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.1h | 3/30/2016 | |||||||||||||||||||||||
Ninth Amendment Agreement dated as of May 16, 2011 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.1i | 3/30/2016 | |||||||||||||||||||||||
| 10.1j | Tenth Amendment Agreement dated as of March 25, 2021 to the GK Financing, LLC Operating Agreement between American Shared Radiosurgery Services, Inc. and GKV Investments, Inc. | 10-K 001-08789 | 10.1j | 3/30/2022 | ||||||||||||||||||||||
| Addendum to Lease Agreement for a Gamma Knife Unit dated as of October 31, 1996 between GK Financing, LLC and Methodist Healthcare System of San Antonio, Ltd., dba Southwest Texas Methodist Hospital. | 10-K 001-08789 | 10.2a | 3/30/2016 | |||||||||||||||||||||||
| Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of October 16, 1997 between Methodist Healthcare System of San Antonio, Ltd., d.b.a. Southwest Texas Methodist Hospital and GK Financing, LLC. | 10-K 001-08789 | 10.2b | 3/30/2016 | |||||||||||||||||||||||
| Amendment to Lease Agreement for a Gamma Knife Unit dated as of December 13, 2003 between Methodist Healthcare Systems of San Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital and GK Financing, LLC. | 10-K 001-08789 | 10.2c | 3/30/2016 | |||||||||||||||||||||||
| # | Second Amendment to Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of December 23, 2009 between GK Financing, LLC and Methodist Healthcare Systems of San Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital. | 10-Q 001-08789 | 10.18b | 11/15/2010 | ||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of April 10, 1997 between GK Financing, LLC and Yale-New Haven Ambulatory Services Corporation. | 10-K 001-08789 | 10.3 | 3/30/2016 | |||||||||||||||||||||||
| Addendum to Lease Agreement for a Gamma Knife Unit dated as of October 25, 2005 between Yale-New Haven Ambulatory Services Corporation and GK Financing, LLC. | 10-K 001-08789 | 10.3a | 3/30/2016 | |||||||||||||||||||||||
| Assignment, Assumption, and Amendment to Lease Agreement for a Gamma Knife Unit dated as of June 30, 2006 between Yale-New Haven Ambulatory Services Corporation, Yale-New Haven Hospital, Inc. a/k/a Yale-New Haven Hospital, and GK Financing, LLC. | 10-K 001-08789 | 10.3b | 3/30/2016 | |||||||||||||||||||||||
| Second Amendment to Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of May 15, 2009 between Yale-New Haven Hospital, Inc. a/k/a Yale-New Haven Hospital and GK Financing, LLC. | 10-Q 001-08789 | 10.2 | 11/13/2017 | |||||||||||||||||||||||
| Third Amendment to Lease Agreement for a Gamma Knife Unit dated as of July 1, 2014 between Yale-New Haven Hospital, Inc. a/k/a Yale-New Haven Hospital and GK Financing, LLC. | 10-Q 001-08789 | 10.19c | 11/14/2014 | |||||||||||||||||||||||
| Purchased Services Agreement (for a Gamma Knife Unit) dated as of November 19, 2008 between GK Financing, LLC and Kettering Medical Center. | 10-Q 001-08789 | 10.1 | 8/11/2016 | |||||||||||||||||||||||
| First Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of June 11, 2009 between GK Financing, LLC and Kettering Medical Center. | 10-Q 001-08789 | 10.1a | 8/11/2016 | |||||||||||||||||||||||
| # | Second Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of February 27, 2014 between GK Financing, LLC and Kettering Medical Center. | 10-K 001-08789 | 10.21c | 4/1/2015 | ||||||||||||||||||||||
| # | Third Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of March 28, 2019 between GK Financing, LLC and Kettering Medical Center | 10-Q 001-08789 | 10.1 | 11/7/2019 | ||||||||||||||||||||||
| # | Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of July 30, 2013 between Tufts Medical Center, Inc. (FKA New England Medical Center Hospitals, Inc.) and GK Financing, LLC. | 10-K 001-08789 | 10.22b | 3/31/2014 | ||||||||||||||||||||||
| # | Amended and Restated Equipment Lease Agreement (for a Gamma Knife Unit) dated as of December 12, 2014, between GK Financing, LLC and the Board of Trustees of the University of Arkansas on behalf of the University of Arkansas for Medical Sciences. | 10-Q 001-08789 | 10.4 | 8/19/2015 | ||||||||||||||||||||||
Lease Agreement for a Gamma Knife Unit dated as of October 29, 1996 between GK Financing, LLC and Methodist Healthcare Systems of San Antonio, Ltd., dba Southwest Texas Methodist Hospital. | 10-K 001-08789 | 10.2 | 3/30/2016 | |||||||||||||||||||||||
Addendum to Lease Agreement for a Gamma Knife Unit dated as of October 31, 1996 between GK Financing, LLC and Methodist Healthcare System of San Antonio, Ltd., dba Southwest Texas Methodist Hospital. | 10-K 001-08789 | 10.2a | 3/30/2016 | |||||||||||||||||||||||
Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of October 16, 1997 between Methodist Healthcare System of San Antonio, Ltd., d.b.a. Southwest Texas Methodist Hospital and GK Financing, LLC. | 10-K 001-08789 | 10.2b | 3/30/2016 | |||||||||||||||||||||||
Amendment to Lease Agreement for a Gamma Knife Unit dated as of December 13, 2003 between Methodist Healthcare Systems of San Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital and GK Financing, LLC. | 10-K 001-08789 | 10.2c | 3/30/2016 | |||||||||||||||||||||||
# | Second Amendment to Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of December 23, 2009 between GK Financing, LLC and Methodist Healthcare Systems of San Antonio, Ltd., d/b/a Southwest Texas Methodist Hospital. | 10-Q 001-08789 | 10.18b | 11/15/2010 | ||||||||||||||||||||||
Purchased Services Agreement (for a Gamma Knife Unit) dated as of November 19, 2008 between GK Financing, LLC and Kettering Medical Center. | 10-Q 001-08789 | 10.1 | 8/11/2016 | |||||||||||||||||||||||
First Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of June 11, 2009 between GK Financing, LLC and Kettering Medical Center. | 10-Q 001-08789 | 10.1a | 8/11/2016 | |||||||||||||||||||||||
# | Second Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of February 27, 2014 between GK Financing, LLC and Kettering Medical Center. | 10-K 001-08789 | 10.21c | 4/1/2015 | ||||||||||||||||||||||
# | Third Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of March 28, 2019 between GK Financing, LLC and Kettering Medical Center | 10-Q | 10.1 | 11/7/2019 | ||||||||||||||||||||||
# | Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of July 30, 2013 between Tufts Medical Center, Inc. (FKA New England Medical Center Hospitals, Inc.) and GK Financing, LLC. | 10-K 001-08789 | 10.22b | 3/31/2014 | ||||||||||||||||||||||
# | First Amendment to Lease Agreement for a Gamma Knife Unit (Perfexion Upgrade) dated as of April 23, 2020 between Tufts Medical Center, Inc. (FKA New England Medical Center Hospitals, Inc.) and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 8/14/2020 | ||||||||||||||||||||||
# | Amended and Restated Equipment Lease Agreement (for a Gamma Knife Unit) dated as of December 12, 2014, between GK Financing, LLC and the Board of Trustees of the University of Arkansas on behalf of the University of Arkansas for Medical Sciences. | 10-Q 001-08789 | 10.4 | 8/19/2015 | ||||||||||||||||||||||
Lease Agreement for a Gamma Knife Unit dated as of November 1, 1999 between GK Financing, LLC and Jackson HMA, Inc. d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.10 | 3/30/2016 | |||||||||||||||||||||||
Addendum to Lease Agreement for a Gamma Knife Unit dated as of November 1, 1999 between Jackson HMA, Inc. dba Central Mississippi Medical Center and GK Financing, LLC. | 10-Q 001-08789 | 10.34 | 8/10/2001 | |||||||||||||||||||||||
# | Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of November 6, 2006 between GK Financing, LLC and Jackson HMA, Inc. d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.51 | 4/2/2007 |
| Lease Agreement for a Gamma Knife Unit dated as of May 28, 1999 between GK Financing, LLC and Froedtert Memorial Lutheran Hospital. | 10-K 001-08789 | 10.7 | 3/30/2016 | |||||||||||||||||||||||
| 10.7a | Addendum dated as of June 24, 1999 to Lease Agreement for a Gamma Knife Unit between GK Financing, LLC and Froedtert Memorial Lutheran Hospital. | 10-K 001-08789 | 10.27 | 3/29/2000 | ||||||||||||||||||||||
| 10.7b | Amendment dated as of July 12, 1999 to Lease Agreement for a Gamma Knife Unit between GK Financing, LLC and Froedtert Memorial Lutheran Hospital. | 10-K 001-08789 | 10.28 | 3/29/2000 | ||||||||||||||||||||||
| 10.7c | Amendment dated as of August 24, 1999 to Lease Agreement for a Gamma Knife Unit between GK Financing, LLC and Froedtert Memorial Lutheran Hospital. | 10-K 001-08789 | 10.29 | 3/29/2000 | ||||||||||||||||||||||
| First Amendment to Lease Agreement for a Gamma Knife Unit dated as of December 29, 2008 between GK Financing, LLC and Froedtert Memorial Lutheran Hospital. | 10-K 001-08789 | 10.7d | 3/30/2016 | |||||||||||||||||||||||
| Second Amendment to Lease Agreement for a Gamma Knife Unit dated as of May 16, 2013 between GK Financing, LLC and Froedtert Memorial Lutheran Hospital, Inc. | 10-K 001-08789 | 10.7e | 3/30/2016 | |||||||||||||||||||||||
| 10.7f | Third Amendment to Lease Agreement for a Gamma Knife Unit dated as of December 15, 2014 between GK Financing, LLC and Froedtert Memorial Lutheran Hospital, Inc. | 10-K 001-08789 | 10.26c | 4/1/2015 | ||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of December 11, 1996 between GK Financing, LLC and The Community Hospital Group, Inc., dba JFK Medical Center. | 10-K 001-08789 | 10.8 | 3/30/2016 | |||||||||||||||||||||||
| Addendum One to Lease Agreement for a Gamma Knife Unit dated on January 9, 2008 and effective as of July 1, 2002 between The Community Hospital Group, Inc., dba JFK Medical Center and GK Financing, LLC. | 10-K 001-08789 | 10.8a | 3/30/2016 | |||||||||||||||||||||||
| Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of January 9, 2008 between The Community Hospital Group, Inc., dba JFK Medical Center and GK Financing, LLC. | 10-K 001-08789 | 10.8b | 3/30/2016 | |||||||||||||||||||||||
| Addendum Three to Lease Agreement for a Gamma Knife Unit dated as of April 25, 2015, between The Community Hospital Group, Inc., dba JFK Medical Center and GK Financing, LLC. | 10-Q 001-08789 | 10.5 | 8/19/2015 | |||||||||||||||||||||||
| Addendum Four to Lease Agreement for a Gamma Knife Unit dated as of April 25, 2016 between The Community Hospital Group, Inc., dba JFK Medical Center and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 5/15/2017 | |||||||||||||||||||||||
| Addendum Five to Lease Agreement for a Gamma Knife Unit dated as of April 25, 2017 between The Community Hospital Group, Inc., dba JFK Medical Center and GK Financing, LLC | 10-Q 001-08789 | 10.1 | 8/9/2018 | |||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of June 3, 1999 between GK Financing, LLC and Sunrise Hospital and Medical Center, LLC d/b/a Sunrise Hospital and Medical Center. | 10-K 001-08789 | 10.9 | 3/30/2016 | |||||||||||||||||||||||
| Addendum to Lease Agreement for a Gamma Knife Unit dated as of December 1, 1998 between Sunrise Hospital and Medical Center, LLC d/b/a Sunrise Hospital and Medical Center and GK Financing, LLC. | 10-K 001-08789 | 10.9a | 3/30/2016 | |||||||||||||||||||||||
| Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of January 17, 2007 between GK Financing, LLC and Sunrise Hospital Medical Center, LLC d/b/a Sunrise Hospital Medical Center. | 10-K 001-08789 | 10.9b | 3/30/2016 | |||||||||||||||||||||||
Amendment Three to Lease Agreement for a Gamma Knife Unit dated as of February 23, 2010 between GK Financing, LLC and Jackson HMA, LLC d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.10c | 3/30/2016 | |||||||||||||||||||||||
Amendment Four to Lease Agreement for a Gamma Knife Unit dated as of May 1, 2019 between GK Financing, LLC and Jackson HMA, LLC d/b/a Central Mississippi Medical Center. | 10-Q 001-08789 | 10.1 | 5/11/2020 | |||||||||||||||||||||||
Lease Agreement for a Gamma Knife Unit dated as of February 18, 2000 between GK Financing, LLC and OSF HealthCare System. | 10-K 001-08789 | 10.11 | 3/30/2016 | |||||||||||||||||||||||
Addendum to Lease Agreement for a Gamma Knife Unit dated as of April 13, 2007, between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2 | 8/11/2016 | |||||||||||||||||||||||
Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of October 31, 2012 between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2a | 8/11/2016 | |||||||||||||||||||||||
# | Addendum Three to Lease Agreement for a Gamma Knife Unit dated as of June 7, 2016 between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2b | 8/11/2016 | ||||||||||||||||||||||
| Addendum Four to Lease Agreement for a Gamma Knife Unit dated as of February 6, 2020 between GK Financing, LLC and OSF Healthcare System. | 10-K | 10.11d | 4/6/2021 | ||||||||||||||||||||||
| 10.11e | # | Addendum Five to Lease Agreement for a Gamma Knife Unit dated as of April 28, 2021 between GK Financing, LLC and OSF Healthcare System. | 10-K 001-08789 | 10.11e | 3/30/2022 | |||||||||||||||||||||
Equipment Lease Agreement (for a Gamma Knife Unit) dated as of February 13, 2003 between GK Financing, LLC and AHS Albuquerque Regional Medical Center, LLC. | 10-K 001-08789 | 10.13 | 3/30/2016 | |||||||||||||||||||||||
# | Amendment to Equipment Lease Agreement (Perfexion Upgrade) dated as of April 8, 2011 between GK Financing, LLC and Lovelace Health System, Inc., d/b/a Lovelace Medical Center. | 10-Q 001-08789 | 10.62 | 8/15/2011 | ||||||||||||||||||||||
Assignment and Assumption of Purchase and License Agreement dated as of February 2, 2011 between Elekta, Inc., GK Financing, LLC and Albuquerque GK Equipment, LLC. | 10-Q 001-08789 | 10.62a | 8/15/2011 | |||||||||||||||||||||||
# | Icon Upgrade and Amendment Two to Equipment Lease Agreement for a Gamma Knife Unit dated as of October 15, 2019 between GK Financing, LLC and Lovelace Health System, Inc., d/b/a Lovelace Medical Center. | 10-Q 001-08789 | 10.1 | 11/13/2020 | ||||||||||||||||||||||
Equipment Lease Agreement (for a Gamma Knife Unit) dated as of March 21, 2003 between GK Financing, LLC and Northern Westchester Hospital Center. | 10-K 001-08789 | 10.14 | 3/30/2016 | |||||||||||||||||||||||
# | Amendment to Equipment Lease Agreement (Perfexion Upgrade) dated as of June 8, 2012 between GK Financing, LLC and Northern Westchester Hospital Center. | 10-Q 001-08789 | 10.46a | 8/14/2013 | ||||||||||||||||||||||
| 10.14b | # | Amendment Two to Equipment Lease Agreement (Reload) dated as of October 7, 2020 between GK Financing, LLC and Northern Westchester Hospital Association. | 10-Q 001-08789 | 10.1 | 5/13/2021 | |||||||||||||||||||||
# | Purchased Services Agreement (for a Gamma Knife Unit) dated as of March 5, 2008 between GK Financing, LLC and USC University Hospital, Inc. | 10-Q 001-08789 | 10.57 | 5/14/2008 | ||||||||||||||||||||||
# | First Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of April 1, 2009 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.57a | 8/14/2009 | ||||||||||||||||||||||
# | Second Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of October 1, 2013 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.57b | 8/14/2014 |
| Addendum Three to Lease Agreement for a Gamma Knife Unit dated as of June 20, 2007 between GK Financing, LLC and Sunrise Hospital and Medical Center, LLC d/b/a Sunrise Hospital and Medical Center. | 10-K 001-08789 | 10.9c | 3/30/2016 | |||||||||||||||||||||||
| Addendum Four to Lease Agreement for a Gamma Knife Unit dated as of February 8, 2010 between GK Financing, LLC and Sunrise Hospital and Medical Center, LLC d/b/a Sunrise Hospital and Medical Center. | 10-K 001-08789 | 10.9d | 3/30/2016 | |||||||||||||||||||||||
| # | Addendum Five to Lease Agreement for a Gamma Knife Unit dated as of May 18, 2012 between GK Financing, LLC and Sunrise Hospital and Medical Center, LLC d/b/a Sunrise Hospital and Medical Center. | 10-Q 001-08789 | 10.66 | 11/14/2013 | ||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of November 1, 1999 between GK Financing, LLC and Jackson HMA, Inc. d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.10 | 3/30/2016 | |||||||||||||||||||||||
| Addendum to Lease Agreement for a Gamma Knife Unit dated as of November 1, 1999 between Jackson HMA, Inc. dba Central Mississippi Medical Center and GK Financing, LLC. | 10-Q 001-08789 | 10.34 | 8/10/2001 | |||||||||||||||||||||||
| # | Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of November 6, 2006 between GK Financing, LLC and Jackson HMA, Inc. d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.51 | 4/2/2007 | ||||||||||||||||||||||
| Amendment Three to Lease Agreement for a Gamma Knife Unit dated as of February 23, 2010 between GK Financing, LLC and Jackson HMA, LLC d/b/a Central Mississippi Medical Center. | 10-K 001-08789 | 10.10c | 3/30/2016 | |||||||||||||||||||||||
| Lease Agreement for a Gamma Knife Unit dated as of February 18, 2000 between GK Financing, LLC and OSF HealthCare System. | 10-K 001-08789 | 10.11 | 3/30/2016 | |||||||||||||||||||||||
| Addendum to Lease Agreement for a Gamma Knife Unit dated as of April 13, 2007, between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2 | 8/11/2016 | |||||||||||||||||||||||
| Addendum Two to Lease Agreement for a Gamma Knife Unit dated as of October 31, 2012 between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2a | 8/11/2016 | |||||||||||||||||||||||
| # | Addendum Three to Lease Agreement for a Gamma Knife Unit dates as of June 7, 2016 between GK Financing, LLC and OSF Healthcare System. | 10-Q 001-08789 | 10.2b | 8/11/2016 | ||||||||||||||||||||||
| Equipment Lease Agreement (for a Gamma Knife Unit) dated as of September 13, 2001 between GK Financing, LLC and Mercy Medical Center. | 10-K 001-08789 | 10.12 | 3/30/2016 | |||||||||||||||||||||||
| Amendment Number One to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of September 13, 2001 between GK Financing, LLC and Mercy Medical Center. | 10-Q 001-08789 | 10.41 | 11/14/2002 | |||||||||||||||||||||||
| Equipment Lease Agreement (for a Gamma Knife Unit) dated as of February 13, 2003 between GK Financing, LLC and AHS Albuquerque Regional Medical Center, LLC. | 10-K 001-08789 | 10.13 | 3/30/2016 | |||||||||||||||||||||||
| # | Amendment to Equipment Lease Agreement (Perfexion Upgrade) dated as of April 8, 2011 between GK Financing, LLC and Lovelace Health System, Inc., d/b/a Lovelace Medical Center. | 10-Q 001-08789 | 10.62 | 8/15/2011 | ||||||||||||||||||||||
| Assignment and Assumption of Purchase and License Agreement dated as of February 2, 2011 between Elekta, Inc., GK Financing, LLC and Albuquerque GK Equipment, LLC. | 10-Q 001-08789 | 10.62a | 8/15/2011 | |||||||||||||||||||||||
Third Amendment to Purchased Services Agreement dated as June 30, 2020 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.2 | 11/13/2020 | |||||||||||||||||||||||
| 10.16d | Fourth Amendment to Purchased Services Agreement dated as of July 28, 2021 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.1 | 11/10/2021 | ||||||||||||||||||||||
# | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 1, 2010 between GK Financing, LLC and Fort Sanders Regional Medical Center. | 10-Q 001-08789 | 10.60 | 5/16/2011 | ||||||||||||||||||||||
Amendment to Lease Agreement (for a Gamma Knife Unit) dated as of January 3, 2012 between GK Financing, LLC and Fort Sanders Regional Medical Center. | 10-K 001-08789 | 10.17a | 3/30/2016 | |||||||||||||||||||||||
Second Amendment to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of June 1, 2017 between GK Financing, LLC and Fort Sanders Regional Medical Center. | 10-Q 001-08789 | 10.2 | 8/10/2017 | |||||||||||||||||||||||
# | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of August 5, 2011 between Jacksonville GK Equipment, LLC and St. Vincent’s Medical Center, Inc. | 10-K 001-08789 | 10.63 | 3/30/2012 | ||||||||||||||||||||||
# | First Amendment to the Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of October 10, 2011 between Jacksonville GK Equipment, LLC and St. Vincent’s Medical Center, Inc. | 10-K 001-08789 | 10.63a | 3/30/2012 | ||||||||||||||||||||||
# | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of January 19, 2012 between GK Financing, LLC and Sacred Heart Health System, Inc. | 10-Q 001-08789 | 10.65 | 5/15/2013 | ||||||||||||||||||||||
# | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of March 27, 2014 between GK Financing, LLC and PeaceHealth doing business through its operating division PeaceHealth Sacred Heart Medical Center at RiverBend. | 10-K 001-08789 | 10.67 | 4/1/2015 | ||||||||||||||||||||||
| 10.20a | Amendment One to Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of March 27, 2014 between GKF Financing, LLC and PeaceHealth Sacred Heart Medical Center at Riverbend. | 10-Q 001-08789 | 10.2 | 5/13/2021 | ||||||||||||||||||||||
# | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of February 21, 2017 between Bryan Medical Center, and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 11/13/2017 | ||||||||||||||||||||||
# | First Amendment to Equipment Lease Agreement (for a Gamma Knife unit) dated as of February 14, 2018 between Bryan Medical Center and GK Financing, LLC | 10-Q 001-08789 | 10.1 | 5/10/2018 | ||||||||||||||||||||||
# | Proton Beam Radiation Therapy Lease Agreement dated as of October 18, 2006 between American Shared Hospital Services and Orlando Regional Healthcare System, Inc. | 10-Q 001-08789 | 10.3 | 8/11/2016 | ||||||||||||||||||||||
# | Amendment One to Proton Beam Radiation Therapy Lease Agreement dated as of August 12, 2012 between American Shared Hospital Services and Orlando Health, Inc., formerly known as Orlando Regional Healthcare System, Inc. | 10-Q 001-08789 | 10.3a | 8/11/2016 | ||||||||||||||||||||||
# | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 8, 2018 between The Methodist Hospitals, Inc. and GK Financing, LLC | 10-Q | 10.1 | 5/13/2019 | ||||||||||||||||||||||
• | American Shared Hospital Services Incentive Compensation Plan as Amended and Restated effective June 25, 2021 | 8-K 001-08789 | 10.1 | 7/1/2021 | ||||||||||||||||||||||
• | Form of Indemnification Agreement between American Shared Hospital Services and members of its Board of Directors. | 10-K 001-08789 | 10.26 | 3/30/2016 | ||||||||||||||||||||||
• | Form of American Shared Hospital Services Incentive Compensation Plan Performance Share Award Agreement. | 10-K 001-08789 | 10.25 | 3/27/2017 | ||||||||||||||||||||||
• | Offer Letter between the Company and Mr. Raymond C. Stachowiak dated April 22, 2020 | 8-K 001-08789 | 99.1 | 4/22/2020 | ||||||||||||||||||||||
| 10.28 | • | Offer Letter between the Company and Peter Gaccione dated August 26, 2022. | 8-K 001-08789 | 10.1 | 9/1/2022 | |||||||||||||||||||||
| 10.29 | Credit Agreement dated as of April 9, 2021 among American Shared Hospital Services, PBRT Orlando, LLC and GK Financing, LLC as the initial co-Borrowers, and American Shared Radiosurgery Services as the initial additional Loan Party and Fifth Third Bank, National Association, as Lender. | 8-K 001-08789 | 10.1 | 4/15/2021 | ||||||||||||||||||||||
* | Subsidiaries of American Shared Hospital Services | |||||||||||||||||||||||||
* | Consent of Independent Registered Public Accounting Firm |
| Equipment Lease Agreement (for a Gamma Knife Unit) dated as of March 21, 2003 between GK Financing, LLC and Northern Westchester Hospital Center. | 10-K 001-08789 | 10.14 | 3/30/2016 | |||||||||||||||||||||||
| # | Amendment to Equipment Lease Agreement (Perfexion Upgrade) dated as of June 8, 2012 between GK Financing, LLC and Northern Westchester Hospital Center. | 10-Q 001-08789 | 10.46a | 8/14/2013 | ||||||||||||||||||||||
| Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 28, 2004 between GK Financing, LLC and Mercy Health Center. | 10-K 001-08789 | 10.15 | 3/30/2016 | |||||||||||||||||||||||
| Addendum One to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of December 23, 2011 between Mercy Health Center and GK Financing, LLC. | 10-K 001-08789 | 10.15a | 3/30/2016 | |||||||||||||||||||||||
| Addendum Two to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of July 31, 2015, between Mercy Hospital Oklahoma City, Inc. and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 11/12/2015 | |||||||||||||||||||||||
| Addendum Three to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of September 3, 2016, between Mercy Hospital Oklahoma City, Inc. and GK Financing, LLC. | 10-K 001-08789 | 10.15c | 3/27/2017 | |||||||||||||||||||||||
| Addendum Four to Equipment Lease Agreement (for a Gamma Knife Unite) dated as of May 1, 2017 between Mercy Hospital Oklahoma City, Inc. and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 8/10/2017 | |||||||||||||||||||||||
| # | Purchased Services Agreement (for a Gamma Knife Unit) dated as of March 5, 2008 between GK Financing, LLC and USC University Hospital, Inc. | 10-Q 001-08789 | 10.57 | 5/14/2008 | ||||||||||||||||||||||
| # | First Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of April 1, 2009 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.57a | 8/14/2009 | ||||||||||||||||||||||
| # | Second Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of October 1, 2013 between GK Financing, LLC and University of Southern California. | 10-Q 001-08789 | 10.57b | 8/14/2014 | ||||||||||||||||||||||
| # | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 1, 2010 between GK Financing, LLC and Fort Sanders Regional Medical Center. | 10-Q 001-08789 | 10.60 | 5/16/2011 | ||||||||||||||||||||||
| Amendment to Lease Agreement (for a Gamma Knife Unit) dated as of January 3, 2012 between GK Financing, LLC and Fort Sanders Regional Medical Center. | 10-K 001-08789 | 10.17a | 3/30/2016 | |||||||||||||||||||||||
| Second Amendment to Equipment Lease Agreement (for a Gamma Knife Unit) dated as of June 1, 2017 between GK Financing, LLC and Fort Sanders Regional Medical Center | 10-Q 001-08789 | 10.2 | 8/10/2017 | |||||||||||||||||||||||
| # | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of August 5, 2011 between Jacksonville GK Equipment, LLC and St. Vincent’s Medical Center, Inc. | 10-K 001-08789 | 10.63 | 3/30/2012 | ||||||||||||||||||||||
| # | First Amendment to the Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of October 10, 2011 between Jacksonville GK Equipment, LLC and St. Vincent’s Medical Center, Inc. | 10-K 001-08789 | 10.63a | 3/30/2012 | ||||||||||||||||||||||
| # | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of January 19, 2012 between GK Financing, LLC and Sacred Heart Health System, Inc. | 10-Q 001-08789 | 10.65 | 5/15/2013 | ||||||||||||||||||||||
| # | Leksell Gamma Knife Perfexion Purchased Services Agreement dated as of March 27, 2014 between GK Financing, LLC and PeaceHealth doing business through its operating division PeaceHealth Sacred Heart Medical Center at RiverBend. | 10-K 001-08789 | 10.67 | 4/1/2015 | ||||||||||||||||||||||
| # | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of February 21, 2017 between Bryan Medical Center, and GK Financing, LLC. | 10-Q 001-08789 | 10.1 | 11/13/2017 | ||||||||||||||||||||||
| # | First Amendment to Equipment Lease Agreement (for a Gamma Knife unit) dated as of February 14, 2018 between Bryan Medical Center and GK Financing, LLC | 10-Q 001-08789 | 10.1 | 5/10/2018 | ||||||||||||||||||||||
| # | Proton Beam Radiation Therapy Lease Agreement dated as of October 18, 2006 between American Shared Hospital Services and Orlando Regional Healthcare System, Inc. | 10-Q 001-08789 | 10.3 | 8/11/2016 | ||||||||||||||||||||||
| # | Amendment One to Proton Beam Radiation Therapy Lease Agreement dated as of August 12, 2012 between American Shared Hospital Services and Orlando Health, Inc., formerly known as Orlando Regional Healthcare System, Inc. | 10-Q 001-08789 | 10.3a | 8/11/2016 | ||||||||||||||||||||||
| # | Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 8, 2018 between The Methodist Hospitals, Inc. and GK Financing, LLC | 10-Q 001-08789 | 10.1 | 5/13/2019 | ||||||||||||||||||||||
| • | American Shared Hospital Services Incentive Compensation Plan as Amended and Restated effective June 21, 2019 | 10-Q 001-08789 | 10.1 | 8/13/2019 | ||||||||||||||||||||||
| • | Form of Indemnification Agreement between American Shared Hospital Services and members of its Board of Directors. | 10-K 001-08789 | 10.26 | 3/30/2016 | ||||||||||||||||||||||
| • | Form of American Shared Hospital Services Incentive Compensation Plan Performance Share Award Agreement. | 10-K 001-08789 | 10.25 | 3/27/2017 | ||||||||||||||||||||||
| * | Subsidiaries of American Shared Hospital Services | |||||||||||||||||||||||||
| * | Consent of Independent Registered Public Accounting Firm | |||||||||||||||||||||||||
| * | Certification of Chief Executive Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||
| * | Certification of Chief Financial Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||
| ǂ | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||
| 101.INS | * | XBRL Instance Document | ||||||||||||||||||||||||
| 101.SCH | * | XBRL Taxonomy Extension Schema Document | ||||||||||||||||||||||||
| 101.CAL | * | XBRL Taxonomy Calculation Linkbase Document | ||||||||||||||||||||||||
| 101.DEF | * | XBRL Taxonomy Definition Linkbase Document | ||||||||||||||||||||||||
| 101.LAB | * | XBRL Taxonomy Label Linkbase Document | ||||||||||||||||||||||||
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||||||||||
| 104 | * | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline Instance XBRL Document | ||||||||||||||||||||||||
| * | Filed herewith. | |||||||||||||||||||||||||
| ǂ | Furnished herewith. | |||||||||||||||||||||||||
* | Certification of Principal Executive Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||||||||||||||
* | Certification of Principal Financial Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||||||||||||||
ǂ | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||||||||||||||||||||||||||||||||||||||||
101.INS | * | Inline XBRL Instance Document | ||||||||||||||||||||||||||||||||||||||||||
101.SCH | * | Inline XBRL Taxonomy Extension Schema Document | ||||||||||||||||||||||||||||||||||||||||||
101.CAL | * | Inline XBRL Taxonomy Calculation Linkbase Document | ||||||||||||||||||||||||||||||||||||||||||
101.DEF | * | Inline XBRL Taxonomy Definition Linkbase Document | ||||||||||||||||||||||||||||||||||||||||||
101.LAB | * | Inline XBRL Taxonomy Label Linkbase Document | ||||||||||||||||||||||||||||||||||||||||||
101.PRE | * | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||||||||||||||||||||||||||||
104 | * | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline Instance XBRL contained in Exhibit 101 | ||||||||||||||||||||||||||||||||||||||||||
* | Filed herewith. | |||||||||||||||||||||||||||||||||||||||||||
ǂ | Furnished herewith. | |||||||||||||||||||||||||||||||||||||||||||
# | Confidential material appearing in this document has been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks. | |||||||||||||||||||||||||||||||||||||||||||
• | Indicates management compensatory plan, contract, or arrangement. | |||||||||||||||||||||||||||||||||||||||||||
The Optionaloptional summary in Item 16 has not been included in this Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) 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) | |||||||||||||||
March 31, 2023 | By: | /s/ | |||||||||||||
Raymond C. Stachowiak | |||||||||||||||
Executive Chairman of the Board | |||||||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature | Title | Date | ||||||||||||||||||||||
/s/ | Executive Chairman of the Board | March 31, 2023 | ||||||||||||||||||||||
Raymond C. Stachowiak | ||||||||||||||||||||||||
/s/ Daniel G. Kelly Jr. | Director | March 31, 2023 | ||||||||||||||||||||||
Daniel G. Kelly JR. | ||||||||||||||||||||||||
/s/ | Director | March 31, 2023 | ||||||||||||||||||||||
Ernest A. | ||||||||||||||||||||||||
/s/ | Director | March 31, 2023 | ||||||||||||||||||||||
Kathleen Miles | ||||||||||||||||||||||||
/s/ | Director | March 31, 2023 | ||||||||||||||||||||||
Vicki Wilson | ||||||||||||||||||||||||
/s/ Craig K. Tagawa | President and Chief Financial Officer | March 31, 2023 | ||||||||||||||||||||||
Craig K. Tagawa | (principal financial officer and principal accounting officer) | |||||||||||||||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
and
CONSOLIDATED FINANCIAL STATEMENTS
AS OF December 31, 20192022 and 2018,
and
FOR THE THREE YEARS THEN ENDED DECEMBER 31, 2019
CONTENTS | |||||||||
PAGE | |||||||||
CONSOLIDATED FINANCIAL STATEMENTS | |||||||||
To the StockholdersShareholders and the Board of Directors of
American Shared Hospital Services, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Shared Hospital Services, Inc. (the “Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of operations, stockholders’income, shareholders’ equity and cash flows for the three years then ended, December 31, 2019.and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20192022 and 2018,2021, and the consolidated results of its operations and its cash flows for the three years then ended, December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit
Our audits
included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of Matter
Retail Revenue Recognition – Estimates of Reimbursement Rates and Payor Mix
As discloseddescribed in Note 2 in the Company’s consolidated financial statements, the Company has retail customer revenue classified as either turn-key or revenue sharing that are recognized under Accounting Standards Codification 842 Leases. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. Under turn-key arrangements, the Company receives payment from the hospital based on the amount of the hospital’s reimbursement from third party payors.
We identified management’s estimates of reimbursement rates and payor mix to record retail revenue and related accounts receivable, as a critical audit matter. Retail revenue and related accounts receivable involves significant judgment and estimation, including measurement uncertainty, by management based on the estimates and assumptions used and are subject to adjustments based on actual reimbursements received by the Company. In turn, auditing management’s judgments and estimates related to retail revenue and related accounts receivable involved a high degree of subjectivity, as they are based on estimates of reimbursement rates and payor mix.
The primary procedures we performed to address this critical audit matter included:
• | Obtaining management’s reconciliation of retail revenue and accounts receivable by site and agreeing to supporting documentation related to the estimated reimbursement rates and payor mix used in the calculation. |
• | Obtaining third party confirmations, confirming the number of procedures, payment dates and amounts paid, and reconciling confirmed amounts to management’s reconciliation, to validate the approximate rate per procedure. |
• | Testing subsequent cash receipts and evaluating the reasonableness of the estimates through a look-back analysis over retail revenue as compared to accounts receivable balances previously recognized. |
• | Developing an independent expectation of reimbursement rates per procedure based on historical trends, procedures, and payment amounts received through confirmation directly with the hospital and comparing to management’s estimates. |
Property and Equipment - Salvage Value on Equipment
As described in Note 2 to the consolidated financial statements, in 2019property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife, and other equipment is determined using the straight-line method over the estimated useful lives of the assets, which for medical and office equipment is generally from 3 to 10 years, and after accounting for salvage value on the equipment where indicated. Salvage value is based on the estimated fair value of the equipment at the end of its useful life. As of December 31, 2022, the Company changed its methodhad seven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000.
We identified management’s estimates of accountingsalvage value including qualitative assessments of certain equipment as a critical audit matter. Determination of salvage values involves significant judgment and estimation, involving measurement uncertainty, as there is no active resale market for leasesthe Gamma Knife units due to limited sellers and buyers and trade-ins for the adoptionequipment are not guaranteed. Trade-ins are highly dependent on future demand, values and the Company’s relationship with the supplier, a related party of Accounting Standards Codification Topic No. 842
The adoption has been applied on a prospective basis. Our opinion is not modifiedprimary procedure we performed to address this critical audit matter included evaluating management’s determination of salvage values by comparing determined salvages values with respect to this matter.
/s/ Moss Adams LLP
San Francisco, CA
March 31, 2023
We have served as the Company’s auditor since 2000.
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED BALANCE SHEETS |
December 31, | ||||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 12,335,000 | $ | 8,145,000 | ||||
Restricted cash | 118,000 | 118,000 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $100,000 At December 31, 2022 and December 31, 2021 | 3,801,000 | 4,211,000 | ||||||
Other receivables | 327,000 | 613,000 | ||||||
Prepaid maintenance | 1,245,000 | 1,174,000 | ||||||
Prepaid expenses and other current assets | 897,000 | 826,000 | ||||||
Total current assets | 18,723,000 | 15,087,000 | ||||||
PROPERTY AND EQUIPMENT, net | 23,467,000 | 28,254,000 | ||||||
LAND | 19,000 | 19,000 | ||||||
GOODWILL | 1,265,000 | 1,265,000 | ||||||
INTANGIBLE ASSETS | 78,000 | 78,000 | ||||||
RIGHT OF USE ASSETS, net | 317,000 | 654,000 | ||||||
OTHER ASSETS | 87,000 | 73,000 | ||||||
TOTAL ASSETS | $ | 43,956,000 | $ | 45,430,000 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 230,000 | $ | 318,000 | ||||
Employee compensation and benefits | 735,000 | 423,000 | ||||||
Other accrued liabilities | 1,544,000 | 1,505,000 | ||||||
Related party liabilities | 497,000 | 1,342,000 | ||||||
Asset retirement obligations, related party (includes $107,000 non-related party at December 31, 2021) | 360,000 | 757,000 | ||||||
Income taxes payable | 255,000 | 96,000 | ||||||
Current portion of lease liabilities | 292,000 | 369,000 | ||||||
Current portion of long-term debt, net | 1,262,000 | 1,081,000 | ||||||
Total current liabilities | 5,175,000 | 5,891,000 | ||||||
LONG-TERM LEASE LIABILITIES, less current portion | 59,000 | 359,000 | ||||||
LONG-TERM DEBT, net, less current portion | 12,205,000 | 14,323,000 | ||||||
DEFERRED REVENUE, less current portion | 70,000 | 140,000 | ||||||
DEFERRED INCOME TAXES | 822,000 | 478,000 | ||||||
TOTAL LIABILITIES | 18,331,000 | 21,191,000 | ||||||
COMMITMENTS AND CONTINGENCIES (See Note 10) | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Common stock | ||||||||
Common stock, no par value (10,000,000 authorized; Issued and outstanding shares – 6,184,000 at December 31, 2022 and 6,049,000 at December 31, 2021 | 10,763,000 | 10,758,000 | ||||||
Additional paid-in capital | 7,843,000 | 7,444,000 | ||||||
Retained earnings | 3,019,000 | 1,691,000 | ||||||
Total equity- American Shared Hospital Services | 21,625,000 | 19,893,000 | ||||||
Non-controlling interests in subsidiaries | 4,000,000 | 4,346,000 | ||||||
Total shareholders’ equity | 25,625,000 | 24,239,000 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 43,956,000 | $ | 45,430,000 | ||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF INCOME |
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
Revenues: | ||||||||
Rental income from medical services | $ | 16,655,000 | $ | 14,719,000 | ||||
Patient income | 3,091,000 | 2,909,000 | ||||||
| 19,746,000 | 17,628,000 | |||||||
Costs of revenue: | ||||||||
Maintenance and supplies | 1,878,000 | 1,731,000 | ||||||
Depreciation and amortization | 4,726,000 | 4,856,000 | ||||||
Other direct operating costs | 3,666,000 | 3,556,000 | ||||||
Other direct operating costs, related party | 1,094,000 | 759,000 | ||||||
| 11,364,000 | 10,902,000 | |||||||
Gross margin | 8,382,000 | 6,726,000 | ||||||
Selling and administrative expense | 5,145,000 | 4,531,000 | ||||||
Interest expense | 806,000 | 739,000 | ||||||
Loss on write down of impaired assets and associated removal costs | — | 105,000 | ||||||
Operating income | 2,431,000 | 1,351,000 | ||||||
(Loss) on early extinguishment of debt | — | (401,000 | ) | |||||
Interest and other (loss) income | 87,000 | (3,000 | ) | |||||
Income before income taxes | 2,518,000 | 947,000 | ||||||
Income tax expense | 963,000 | 269,000 | ||||||
Net income | 1,555,000 | 678,000 | ||||||
Less: net (income) attributable to non-controlling interests | (227,000 | ) | (484,000 | ) | ||||
Net income attributable to American Shared Hospital Services | $ | 1,328,000 | $ | 194,000 | ||||
Net income per share attributable to American Shared Hospital Services: | ||||||||
Earnings per common share - basic | $ | 0.21 | $ | 0.03 | ||||
Earnings per common share - diluted | $ | 0.21 | $ | 0.03 | ||||
Weighted average common shares for basic earnings per share | 6,297,000 | 6,044,000 | ||||||
Weighted average common shares for diluted earnings per share | 6,303,000 | 6,059,000 | ||||||
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||
| DECEMBER 31, | ||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1,429,000 | $ | 1,442,000 | ||||||||||||||||
| Restricted cash | 350,000 | 350,000 | ||||||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $100,000 at December 31, 2019 and December 31, 2018 | 6,894,000 | 5,502,000 | ||||||||||||||||||
| Other receivables insurance proceeds | — | 1,137,000 | ||||||||||||||||||
| Other receivables | 169,000 | 239,000 | ||||||||||||||||||
| Prepaid expenses and other current assets | 1,900,000 | 1,276,000 | ||||||||||||||||||
| Total current assets | 10,742,000 | 9,946,000 | ||||||||||||||||||
| PROPERTY AND EQUIPMENT, net | 41,480,000 | 46,694,000 | ||||||||||||||||||
| RIGHT OF USE ASSETS | 1,106,000 | — | ||||||||||||||||||
| OTHER ASSETS | 455,000 | 862,000 | ||||||||||||||||||
| TOTAL ASSETS | $ | 53,783,000 | $ | 57,502,000 | ||||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||
| Accounts payable | $ | 557,000 | $ | 435,000 | ||||||||||||||||
| Employee compensation and benefits | 234,000 | 207,000 | ||||||||||||||||||
| Other accrued liabilities | 1,304,000 | 1,329,000 | ||||||||||||||||||
| Other accrued liabilities insurance payable | — | 977,000 | ||||||||||||||||||
| Income taxes payable | 130,000 | — | ||||||||||||||||||
| Short term financing | 475,000 | — | ||||||||||||||||||
| Current portion of lease liabilities | 279,000 | — | ||||||||||||||||||
| Current portion of long-term debt | 1,526,000 | 2,119,000 | ||||||||||||||||||
| Current portion of finance leases | 3,709,000 | 4,407,000 | ||||||||||||||||||
| Total current liabilities | 8,214,000 | 9,474,000 | ||||||||||||||||||
| LONG-TERM LEASE LIABILITIES, less current portion | 827,000 | — | ||||||||||||||||||
| LONG-TERM DEBT, less current portion | 1,954,000 | 3,332,000 | ||||||||||||||||||
| LONG-TERM FINANCE LEASES, less current portion | 8,177,000 | 10,308,000 | ||||||||||||||||||
| DEFERRED REVENUE, less current portion | 286,000 | 382,000 | ||||||||||||||||||
| DEFERRED INCOME TAXES | 2,514,000 | 2,958,000 | ||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES (See Note 12) | ||||||||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
| Common stock, no par value | ||||||||||||||||||||
| Common stock, no par value (10,000,000 authorized; Issued and outstanding shares – 5,817,000 at December 31, 2019 and 5,714,000 at December 31, 2018 | 10,753,000 | 10,711,000 | ||||||||||||||||||
| Additional paid-in capital | 6,725,000 | 6,495,000 | ||||||||||||||||||
| Retained earnings | 8,555,000 | 7,896,000 | ||||||||||||||||||
| Total equity- American Shared Hospital Services | 26,033,000 | 25,102,000 | ||||||||||||||||||
| Non-controlling interests in subsidiaries | 5,778,000 | 5,946,000 | ||||||||||||||||||
| Total shareholders’ equity | 31,811,000 | 31,048,000 | ||||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 53,783,000 | $ | 57,502,000 | ||||||||||||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||||||||||||||
| YEARS ENDED DECEMBER 31, | ||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||
| Revenues | $ | 20,605,000 | $ | 19,714,000 | $ | 19,556,000 | ||||||||||||||||||||||||||
| 20,605,000 | 19,714,000 | 19,556,000 | ||||||||||||||||||||||||||||||
| Costs of revenue: | ||||||||||||||||||||||||||||||||
| Maintenance and supplies | 2,618,000 | 2,399,000 | 1,359,000 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 7,341,000 | 6,745,000 | 6,601,000 | |||||||||||||||||||||||||||||
| Other direct operating costs | 3,726,000 | 3,084,000 | 2,933,000 | |||||||||||||||||||||||||||||
| 13,685,000 | 12,228,000 | 10,893,000 | ||||||||||||||||||||||||||||||
| Gross margin | 6,920,000 | 7,486,000 | 8,663,000 | |||||||||||||||||||||||||||||
| Selling and administrative expense | 4,060,000 | 3,994,000 | 4,323,000 | |||||||||||||||||||||||||||||
| Interest expense | 1,318,000 | 1,631,000 | 1,927,000 | |||||||||||||||||||||||||||||
| Operating income | 1,542,000 | 1,861,000 | 2,413,000 | |||||||||||||||||||||||||||||
| Proceeds received from investment in equity securities | — | 22,000 | — | |||||||||||||||||||||||||||||
| (Loss) on write down of investment in equity securities | — | — | (579,000) | |||||||||||||||||||||||||||||
| Interest and other income | 16,000 | 198,000 | 3,000 | |||||||||||||||||||||||||||||
| Income before income taxes | 1,558,000 | 2,081,000 | 1,837,000 | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | 128,000 | 451,000 | (1,103,000) | |||||||||||||||||||||||||||||
| Net income | 1,430,000 | 1,630,000 | 2,940,000 | |||||||||||||||||||||||||||||
| Less: net income attributable to non-controlling interests | (771,000) | (607,000) | (1,017,000) | |||||||||||||||||||||||||||||
| Net income attributable to American Shared Hospital Services | $ | 659,000 | $ | 1,023,000 | $ | 1,923,000 | ||||||||||||||||||||||||||
| Net income per share attributable to American Shared Hospital Services: | ||||||||||||||||||||||||||||||||
| Income per common share- basic | $ | 0.11 | $ | 0.18 | $ | 0.33 | ||||||||||||||||||||||||||
| Income per common share- diluted | $ | 0.11 | $ | 0.17 | $ | 0.33 | ||||||||||||||||||||||||||
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY |
YEARS ENDED December 31, 2022 and 2021 | ||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Sub-Total ASHS | Non-controlling Interests in Subsidiaries | Total | ||||||||||||||||||||||
Balances at December 31, 2020 | 5,791,000 | $ | 10,753,000 | $ | 7,024,000 | $ | 1,497,000 | $ | 19,274,000 | $ | 4,376,000 | $ | 23,650,000 | |||||||||||||||
Stock-based compensation expense | — | — | 420,000 | — | 420,000 | — | 420,000 | |||||||||||||||||||||
Options exercised | 5,000 | 5,000 | — | — | 5,000 | — | 5,000 | |||||||||||||||||||||
Issuance of deferred restricted stock awards | 123,000 | — | — | — | — | — | — | |||||||||||||||||||||
Vested restricted stock awards | 130,000 | — | — | — | — | — | — | |||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (514,000 | ) | (514,000 | ) | |||||||||||||||||||
Net income | — | — | — | 194,000 | 194,000 | 484,000 | 678,000 | |||||||||||||||||||||
Balances at December 31, 2021 | 6,049,000 | 10,758,000 | 7,444,000 | 1,691,000 | 19,893,000 | 4,346,000 | 24,239,000 | |||||||||||||||||||||
Stock-based compensation expense | — | — | 399,000 | — | 399,000 | — | 399,000 | |||||||||||||||||||||
Options exercised | 3,000 | 5,000 | — | — | 5,000 | — | 5,000 | |||||||||||||||||||||
Vested restricted stock awards | 132,000 | — | — | — | — | — | — | |||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (573,000 | ) | (573,000 | ) | |||||||||||||||||||
Net income | — | — | — | 1,328,000 | 1,328,000 | 227,000 | 1,555,000 | |||||||||||||||||||||
Balances at December 31, 2022 | 6,184,000 | $ | 10,763,000 | $ | 7,843,000 | $ | 3,019,000 | $ | 21,625,000 | $ | 4,000,000 | $ | 25,625,000 | |||||||||||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THREE YEARS ENDED DECEMBER 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Sub-Total ASHS | Non-controlling Interests in Subsidiaries | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2017 | 5,468,000 | $ | 10,596,000 | $ | 5,949,000 | $ | 4,950,000 | $ | 21,495,000 | $ | 5,678,000 | $ | 27,173,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 4,000 | — | 323,000 | — | 323,000 | — | 323,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock awards | 162,000 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants and options exercised | 76,000 | 115,000 | — | — | 115,000 | — | 115,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to non-controlling interests | — | — | — | — | — | (666,000) | (666,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,923,000 | 1,923,000 | 1,017,000 | 2,940,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2017 | 5,710,000 | $ | 10,711,000 | $ | 6,272,000 | $ | 6,873,000 | $ | 23,856,000 | $ | 6,029,000 | $ | 29,885,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 4,000 | — | 223,000 | — | 223,000 | — | 223,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to non-controlling interests | — | — | — | — | — | (690,000) | (690,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 1,023,000 | 1,023,000 | 607,000 | 1,630,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 5,714,000 | $10,711,000 | $6,495,000 | $7,896,000 | $25,102,000 | $5,946,000 | $31,048,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 4,000 | — | 230,000 | — | 230,000 | — | 230,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options exercised | 16,000 | 42,000 | — | — | 42,000 | — | 42,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock awards | 83,000 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash distributions to non-controlling interests | — | — | — | — | — | (939,000) | (939,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 659,000 | 659,000 | 771,000 | 1,430,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 5,817,000 | $ | 10,753,000 | $ | 6,725,000 | $ | 8,555,000 | $ | 26,033,000 | $ | 5,778,000 | $ | 31,811,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 1,555,000 | $ | 678,000 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 4,783,000 | 4,972,000 | ||||||
Non cash lease expense | 337,000 | 309,000 | ||||||
Accretion of deferred issuance costs | 84,000 | 59,000 | ||||||
Loss on write down impaired assets | — | 105,000 | ||||||
Loss on sublease impairment, net | — | 74,000 | ||||||
Loss on extinguishment of debt | — | 401,000 | ||||||
Deferred income taxes | 344,000 | 60,000 | ||||||
Stock-based compensation expense | 399,000 | 420,000 | ||||||
Interest expense associated with lease liabilities | 29,000 | 42,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables | 696,000 | (519,000 | ) | |||||
Prepaid expenses and other assets | (111,000 | ) | 14,000 | |||||
Asset retirement obligations, related party | (397,000 | ) | (618,000 | ) | ||||
Related party liabilities | (845,000 | ) | 775,000 | |||||
Lease liability | (406,000 | ) | (351,000 | ) | ||||
Accounts payable, accrued liabilities and deferred revenue | 608,000 | 76,000 | ||||||
Income taxes payable | 159,000 | (230,000 | ) | |||||
Net cash provided by operating activities | 7,235,000 | 6,267,000 | ||||||
INVESTING ACTIVITIES | ||||||||
Payment for purchases of property and equipment | (388,000 | ) | (1,674,000 | ) | ||||
Net cash (used in) investing activities | (388,000 | ) | (1,674,000 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Principal payments on long-term debt | (2,032,000 | ) | (3,927,000 | ) | ||||
Principal payments on finance leases | — | (8,919,000 | ) | |||||
Long-term debt financing | — | 13,897,000 | ||||||
Prepayment penalties | — | (401,000 | ) | |||||
Distributions to non-controlling interests | (573,000 | ) | (514,000 | ) | ||||
Debt issuance costs long-term debt | (9,000 | ) | (325,000 | ) | ||||
Proceeds from options exercised | 5,000 | 5,000 | ||||||
Principal payments on short-term financing prepaid insurance | (48,000 | ) | (471,000 | ) | ||||
Net cash (used in) financing activities | (2,657,000 | ) | (655,000 | ) | ||||
Net change in cash and cash equivalents | 4,190,000 | 3,938,000 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year | 8,263,000 | 4,325,000 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year | $ | 12,453,000 | $ | 8,263,000 | ||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||||||||||||||||||
| YEARS ENDED DECEMBER 31, | ||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||||||||||||||||||
| Net income | $ | 1,430,000 | $ | 1,630,000 | $ | 2,940,000 | ||||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 7,411,000 | 6,818,000 | 6,677,000 | |||||||||||||||||||||||||||||
| Loss on disposal of assets | — | — | 15,000 | |||||||||||||||||||||||||||||
| Non cash lease expense | 256,000 | — | — | |||||||||||||||||||||||||||||
| Loss on write down investment in equity securities | — | — | 579,000 | |||||||||||||||||||||||||||||
| Amortization of accrued interest on lease financing | — | — | 80,000 | |||||||||||||||||||||||||||||
| Deferred income taxes | (444,000) | 48,000 | (1,266,000) | |||||||||||||||||||||||||||||
| Accrued interest on lease financing | 29,000 | 39,000 | 33,000 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 230,000 | 223,000 | 323,000 | |||||||||||||||||||||||||||||
| Interest expense associated with lease liabilities | 76,000 | — | — | |||||||||||||||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||||||||||||||
| Receivables | (1,187,000) | (420,000) | (860,000) | |||||||||||||||||||||||||||||
| Prepaid expenses and other assets | 260,000 | (231,000) | (793,000) | |||||||||||||||||||||||||||||
| Accounts payable, accrued liabilities and deferred revenue | 28,000 | 115,000 | 125,000 | |||||||||||||||||||||||||||||
| Lease liability | (332,000) | — | — | |||||||||||||||||||||||||||||
| Income taxes payable | 130,000 | — | — | |||||||||||||||||||||||||||||
| Net insurance proceeds receivable | 160,000 | (160,000) | — | |||||||||||||||||||||||||||||
| Net cash from operating activities | 8,047,000 | 8,062,000 | 7,853,000 | |||||||||||||||||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||||||||||||||||||
| Payment for purchase of property and equipment | (990,000) | (1,577,000) | (803,000) | |||||||||||||||||||||||||||||
| Proceeds from insurance | — | 51,000 | — | |||||||||||||||||||||||||||||
| Proceeds from sale of equipment | — | — | 150,000 | |||||||||||||||||||||||||||||
| Net cash (used in) investing activities | (990,000) | (1,526,000) | (653,000) | |||||||||||||||||||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||||||||||||||
| Principal payments on long-term debt | (1,980,000) | (2,467,000) | (2,314,000) | |||||||||||||||||||||||||||||
| Principal payments on finance leases | (4,142,000) | (4,089,000) | (4,954,000) | |||||||||||||||||||||||||||||
| Distributions to non-controlling interests | (939,000) | (690,000) | (666,000) | |||||||||||||||||||||||||||||
| Proceeds from warrants and options exercised | 42,000 | — | 115,000 | |||||||||||||||||||||||||||||
| Principal payments on short-term financing | (51,000) | — | — | |||||||||||||||||||||||||||||
| Net cash (used in) financing activities | (7,070,000) | (7,246,000) | (7,819,000) | |||||||||||||||||||||||||||||
| Net change in cash and cash equivalents | (13,000) | (710,000) | (619,000) | |||||||||||||||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year | 1,792,000 | 2,502,000 | 3,121,000 | |||||||||||||||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year | $ | 1,779,000 | $ | 1,792,000 | $ | 2,502,000 | ||||||||||||||||||||||||||
SUPPLEMENTAL CASH FLOW DISCLOSURE | ||||||||
Cash paid for interest | $ | 722,000 | $ | 680,000 | ||||
Cash paid for income taxes | $ | 169,000 | $ | 712,000 | ||||
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Right of use assets and lease liabilities | $ | — | $ | 151,000 | ||||
Acquisition of equipment with long-term debt financing | $ | — | $ | 1,103,000 | ||||
DETAIL OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | ||||||||
Cash and cash equivalents | $ | 12,335,000 | $ | 8,145,000 | ||||
Restricted cash | 118,000 | 118,000 | ||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 12,453,000 | $ | 8,263,000 |
See accompanying notes
| SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||||||||
| Cash paid for interest | $ | 1,318,000 | $ | 1,612,000 | $ | 1,574,000 | |||||||||||
| Cash paid for income taxes | $ | 397,000 | $ | 459,000 | $ | 126,000 | |||||||||||
| SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||||||||
| Acquisition of equipment with lease financing | $ | 1,293,000 | $ | 1,679,000 | $ | 2,153,000 | |||||||||||
| Acquisition of equipment with long-term debt financing | $ | — | $ | 1,853,000 | $ | 992,000 | |||||||||||
| Acquisition of insurance with short-term financing | $ | 526,000 | $ | — | $ | — | |||||||||||
| Interest capitalized to property and equipment | $ | 110,000 | $ | 115,000 | $ | 138,000 | |||||||||||
| Insurance proceeds receivable and due | $ | — | $ | 977,000 | $ | — | |||||||||||
| Right of use assets and lease liabilities | $ | 1,362,000 | $ | — | $ | — | |||||||||||
Business
– These consolidated financial statements include the accounts of American Shared Hospital ServicesThe Company (through ASRS) and Elekta AG (“Elekta”), the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. During 20192022, GKF providedleased Gamma Knife units to fifteentwelve medical centers in the United States in the states of Arkansas, California, Florida, Illinois, Indiana, Massachusetts, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, Tennessee, and Texas. GKF also owns and operates atwo single-unit Gamma Knife facilityfacilities in Lima, Peru.
The Company formed the subsidiariessubsidiary GKPeru and GK Financing U.K. Limited (“GKUK”)acquired GKCE for the purposes of expanding its business internationally; Orlando and LBE to provide proton beam therapyPBRT equipment and services in Orlando, Florida and Long Beach, California;California, respectively; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. AGKE began operations in the second quarter of 2011 and JGKE began operations in the fourth quarter of 2011. Orlando treated its first patient in April 2016. GKPeru treated its first patient in July 2017. LBE is not expected to generate revenue within the next two years. GKUK
On April 27, 2022, the Company signed a Joint Venture Agreement (the “Agreement”) with the principal owners of Guadalupe Amor Y Bien (“Guadalupe”) to establish AB Radiocirugia Y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients. The Company and Guadalupe will hold 85% and 15% ownership interests, respectively, in Puebla. Under the Agreement, the Company will be responsible for providing a linear accelerator upgrade to an Elekta Versa HD, and Guadalupe will be accountable for all site modification costs. The Company formed ASHS-Mexico, S.A. de C.V. on October 3, 2022 to establish Puebla in order to provide radiation therapy and radiosurgery services locally in Mexico. Puebla was dissolved in November 2018.
The Company continues to develop its design and business model for The Operating Room for the 21st CenturySM CenturySM through its 50% owned OR21, LLC (“(“OR21”). The remaining 50% of OR21 is owned by an architectural design company. OR21 is not expected to generate significant revenue within the next two years.
MedLeader was formed to provide continuing medical education online and through videos for doctors, nurses, and other healthcare workers. This subsidiary is not operational at this time.
All significant intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2– A
Use of estimates in the preparation of financial statements
– In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the estimated useful lives of fixed assets and its salvage values, revenues and costs of sales for turn-key and revenue sharing arrangements. Actual results could differ from those estimates.Advertising costs
Sales and Service – The Company markets its financial and turnkey solutions directly to cancer treatment centers, hospitals, and large cancer networks worldwide through its sales staff. Sales expense includes payroll and travel costs for the Company’s sales staff. The Company also typically provides the equipment, as well as planning, installation, reimbursement and marketing support services to its customers.
Cash and cash equivalents
– The Company considers all liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted cash is not considered a cash equivalent for purposes of the consolidated statements of cash flows.Restricted cash – Restricted cash represents the minimum cash that must be maintained in GKF to fund operations, per the subsidiary’s operating agreement and the minimum cash that must be maintained in Orlandoby GKF per it’s financing agreement with the subsidiary’s financing agreement.United
Business and credit risk – The Company maintains its cash balances, which exceed federally insured limits, in financial institutions. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. The Company monitors the financial condition of the financial institutions it uses on a regular basis.
All of the Company’s revenue was provided by seventeen, eighteen,fifteen and twentyseventeen customers in 2019, 2018,2022 and 2017,2021, respectively. One customer accounted for approximately 30%, 26%,45% and 21%34% of the Company’s total revenue in 2019, 2018,2022 and 2017,2021, respectively. At December 31, 2019 and 2018, three2022, four customers each individually accounted for more than12%, 14%, 16% and 22% of total accounts receivable, respectively. At December 31, 2021, two customers each individually accounted for 31% and 10% of total accounts receivable, respectively. The Company performs credit evaluations of its customers and generally does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular geographic area.
All of the Company’s radiosurgery devices have been purchased through Elekta, to date. However, there are other manufacturers that also make radiosurgery devices.
Accounts receivable and doubtful accounts
– Accounts receivable are recorded at net realizable value. An allowance for doubtful accounts is estimated based on historical collections plus an allowance for probable losses. Receivables are considered past due based on contractual terms and are charged off in the period that they are deemed uncollectible. Recoveries of receivables previously charged off are offset against bad debt expense when received.Non-controlling interests
- The Company reports its non-controlling interests as a separate component of shareholders’ equity. The Company also presents the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements ofProperty and equipment
– Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma KnifeDepreciation for PBRT and related equipment is determined using the modified units of production method, which is a function of both time and usage of the equipment. This depreciation method allocates costs considering the projected volume of usage through the useful life of the PBRT unit, which has been estimated at 20 years. The estimated useful life of the PBRT unit is consistent with the estimated economic life of 20 years.
The Company leases Gamma Knife and radiation therapy equipment to its customers under arrangements typically accounted for as operating leases. At December 31, 2019,2022, the Company held equipment under operating lease contracts with customers with an original cost of $92,135,000$69,306,000 and accumulated depreciation of $55,148,000.$47,992,000. At December 31, 2018,2021, the Company held equipment under operating lease contracts with customers with an original cost of $94,031,000$68,994,000 and accumulated depreciation of $53,716,000.
In April 2017, an existing customer exercised their optionAs of December 31, 2022 and 2021, the Company recognized a loss on the write down of impaired assets of $0 and $105,000, respectively. The impairment as of December 31, 2021 was related to purchasethe removal costs of one of the Gamma Knife unit at its hospital at the end of the lease term for a predetermined purchase price, pursuant to the lease agreement. The lease terminated in April 2017, at which time, the unit was depreciated to the purchase price of the sale. Based on the guidance provided in Accounting Standards Codification (“ASC”) 360 Property, Plant and Equipment (“ASC 360”), the Company did not classify or measure the asset as held for sale prior to the lease termination, because the Gamma Knife unit was not available for immediate sale.
| Level 1 | Level 2 | Level 3 | Total | Carrying Value | |||||||||||||||||||||||||
| December 31, 2019 | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash, cash equivalents, restricted cash | $ | 1,779 | $ | — | $ | — | $ | 1,779 | $ | 1,779 | |||||||||||||||||||
| Total | $ | 1,779 | $ | — | $ | — | $ | 1,779 | $ | 1,779 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Debt obligations | $ | — | $ | — | $ | 3,075 | $ | 3,075 | $ | 3,480 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 3,075 | $ | 3,075 | $ | 3,480 | |||||||||||||||||||
| December 31, 2018 | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash, cash equivalents, restricted cash | $ | 1,792 | $ | — | $ | — | $ | 1,792 | $ | 1,792 | |||||||||||||||||||
| Total | $ | 1,792 | $ | — | $ | — | $ | 1,792 | $ | 1,792 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Debt obligations | $ | — | $ | — | $ | 5,431 | $ | 5,431 | $ | 5,451 | |||||||||||||||||||
| Total | $ | — | $ | — | $ | 5,431 | $ | 5,431 | $ | 5,451 | |||||||||||||||||||
NOTE 2– ACCOUNTING POLICIES (CONTINUED)
Revenue recognition - The Company recognizes revenues under ASC 842Leases (“ASC 842”) and ASC 606Revenue from Contracts with Customers (“ASC 606”).
Rental income from medical services
– The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s contracts are typically for aPatient income
– The Company hasStock-based compensation
– The Company measures all stock-based compensation awards at fair value and records such expense in its consolidated financial statements over the requisite service period of the related award. See NoteCosts of revenue –
TheIncome taxes
– The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.NOTE 2– ACCOUNTING POLICIES (CONTINUED)
The Company accounts for uncertainty in income taxes as required by the provisions of ASC 740Income taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes.
See Note 87 - Income Taxes for further discussion on income taxes.
Functional currency
– Based on guidance provided in accordance with ASC 830,Foreign Currency Matters (“ASC 830”), the Company analyzes its operations outside the United States to determine the functional currency of each operation. Management has determined that these operations are initially accounted for in U.S. dollars since the primary transactions incurred are in U.S. dollars and the Company provides significant funding towards the startup of the operation. When Management determines that an operation has become predominantly self-sufficient, the Company willAsset Retirement Obligations –
Based on the guidance provided in ASC 410,Asset Retirement Obligations (“ASC 410”), the Company analyzed its existing lease agreements and determined whether an asset retirement obligation (“ARO”) exists to remove the respective units at the end of the lease terms.Earnings per share
– Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the year. The fully vested restricted stock units not issued and outstanding and unvested restricted stock units, are also included therein. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options or warrants. The computation for the years ended December 31, 2022 and 2021 excluded approximately 20,000 and 31,000, respectively, of the Company’s stock options because the exercise price of the options was higher than the average market price during the period. The weighted average common shares outstanding for the years ended December 31, 2022 and 2021 included approximately 123,000 and 123,000, respectively, of the Company's restricted stock awards that are fully vested but are deferred for issuance.NOTE 2– ACCOUNTING POLICIES (CONTINUED)
The following table illustrates the computations of basic and diluted earnings per share for the years ended December 31, 2019, 2018 2022 and 2017.
| 2019 | 2018 | 2017 | |||||||||||||||
| Numerator for basic and diluted earnings per share | $ | 659,000 | $ | 1,023,000 | $ | 1,923,000 | |||||||||||
| Denominator: | |||||||||||||||||
| Denominator for basic and diluted earnings per share – weighted-average shares | 5,919,000 | 5,836,000 | 5,754,000 | ||||||||||||||
| Effect of dilutive securities Employee stock options and restricted stock | 11,000 | 17,000 | 130,000 | ||||||||||||||
| Denominator for diluted earnings per share – adjusted weighted-average shares | 5,930,000 | 5,853,000 | 5,884,000 | ||||||||||||||
| Earnings per common share- basic | $ | 0.11 | $ | 0.18 | $ | 0.33 | |||||||||||
| Earnings per common share- diluted | $ | 0.11 | $ | 0.17 | $ | 0.33 | |||||||||||
2022 | 2021 | |||||||
Numerator for basic and diluted earnings per share | $ | 1,328,000 | $ | 194,000 | ||||
Denominator: | ||||||||
Denominator for basic and diluted earnings per share – weighted-average shares | 6,297,000 | 6,044,000 | ||||||
Effect of dilutive securities Employee stock options and restricted stock | 6,000 | 15,000 | ||||||
Denominator for diluted earnings per share – adjusted weighted-average shares | 6,303,000 | 6,059,000 | ||||||
Earnings per common share- basic | $ | 0.21 | $ | 0.03 | ||||
Earnings per common share- diluted | $ | 0.21 | $ | 0.03 | ||||
Business segment information
- Based on the guidance provided in accordance with ASC 280Segment Reporting (“ASC 280”), the CompanyFor the years ended December 31, 2022 and Chief Financial Officer, who are also deemed2021, the Company’s PBRT operations represented a significant majority of the domestic profit, disclosed below. The revenues, profit or loss, and total asset allocations for the Company’s Chief Operating Decision Makers (“CODMs”)two reportable segments as of December 31, 2022 and this is done in conjunction with all2021 consists of the subsidiaries and locations.
| 2019 | 2018 | 2017 | |||||||||||||||
| Revenues | |||||||||||||||||
| Domestic | 94 | % | 96 | % | 99 | % | |||||||||||
| Foreign | 6 | % | 4 | % | 1 | % | |||||||||||
| Total | 100 | % | 100 | % | 100 | % | |||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||
| Property and equipment, net | |||||||||||||||||
| Domestic | 93 | % | 93 | % | 93 | % | |||||||||||
| Foreign | 7 | % | 7 | % | 7 | % | |||||||||||
| Total | 100 | % | 100 | % | 100 | % | |||||||||||
2022 | 2021 | |||||||
Revenues | ||||||||
Domestic | $ | 16,655,000 | $ | 14,719,000 | ||||
Foreign | 3,091,000 | 2,909,000 | ||||||
Total | $ | 19,746,000 | $ | 17,628,000 | ||||
2022 | 2021 | |||||||
Net income (loss) attributable to American Shared Hospital Services | ||||||||
Domestic | $ | 1,187,000 | $ | 245,000 | ||||
Foreign | 141,000 | (51,000 | ) | |||||
Total | $ | 1,328,000 | $ | 194,000 | ||||
2022 | 2021 | |||||||
Total assets | ||||||||
Domestic | $ | 37,575,000 | $ | 39,322,000 | ||||
Foreign | 6,381,000 | 6,108,000 | ||||||
Total | $ | 43,956,000 | $ | 45,430,000 | ||||
NOTE 2– ACCOUNTING POLICIES (CONTINUED)
Long lived asset impairment – The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to the consolidated statement of operationsincome in the period in which management determines such impairment. As of December 31, 2021, impairment of $105,000 related to the removal costs of one of the Gamma Knife units that was impaired in the prior year was recorded. No such other additional impairment has been noted as of December 31, 20192022. See Note 3 - Property and 2018.
Goodwill and intangible assets - The Company recorded goodwill of $1,265,000 and an intangible asset with a fair value of $78,000 as part of the acquisition of GKCE in June 2020. The intangible asset identified was GKCE’s trade name and the Company assigned an indefinite useful life to the asset. Based on the guidance provided in accordance with ASC 350Intangibles-Goodwill and Other (“ASC 350”), the Company does not amortize the intangible asset because it has an indefinite life. The Company assesses goodwill at the reporting unit level, which has been determined to be GKCE. Each reporting period, the Company assesses whether events or circumstances continue to support an indefinite useful life for the intangible asset. Per ASC 350, the Company tests goodwill and intangibles for impairment annually or as events or circumstances change that indicate the fair value may be below the carrying amount. As of December 31, 2022 and 2021, there has been no change to the Company's assessment of the value of intangible assets or goodwill.
Accounting pronouncementpronouncements issued and not yet adopted –
Reclassifications – Certain comparative balances as of Contentsand for the year ended December 31, 2021 have been reclassified to make them consistent with the current year presentation.
NOTE 3– P
Property and equipment consists of the following:
| DECEMBER 31, | |||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Medical equipment and facilities | $ | 92,132,000 | $ | 94,031,000 | |||||||||||||
| Office equipment | 594,000 | 589,000 | |||||||||||||||
| Deposits and construction in progress | 1,965,000 | 3,832,000 | |||||||||||||||
| Deposits towards purchase of proton beam systems | 2,250,000 | 2,250,000 | |||||||||||||||
| 96,941,000 | 100,702,000 | ||||||||||||||||
| Accumulated depreciation | (55,461,000) | (54,008,000) | |||||||||||||||
| Net property and equipment | $ | 41,480,000 | $ | 46,694,000 | |||||||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Medical equipment and facilities | $ | 73,709,000 | $ | 73,388,000 | ||||
Office equipment | 422,000 | 472,000 | ||||||
Construction in progress | 106,000 | 91,000 | ||||||
| 74,237,000 | 73,951,000 | |||||||
Accumulated depreciation | (50,770,000 | ) | (45,697,000 | ) | ||||
Net property and equipment | $ | 23,467,000 | $ | 28,254,000 | ||||
As of December 31, 2022 and 2021, approximately $2,201,000 and $2,697,000, respectively, of the net property and equipment balance is outside of the United States. Depreciation expense recorded in costs of revenue and selling and administrative expense in the consolidated statements of income for the years ended December 31, 2022 and 2021, was $4,783,000 and $4,972,000, respectively.
As of April 1, 2021, the Company reduced its estimate for salvage value for nine of its Gamma Knife units. As of October 1, 2022, the Company further reduced its estimate for salvage value for one of its domestic Gamma Knife Perfexion units. The net effect of the change in estimate made October 1, 2022, for the year ended December 31, 2022, was a decrease in net income of approximately $17,000 or $0.00 per diluted share. This change in estimate will also impact future periods. Salvage value is based on the estimated fair value of the equipment at the end of its useful life.
As of December 31, 2022 and 2021, the Company has equipment that is secured under finance leases, which is included in Medical equipmentrecognized a loss on the write down of impaired assets of $0 and facilities, with a total cost of $46,642,000 and associated accumulated depreciation of $23,782,000$105,000, respectively. The impairment as of December 31, 2019 and a total cost2021 was related to the estimate for removal costs of $46,559,000 and associated accumulated depreciationone of $20,292,000 as of December 31, 2018. As of December 31, 2019, the Company has two idle Gamma Knife units with a cumulative net book value of $943,000. There are currently no commitments to place into service or trade in these unitsthat was impaired during 2020.
NOTE 4 - INVESTMENT IN EQUITY SECURITIES
Other accrued liabilities consists of the investment may not be recoverable.following:
December 31, | ||||||||
2022 | 2021 | |||||||
Equipment maintenance and upgrades, non-related party | $ | — | $ | 367,000 | ||||
Insurance | 591,000 | 340,000 | ||||||
Professional services | 92,000 | 90,000 | ||||||
Operating costs | 539,000 | 397,000 | ||||||
Other | 322,000 | 311,000 | ||||||
Total other accrued liabilities | $ | 1,544,000 | $ | 1,505,000 | ||||
NOTE 5 - LONG TERM DEBT
On April 9, 2021 the Company along with certain of its domestic subsidiaries (collectively, the “Loan Parties”) entered into a five
As of December 31, 2021, LIBOR will no longer be used to price new loans, but 1-month, 3-month, 6-month and 12-month maturities will continue to be published through 2023. The Company is working with Fifth Third Bank to determine an alternative base rate. The Revolving Line is charged an unused line fee of 0.25% per annum. The Term Loan and DDTL have interest and principal payments due quarterly. Principal amortization on an annual basis for the Term Loan and DDTL equates to 48% of the original principal loan commitments in years one through five and an end of term payment of the remaining principal balance.
The Credit Agreement contains customary covenants and representations, including without limitation, a minimum fixed charge coverage ratio of 1.25 and maximum funded debt to EBITDA ratio of 3.0 to 1.0 (tested on a trailing twelve-month basis at the end of each fiscal quarter), reporting obligations, limitations on dispositions, changes in ownership, mergers and acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and capital expenditures. The Loan Parties are in compliance with the Credit Agreement covenants as of December 31, 2022.
The loan entered into with DFC in connection with the acquisition of GKCE in June 2020 (the “DFC Loan”) was obtained through the Company’s wholly-owned subsidiary, HoldCo and is guaranteed by GKF. The DFC Loan is secured by a lien on GKCE’s assets. The amount outstanding under the DFC Loan is payable in 3629 quarterly installments with a fixed interest rate of 3.67%. The Company’s loan with DFC also contains customary covenants and representations, which the Company is in compliance with as of December 31, 2022. The long-term debt on the consolidated balance sheets related to 84 fully amortizing monthly installments, mature between April 2020the DFC loan was $1,041,000 and March 2026, $1,261,000 as of December 31, 2022 and are collateralized by2021, respectively. The Company capitalized debt issuance costs of $9,000 and $15,000 as of December 31, 2022 and 2021, respectively, related to maintenance and administrative fees on the respective Gamma Knife units. DFC Loan.
The notes accrue interest at fixed annual rates between 5.25% accretion of debt issuance costs for the years ended December 31, 2022 and 6.90%.
The following are contractual maturities of long-term debt by year at December 31, 2019:
| Year ending December 31, | Principal | Interest | ||||||||||||
| 2020 | $ | 1,526,000 | $ | 163,000 | ||||||||||
| 2021 | 711,000 | 101,000 | ||||||||||||
| 2022 | 263,000 | 71,000 | ||||||||||||
| 2023 | 280,000 | 54,000 | ||||||||||||
| 2024 | 299,000 | 36,000 | ||||||||||||
| Thereafter | 401,000 | 17,000 | ||||||||||||
| $ | 3,480,000 | $ | 442,000 | |||||||||||
Year ending December 31, | Principal | |||
2023 | $ | 1,344,000 | ||
2024 | 2,094,000 | |||
2025 | 2,469,000 | |||
2026 | 7,594,000 | |||
2027 | 164,000 | |||
| $ | 13,665,000 | |||
NOTE 6 - FINANCE LEASES
Net Present Value of Minimum Lease Payments | |||||
| Year ending December 31, | |||||
| 2020 | $ | 4,610,000 | |||
| 2021 | 6,312,000 | ||||
| 2022 | 1,291,000 | ||||
| 2023 | 846,000 | ||||
| 2024 | 521,000 | ||||
| Total finance lease payments | 13,580,000 | ||||
| Less imputed interest | 1,694,000 | ||||
| 11,886,000 | |||||
| Less current portion | 3,709,000 | ||||
| $ | 8,177,000 | ||||
The Company determines if a contract is a lease at inception. Under ASC 842, the Company is a lessor of equipment to various customers. Leases that commenced prior to ASC 842 adoption date were classified as operating leases under historical guidance. As the Company has elected the package of practical expedients allowing it to not reassess lease classification, these leases are classified as operating leases under ASC 842 as well. All of the Company’s lessor arrangements entered into after ASC 842 adoption are also classified as operating leases. Some of these lease terms have an option to extend the lease after the initial term, but do not contain the option to terminate early or purchase the asset at the end of the term.
The Company’s Gamma Knife PBRT, and IGRTPBRT contracts with hospitals are classified as operating leases under ASC 842. The related equipment is included in medical equipment and facilities on the Company’s consolidated balance sheets (see further discussion at Note 2)2). As all income from the Company’s lessor arrangements is solely based on procedure volume, all income is considered variable payments not dependent on an index or a rate. As such, the Company does not measure future operating lease receivable.
On November 3, 2021, the Company entered into an agreement to sublease (the “Sublease”) its corporate office located at Two Embarcadero Center, Suite 410, San Francisco, California, where it leases approximately 3,253 square feet for $22,011 per month with a lease expiration date in August 2023. The Sublease is for $16,195 per month through the existing contract expiration date. The Company also entered into a lease (the “Lease”) agreement for new corporate office space at 601 Montgomery, Suite 1112, San Francisco, CA for approximately 900 square feet for $4,500 per month with a lease expiration date in November 2024. The Company assessed the Lease under ASC 842 and concluded the Lease should be classified as an operating lease. The Company recorded $151,000 right-of-use (“ROU”) asset, other current liabilities and lease liabilities on the consolidated balance sheets related to the Lease as of December 1, 2021, the effective date of the Lease. The Company assessed the Sublease under ASC 842 and ASC 360 Property and Equipment (“ASC 360”) and concluded the ROU asset for the corporate offices at Two Embarcadero Center was impaired. The Company recorded an impairment loss on the Sublease of $77,000 as of December 1, 2021.
The Company’s lessee operating leases are accounted for as right-of-use (“ROU”)ROU assets, other current liabilities, and lease liabilities on the consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company’s operating lease contracts do not provide an implicit rate for calculating the present value of future lease payments, so the Company determined its incremental borrowing rate to be in the range of approximately 4.0% and 6.0% by using available market rates and expected lease terms. The operating lease ROU assets and liabilities also include any lease payments made and excludes lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company’s lessee operating lease agreements are for administrative office space and related equipment, and the agreement to lease clinic space for its stand-alone facility in Lima, Peru. These leases have remaining lease terms between 31 and 52 years, some of which include options to renew or extend the lease. As of December 31, 2019,2022, operating ROU assets, net of impairment, were $317,000 and lease liabilities were $1,106,000.
The following table summarizes maturities of lessee operating lease ROU assets and liabilities as of December 31, 2019:2022:
Year ending December 31, | Operating Leases | |||
2023 | $ | 301,000 | ||
2024 | 59,000 | |||
Total lease payments | 360,000 | |||
Less imputed interest | (9,000 | ) | ||
Total | $ | 351,000 | ||
Year Ended December 31, | ||||||||
2022 | 2021 | |||||||
Lease cost | ||||||||
Operating lease cost, net of impairment | $ | 406,000 | $ | 351,000 | ||||
Sublease income | (174,000 | ) | (14,000 | ) | ||||
Total lease cost | $ | 232,000 | $ | 337,000 | ||||
Other information | ||||||||
Cash paid for amounts included in the measurement of lease liabilities - Operating leases | $ | 406,000 | $ | 351,000 | ||||
Weighted-average remaining lease term - Operating leases in years | 1.11 | 1.39 | ||||||
Weighted-average discount rate - Operating leases | 5.65 | % | 5.80 | % | ||||
| Year ending December 31, | Operating Leases | ||||
| 2020 | 339,000 | ||||
| 2021 | 347,000 | ||||
| 2022 | 332,000 | ||||
| 2023 | 214,000 | ||||
| Thereafter | 5,000 | ||||
| Total lease payments | 1,237,000 | ||||
| Less imputed interest | (131,000) | ||||
| Total | $ | 1,106,000 | |||
NOTE 7– INCOME TAXES
The components of income before income taxes for the years ended December 31, 2019, 2018 2022 and 20172021 are as follows:
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
Domestic | $ | 2,350,000 | $ | 831,000 | ||||
Foreign | 168,000 | 116,000 | ||||||
Income before income taxes | $ | 2,518,000 | $ | 947,000 | ||||
For the year ended December 31, 2022 and 2021, the Company recorded income tax provision expense of $128,000, $451,000, and an income tax provision benefitexpense of $1,103,000,$963,000 and $269,000, respectively. The decreaseincrease in the Company’s provision for income taxes as of December 31, 20192022 is due to a decrease in income fromhigher earnings during the Company's Gamma Knife operations and the release of a valuation allowance related to the Company's Gamma Knife operations in Peru. The increase in the Company's provision for income taxes as of December 31, 2018 is due to income from the PBRT system and operations of the Company’s subsidiaries. The income tax provision benefit recognized as of December 31, 2017 was due to the Tax Act.
The components of the provision (benefit) for income taxes as of for the years ended December 31, 2019, 2018 2022 and 2017 consist2021 consists of the following:
| YEARS ENDED DECEMBER 31, | |||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
| Current: | |||||||||||||||||||||||||||||
| Federal | $ | 443,000 | $ | 13,000 | $ | 55,000 | |||||||||||||||||||||||
| State | 207,000 | 389,000 | 109,000 | ||||||||||||||||||||||||||
| Foreign | 130,000 | — | — | ||||||||||||||||||||||||||
| Total current | 780,000 | 402,000 | 164,000 | ||||||||||||||||||||||||||
| Deferred: | |||||||||||||||||||||||||||||
| Federal | (311,000) | 259,000 | (1,335,000) | ||||||||||||||||||||||||||
| State | (251,000) | (210,000) | 68,000 | ||||||||||||||||||||||||||
| Foreign | (90,000) | — | — | ||||||||||||||||||||||||||
| Total deferred | (652,000) | 49,000 | (1,267,000) | ||||||||||||||||||||||||||
| $ | 128,000 | $ | 451,000 | $ | (1,103,000) | ||||||||||||||||||||||||
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
Current: | ||||||||
Federal | $ | 355,000 | $ | 9,000 | ||||
State | 60,000 | 93,000 | ||||||
Foreign | 204,000 | 107,000 | ||||||
Total current | 619,000 | 209,000 | ||||||
Deferred: | ||||||||
Federal | 290,000 | 98,000 | ||||||
State | 48,000 | (18,000 | ) | |||||
Foreign | 6,000 | (20,000 | ) | |||||
Total deferred | 344,000 | 60,000 | ||||||
| $ | 963,000 | $ | 269,000 | |||||
Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2019 2022 and 20182021 are as follows:
December 31, | ||||||||
2022 | 2021 | |||||||
Deferred tax liabilities: | ||||||||
Property and equipment | $ | (1,255,000 | ) | $ | (1,055,000 | ) | ||
Total deferred tax liabilities | (1,255,000 | ) | (1,055,000 | ) | ||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | 139,000 | 360,000 | ||||||
Accruals and allowances | 167,000 | 41,000 | ||||||
Lease liabilities | 61,000 | 136,000 | ||||||
Tax credits | 3,000 | 4,000 | ||||||
Other – net | 114,000 | 87,000 | ||||||
Capital loss carryover | 646,000 | 646,000 | ||||||
Total deferred tax assets | 1,130,000 | 1,274,000 | ||||||
Valuation allowance | (697,000 | ) | (697,000 | ) | ||||
Deferred tax assets net of valuation allowance | 433,000 | 577,000 | ||||||
Net deferred tax liabilities | $ | (822,000 | ) | $ | (478,000 | ) | ||
| DECEMBER 31, | |||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Deferred tax liabilities: | |||||||||||||||||
| Property and equipment | $ | (3,112,000) | $ | (3,566,000) | |||||||||||||
| Total deferred tax liabilities | (3,112,000) | (3,566,000) | |||||||||||||||
| Deferred tax assets: | |||||||||||||||||
| Net operating loss carryforwards | 117,000 | 80,000 | |||||||||||||||
| Accruals and allowances | 248,000 | 275,000 | |||||||||||||||
| Tax credits | 4,000 | 194,000 | |||||||||||||||
| Other – net | 229,000 | 207,000 | |||||||||||||||
| Capital loss carryover | 921,000 | 948,000 | |||||||||||||||
| Total deferred tax assets | 1,519,000 | 1,704,000 | |||||||||||||||
| Valuation allowance | (921,000) | (1,096,000) | |||||||||||||||
| Deferred tax assets net of valuation allowance | 598,000 | 608,000 | |||||||||||||||
| Net deferred tax liabilities | $ | (2,514,000) | $ | (2,958,000) | |||||||||||||
| DECEMBER 31, | |||||||||||||||||
| 2019 | 2018 | ||||||||||||||||
| Deferred income taxes (non-current) | $ | (2,514,000) | $ | (2,958,000) | |||||||||||||
| $ | (2,514,000) | $ | (2,958,000) | ||||||||||||||
NOTE 7– INCOME TAXES (CONTINUED)
The (benefit) provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 20192022 and 2018, and 34% in 2017)2021) to income before taxes as follows:
| YEARS ENDED DECEMBER 31, | |||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
| Computed expected federal income tax | $ | 167,000 | $ | 313,000 | $ | 279,000 | |||||||||||||||||||||||
| State income taxes, net of federal benefit | (80,000) | 125,000 | 28,000 | ||||||||||||||||||||||||||
| Non-deductible expenses | 29,000 | (12,000) | 41,000 | ||||||||||||||||||||||||||
| Impact of US Tax Reform | — | — | (1,546,000) | ||||||||||||||||||||||||||
| Return to Provision True-up | 39,000 | — | — | ||||||||||||||||||||||||||
| Uncertain Tax Positions | 80,000 | — | — | ||||||||||||||||||||||||||
| Change in valuation allowance | (175,000) | 34,000 | 180,000 | ||||||||||||||||||||||||||
| Other | 68,000 | (9,000) | (85,000) | ||||||||||||||||||||||||||
| $ | 128,000 | $ | 451,000 | $ | (1,103,000) | ||||||||||||||||||||||||
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
Computed expected federal income tax | $ | 477,000 | $ | 79,000 | ||||
State income taxes, net of federal benefit | 100,000 | 69,000 | ||||||
Non-deductible expenses | (25,000 | ) | 28,000 | |||||
Return to provision true-up | 52,000 | 19,000 | ||||||
Uncertain tax positions | (17,000 | ) | 14,000 | |||||
AMT tax payable adjustment | 208,000 | — | ||||||
Change in valuation allowance | — | 19,000 | ||||||
Other deferred tax adjustments | 168,000 | 41,000 | ||||||
| $ | 963,000 | $ | 269,000 | |||||
As of Contents
Utilization of the net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.
At December 31, 2019,2022, the Company has a capital loss carryforward for federal income tax return purposes of approximately $3,762,000 $2,679,000,which starts to expire in 2020.2024. The Company has capital loss carryforwards for state income tax purposes of approximately $199,000$129,000, which starts to expire in 2020.
Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance decreased by $175,000, increased by $34,000,$0 and decreased by $303,000$19,000 for the tax years ended December 31, 2019, 2018, 2022 and 2017,2021, respectively.
The tax return years 20152018 through 20182021 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. In 2019, the Company settled a New York State examination for tax years 2015 through 2017 with no material adjustments. Net operating losses generated on a tax return basis by the Company for calendar years 1999 through 2004,2009,2010,2012,2014,2015,2016,2017 2018 and 20192018 remain open to examination by the major domestic taxing jurisdictions.
NOTE 7– INCOME TAXES (CONTINUED)
The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company'scompany’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance.
As of December 31, 2019,2022, the unrecognized tax benefit was $259,000$278,000 which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets, which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
| YEARS ENDED DECEMBER 31, 2019 | |||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
| Balance at beginning of year | $ | 87,000 | $ | — | $ | — | |||||||||||||||||||||||
| Additions based on tax positions of prior years | 172,000 | 87,000 | — | ||||||||||||||||||||||||||
| Balance at end of year | $ | 259,000 | $ | 87,000 | $ | — | |||||||||||||||||||||||
YEARS ENDED December 31, | ||||||||
2022 | 2021 | |||||||
Balance at beginning of year | $ | 295,000 | $ | 275,000 | ||||
Additions based on tax positions of prior years | (17,000 | ) | 20,000 | |||||
Balance at end of year | $ | 278,000 | $ | 295,000 | ||||
The Company'sCompany’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as income taxes. As of December 31, 2019,2022, the Company had $6,000$43,000 accrued for the payment of penalties and zero interest related to unrecognized tax benefits. The Company does not expect any material changes to our uncertain tax positions within the next 12 months. The Company believes that it is reasonably possible that a decrease of up to $100,000 in unrecognized tax benefits related to foreign taxes may be necessary within the coming year.
NOTE 8– STOCK-BASED COMPENSATION EXPENSE
NOTE 9 – SHAREHOLDERS’ EQUITY
In June 20102021, the Company’s shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), andthat among other things, increasingincreases the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. 2,580,000 and extends the term of the Plan by five years to February 22, 2027. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non- employeenon-employee directors, and advisors. The Plan is a successor to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan. No further grants or share issuances will be made under the previous plans. On June 21, 2019, the Company’s shareholders approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years to February 22, 2022. As of December 31, 2019,2022, approximately 411,0001,219,000 shares remain available for grant under the Plan.
Under the Plan, a total of 312,000752,000 restricted stock units have been granted, consisting of 41,000 ofof 53,000 of annual automatic grants to non-employee directors, and the corporate secretary, 261,000328,000 of deferred retainer fees to non-employee members of the Board, and 10,00031,000 grants issued in lieu of commission or bonus to one employeeemployees of the Company.Company, and 340,000 restricted stock units issued to the CEO, see further discussion below. Of the total restricted stock units granted under the Plan 309,000123,000 of them are fully vested but not yet deemed issued and outstanding, 624,000 are fully vested and outstanding, and 6,000 are outstanding as of December 31, 2019.
Changes in restricted stock units, consisting primarily of annual automatic grants, and deferred compensation to non-employee directors, and restricted stock units awards to the CEO, under the Incentive Compensation Plans during 20192022 and 20182021 are as follows:
Restricted Stock Units | Grant Date Weighted- Average Fair Value | Intrinsic Value | |||||||||||||||
| Outstanding at January 1, 2018 | 4,000 | $ | 3.77 | $ | — | ||||||||||||
| Granted | 35,000 | $ | 2.56 | $ | — | ||||||||||||
| Vested | (35,000) | $ | 2.69 | $ | — | ||||||||||||
| Outstanding at December 31, 2018 | 4,000 | $ | 2.68 | $ | — | ||||||||||||
| Outstanding at January 1, 2019 | 4,000 | $ | 2.68 | $ | — | ||||||||||||
| Granted | 36,000 | $ | 2.50 | $ | — | ||||||||||||
| Vested | (37,000) | $ | 2.47 | $ | — | ||||||||||||
| Outstanding at December 31, 2019 | 3,000 | $ | 3.03 | $ | — | ||||||||||||
Restricted Stock | Grant Date | |||||||
Outstanding at January 1, 2021 | 13,000 | $ | 1.97 | |||||
Granted | 165,000 | $ | 2.61 | |||||
Vested | (168,000 | ) | $ | 2.57 | ||||
Outstanding at December 31, 2021 | 10,000 | $ | 2.57 | |||||
Granted | 131,000 | $ | 2.40 | |||||
Vested | (132,000 | ) | $ | 2.40 | ||||
Forfeited | (3,000 | ) | $ | 2.92 | ||||
Outstanding at December 31, 2022 | 6,000 | $ | 2.33 | |||||
For the year ended December 31, 2019, total compensation expense recorded in the consolidated statements of operations related to restricted stock units in lieu of retainer fees was $80,000. For the year ended December 31, 2019,2022, total compensation expense recorded in the consolidated statements of income for annual restricted stock units awarded was $10,000,$6,000, with an offsetting tax benefit of $2,000,$1,500, as this expense is deductible for income tax purposes. As of December 31, 2019,2022, there was $5,000$11,000 of total unrecognized compensation cost related to annual restricted stock units which is expected to be recognized over a period of 0.5 threeyears. During 2019, 2018, and 2017 sharesFor the year ended December 31, 2021, 38,000 of the vested restricted stock units totaling 4,000 each, respectively, with a fair valuewere deferred for issuance.
NOTE 8– STOCK-BASED COMPENSATION EXPENSE (CONTINUED)
On JanuaryCertain Executive Equity Awards
Effective May 4, 2017, 2020, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766appointed Raymond C. Stachowiak as Interim President and Chief Executive Officer. Pursuant to his Offer Letter, Mr. Stachowiak was granted 50,000 restricted stock awards that vested in full on August 3, 2020. He was granted additional restricted stock awards totaling 10,000 common shares per month, which vest uponin full at the achievementend of certain performance metrics. The Award Agreements expire on March 31, 2020. Based oneach 30-day period following issuance. On October 1, 2020, Mr. Stachowiak was appointed as the guidance in ASC 718 Stock Compensation (“ASC 718”),CEO. For the Company concluded these were performance-based awards with vesting criteria tied to performance metrics. As of year ended December 31, 2017, the Company achieved one of the certain performance metrics under the Award Agreements and recognized stock compensation expense of approximately $108,000 related to these awards. As of December 31, 2019 it is not probable that any of the remaining required metrics for vesting will be achieved. The unrecognized stock-based compensation expense for these awards was approximately $434,000 and unvested2021, 120,000 restricted stock awards were approximately 129,000 as of issued to the CEO and became fully vested. Total compensation expense recorded for the year ended December 31, 2019. If2021 in the consolidated financial statements of income related to executive equity awards was $331,000. For the year ended December 31, 2022, 120,000 restricted stock awards were issued to Mr. Stachowiak and whenbecame fully vested. Total compensation expense recorded for the Company determines thatyear ended December 31, 2022 in the remaining performance metrics’ achievement becomes probable,consolidated financial statements of income related to the Company will record a cumulative catch-upexecutive equity awards was $288,000.
For the year ended December 31, 2022, stock compensation expense recorded in the consolidated financial statements is summarized as follows:
Stock-Based | ||||||||
Awards Issued | Compensation | |||||||
and Vested | Expense | |||||||
Options | — | $ | 10,000 | |||||
Options Exercised | 3,000 | — | ||||||
Management Bonus Program - vested and issued | 11,000 | — | ||||||
Management Bonus Program | — | 92,000 | ||||||
Annual RSU Awards | 1,000 | 6,000 | ||||||
Board RSU Awards - other | — | 3,000 | ||||||
Executive Compensation | 120,000 | 288,000 | ||||||
| 135,000 | $ | 399,000 | ||||||
Total stock-based compensation expense before income tax effect for the Company’s options and restricted stock awards in the amount of $399,000and $420,000 for the remaining unrecognized amount will be recorded overyears ended December 31, 2022 and 2021, is reflected in selling and administrative expense in the remaining requisite service periodconsolidated statements of the awards.income, respectively.
Stock Options
Changes in stock options outstanding under the Incentive Compensation Plans during 20192022 and 20182021 are as follows:
Options | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||
Balance at December 31, 2020 | 417,000 | $ | 2.79 | 1.61 | $ | 2,000 | ||||||||||
Granted | 6,000 | $ | 2.92 | 7.00 | $ | — | ||||||||||
Exercised | (22,000 | ) | $ | 2.65 | — | $ | — | |||||||||
Forfeited | (334,000 | ) | $ | 2.81 | — | $ | — | |||||||||
Balance at December 31, 2021 | 67,000 | $ | 2.72 | 3.33 | $ | — | ||||||||||
Granted | 50,000 | $ | 2.72 | 7.00 | $ | — | ||||||||||
Exercised | (4,000 | ) | $ | 2.29 | — | $ | — | |||||||||
Forfeited | (18,000 | ) | $ | 2.64 | — | $ | — | |||||||||
Balance at December 31, 2022 | 95,000 | $ | 2.76 | 4.83 | $ | 25,000 | ||||||||||
Exercisable at December 31, 2021 | 58,000 | $ | 2.72 | 2.96 | $ | — | ||||||||||
Exercisable at December 31, 2022 | 38,000 | $ | 2.79 | 2.38 | $ | — | ||||||||||
| Options | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Balance at December 31, 2017 | 615,000 | $ | 2.87 | 3.48 | $ | 22,000 | ||||||||||||||||||||
| Granted | 16,000 | $ | 2.68 | 6.46 | $ | — | ||||||||||||||||||||
| Forfeited | (18,000) | $ | 3.15 | — | $ | — | ||||||||||||||||||||
| Balance at December 31, 2018 | 613,000 | $ | 2.85 | 3.14 | $ | — | ||||||||||||||||||||
| Granted | 18,000 | $ | 2.87 | 7.00 | $ | — | ||||||||||||||||||||
| Exercised | (16,000) | $ | 2.59 | — | $ | — | ||||||||||||||||||||
| Forfeited | (165,000) | $ | 3.07 | — | $ | — | ||||||||||||||||||||
| Balance at December 31, 2019 | 450,000 | $ | 2.78 | 2.44 | $ | 27,000 | ||||||||||||||||||||
| Exercisable at December 31, 2018 | 488,000 | $ | 2.87 | 2.55 | $ | — | ||||||||||||||||||||
| Exercisable at December 31, 2019 | 425,000 | $ | 2.79 | 2.25 | $ | — | ||||||||||||||||||||
NOTE 8– STOCK-BASED COMPENSATION EXPENSE (CONTINUED)
The weighted average grant-date fair value of the options granted during the years 2019, 20182022 and 20172021 was $1.54, $1.45,$1.49 and $1.50,$1.10, respectively. There were 16,000 options exercised during the year ended December 31, 2019. There were no options exercised and accordingly, 0 total intrinsic value of options exercised during the year ended December 31, 2018. There were 4,000 options exercised which resulted in 3,000 shares issued, due to cashless exercises, during the year ended December 31, 2017.2022. There were 22,000 options exercised which resulted in 5,000 shares issued, due to cashless exercises, during the year ended December 31, 2021. Total stock-based compensation expense recognized for stock options for the years ended December 2019, 2018,2022 and 20172021 was $141,000, $109,000,$10,000 and $144,000,$2,000, respectively.
The Company received approximately $42,000 from the exercise of 16,000 options under the share-based arrangements for the year ended December 31, 2019. There was 0 cash received from options exercised under any share-based payment arrangements for the years ended December 31, 2018, and as a result, there was no actual tax benefit realized for tax deductions from option exercises in that year. The Company received approximately $6,000$5,000 from the exercise of 2,000 options under the share-based payment arrangements for the year ended December 31, 2017.
| Nonvested Options | Number of Options | Weighted Average Grant-Date Fair Value | ||||||||||||
| Nonvested at December 31, 2017 | 220,000 | $ | 1.20 | |||||||||||
| Granted | 16,000 | $ | 1.45 | |||||||||||
| Vested | (111,000) | $ | 1.22 | |||||||||||
| Nonvested at December 31, 2018 | 125,000 | $ | 1.20 | |||||||||||
| Granted | 18,000 | $ | 1.54 | |||||||||||
| Vested | (118,000) | $ | 1.22 | |||||||||||
| Nonvested at December 31, 2019 | 25,000 | $ | 1.40 | |||||||||||
At December 31, 2019,2022, there was approximately $24,000$80,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately twofour years.
The Company’s stock-based awards to employees are calculated using the Black-Scholes options valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. The Company’s stock-based awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the present value estimates. For these reasons, management believes that the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees.
The fair value of the Company’s option grants issued during 2019, 20182022 and 20172021 were estimated using assumptions for expected life, volatility, dividend yield, forfeiture rate, and risk-free interest rate which are specific to each award as summarized in the following table. The estimated fair value of the Company’s options is amortized over the period during which the optionee is required to provide service in exchange for the award, usually the vesting period.
The fair value of the Company’sCompany’s option grants under the Plan in 2019, 20182022 and 20172021 was estimated using the following assumptions:
2022 | 2021 | |||||||
Expected life (years) | 7.0 | 7.0 | ||||||
Expected forfeiture rate | 0.0 | % | 0.0 | % | ||||
Expected volatility | 50 | % | 40 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Risk-free interest rate | 3.3 | % | 1.2 | % | ||||
The following summarizes the assumption inputs used for the Company’s Black-Scholes calculation:
| 2019 | 2018 | 2017 | |||||||||||||||
| Expected life (years) | 7.0 | 7.0 | 7.0 | ||||||||||||||
| Expected forfeiture rate | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||
| Expected volatility | 50 | % | 50 | % | 53 | % | |||||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | |||||||||||
| Risk-free interest rate | 1.9 | % | 2.9 | % | 2.0 | % | |||||||||||
Expected forfeiture rate: Forfeitures are recognized as they occur.
Expected volatility: The expected volatility was derived from the Company’s historical stock volatility.
Dividend yield: The expected dividend yield was assumed to be zero, as the Company has not previously paid dividends on common stock and has no current plans to do so.
Risk-free interest rate: The risk-free interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.
Repurchase of Common Stock, Common Stock Warrants and Stock Options
In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares of the Company repurchased during 2019, 20182022 or 2017.2021. There are approximately 72,000 shares remaining under this repurchase authorization.
NOTE 9– RETIREMENT PLAN
The Company has a defined-contribution retirement plan (the “Retirement Plan”) that allows for a matching safe harbor contribution. For 2019,2022, the Board of Directors elected to match participant deferred salary contributions up to a maximum of 4% of the participant’s annual compensation. Discretionary profit sharing contributions are allowed under the Retirement Plan in years that the Board does not elect a safe harbor match. The Company has accrued approximately $38,000$36,000 for the estimated safe harbor matching contribution for the year ended December 31, 2019.2022. The Company contributed $27,000 and $29,000$41,000 to the Retirement Plan for the safe harbor match for the yearsyear ended December 31, 2018 and December 31, 2017.2021.
NOTE 10– O
On August 13, 2016, the Company entered into a 7 year operating lease for an office space located in San Francisco, CA. The Company has a satellite office in Fairfield, CA with a lease expiration date in April 2020. The Company also owns and operates a stand-alone Gamma Knife facility in Lima, Peru where it leases approximately 1,600 for approximately $5,000 per month with a lease expiration date in January 2024.
| Year ending December 31, | |||||
| 2020 | $ | 319,000 | |||
| 2021 | 312,000 | ||||
| 2022 | 319,000 | ||||
| 2023 | 225,000 | ||||
| 2024 | 5,000 | ||||
| $ | 1,180,000 | ||||
As of December 31, 2019,2022, the Company had commitments to perform five Cobalt-60 reloads and install fivefour Leksell Gamma Knife Icon Systems ("Icon"(“Icon”) at existing customer sites, and purchase one LINAC system, tothree Linear Accelerator (“LINAC”) systems. Two LINACS will be placed at future customer sites and one LINAC system will be placed at the Company’s new site in Puebla, Mexico, which is expected to begin operations in the second half of 2023, pending regulatory approval. The Company also has a new customer site.commitment to upgrade the Gamma Knife unit at its stand-alone facility in Ecuador to an Icon. The Cobalt-60 reloads,remaining Icon upgrades and LINAC purchasepurchases are scheduled to occur between 20202023 and 2022. 2024. The Company expects to upgrade the equipment in Ecuador in mid-2023, pending regulatory approval. The Company has a commitment from DFC to finance this upgrade. Total Gamma Knife and LINAC commitments as of December 31, 20192022, were $6,910,000. Two of the five Cobalt-60 reloads were completed and financed during the first quarter of 2020. It is the Company’s intent to finance the remaining commitments.$13,243,000. There are no significantmay be cash requirements, pending financing, for these commitmentsthe Company’s new site in Mexico and the upgrade in Ecuador in the next 12 months. However, the Company currently has cash on hand of $12,453,000 and a line of credit of $7,000,000 to fund these projects, if necessary. The Company has not placed the remaining commitments at this time. There can be no assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company.
On July 21, 2017, September 4, 2022, the Company entered into a Maintenance and Support Agreement with Mevion (the “Mevion Service Agreement”) with Mevion,, which provides for maintenance and support of the Company’s PBRT unit at Orlando Health. The Mevion Service Agreement began Health from September 5, 2017 and renews annually. 2022 through April 2026. The agreement requires an annual prepayment of $1,562,000 which was made on September 6, 2019$1,800,000 for the current contractual period.period (one year). This payment portion was recorded as a prepaid contract and will be amortized over the one-yearone-year service period. The Mevion Service Agreement is for a five (5) year period. On December 20, 2018, the Company signed a Second Amendment to the Mevion Service Agreement, where the Company agreed to increase the annual service payment by $250,000, effective for the second service year, and for each year thereafter. The Company paid the additional $250,000 of the annual service payment owed for the second service year on September 6, 2019.
As of December 31, 2019,2022, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion, Elekta and Mobius Imaging, LLC. In addition, in April 2019, the Company signed agreements to service the Icon upgrades which will be installed at various dates between 20202023 and 2022.2024.The Company’s commitmentcommitments to purchase atwo LINAC systemsystems also includesinclude a 9-year and 5-year agreement to service the equipment.equipment, respectively. Total service commitments as of December 31, 20192022 were $10,096,000.$15,374,000. The Gamma Knife and certain other service contracts are paid monthly, as service is performed. The Company believes that cash flow from cash on hand and operations will be sufficient to cover these payments.
The Company’s customer contracts generally contain mutual indemnification provisions. The Company estimatesmaintains general and professional liability insurance in the following commitmentsUnited States. The Company is not involved in the practice of medicine and therefore believes its present insurance coverage and indemnification agreements are adequate for eachits business. The Company’s Peruvian and Ecuadorian Gamma Knife centers are free-standing facilities operated by GKPeru and GKCE, respectively. The treating physicians and clinical staff at these facilities are independent contractors. The Company maintains general and professional liability insurance consistent with the operations of the equipment systems, with expected timing of payments as follows as of December 31, 2019:
| Total amounts committed | 2020 | 2021-2023 | 2024 | After 5 years | ||||||||||||||||
| Long-term debt (includes interest) | $ | 3,922,000 | $ | 1,689,000 | $ | 1,480,000 | $ | 335,000 | $ | 418,000 | ||||||||||
| Finance leases (includes interest) | 13,580,000 | 4,610,000 | 8,449,000 | 521,000 | — | |||||||||||||||
| Future equipment purchases | 40,910,000 | 1,750,000 | 39,160,000 | — | — | |||||||||||||||
| Equipment service contracts | 10,096,000 | 1,847,000 | 4,655,000 | 1,734,000 | 1,860,000 | |||||||||||||||
| Operating leases | 1,180,000 | 319,000 | 856,000 | 5,000 | — | |||||||||||||||
| Total Commitments | $ | 69,688,000 | $ | 10,215,000 | $ | 54,600,000 | $ | 2,595,000 | $ | 2,278,000 | ||||||||||
NNOTE 11OTE– 13 – RRELATED PARTY TRANSACTIONSELATED PARTY TRANSACTIONS
The Company’s Gamma Knife business is operated through its 81% indirect interest in its GKF subsidiary. The remaining 19% of GKF is owned by a wholly owned U.S. subsidiary of Elekta, which is the manufacturer of the Gamma Knife. Since the Company purchases its Gamma Knife units from Elekta, there are significant related party transactions with Elekta such as equipment purchases, commitments to purchase and service equipment, deposits for such equipment purchases, and costs to maintain the equipment. equipment.
The following summarizes related party activity for the years ended December 31, 2022 and 2021:
December 31, | ||||||||
2022 | 2021 | |||||||
Equipment purchases and de-install costs | $ | 1,844,000 | $ | 1,906,000 | ||||
Costs incurred to maintain equipment | 1,094,000 | 759,000 | ||||||
Total related party transactions | $ | 2,938,000 | $ | 2,665,000 | ||||
The Company believes that all its transactions with Elekta are arm’s-length transactions. At December 31, 2019, the Companyalso had related party commitments to purchase five Cobalt-60 reloads,one Icon, install fivefour Icon upgrades, purchase two Gamma Plan workstations, purchase two LINACs, and service the related equipment of $17,407,000 as discussed in Note 12 – Commitmentsof December 31, 2022.
Related party liabilities on the consolidated balance sheets consist of the following as of December 31, 2022 and Contingencies.2021:
December 31, | ||||||||
2022 | 2021 | |||||||
Accounts payable and other accrued liabilities | $ | 497,000 | $ | 1,992,000 | ||||
NOTE 12– SUBSEQUENT EVENT
On February 15, 2023, the Company executed an equipment sales agreement with a new customer for the sale of a Gamma Knife upgrade and Cobalt-60 reload. The Company purchased one MEVION S250 PBRT machine from Mevion, and has $2,250,000 in non-refundable deposits towardsexpects to complete the purchasesale during the second or third quarter of two additional MEVION S250i machines. The Company also contracted with Mevion to repair the damaged PBRT unit and incurred repair costs of approximately $977,000, which is included in the Company’s consolidated balance sheet for the year ended December 31, 2018. The Company believes all of its transactions with Mevion were arm’s-length transactions. See Note 4 – Investment in Equity Securities for additional information.