FORWARD-LOOKING STATEMENTS
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:
| · | 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 |
| · | compliance with debt covenants |
•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:
| · | 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 |
•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.
PART I
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 currently provides Gamma Knife units to
sixteen (16)thirteen 13 medical centers in
fourteen (14)twelve (12) states in the United States and
one Gamma Knife
unitunits at
a stand-alone
facilityfacilities in Lima, Peru
and Guayaquil, Ecuador as of March 1,
2019.2021. 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., a wholly-owned U.S. subsidiary of Elekta AG, a Swedish company (“Elekta”). Elekta is the manufacturer of the Leksell Gamma
KnifeâKnife® (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.Peru and Ecuador, respectively.
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 June 12, 2020, GKF, through HoldCo, purchased approximately 98% of the total outstanding shares of Gamma Knife Center Ecuador S.A. (“GKCE”), from GKCE’s majority shareholders (the “Acquisition”). As of December 31, 2020, the Company acquired additional shares that increased its ownership to approximately 99.3% of the total outstanding shares of GKCE and intends to acquire the remaining 0.7% at a later date. The base purchase price for the Acquisition, including acquisition of the minority shares was approximately $2,000,000. This purchase price was paid with $575,000 in cash and a $1,425,000 loan from the United States International Development Finance Corporation (“DFC”). The purchase price is subject to certain post-closing adjustments, including adjustment for GKCE's working capital and excess cash. The DFC loan is denominated in U.S. dollars, which is also the currency of Ecuador.
The Company continues to develop its design and business model for “The Operating Room for the 21st 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.
Gamma Knife stereotactic radiosurgery, a non-invasive procedure, is an alternative to conventional brain surgery and/or radiation
therapytherapy. 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
coverageconverge 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. As of March 1,
2019,2021, all of the Company’s
sixteen (16)thirteen (13) Gamma Knife units in the United States
wereare Gamma Knife Perfexion
units.units and two (2) of these Perfexion units have the Icon upgrade.
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,
2018,2020, there were approximately 116 Gamma Knife sites in the United States and
more than 335345 units in operation worldwide. Based on
recent2019 case mix data, an estimated percentage breakdown of Gamma Knife procedures performed in the U.S. by indications treated is as follows: malignant
(61%(65%) and benign
(23%(21%) brain tumors, vascular disorders (4%), and functional disorders
(12%(10%).
The Company, as of March 1, 2019,2021, had sixteen (16)thirteen (13) operating Gamma Knife units located in the United States and onetwo (2) 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 1,4601,530 procedures in 20182020 for a cumulative total of approximately 40,50043,500 procedures from commencement through December 31, 2018.
2020.
As December 31, 2020, the Company recognized a loss on the write down of impaired assets of $8,264,000. The impaired assets included six (6) Gamma Knife units and related removal costs, and two (2) deposits towards the purchase of proton beam systems and related capitalized interest. The six (6) Gamma Knife units that were impaired consisted of two (2) units that had been taken out of service in prior years, one (1) unit that was taken out of service in 2020 and three (3) units that have already, or the Company anticipates will be taken out of service in 2021, totaling $3,051,000. In addition to this impairment write-off of $3,051,000 were estimated costs of de-install and removal (ARO) of four (4) of the Gamma Knife units of $1,350,000 (of which, the Company has paid $80,000) as of December 31, 2020. Total impairment related to the Gamma Knife business was $4,401,000 for the year ended December 31, 2020.
The Company reviews the carrying value of its long-lived assets for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value may not be recoverable. The Company has reviewed its Gamma Knife equipment, in light of available information as of December 31, 2020 and based on current customer prospects, the probability of future contract extensions or renewals, and the high turnover rate in contract terminations compared to the Company's historical contract termination rate, the Company determined that these six (6) Gamma Knife units were more-than temporarily impaired.
Gamma Knife treatment was included in the Radiation Oncology Alternative Payment Model (“RO APM”). However, for the Company's customers included in the RO APM, there does not appear to be a significant reimbursement impact.
Revenue from Gamma Knife services for the Company during each of the last
five (5)two (2) 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 | |
| 2018 | | $ | 13,578 | | | | 68.9 | % |
| 2017 | | $ | 14,848 | | | | 75.9 | % |
| 2016 | | $ | 16,076 | | | | 86.0 | % |
| 2015 | | $ | 16,077 | | | | 97.2 | % |
| 2014 | | $ | 14,521 | | | | 94.2 | % |
| | | | | | | | | | | | | | |
Year Ended December 31, | | Total Gamma Knife Revenue (in thousands) | | Gamma Knife % of Total Revenue |
| 2020 | | $ | 11,670 | | | 65.4 | % |
| 2019 | | $ | 13,551 | | | 65.8 | % |
| | | | |
| | | | |
| | | | |
The Company conducts its Gamma Knife business through its 81% indirect interest in GKF. The remaining 19% interest is indirectly owned by Elekta. 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, Chief Operating and
CEO,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, 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,
2018,2020, GKF has distributed
$48,276,000$50,005,000 to the Company and
$11,324,000$11,730,000 to
the non-controlling member.Image GuidedElekta.
Advanced Radiation Therapy OperationsEquipment and Services
The Company is continuing its efforts to contract new radiation therapy customers both domestically and internationally. The Company has increased its product offerings from standard linear accelerators to more advanced linear accelerators that incorporate Magnetic Resonance Imaging (“
IGRT”MRI”)
and potentially Positron Emission Tomography (“PET”) imaging technologies. The Company believes that these more advanced technologies, with a higher capital cost component, may be potentially a more receptive market segment for its business model.
The Company’s radiation therapy business
currently consistsconsisted of one
IGRTImage Guided Radiation Therapy (“IGRT”) system that began operation in September 2007 at an existing Gamma Knife customer site.
Revenue generated under IGRT services accounted for approximately 5.5% of the Company’s totalThis contract terminated in July 2020 and did not generate any revenue in
2018. This contract is currently on a month-to-month basis and the Company expects it will terminate sometime in the second quarter of 2019.IGRT technology integrates imaging and detection components into a state-of-the-art linear accelerator, allowing clinicians to plan treatment, verify positioning, and deliver treatment with a single device, providing faster, more effective radiation therapy with less damage to healthy tissue. IGRT captures cone beam imaging, fluoroscopic and/or x-ray images on a daily basis, creating three-dimensional images that pinpoint the exact size, location and coordinates of tumors. Once tumors are pinpointed, the system delivers ultra-precise doses of radiation which ultimately leads to improved patient outcomes.
Based on the most recently available information, there are approximately 4,000 linear accelerator-based radiation therapy units installed in the United States, and it is estimated that a majority of these units provide Intensity-Modulated Radiation Therapy (“IMRT”), IGRT or a combination of this advanced radiation therapy capability. Radiation therapy services are provided through approximately 2,300 hospital-based and free-standing oncology centers.
Additional information on our operations can be found in Item 6– “Selected Financial Data”, Item 7– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 of our consolidated financial statements.
Proton Beam Radiation Therapy Operations (“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
180,000200,000 patients have been treated with protons worldwide.
Prior to December 31, 2020, the Company had $2,250,000 in deposits toward the purchase of two MEVION S250i PBRT systems from Mevion. The Company reviews the carrying value of its deposits for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value may not be recoverable. The Company has reviewed the deposits, in light of available information, as of December 31, 2020 and based on its current customer prospects, the impact that the COVID-19 pandemic has had on medical centers undertaking large capital expenditure projects for a limited patient base, and the length of time required to negotiate and implement a proton therapy project, the Company determined that its deposits of $2,250,000, related capitalized interest of and other charges of $1,613,000 were other-than temporarily impaired. Total impairment related to the proton therapy business was $3,863,000.
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.
However, the introduction of the RO APM and the inclusion of PBRT in this model potentially limits the adoption of PBRT by medical centers.
Additional information on our operations can be found in Item 6– “Selected Financial Data”, Item 7– “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1 of our 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 million, including equipment, site construction and installation; the total cost of a single room PBRT system usually ranges from $30.0M to $40.0M, 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,
2019:2021:
| | | | | | | | | | | | | | | | | | | | |
| Customers (Gamma Knife except as noted) | | Original Term of
Contract | | Year Contract
Began | | Basis of Payment |
| | | | | | |
| Southwest Texas Methodist Hospital San Antonio, Texas | | 10 years | | 1998 | | Fee per use |
| Kettering Medical Center Kettering, Ohio | | 10 years | | 1999 | | Revenue sharing |
Tufts Medical Center Boston, Massachusetts | | 10 years | | 1999 | | Fee per use |
| University of Arkansas for Medical Sciences Little Rock, Arkansas | | 15 years | | 1999 | | Revenue sharing |
| Central Mississippi Medical Center Jackson, Mississippi | | 10 years | | 2001 | | Fee per use |
| OSF Saint Francis Medical Center Peoria, Illinois | | 10 years | | 2001 | | Fee per use |
| Albuquerque Regional Medical Center Albuquerque, New Mexico | | 10 years | | 2003 | | Fee per use |
Albuquerque, New Mexico Northern Westchester Hospital | | 10 years | | 2005 | | Fee per use |
Mt. Kisco, New York Tufts Medical Center (IGRT) | | 10 years | | 20072005 | | Revenue SharingFee per use |
Boston, Massachusetts USC University Hospital Los Angeles, California | | 10 years | | 2008 | | Fee per use |
Los Angeles, California Ft. Sanders Regional Medical Center | | 10 years | | 2011 | | Revenue Sharing |
Knoxville, Tennessee St. Vincent’s Medical Center Jacksonville, Florida | | 10 years | | 2011 | | Revenue Sharing |
Jacksonville, Florida Sacred Heart Medical Center Pensacola, Florida | | 10 years | | 2013 | | Revenue Sharing |
Pensacola, Florida PeaceHealth Sacred Heart Medical Center at RiverBend Eugene, Oregon | | 10 years | | 2014 | | Revenue Sharing |
| Orlando Health – UF Health Cancer Center Orlando, Florida (PBRT) | | 10 years | | 2016 | | Revenue Sharing |
| Bryan Medical Center Lincoln, Nebraska | | 10 years | | 2017 | | Revenue Sharing |
| Methodist Hospital Merrillville, Indiana | | 10 years | | 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 to $9,300 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
26%, 21%,35% and
10%30% of the Company’s total revenue in
2018, 20172020 and
2016,2019, respectively. At December 31,
2018 and 2017, three2020, four customers
each individually accounted for
more than 10%11%, 11%, 11% and 20% of total accounts receivable,
in the respective years.respectively. At December 31, 2019, three customers each individually accounted for 12%, 15% and 30% of total accounts receivable, respectively.
The Company markets its Gamma Knife services through its preferred provider status with Elekta and a direct sales effort led by its
Senior Vice President,
of Salesits President, Chief Operating and
Business Development, its Chief OperatingFinancial Officer, and its Chief Executive Officer. The Company markets its PBRT service through a direct sales effort led by its
Senior Vice President,
of Salesits President, Chief Operating and
Business Development, its Chief OperatingFinancial Officer, and its Chief Executive Officer. The major advantages to a health care provider in contracting with the Company for its services include:
| § | The medical center avoids the high cost of owning the equipment. By not acquiring the equipment supplied by the Company, the medical center is able to allocate the funds otherwise required to purchase and/or finance the equipment to other projects. |
| § | The Company does not have minimum volume requirements, so the medical center avoids the risk of equipment under-utilization. The medical center pays the Company only for each procedure performed on a patient. |
▪The medical center avoids the high cost of owning the equipment. By not acquiring the equipment supplied by the Company, the medical center is able to allocate the funds otherwise required to purchase and/or finance the equipment to other projects. | § | For contracts under revenue sharing arrangements, the Company assumes all or a portion of the risk of reimbursement rate changes. The medical center pays the Company only the contracted portion of revenue received from each procedure. |
| § | The medical center transfers the risk of technological obsolescence to the Company. The medical center and its physicians are not under any obligation to utilize technologically obsolete equipment. |
| § | The Company provides planning, installation, operating and marketing assistance and support to its customers. |
▪The Company does not have minimum volume requirements, so the medical center avoids the risk of equipment under-utilization. The 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 medical center pays the Company only the contracted portion of revenue received from each procedure.
▪The medical center transfers the risk of technological obsolescence to the Company. The medical center and its physicians are not under any obligation to utilize technologically obsolete equipment.
▪The Company provides planning, installation, operating and marketing assistance and support to its customers.
The Company’s Gamma Knife business is operated through GKF. GKF generally finances its U.S. Gamma Knife units, upgrades and additions with loans or
capitalfinance 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 to the Company and Elekta. The lease financing obtained by Orlando is guaranteed by the Company and collateralized by the equipment, customer contract and accounts receivable related to this project.
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.
ProtonAlthough proton beam radiation therapy
althoughhas 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, ProTom International, Inc. and Mitsubishi Electric. The Company has purchased one MEVION S250 and has made deposits towards the purchase of two additional MEVION
S250S250i 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 million versus four and five PBRT treatment room programs costing in excess of $120 million. 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, 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 may also lose sales to the Company’s competitors.
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 estimated 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.
Congress enacted legislation
On September 18, 2020, CMS issued the final rule that would implement a new mandatory payment model for radiation oncology services: the RO APM. The RO APM is scheduled to commence January 1, 2022 and will be in
2013effect for a five (5) year period. The RO APM significantly alters 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 are mandatorily required to participate in the model based on whether the radiation therapy provider is located within a randomly selected Core Based Statistical Area ("CBSA"). CMS projects that
significantly reducedproviders treating approximately 30% of radiation oncology patients have been selected to participate in the
RO APM. The remaining providers not included in the RO APM will continue to receive reimbursement based on a fee-for-service methodology. The RO APM includes but is not limited to PBRT and Gamma Knife services. Four (4) of the Company's Gamma Knife centers are scheduled to be included in the RO APM. It is not anticipated that inclusion in the RO APM will 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. For centers not included in the RO APM proposed model, Medicare reimbursement
ratein 2021 for
outpatient Gamma Knife treatmentthe most commonly used PBRT delivery codes increases by
setting it at the same amount paid for linear accelerator-based radio surgery treatment. Prior to April 1, 2013, Medicare’s reimbursement rateapproximately 4.1% and decreases by approximately 1.7% for Gamma
Knife treatment had been relatively stable. The Company’s IGRT services are reimbursed by CMS and other insurers. Reimbursement for these services has remained fairly stable.Knife. See additional discussion under “Item 1A Risk
Factors”.Factors.”
The average Medicare reimbursement rate trends from
20152019 to
20192021 are outlined below:
Average Medicare Reimbursement Rate Trends - Gamma Knife
| | 2015 | | | | 2016 | | | | 2017 | | | | 2018 | | | | 2019 | |
| $ | 9,700 | | | $ | 8,800 | | | $ | 9,000 | | | $ | 9,100 | | | $ | 9,300 | |
| | | | | | | | | | | | | | | | | | |
| | | | 2019 | | 2020 | | 2021 |
| | | | $ | 9,300 | | | $ | 9,600 | | | $ | 9,600 | |
The average Medicare reimbursement rate trends for PBRT from
20162019 to
20192021 are outlined below. Patients typically undergo 25-40 delivery sessions.
Average Medicare Reimbursement Rate Trends - PBRT
| | | 2016 | | | 2017 | | | 2018 | | | 2019 | |
| Simple without Compensation | | $ | 506 | | | $ | 494 | | | $ | 522 | | | $ | 520 | |
| Simple with Compensation, Intermediate, or Complex | | $ | 1,051 | | | $ | 994 | | | $ | 1,053 | | | $ | 1,079 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 2019 | | 2020 | | 2021 |
| Simple without Compensation | | | | | $ | 520 | | | $ | 539 | | | $ | 543 | |
| Simple with Compensation, Intermediate, or Complex | | | | | $ | 1,079 | | | $ | 1,246 | | | $ | 1,298 | |
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, 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:
| · | An increase in the number of insured residents could potentially increase the number of 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. |
•An increase in the number of insured residents could potentially increase the number of 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. 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. While the Texas District Court Judge
as well as the current U.S. President’s administration and CMS, have stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact 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. 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.
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“federal anti-kickback
statute"statute”) provides criminal penalties 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
provides 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"“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“designated health
services"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"“whistleblower” or "qui tam"“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"(“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'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'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'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
are 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.
At December 31,
2018,2020, the Company employed
nine (9)ten (10) people on a full-time basis in the United States,
and three (3)five (5) people on a full-time basis in Lima,
Peru.Peru, and six (6) 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: | | | | | | | | | | |
Ernest A. Bates, M.D.Name: | | 82Age: | | Chairman of the Board of Directors and Position: |
| Raymond C. Stachowiak | | 62 | | Chief Executive Officer |
| Craig K. Tagawa | | 6567 | | Senior Vice President, - Chief Operating and Financial Officer |
| Ernest R. Bates | | 5254 | | Senior Vice President of Sales and Business Development |
Ernest A. Bates, M.D., founder
Raymond C. Stachowiak has served as Chief Executive Officer of the Company
hassince October 1, 2020. Mr. Stachowiak served
in the positions listed above since the incorporationas Interim President and Chief Executive Officer effective as of
the Company. A board-certified neurosurgeon, Dr. Bates is Emeritus Vice Chairman ofMay 4, 2020 through September 30, 2020. Mr. Stachowiak joined the Board
of Trustees at Johns Hopkins Universityin 2009. Mr. Stachowiak previously served as President and
serves on the Johns Hopkins Neurosurgery Advisory Board. He also serves on the boardsChief 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 serves as Presidenthis interest in Shared Imaging to Lubar Equity Fund and
Directorremains a 50% owner of
Shared Imaging. Mr. Stachowiak is the
Ernest Bates Foundation. From 1981-1987 he wassole owner of RCS Investments, Inc., and owner-manager of Stachowiak Equity Fund, both of which are private equity funds. Mr. Stachowiak received a
member of the Board of Governors of the California Community Colleges,B.S. in Business and
he served on the California High Speed Rail Authorityan M.B.A. from
1997 to 2003. Dr. Bates is a member of the Board of Overseers at the University of California, San Francisco, School of Nursing.Indiana University. He is a
graduate of the School of ArtsCertified Public Accountant (inactive), Certified Internal Auditor (inactive) and
Sciences of the Johns Hopkins University,holds a Certification in Production and
he earned his medical degree at the University of Rochester School of Medicine and Dentistry.Inventory Management.
Craig K. Tagawa
has servedassumed the title of President on October 1, 2020 along with his duties as Chief Operating Officer since February 1999
in addition to serving asand Chief Financial Officer since May 1996. Mr. Tagawa also served as Chief Financial Officer from January 1992 through October 1995. Previously a Vice President in such capacity, Mr. Tagawa became a Senior Vice President on February 28,
1993.1993 and President on September 16, 2020. 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 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.
Ernest R. Bates joined the Company in January 2007 as Vice President of Sales and Business
Development.Development, and assumed the title of Senior Vice President of Sales and Business Development, International Operations on October 1, 2020. In October 2020, he was appointed to and currently serves as a member of AHMC Seton Medical Community Advisory Board. He was on the Board of Directors of the Company from 2004 through February 2007. Prior to joining the Company, he had been Managing Director, Institutional Fixed Income Sales of HSBC Securities (USA), Inc. since 2003. Mr. Bates has also served as Managing Director, Head of Asian Product for HSBC Securities (USA) Inc. from 1999 to 2003. From 1993 through 1999, Mr. Bates held various positions with Merrill Lynch, last serving as Vice President, European Syndicate for Merrill Lynch International. He received his undergraduate degree from Brown University and a M.B.A. degree from The Wharton Business School. Ernest R. Bates is the son of Chairman of the Board
and Chief Executive Officer Dr. Ernest A.
Bates.Bates, founder of the Company.
Our Internet address iswww.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
The Federal Reimbursement RateImpact of the COVID-19 pandemic and associated economic disruptions may continue to adversely affect the company’s business operations and financial condition.
The ongoing novel coronavirus COVID-19 has spread across the globe, has been declared a national emergency in the United States and, during 2020, shut down many business operations around the globe. Many states and municipalities in the United States, including California, have recommended or mandated aggressive and unprecedented actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing shelter-in-place” orders, which direct individuals to shelter at their places of residence (subject to limited exceptions). Across our operations, although most governmental restrictions on certain medical procedures have been lifted, the pandemic adversely impacted our business, as healthcare resources were being prioritized for the treatment and management of the outbreak in some cases. Consequently, there were and continue to be delays in delivering certain Gamma Knife and PBRT treatments and significant volatility or reductions in demand for such treatments may continue. The COVID-19 pandemic poses the risk that the Company or its employees, contractors, customers, government and third party payors and others may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be recommended or mandated by governmental authorities.
A broad, sustained continuation of the COVID-19 pandemic could continue to negatively impact the Company for the following reasons:
•operations at certain medical facilities, including medical professionals and other medical facility employees, may be subject to prolonged closure or shut down and may impact our ability to market and deliver Gamma Knife and PBRT treatments;
•medical facilities may defer certain Gamma Knife and PBRT treatments for non-urgent patient cases in order to allocate resources to the care of patients with COVID-19;
•patients may continue to defer certain Gamma Knife and PBRT treatments due to real or perceived concerns about the potential spread of COVID-19 in a medical facility setting;
•certain deferred Gamma Knife and PBRT treatments may not be rescheduled for a later date;
•there may be significant volatility or continued reductions in demand for Gamma Knife Treatments Has Fluctuatedand PBRT treatments due to limitations on operations at medical facilities, including in geographies that continue to experience severe impacts of the pandemic;
•the pandemic may materially impact the Company’s 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;
•and/or 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.
The occurrence of any of the foregoing events could have a material adverse effect on our business, results of operations, financial condition, liquidity and cash flows. The COVID-19 pandemic and mitigation measures have had and may continue to have an adverse impact on global economic conditions and healthcare activity, which could have an adverse effect on the Company’s business and financial condition. The full impact of the COVID-19 pandemic remains unknown, including the impact on the global economy and the healthcare industry. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the effectiveness and implementation of vaccinations to counter the virus, actions to contain its impact, the efficacy of the current governmental orders in slowing down the pandemic, the governments’ changing calculations on the economic impact and the health implications of maintaining these orders, the progress in the healthcare industry’s ability to effectively combat the virus, and potential increase or decrease in healthcare demand, volatility and uncertainty resulting from COVID-19 responses, all of which are highly unpredictable. Likewise, the financial market as a whole has experienced extreme volatility as a result of the global economic impact of the COVID-19 pandemic, which has impacted, and may continue to impact, the Company’s stock price.
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.
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 there are few prospects for PBRT systems. As a result, we plan to adapt our business model to place other types of stereotactic radiosurgery and advanced radiation therapy equipment in addition to Gamma Knife units and PBRT systems. This will constitute a reorientation for the Company and there can be no assurance that we can successfully adapt our historical business model to these 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 treatments may not provide the Company with an adequate return on its investment.
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 Model.
On September 18, 2020, CMS issued the final rule that would implement a new mandatory payment model for radiation oncology services: the Radiation Oncology Alternative Payment Model (“RO APM”). The
averageRO APM is scheduled to commence January 1, 2022 and will be in effect for a five (5) year period. The RO APM significantly alters 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 are mandatorily required to participate in the model based on whether the radiation therapy provider is located within a randomly selected Core Based Statistical Area ("CBSA"). CMS projects that providers treating approximately 30% of radiation oncology patients have been selected to participate in the RO APM. The remaining providers not included in the RO APM will continue to receive reimbursement based on a fee-for-service methodology. The RO APM includes but is not limited to PBRT and Gamma Knife services. Four (4) of the Company's Gamma Knife centers are scheduled to be included in the RO APM. It is not anticipated that inclusion in the RO APM will 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. For centers not included in the RO APM proposed model, Medicare reimbursement
rate trends from 2015 to 2019 are outlined below:Average Medicare Reimbursement Rate Trends
| | 2015 | | | | 2016 | | | | 2017 | | | | 2018 | | | | 2019 | |
| $ | 9,700 | | | $ | 8,800 | | | $ | 9,000 | | | $ | 9,100 | | | $ | 9,300 | |
in 2021 for the most commonly used PBRT delivery codes will increase by approximately 4.1% and decrease by approximately 1.7% for Gamma Knife.
The Company’s
Capital Investmentcapital investment at
Each Siteeach site is
Substantialsubstantial 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.investment, which could have a material negative impact on our revenues and financial results.
The
Marketmarket for the Gamma Knife is
Limitedlimited and the Company may not be able to place additional Gamma Knife units which could negatively impact the Company's revenue and financial results.
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
six (6)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,
2018,2020, there were approximately 116 operating Gamma Knife units in the United States, of which
fifteen (15)fourteen (14) units were owned by the Company.
As of December 31, 2018, the Company has one idle Gamma Knife unit with a cumulative net book value of $729,000. There are currently no commitments to place into service or trade this unit in during 2019. There can be no assurance that we will be successful in placing
these idle units or additional units at any sites in the future. 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
Operationsoperations and if the Company is unable to secure additional credit in the future its operations and profits will be negatively impacted.
The Company’s business is capital intensive. The Company finances its Gamma Knife units through its GKF subsidiary. The amounts financed through GKF have been generally non-recourse to ASHS. The Company financed its first proton therapy unit through its wholly-owned subsidiary, Orlando, and guaranteed the lease financing. The Company’s combined long-term debt and
capitalfinance leases totaled
$20,166,000$13,516,000 as of December 31,
20182020 and is collateralized by its Gamma Knife, MEVION S250 and other assets, including accounts receivable and future proceeds from any contract between the Company and any end user of the financed equipment. 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 equipment 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
Revenuesrevenues and the loss of any one of theses significant customers could have a material adverse effect on the Company's business and results of operations.
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
2018,2020, four (4) customers in total accounted for approximately 50% of the Company’s 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 Marketmarket for the Company’s Servicescompany’s services is Competitive
competitive and if the Company is not able to compete its business and results of operations could be negatively impacted.
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.units and if the Company is not able to compete its business and results of operations could be negatively impacted.
There are
Alternativesalternatives to the Gamma Knife
and medical centers could choose to use other radiosurgery devices instead of 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 technologies, 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.growth and accordingly there may be a material negative impact on the business and results of operations of the Company.
International Operationsmake the Company vulnerable to risks associated with doing business in foreign countries that can affect its business, financial condition, results of operations and cash flows. 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 Obsolescencemaking the Company's equipment obsolete which could have a material adverse impact on its business and results of operations.
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 IconTM™. The Perfexion is upgradeable to the Icon platforms which has enhanced imaging capabilities allowing for treatment without a head frame and the treatment of larger tumors. Existing model 4Cs of the Gamma Knife are not upgradeable to the Perfexion model. As of March 1, 2019,2021, all the Company’s Gamma Knife units in the United States are Perfexion models.models and two (2) of these Perfexion units have the Icon upgrade. The Company's two (2) South American sites utilize the Model 4(C). The failure to acquire or use new technology and products could have a material adverse effect on our business and results of operations.
The Company Has Investedhas invested in a Proton Beam Businessbusiness and is obligated to fund two additional proton beams systems; there is no assurance that the Company will be able to fund these additional proton systems and if the Company is unable to do so the may be a negative impact on the Company’s business and results of operations
.
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
S250S250i systems and has already made deposits of $2,250,000 towards this commitment. There can be no assurance that we will be able to
obtain additional customers or be able to finance the two additional systems.
If we are unable to obtain additional customers or are unable to finance the two additional systems, the Company will lose its deposits and there may be a negative impact on the Company’s business and results of operations.
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,
20182020 was approximately
16,000105,000 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
The Company's corporate offices are located at Two Embarcadero Center, Suite 410, San Francisco, California, where it leases approximately 3,253 square feet for
$19,556$20,747 per month with a lease expiration date in August 2023.
Prior to the Company’s relocationThe Company owns and operates a stand-alone Gamma Knife facility in
2016,Lima, Peru where it
leasedleases approximately
4,6401,600 square feet for
$25,128 per month and subleased approximately
3,500 square feet of the office space for $16,042 per month. The sublease expired in May 2016. The Company also has a satellite office in Fairfield, California, where it leases 895 square feet for $2,865$7,800 per month with a lease expiration date in
April 2020.For the year ended December 31, 2018 the Company's aggregate net rental expenses for all properties wereJanuary 2024. The Company also owns and operates a stand-alone Gamma Knife facility in Guayaquil, Ecuador where it owns 864 square feet of condominium space in an office building and approximately $298,000.
10,135 of related land and parking spaces.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. MINE SAFETY DISCLOSURES
PART II
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"“Common Shares”), are currently traded on the
New York Stock Exchange.NYSE American. At December 31,
2018,2020, the Company had
5,714,0005,791,000 issued and outstanding common shares,
613,000417,000 common shares reserved for options,
4,00013,000 unvested restricted stock units issued,
272,000and 210,000 vested restricted stock
units and 129,000 restricted stock awards reserved for issuance.The following table sets forth the high and low closing sale prices of the Common Shares of the Company on the New York Stock Exchange for each full quarter for the last two fiscal years.
| | | Prices for Common Shares | |
| Quarter Ending | | High | | | Low | |
| March 31, 2017 | | $ | 4.53 | | | $ | 3.35 | |
| June 30, 2017 | | $ | 4.75 | | | $ | 3.80 | |
| September 30, 2017 | | $ | 4.05 | | | $ | 2.80 | |
| December 31, 2017 | | $ | 3.15 | | | $ | 2.50 | |
| 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 | |
The Company estimates that there were approximately 1,100 beneficial holders of its Common Shares at December 31, 2018.
2020.
There were no dividends declared or paid during
2018, 2017, or 2016.2020 and 2019.
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
2018, 2017,2020 and
20162019 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,
2018,2020, there were approximately 72,000 shares remaining under the repurchase authorizations.
Shareholder Rights Plan
On March 22, 1999, the Company adopted a Shareholder Rights Plan (“Plan”). Under the Plan, the Company made a dividend distribution of one Right for each outstanding share of the Company’s common stock as of the close of business on April 1, 1999. The Rights become exercisable only if any person or group, with certain exceptions, becomes an “acquiring person” (acquires 15% or more of the Company’s outstanding common stock) or announces a tender or exchange offer to acquire 15% or more of the Company’s outstanding common stock. The Company’s Board of Directors adopted the Plan to protect shareholders against a coercive or inadequate takeover offer. On March 12, 2009, the Board of Directors approved the First Amendment to the Plan which, among other things, extended the final date on which the Rights are exercisable until the close of business on April 1, 2019.
Equity Compensation Plans
During
2018, 4,0002020, 3,000 restricted stock units, 31,000 restricted stock units for deferred compensation,
100,000 shares for executive compensation, and
16,00010,000 options were
issued.granted. Additional information regarding our equity compensation plans is incorporated herein by reference from the
20192021 Proxy Statement. Also, see Note
89 - “Shareholders’
EquityEquity” to the Consolidated Financial
Statements”.ITEM 6. SELECTED FINANCIAL DATA
Summary
As a smaller reporting company, as defined in Rule 10(f)(1) of
Operations| | | Year Ended December 31, | |
| | | (Amounts in thousands except per share data) | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| Revenue | | $ | 19,714 | | | $ | 19,556 | | | $ | 18,700 | | | $ | 16,548 | | | $ | 15,417 | |
| Costs of revenue | | | 12,228 | | | | 10,893 | | | | 9,905 | | | | 9,833 | | | | 10,138 | |
| Selling and administrative expense | | | 3,994 | | | | 4,323 | | | | 3,802 | | | | 3,496 | | | | 3,630 | |
| Interest expense | | | 1,631 | | | | 1,927 | | | | 1,707 | | | | 1,239 | | | | 1,699 | |
| Total expenses | | | 17,853 | | | | 17,143 | | | | 15,414 | | | | 14,568 | | | | 15,467 | |
| Income (loss) from operations | | | 1,861 | | | | 2,413 | | | | 3,286 | | | | 1,980 | | | | (50 | ) |
| Proceeds received from investment in equity securities | | | 22 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| (Loss) on write-down investment in equity securities | | | 0 | | | | (579 | ) | | | 0 | | | | (2,140 | ) | | | 0 | |
| (Loss) on early extinguishment of debt | | | 0 | | | | 0 | | | | (108 | ) | | | 0 | | | | 0 | |
| (Loss) on sale of subsidiary | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (572 | ) |
| Gain foreign currency transactions | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 161 | |
| Interest and other income | | | 198 | | | | 3 | | | | 15 | | | | 18 | | | | 28 | |
| Income (loss) before income taxes | | | 2,081 | | | | 1,837 | | | | 3,193 | | | | (142 | ) | | | (433 | ) |
| Income tax expense (benefit) | | | 451 | | | | (1,103 | ) | | | 943 | | | | 434 | | | | 129 | |
| Net income (loss) | | | 1,630 | | | | 2,940 | | | | 2,250 | | | | (576 | ) | | | (562 | ) |
| Less net income attributable to non-controlling interest | | | (607 | ) | | | (1,017 | ) | | | (1,320 | ) | | | (946 | ) | | | (390 | ) |
| Net income (loss) attributable to ASHS | | $ | 1,023 | | | $ | 1,923 | | | $ | 930 | | | $ | (1,522 | ) | | $ | (952 | ) |
| Net income (loss) per common share attributable to ASHS: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.18 | | | $ | 0.33 | | | $ | 0.17 | | | $ | (0.28 | ) | | $ | (0.19 | ) |
| Diluted | | $ | 0.17 | | | $ | 0.33 | | | $ | 0.17 | | | $ | (0.28 | ) | | $ | (0.19 | ) |
| See accompanying note (1) | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Data
| | | As of December 31, | |
| | | (Amounts in thousands) | |
| | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | |
| Cash and cash equivalents | | $ | 1,442 | | | $ | 2,152 | | | $ | 2,871 | | | $ | 2,209 | | | $ | 1,059 | |
| Certificate of deposit and securities | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 9,000 | |
| Restricted cash | | | 350 | | | | 350 | | | | 250 | | | | 50 | | | | 50 | |
| Working capital (deficit) | | | 472 | | | | (114 | ) | | | (815 | ) | | | (2,691 | ) | | | (2,004 | ) |
| Total assets | | | 57,502 | | | | 58,176 | | | | 60,598 | | | | 54,114 | | | | 67,528 | |
| Advances on line of credit | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 8,780 | |
| Current portion of long-term debt and capital leases | | | 6,526 | | | | 7,273 | | | | 7,078 | | | | 7,005 | | | | 6,108 | |
| Long-term debt/capital leases, less current portion | | | 13,640 | | | | 15,870 | | | | 19,958 | | | | 16,113 | | | | 20,776 | |
| Shareholders' equity | | $ | 31,048 | | | $ | 29,885 | | | $ | 27,137 | | | $ | 25,180 | | | $ | 26,154 | |
| See accompanying note (1) | | | | | | | | | | | | | | | | | | | | |
(1) In 1995,Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company entered into an operating agreement grantingis not required to American Shared Radiosurgery Services (a California corporation and a wholly-owned subsidiary ofprovide the Company) an 81% ownership interest in GKF. During 2010 and 2011, GKF established new operating subsidiaries, EWRS, EWRS Turkey, GKPeru, AGKE, and JGKE, and other subsidiaries that are not yet operational. On June 10, 2014, the Company sold EWRS Turkey. Accordingly, the financial data for the Company presented above include the results of GKF and its subsidiaries for the periods 2014 through 2018.
This financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018 and 2017 should be read in conjunction with our consolidated financial statements and the notes thereto beginning on page A-1 ofinformation required by this report and with Item 7– “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The COVID-19 pandemic, the resulting recession in the United States and its follow-on effects have impacted and will likely continue to impact business activity across industries, including the Company’s. During 2020, due to factors related to the COVID-19 pandemic such as delays in service at medical facilities and restrictions imposed by government agencies, and the Company’s customers in response to the spread of COVID-19, the Company experienced some delays in delivering certain Gamma Knife procedures and PBRT treatments. Similarly, the Company’s ability to conduct commercial efforts with its customers have been and are likely to continue to be disrupted as customers have turned their focus to dealing with the impact of the COVID-19 pandemic on their operations and have restricted access to their sites in efforts to contain the spread of the virus. The global nature of the pandemic has resulted in authorities implementing numerous measures designed to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, business limitations and shutdowns. The impact of the COVID-19 pandemic on the global economy and capital markets is significant, and on June 8, 2020 the National Bureau of Economic Research announced that the United States was in an economic recession. An extended economic recession in the United States or elsewhere could have a material adverse effect on the Company’s ability to conduct its business and to access financing, as well as on the Company’s results of operation, financial condition, liquidity and cash flows. The prioritization of COVID-19 treatment and containment has resulted in delays in decisions by the Company’s customers and their patients, obstacles to the Company’s ability to market and deliver its services, declines in treatment volumes and adverse impacts to revenues for both Gamma Knife procedures and PBRT treatments. As a result of the pandemic and related governmental actions, Gamma Knife procedures and PBRT treatments, which currently make up all of the Company’s revenue, may be impacted differently at each of the Company’s various locations and may take longer to recover than other areas of the economy, which may have a material impact on the Company's business. The Company’s Gamma Knife operations in Latin America have experienced a decline in procedures due to the COVID-19 pandemic. Our Gamma Knife and PBRT operations in the United States have also experienced negative impacts from the COVID-19 pandemic. As the COVID-19 pandemic continues to develop, additional impacts may arise that we are not aware of currently.
The impact of the COVID-19 pandemic for the year ended December 31, 2020 has varied by location based on the stage of containment and actions by government agencies. The impact on treatments and costs in the three-month period ended March 31, 2020 did not appear material. The impact of the COVID-19 pandemic has been greater for the three-month periods ended June 30, 2020, September 30, 2020, and December 31, 2020, including declines in patient volumes and corresponding reductions in Gamma Knife procedures and reduced PBRT fractions during the second and fourth quarters.
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 financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, 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 to the consolidated financial statements. These policies along with the disclosures presented in the other financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of 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 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 financial statements:
Revenue Recognition -
The Company recognizes revenues under Accounting Standards Codification (“ASC”) 840,842 Leases (“ASC 840”842”) and ASC 606Revenue from Contracts with Customers(“ (“ASC 606”). The Company has one revenue-generating activity, which consists of equipment leasing to hospitals, and includes the operation ofhad sixteen (16) Gamma Knife units byand one (1) PBRT system in operation as of December 31, 2020. Four (4) of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the operationmajority owner and managing partner. Six (6) of one proton therapy unit bythe Company’s sixteen (16) current Gamma Knife customers are under fee-per-use contracts, and eight (8) customers are under retail arrangements. 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 and the operation of one IGRT site by ASHS.Health – UF Health Cancer Center (“Orlando Health”), is also considered a retail arrangement.
Rental incomeIncome from medical services – Medical Services
The Company recognizes revenues under ASC
840842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis.
During 2018, the Company had nine (9) fee per use arrangements and nine (9) retail service arrangements. Under both types of agreements, the hospital is responsible for billing patients and collecting technical component fees for services performed. Revenue associated with installationThe terms of the
Gamma Knife, PBRT, and IGRT units, ifcontracts do not contain any
is a part of the negotiated lease amount and not a distinctly identifiable amount.guaranteed minimum payments. The
costs, if any, associated with installation of the units are amortized over the period of the related lease to match revenue recognition of these costs.For fee per use agreements, revenue is not estimated because theseCompany’s contracts provide for a fixed fee per procedure and are typically for a ten-year term. Revenueterm 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. There is no guaranteed minimum payment. Costs related to operatingrate and the units are charged to costsnumber of operations as incurred, which approximatesprocedures performed. Under revenue sharing arrangements, the recognitionCompany receives a contracted percentage of the related revenue. Revenue under fee per use agreementsreimbursement received by the hospital. The amount the Company expects to receive is recorded in accordance withas revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the contract terms.
During 2018, ASHS had one (1) agreement, Orlando had one (1) agreement, and GKF had seven (7) agreements that are retail service arrangements. These can be further classified as either “turn-key” arrangements or “revenue sharing” arrangements. For GKF’s seven (7) turn-key sites, GKF is solely responsible for the costs to acquire and install the Gamma Knife. In return, GKFCompany receives payment from the hospital in the amount of itsthe hospital’s reimbursement from third party payors. Revenue is recognized bypayors, and the Company duringis responsible for paying all the period in whichoperating costs of the procedure is performed and is estimatedequipment. Operating costs are determined primarily based on what can be reasonably expected to be paid by the third-party payor tohistorical treatment protocols and cost schedules with the hospital. The Company records an estimate is primarily determined from historical experience and hospital contracts with third party payors. These estimatesof operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the expected payment amount. The Company also records an estimate ofactual operating costs associated with each procedure during the period in which the procedure is performed.costs. For two of the 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. Costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company’s estimated operating costs are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actualestimated net operating costs. Revenue for turn-key sites is recorded on a gross basis, and the operating expenses the Company reimburses to the hospitalprofit are recorded inas other direct operating costs.
Under revenue sharing arrangements the hospital sharescosts in the responsibility and risk with the Company for the capital investment to acquire and install the equipment. Unlike our turn-key arrangement, the lease payment under a revenue sharing arrangement is a percentageconsolidated statement of reimbursed revenue. Payments are made by the hospital, generally on a monthly basis, to the Company based on an agreed upon percentage allocationoperations. As of cash collected. Revenue is recognized during the period in which procedures are performed and is estimated based on the reimbursement amount that the Company expects to receive from the hospital for those procedures. This estimate is reviewed on a regular basis and adjusted as necessary to more accurately reflect the expected payment amount. For the year ended December 31, 2018,2020 and 2019, the Company recognized revenues of approximately $18,987,000$16,204,000 and $19,396,000 under ASC 840.
842, respectively.
Revenue from retail arrangements amounted to approximately
70%, 64% and
57%64% of total revenue for the years ended December 31,
2018, 20172020 and
2016,2019, 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.
Patient income – Income
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. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method. The cumulative effect of adopting ASC 606 did not have a material impact on retained earnings, as reported by the Company, and there was no change to the Company’s IT environment following adoption. Accounts receivable earned by GKPeru were not significant for the year ended December 31, 2018. 2020 and 2019. GKCE's accounts receivable were $467,000 for the year ended December 31, 2020. As of December 31, 2020 and 2019, the Company recognized revenues of approximately $1,633,000 and $1,209,000 under ASC 606, respectively.
2020 Results
For the year ended December 31,
2018, the Company recognized revenues of approximately $727,000 under ASC 606.2018 Results
For the year ended December 31, 2018, 69%2020, 65% of the Company’s revenue was derived from its Gamma Knife business 26%and 35% was derived from the PBRT system, and the remaining 5% from its IGRT business.system. For the year ended December 31, 2017, 76%2019, 66% of the Company’s revenue was derived from its Gamma Knife business, 21%30% was derived from the PBRT system, and the remaining 3%4% from its IGRT business. For the year ended December 31, 2016, 86% of the Company’s revenue was derived from its Gamma Knife business, 12% was derived from the PBRT system, and the remaining 2% from its IGRT business.
TOTAL REVENUE
| (in thousands) | | 2018 | | | Increase
(Decrease) | | | 2017 | | | Increase
(Decrease) | | | 2016 | |
| Total revenue | | $ | 19,714 | | | | 0.8 | % | | $ | 19,556 | | | | 4.6 | % | | $ | 18,700 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | 2020 | | Increase (Decrease) | | 2019 | | | | |
| Total revenue | $ | 17,837 | | | (13.4) | % | | $ | 20,605 | | | | | |
Total revenue in
2018 was generally consistent with 2017. Total revenue in 2017 increased 4.6%2020 decreased 13.4% compared to
20162019 primarily due to
a decrease in average reimbursement for Gamma Knife procedures and a decrease in PBRT fractions. This decrease in volumes was partially attributable to the
Company’s PBRT unit which became operational in April 2016.COVID-19 pandemic.
Gamma Knife Revenue
| | | 2018 | | | Increase
(Decrease) | | | 2017 | | | Increase
(Decrease) | | | 2016 | |
| Medical services revenue from Gamma Knife (in thousands) | | $ | 13,578 | | | | (8.6 | )% | | $ | 14,848 | | | | (7.6 | )% | | $ | 16,076 | |
| Number of Gamma Knife procedures | | | 1,460 | | | | (10.5 | )% | | | 1,631 | | | | (15.1 | )% | | | 1,922 | |
| Average revenue per procedure | | $ | 9,300 | | | | 2.2 | % | | $ | 9,104 | | | | 8.8 | % | | $ | 8,364 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Increase (Decrease) | | 2019 | | | | |
| Revenue from Gamma Knife (in thousands) | $ | 11,670 | | | (13.9) | % | | $ | 13,551 | | | | | |
| Number of Gamma Knife procedures | 1,530 | | | 2.1 | % | | 1,498 | | | | | |
| Average revenue per procedure | $ | 7,763 | | | (14.2) | % | | $ | 9,046 | | | | | |
Gamma Knife revenue for
20182020 was
$13,578,000$11,670,000 compared to
$14,848,000$13,551,000 in
2017.2019. Gamma Knife revenue for
20182020 decreased
$1,270,000$1,881,000 compared to
20172019 due to
three customer contracts that expireda lower average reimbursement at the Company's retail sites driven by an increase in
April 2017, August 2017patients with Medicare coverage and
April 2018, respectively. Gamma Knife revenue for 2017 was $14,848,000 compared to $16,076,000a decrease in
2016. Gamma Knife revenue for 2017 decreased $1,228,000 compared to 2016, due to two customer contracts that expired in April and August 2017, respectively.patients with Commercial insurance.
The number of Gamma Knife procedures performed in 2018 decreased 1712020 increased 32 compared to 2017,2019 due to three customer contracts that expiredthe Company's acquisition of GKCE in April 2017, August 2017, and April 2018, respectively. The number ofJune 2020. This increase was offset by a Gamma Knife procedures performedcontract that terminated in 2017 decreased 291 compared to 2016,October 2020 and due to twothe impact of the COVID-19 pandemic.
In April 2020, an existing Gamma Knife customer
contract expired. The site operated on a month-to-month basis through October 2020, when the customer notified the Company of their intent to terminate. Two additional existing Gamma Knife customers notified the Company of their intent to not renew their contract during the third and fourth quarters of 2020. One of the contracts
that expiredterminated in
AprilFebruary 2021 and
August 2017, respectively.the second is set to expire in December 2021.
Revenue per procedure
increaseddecreased by
$196$1,283 and
$740 in
2018 and 20172020 compared to
2017 and 2016, respectively.2019. For
2018 and 2017,2020, the
increasedecrease was
primarily due to
lower average reimbursement at the
expiration of a high volume, low reimbursement rate customer contract in April 2017.Company's retail sites.
Proton Therapy Revenue
| | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| Medical services revenue from PBRT (in thousands) | | $ | 5,042 | | | | 22.4 | % | | $ | 4,120 | | | | 91.7 | % | | $ | 2,149 | |
| Number of PBRT fractions | | | 5,141 | | | | 12.9 | % | | | 4,554 | | | | 95.5 | % | | | 2,330 | |
| Average revenue per fraction | | $ | 981 | | | | 8.4 | % | | $ | 905 | | | | (1.8 | %) | | $ | 922 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | Increase (Decrease) | | 2019 | | | | |
| Revenue from PBRT (in thousands) | $ | 6,167 | | | (0.8) | % | | $ | 6,214 | | | | | |
| Number of PBRT fractions | 5,868 | | | (2.5) | % | | 6,018 | | | | | |
| Average revenue per fraction | $ | 1,051 | | | 1.7 | % | | $ | 1,033 | | | | | |
PBRT revenue for
20182020 was
$5,042,000$6,167,000 compared to
$4,120,000 and $2,149,000$6,214,000 in
2017 and 2016, respectively.2019. The number of PBRT fractions performed in
20182020 was
5,1415,868 compared to
4,554 and 2,3306,018 in
2017 and 2016.2019. Revenue per fraction in
20182020 was
$981$1,051 compared to
$905$1,033 in 2019. In 2020, the Company's PBRT revenue declined due to an impact on volumes in the second and
$922fourth quarter from the COVID-19 pandemic. The Company's proton therapy system also experienced some down-time for maintenance in
2017 and 2016, respectively. The Company’s first MEVION S250 system was place at Orlando Health and treated its first patient in April 2016 and revenues and volumes have continued to increase since its first yearthe third quarter of
operations.2020.
IGRT Revenue
| (in thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| Medical services revenue from IGRT | | $ | 1,094 | | | | 86.1 | % | | $ | 588 | | | | 23.8 | % | | $ | 475 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| Revenue from IGRT | | $ | — | | | (100.0) | % | | $ | 840 | | | | | |
IGRT revenue for
20182020 was
$1,094,000$0 compared to
$588,000 and $475,000$840,000 in
2017 and 2016, respectively.2019. IGRT revenue
increaseddecreased for
2018 due to increased volumes2020 as the result of the winding down of the Company’s IGRT system, which was being used as a back-up system at the
customer site. The Company’s
contract for its IGRT equipment expired in April 2020 and the Company agreed to sell the equipment to its existing
site.customer for $150,000, which was equal to the equipment's salvage value. The Company sold the equipment in July 2020.
COSTS OF REVENUE
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| Total costs of revenue | | $ | 12,228 | | | | 12.3 | % | | $ | 10,893 | | | | 10.0 | % | | $ | 9,905 | |
| Percentage of total revenue | | | 62.0 | % | | | | | | | 55.7 | % | | | | | | | 53.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| Total costs of revenue | | $ | 13,371 | | | (2.3) | % | | $ | 13,685 | | | | | |
| Percentage of total revenue | | 75.0 | % | | | | 66.4 | % | | | | |
The Company'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)
increaseddecreased by
$1,335,000$314,000 in
2018 and $988,000 in 20172020 compared to
2017 and 2016, respectively.Maintenance and supplies costs as a percentage of total revenue were 12.2%, 6.9%,13.4% and 4.7%12.7% in 2018, 2017,2020 and 2016, respectively.2019. Maintenance and supplies costs increaseddecreased by $1,040,000 and $485,000$233,000 in 2018 and 20172020 compared to 2017 and 2016, respectively.2019. The increasedecrease in 2018 and 20172020 compared to 2017 and 2016, respectively,2019 was due to a decrease in time and materials costs at the Company’s PBRT maintenance contract which began September 2017. The PBRT maintenance contract renews annually every September and is for a five (5) year period.
Company's existing sites.
Depreciation and amortization costs as a percentage of total revenue were
34.2%, 33.8%,38.1% and
33.5%35.6% in
2018, 20172020 and
2016, respectively.2019. Depreciation and amortization costs
increased $144,000 and $339,000decreased $552,000 in
2018 and 20172020 compared to
2017 and 2016, respectively.2019. The
increasedecrease in
20182020 compared to
20172019 was
primarily due to depreciation incurred on the
Company’sCompany's Gamma Knife
and IGRT equipment at its location in
Peru, which began operationsBoston, Massachusetts in
July 2017,2019, offset by increased depreciation recognition at two of the Company's expiring Gamma Knife sites. One of these contracts expired in October 2020 and
depreciation incurred on the
PBRT system. The increasesecond expired in
2017 compared to 2016 was due to depreciation incurred on the
PBRT system, which began operations in April 2016.first quarter of 2021.
Other direct operating costs as a percentage of total revenue were
15.6%, 15.0%,23.5% and
14.8%18.1% in
2018, 20172020 and
2016, respectively.2019. Other direct operating costs increased by
$151,000 and $164,000$471,000 in
2018 and 20172020 compared to
2017 and 2016, respectively.2019. The increase in
2018 and 20172020 is
primarily due to operating costs
incurred byfrom the
Company’s PBRT system and operating costs for the Company’s Gamma Knife siteCompany's acquisition of GKCE in
Peru, which began treating patients in July 2017.June 2020.
SELLING AND ADMINISTRATIVE EXPENSE
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Selling and administrative costs | | $ | 3,994 | | | | (7.6 | )% | | $ | 4,323 | | | | 13.7 | % | | $ | 3,802 | |
| Percentage of total revenue | | | 20.3 | % | | | | | | | 22.1 | % | | | | | | | 20.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Selling and administrative costs | | $ | 4,608 | | | 13.5 | % | | $ | 4,060 | | | | | |
| Percentage of total revenue | | 25.8 | % | | | | 19.7 | % | | | | |
The Company's selling and administrative costs decreased $329,000 and increased $521,000$548,000 in 2018 and 20172020 compared to 2017 and 2016, respectively. The decrease in 2018 was driven by legal fees, severance expense incurred in 2017, and stock-based compensation incurred in 2017, related to performance awards.2019. The increase in 20172020 was driven by start-up costs fordue to legal and other fees, including, but not limited to the Company’s new siteCOVID-19 pandemic and the transition in Peru,senior management and tax, legal, fees,and consulting fees travel costs, severance expense and building rent. The Company moved offices on August 31, 2016. Priorrelated to the move, the Company subleased a portionCompany's acquisition of its existing office space. The Company also recordedGKCE of approximately $108,000$162,000.
INTEREST EXPENSE
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Interest expense | | $ | 1,057 | | | (19.8) | % | | $ | 1,318 | | | | | |
| Percentage of total revenue | | 5.9 | % | | | | 6.4 | % | | | | |
Table of
stock-based compensation expense to recognize performance awards for the year ended December 31, 2017. These performance awards had certain vesting targets tied to performance metrics which were achieved for the year ended.INTEREST EXPENSE
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Interest expense | | $ | 1,631 | | | | (15.4 | )% | | $ | 1,927 | | | | 12.9 | % | | $ | 1,707 | |
| Percentage of total revenue | | | 8.3 | % | | | | | | | 9.9 | % | | | | | | | 9.1 | % |
Contents
The Company's interest expense decreased
$296,000 and increased $220,000$261,000 in
2018 and 20172020 compared to
2017 and 2016, respectively.2019. The decrease in
2018 compared to 2017 is2020 was primarily due to a lower average principal base for the Company’s lease and debt portfolio, effectively reducing interest expense.
The increase in 2017 compared to 2016 is primarily due to interest incurred on PBRT lease financing, offset by a lower average principal base for the Company’s Gamma Knife portfolio, effectively reducing interest expense.PROCEEDS RECEIVED FROM INVESTMENT IN EQUITY SECURITIES
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Proceeds received from investment in equity securities | | $ | 22 | | | | * | | | $ | 0 | | | | * | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Percentage of total revenue | | | 0.1 | % | | | | | | | 0 | % | | | | | | | 0.0 | % |
(LOSS) ON WRITE DOWN OF IMPAIRED ASSETS AND ASSOCIATED REMOVAL COSTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| (Loss) on write down of impaired assets | | $ | 8,264 | | | * | | $ | 0 | | | | | |
| | | | | | | | | | |
| Percentage of total revenue | | 46.3 | % | | | | 0.0 | % | | | | |
*Not meaningful
Proceeds received from the Company’s investment in equity securities was $22,000 in 2018 compared to $0 in 2017 and 2016, respectively.
As of December 31,
2017,2020, the Company
adjusted the carrying value of its investment in equity securities to the determined fair value of $0 and recordedrecognized a
$579,000 impairment loss. Following a round of financing in the second quarter 2018, the Company’s investment in equity securities (preferred and common shares) was cancelled. The Company’s investment in common and preferred shares were valued at $0 and $22,000, respectively, resulting in cash proceeds of $22,000 from its investment in equity securities. The Company no longer has any ownership interest in the entity which is previously held an equity investment.(LOSS) ON WRITE DOWN INVESTMENT IN EQUITY SECURITIES
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| (Loss) on write down investment in equity securities | | $ | 0 | | | | * | | | $ | (579 | ) | | | * | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Percentage of total revenue | | | 0.0 | % | | | | | | | (3.0 | )% | | | | | | | 0.0 | % |
*Not meaningful
(Loss)loss on the write down of the Company’s investment in equity securities was $0 in 2018 compared to $579,000 in 2017, and $0 in 2016. For 2017, the (loss) on the write downimpaired assets of investment in equity securities is due to the other-than-temporary assessment performed at December 31, 2017.$8,264,000. The Company adjustedreviewed its long-lived assets and deposits during the carryingfourth quarter of 2020 and concluded events and circumstances existed that indicated the value of its investmentthese assets was more-than temporarily impaired.
The impaired assets included six (6) Gamma Knife units and related removal costs, and two (2) deposits towards the purchase of proton beam systems and related capitalized interest. The six (6) Gamma Knife units that were impaired consisted of two (2) units that had been taken out of service in
Mevion to the determined fair valueprior years, one (1) unit that was taken out of
$0service in 2020 and
recorded a $579,000 impairment loss during the year ended December 31, 2017.This transaction is treated as a capital loss for tax purposes which may be deducted only to the extentthree (3) units that have already been or the Company has capital gains. The Company is not awareanticipates will be taken out of any event or transaction planned where the Company would generate a capital gain. Therefore, a full valuation allowance was recorded against the income tax benefit from the impairment loss, and the net impact to the income tax provision is $0 for the year ended December 31, 2017.
(LOSS) ON EARLY EXTINGUISHMENT OF DEBT
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| (Loss) on early extinguishment of debt | | $ | 0 | | | | * | | | $ | 0 | | | | * | | | $ | (108 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Percentage of total revenue | | | 0 | % | | | | | | | 0 | % | | | | | | | (0.6 | )% |
*Not meaningful
(Loss) on early extinguishment of debt was $0service in 2018 and 2017 compared to $0 and $108,000 in 2017 and 2016, respectively. In February 2016, the Company used a portion of the proceeds from the lease financing for its first MEVION S250 to pay down the $1,000,000 of Promissory Notes that were issued pursuant to the Note and Warrant Purchase Agreements (the “Agreements”) between the Company and four members of the Company’s Board of Directors. The Agreements permit for early payment without penalty to the Company. The Notes were issued with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of $80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment of debt on the Company’s condensed consolidated statement of operations for the year ended December 31, 2016.
INTEREST AND OTHER INCOME
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Interest and other income | | $ | 198 | | | | 6500.0 | % | | $ | 3 | | | | (80.0 | )% | | $ | 15 | |
| | | | | | | | | | | | | | | | | | | | | |
| Percentage of total revenue | | | 1.0 | % | | | | | | | 0.0 | % | | | | | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Interest and other income | | $ | 10 | | | (37.5) | % | | $ | 16 | | | | | |
| | | | | | | | | | |
| Percentage of total revenue | | 0.1 | % | | | | 0.1 | % | | | | |
Interest and other income
increased $195,000 and decreased
$12,000$6,000 in
2018 and 20172020 compared to
2017 and 2016, respectively. The increase in 2018 was due to an insurance reimbursement received from the Company’s business interruption coverage. In the third quarter of 2018, the PBRT unit at Orlando Health sustained water damage resulting from the facility’s water evacuation system. The PBRT system was down for two weeks as a result. The Company received approximately $185,000.2019. Interest and other income is generally comprised of interest expense and interest earned, and increases or decreases generally reflect fluctuations in these amounts.
INCOME TAX EXPENSE
| (In thousands) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Income tax expense (benefit) | | $ | 451 | | | | 140.9 | % | | $ | (1,103 | ) | | | (217.0 | )% | | $ | 943 | |
| Percentage of total revenue | | | 2.3 | % | | | | | | | (5.6 | )% | | | | | | | 5.0 | % |
| Percentage of income, after net income attributable to non-controlling interests, and before income taxes | | | 30.6 | % | | | | | | | (134.5 | )% | | | | | | | 50.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Income tax (benefit) expense | | $ | (1,737) | | | * | | $ | 128 | | | | | |
| Percentage of total revenue | | (9.7) | % | | | | 0.6 | % | | | | |
| Percentage of income, after net income attributable to non-controlling interests, and before income taxes | | 19.7 | % | | | | 16.3 | % | | | | |
*Not meaningful
Income tax expense
increased $1,554,000 and decreased
$2,046,000$1,865,000 in
2018 and 20172020 compared to
2017 and 2016, respectively. On December 22, 2017, the U.S. government enacted comprehensive2019. The decrease in income tax
legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changesbenefit provision in 2020 was due to the
U.S. tax code that affect fiscal 2017, including, but not limited to requiring a one-time transition taxloss on
certain unrepatriated earningswrite-down of
foreign subsidiaries that is payable over eight years. The Tax Act also establishes new tax laws that will affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate from 34% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss deduction limitations, a base erosion, anti-tax abuse tax and a deduction for foreign-derived intangible income and a new provision designed to tax global intangible low-taxed income. As a result of the Tax Act, the Company revalued its federal and state deferred tax liabilities based on a 21% tax rate as opposed to a 34% tax rate. The net effect of this change on the Company’s income tax provision forimpaired assets recorded during the year ended December 31,
2017 was a tax benefit of $1,546,000. The increase for the year ended December 31, 2018 was due to the provision benefit recorded in 2017.2020.
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,
2018,2020, the Company
is expected to utilizeexhausted 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) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Net income attributable to non-controlling interests | | $ | 607 | | | | (40.3 | )% | | $ | 1,017 | | | | (23.0 | )% | | $ | 1,320 | |
| | | | | | | | | | | | | | | | | | | | | |
| Percentage of total revenue | | | 3.1 | % | | | | | | | 5.2 | % | | | | | | | 7.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Net (loss) income attributable to non-controlling interests | | $ | (658) | | | (185.3) | % | | $ | 771 | | | | | |
| | | | | | | | | | |
| Percentage of total revenue | | (3.7) | % | | | | 3.7 | % | | | | |
Net income attributable to non-controlling interests decreased
$410,000 and $303,000$1,429,000 in
2018 and 20172020 compared to
2017 and 2016, respectively.2019. 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 decrease in 2020 compared to 2019 was due to the loss on write off of impaired assets.
NET INCOME ATTRIBUTABLE TO AMERICAN SHARED HOSPITAL SERVICES
(In thousands, except per share amounts) | | 2018 | | | Increase (Decrease) | | | 2017 | | | Increase (Decrease) | | | 2016 | |
| | | | | | | | | | | | | | | | |
| Net income attributable to ASHS | | $ | 1,023 | | | | (46.8 | )% | | $ | 1,923 | | | | 106.8 | % | | $ | 930 | |
| Net income per share attributable to ASHS, diluted | | $ | 0.17 | | | | (48.5 | )% | | $ | 0.33 | | | | 94.1 | % | | $ | 0.17 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share amounts) | | 2020 | | Increase (Decrease) | | 2019 | | | | |
| | | | | | | | | | |
| Net (loss) income attributable to ASHS | | $ | (7,058) | | | * | | $ | 659 | | | | | |
| Net (loss) income per share attributable to ASHS, diluted | | $(1.14) | | * | | $ | 0.11 | | | | | |
*Not meaningful
Net
income(loss) attributable to American Shared Hospital Services was
$1,023,000$7,058,000 in
20182020 compared to
$1,923,000 in 2017, and $930,000 in 2016. Excluding the adjustment to the Company’s income tax provision, because of the Tax Act of $1,546,000, and the write-down of the Company’s investment in Mevion of $579,000 in 2017, net income
of $659,000 in
2018 increased $45,0002019. Net loss decreased $7,717,000 in 2020 compared to
2017. Excluding the adjustment2019 due primarily to
the Company’s income tax provision, because of the Tax Act of $1,546,000, and the write-down of the Company’s investment in Mevion of $579,000 in 2017, and the loss on
early extinguishmentwrite down of
debt of $108,000, net of estimated taxes in 2016, net income decreased $38,000 in 2017 compared to 2016.IMPAIRMENT ANALYSIS OF INVESTMENT IN EQUITY SECURITIES
As of December 31, 2018, and 2017 the Company had a $0 investment in the common stock of Mevion. The Company previously accounted for this investment under the cost method. The Company previously carried its investment in Mevion at cost and reviewed it for impairment on a quarterly basis, or as events or circumstances might have indicated that the carrying value of the investment may not be recoverable.
Based on guidance provided in Accounting Standards Codification (“ASC”) 320 Investments–Debt and Equity Securities (“ASC 320”) and Staff Accounting Bulletins (“SAB”) Topic 5M Other Than Temporary Impairment (“OTTI”) of Certain Investments in Equity Securities (“SAB Topic 5M”), the Company analyzed the related events of Mevion, that occurred in the second and third quarters of 2015 and its impact on the Company’s investment. The Company determined that these circumstances indicated a decline in value of its Mevion investment that was other-than-temporary and concluded that a write-down of the carrying value should be recognized. As of June 30, 2015, the Company adjusted its investment in Mevion to the estimated fair value of $600,000 and recorded a $2,114,000 impairment loss. The $2,114,000 other than temporary impairment of its investment in Mevion is recorded in other income (loss) on the Company’s Condensed Consolidated Statement of Operations.
During the period ended December 31, 2015, the Company engaged a third-party expert to review and corroborate its assessment of the fair value of the Mevion investment. Based on the third-party analysis, an additional impairment loss of $26,000 was recognized by the Company during the three months ended December 31, 2015. The fair value of the Company’s investment in Mevion, as of December 31, 2015 was approximately $579,000. The impairment loss for the year ended December 31, 2015 was $2,140,000.
During the year ended December 31, 2017, the Company reviewed its investment in Mevion and determined the fair value of its investment was $0. Based on the Company’s assessment of its investment in Mevion, the Company recognized an impairment loss for the year then ended December 31, 2017 of $579,000. During 2018, Mevion entered into a merger transaction with Mevion Medical Technology Group Limited, and the Company’s common shares in Mevion were cancelled.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of
$1,442,000$4,325,000 at December 31,
20182020 compared to
$2,152,000$1,779,000 at December 31,
2017, a decrease2019, an increase of
$710,000.$2,546,000. The Company’s expected primary cash needs on both a short and long-term basis are for capital expenditures, business expansion, working capital, and other general corporate purposes.
Operating activities provided cash of
$8,062,000$9,745,000 in
2018,2020, which was driven by
net income of $1,630,000, non-cash charges for depreciation and amortization of
$6,818,000, increased in deferred income tax of $48,000, net accrued interest on lease financing of $39,000,$6,970,000, stock-based compensation expense of
$223,000, and changes in other accrued$299,000, non-cash lease expense of $288,000, a loss on the write-down of impaired assets of $8,184,000, interest expense associated with lease liabilities
and deferred revenue of
$115,000. These were partially offset by$65,000, changes in receivables of
$420,000,$2,966,000, changes in prepaid and other assets of
$231,000,$762,000, and changes in other accrued liabilities, income taxes payable of $179,000, and deferred revenue of $263,000. These were offset by a net loss of $7,716,000, an income tax benefit of $2,162,000, and net
insurance proceeds receivablelease liabilities of
$160,000.$353,000.
The Company’s trade accounts receivable
increaseddecreased by
$483,000$2,591,000 to
$5,502,000$4,303,000 at December 31,
20182020 from
$5,019,000$6,894,000 at December 31,
2017,2019, primarily due to
accounts receivablean outstanding payment related to
a contractual Medicare adjustment for one of the
new PBRT systemCompany's Gamma Knife contracts, which
began operationswas collected in
April 2016.January 2020, and an increase in collections from the Company's proton therapy customer. The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31,
2018 increased2020 decreased to
10288 days compared to
94122 days at December 31,
2017.2019. 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
$1,526,000$2,389,000 of cash in
20182020 due to payments made towards the purchase of property and equipment of
$1,577,000,$455,000 and payment for the Acquisition of $2,084,000, offset by
insurance proceeds
from the sale of
$51,000.equipment of $150,000.
Financing activities used
$7,246,000$4,810,000 of cash during
2018,2020, primarily due to principal payments on long-term debt of
$2,467,000,$1,726,000, principal payments towards
capitalfinance leases of
$4,089,000,$3,199,000, principal payments on short-term financing of $519,000, and distributions to non-controlling interests of
$690,000.$761,000. These decreases were offset by long-term debt financing of the Acquisition of $1,425,000.
The Company had
a working capital
deficit at December 31,
20182020 of
$472,000$1,530,000 compared to
negative working capital of
$114,000$2,528,000 at December 31,
2017.2019. The
$586,000 increase$4,058,000 decrease in net working capital was due to an
increasedecrease in accounts receivable and other receivables of
$506,000, increases in prepaid and other assets of $120,000, net receivable from insurance of $160,000, decreases in capital leases of $407,000 and decreases in long term debt of $340,000. This was offset by a decrease in cash of $710,000,$2,488,000, an increase in accounts payable of
$76,000, increase in accrued liabilities of $141,000, and$126,000, an increase in employee compensation and benefits of
$20,000.$171,000, an increase in accrued liabilities of $266,000, asset retirement obligations of $1,270,000, an increase in income taxes payable of $243,000, working capital payment due of $197,000, increase in lease liabilities of $26,000, and an increase in finance leases of $2,236,000. This was offset by an increase in cash and restricted cash of $2,546,000, increases in prepaid and other assets of $50,000, and a decrease in long term debt of $369,000. The Company believes that its cash flow from cash on hand, operations, and other cash resources are adequate to meet its scheduled debt and
capitalfinance 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.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe that inflation has had a significant impact on operations because a substantial majority of the costs that it incurs under its customer contracts are fixed through the term of the contract.
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS
The following table presents, as of December 31, 2018, the Company’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in the notes to the consolidated financial statements referenced below.
For purposes of this table, these commitments are listed in the less than 1 year and 1-3-year categories.
| | | 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) | | $ | 6,168,000 | | | | 2,396,000 | | | | 2,352,000 | | | | 668,000 | | | | 752,000 | |
| Capital leases (includes interest) | | | 17,335,000 | | | | 5,524,000 | | | | 10,009,000 | | | | 1,494,000 | | | | 308,000 | |
| Future equipment purchases | | | 38,235,000 | | | | 4,235,000 | | | | 34,000,000 | | | | - | | | | - | |
| Equipment service contracts | | | 7,523,000 | | | | 1,664,000 | | | | 5,859,000 | | | | - | | | | - | |
| Operating leases | | | 1,208,000 | | | | 275,000 | | | | 509,000 | | | | 424,000 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 70,469,000 | | | $ | 14,094,000 | | | $ | 52,729,000 | | | $ | 2,586,000 | | | $ | 1,060,000 | |
Further discussion of the long-term debt commitment is included in Note 5, capital leases in Note 6, and operating leases in Note 11 of the consolidated financial statements.
On December 20, 2018, the Company signed Second Amendments to two System Build Agreements (the “Amendments”) for the Company’s second and third Mevion PBRT units. The Company and Mevion have agreed to upgrade the second and third PBRT units for which the Company has purchase commitments. The Company is actively seeking sites for these units but, to date, has not entered into agreements with any party for either placement of a PBRT unit or the related financing. The Company projects that it will be required to commence delivery of the second and third PBRT units no later than 2023. In the event the Company is unable to enter into customer agreements within the requisite time frame or receive an extension from Mevion, the Company could forfeit its deposits.
As of December 31, 2018, the Company had commitments 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 Condensed Consolidated Balance Sheets as deposits and construction in progress.
As of December 31, 2018, the Company had commitments to perform three Cobalt-60 reloads at existing customer sites and purchase one LINAC system, to be placed at a new customer site in 2019. The Cobalt-60 reloads are scheduled to occur in 2019. Total Gamma Knife and LINAC commitments as of December 31, 2018 were $4,235,000. It is the Company’s intent to finance these commitments. There are no significant cash requirements, pending financing, for these commitments in the next 12 months. 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, the Company entered into a Maintenance and Support Agreement (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 September 5, 2017 and renews annually. The agreement requires an annual prepayment of $1,285,000 which was made on August 6, 2018 for the current contractual period. This payment portion was recorded as a prepaid contract and will be amortized over the one-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, if a second Mevion PBRT unit is not placed at Orlando Health prior to September 2019. The Company has accrued the pro-rata portion of this additional maintenance expense for the year ended December 31, 2018.
As of December 31, 2018, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion and Elekta AB. The Company’s commitment to purchase a LINAC in 2019 includes a 9-year agreement to service the equipment. Total service commitments as of December 31, 2018 were $7,523,000. 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 estimates the following commitments for each of the equipment systems, with expected timing of payments as follows as of December 31, 2018:
| | | 2019 | | | Thereafter | | | Total | |
| Proton Beam Units | | $ | - | | | $ | 34,000,000 | | | $ | 34,000,000 | |
| | | | | | | | | | | | | |
| Gamma Knife & Linac Units | | | 4,235,000 | | | | - | | | | 4,235,000 | |
| | | | | | | | | | | | | |
| Service Contracts | | | 1,664,000 | | | | 5,859,000 | | | | 7,523,000 | |
| | | | | | | | | | | | | |
| Total Commitments | | $ | 5,899,000 | | | $ | 39,859,000 | | | $ | 45,758,000 | |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below presents information about certain market-sensitive financial instruments as of December 31, 2018. The fair values were determined based on quoted market prices for the same or similar instruments.
| | | Payments Due by Period | | | There- | | | | | | Fair | |
| (amounts in thousands) | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | after | | | Total | | | Value | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed rate long-term debt and present value of capital leases | | $ | 6,526 | | | $ | 4,567 | | | $ | 6,143 | | | $ | 1,156 | | | $ | 773 | | | $ | 1,000 | | | $ | 20,165 | | | $ | 20,277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Average interest rates | | | 8.0 | % | | | 8.5 | % | | | 9.0 | % | | | 6.6 | % | | | 6.1 | % | | | 6.2 | % | | | 8.1 | % | | | | |
We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.
At December 31, 2018, we had no significant long-term, market-sensitive investments.
We have no affiliation with partnerships, trusts or other entities whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements, and therefore have no exposure to the financing, liquidity, market or credit risks associated with such entities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and Financial Statement Schedules included at page
A-1F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
| (a) | Evaluation of disclosure controls and procedures. |
(a)Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) 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. |
(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,
2018.2020. 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,
2018,2020, the Company’s internal control over financial reporting is effective based on those criteria.
| (c) | Changes in internal controls over financial reporting. |
In June 2020, the Company acquired Gamma Knife Center Ecuador S.A. (“GKCE”). Management excluded GKCE from its report on internal controls over financial reporting as of December 31, 2020. GKCE's financial statements constitute 3.8% and 3.6% of the Company’s consolidated total assets (excluding $1,343,000 of goodwill and intangible assets and $19,000 of land, which were integrated into the Company’s control environment), and revenues, respectively. The Company will include GKCE in its assessment of the effectiveness of internal controls over financial reporting in fiscal year 2021 annual management report, the annual management report following the first anniversary of the acquisition.
(c)Changes in internal controls over financial reporting.
Our Chief Executive Officer 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, 2018,2020, 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.
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding directors is incorporated herein by reference from the Company’s definitive Proxy Statement for the
20192021 Annual Meeting of Shareholders (the
“2019“2021 Proxy Statement”). Information regarding executive officers of the Company, included herein under the caption “Executive Officers of the Company” in Part I, Item 1 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 20192021 Proxy Statement.
Information concerning our audit committee financial experts required by this Item is incorporated by reference from the
20192021 Proxy Statement.
Information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference from the
20192021 Proxy Statement.
We have adopted a Code of Ethics that is available on our website atwww.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.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by reference from the 20192021 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 20192021 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated herein by reference from the 20192021 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is incorporated herein by reference from the
20192021 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | Financial Statements and Schedules. |
(a)Financial Statements and Schedules.
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 Operations
Consolidated
Statements of Comprehensive Income (Loss)Consolidated StatementsStatement 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.
(b)Exhibits.
The following Exhibits are filed with this Report.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | | | | Incorporated by reference herein |
| 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 and restated dated as of January 27, 2021. | | 8-K
001-08789 | | 3.1 | | 2/2/2021 |
| | | | | | | | |
| * | Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | | 10-K
001-08789 | | 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 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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
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 |
| | | | | | | | |
| # | 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 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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
001-08789 | | 10.11d | | 4/6/2021 |
| | | | | | | | |
| | 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 |
| | | | | | | | |
| # | 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 |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| | | | | | | | |
| # | 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 |
| | | | | | | | |
| • | Offer Letter between the Company and Mr. Raymond C. Stachowiak dated April 22, 2020 | | 8-K 001-08789 | | 10.27 | | 4/22/2020 |
| | | | | | | | |
| * | Subsidiaries of American Shared Hospital Services | | | | | | |
| | | | | | | | |
| * | Consent of Independent Registered Public Accounting Firm | | | | | | |
Exhibit | | | | | | Incorporated by reference herein | | | | | | | | | | | | | | | | | | | | |
Number | | | | Description | | Form | | Exhibit | | Date |
| 4.1 | | | | 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 |
| | | | | | | | | | | |
| 4.1a | | | | 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 |
| | | | | | | | | | | |
| 10.1g | | | | 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 |
| | | | | | | | | | | |
| 10.1h | | | | 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 |
| | | | | | | | | | | |
| 10.1i | | | | 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 |
| | | | | | | | | | | |
| 10.2 | | | | 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 |
| | | | | | | | | | | |
| 10.2a | | | | 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 |
| | | | | | | | | | | |
| 10.2b | | | | 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 |
| 10.2c | | | | 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 |
| | | | | | | | | | | |
| 10.2d | | # | | 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 |
| | | | | | | | | | | |
| 10.3 | | | | 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 |
| | | | | | | | | | | |
| 10.3a | | | | 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 |
| | | | | | | | | | | |
| 10.3b | | | | 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 |
| 10.4a | | | | 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 |
| | | | | | | | | | | |
| 10.4b | | # | | 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 |
| | | | | | | | | | | |
| 10.5 | | # | | 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 |
| | | | | | | | | | | |
| 10.6 | | # | | 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 |
| | | | | | | | | | | |
| 10.7 | | | | 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 |
| | | | | | | | | | | |
| 10.7d | | | | 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 |
| 10.7e | | | | 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 |
| | | | | | | | | | | |
| 10.8 | | | | 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 |
| | | | | | | | | | | |
| 10.8a | | | | 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 |
| | | | | | | | | | | |
| 10.8b | | | | 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 |
| | | | | | | | | | | |
| 10.8c | | | | 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 |
| | | | | | | | | | | |
| 10.8d | | | | 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 |
| | | | | | | | | | | |
| 10.8e | | | | 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 |
| 10.9 | | | | 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 |
| | | | | | | | | | | |
| 10.9a | | | | 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 |
| | | | | | | | | | | |
| 10.9b | | | | 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 |
| | | | | | | | | | | |
| 10.9c | | | | 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 |
| | | | | | | | | | | |
| 10.9d | | | | 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 |
| | | | | | | | | | | |
| 10.9e | | # | | 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 |
| | | | | | | | | | | |
| 10.10 | | | | 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 |
| | | | | | | | | | | |
| 10.10a | | | | 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 |
| 10.10b | | # | | 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 |
| | | | | | | | | | | |
| 10.10c | | | | 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 |
| | | | | | | | | | | |
| 10.11 | | | | 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 |
| | | | | | | | | | | |
| 10.11a | | | | 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 |
| | | | | | | | | | | |
| 10.11b | | | | 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 |
| | | | | | | | | | | |
| 10.11c | | # | | 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 |
| | | | | | | | | | | |
| 10.12 | | | | 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 |
| | | | | | | | | | | |
| 10.12a | | | | 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 |
| | | | | | | | | | | |
| 10.13 | | | | 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 |
| 10.13a | | # | | 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 |
| | | | | | | | | | | |
| 10.13b | | | | 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 |
| | | | | | | | | | | |
| 10.14 | | | | 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 |
| | | | | | | | | | | |
| 10.14a | | # | | 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 |
| | | | | | | | | | | |
| 10.15 | | | | 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 |
| | | | | | | | | | | |
| 10.15a | | | | 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 |
| | | | | | | | | | | |
| 10.15b | | | | 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 |
| 10.16a | | # | | 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 |
| | | | | | | | | | | |
| 10.16b | | # | | 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 |
| | | | | | | | | | | |
| 10.17 | | # | | 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 |
| | | | | | | | | | | |
| 10.17a | | | | 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 |
| | | | | | | | | | | |
| 10.17b | | | | 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 |
| | | | | | | | | | | |
| 10.18 | | # | | 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 |
| | | | | | | | | | | |
| 10.18a | | # | | 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 |
| | | | | | | | | | | |
| 10.19 | | # | | 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 |
| | | | | | | | | | | |
| 10.20 | | # | | 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 |
| | | | | | | | | | | |
| 10.21 | | # | | 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 |
101.INS | | * | | | | | | |
| 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 |
| * | Filed herewith. | | | | |
| 104 | ǂ* | Furnished herewith.Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline Instance XBRL Document | | | | | | |
| # | | | | | | | |
| * | 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. |
ITEM 16. FORM 10-K SUMMARY
The Optional 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 29, 2019April 6, 2021 | By: | /s/ Ernest A. Bates, M.D.Raymond C. Stachowiak |
| | Ernest A. Bates, M.D.Raymond C. Stachowiak |
| | Chairman of the Board and |
| | Chief Executive Officer |
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 | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Raymond C. Stachowiak | | Chief Executive Officer | | April 6, 2021 |
| Raymond C. Stachowiak | | | | |
| | | | |
| /s/ Ernest A. Bates | | Chairman of the Board and
| | March 29, 2019April 6, 2021 |
| Ernest A. Bates, M.D. | | Chief Executive Officer | | |
| | (Principal Executive Officer) | | |
| | | | |
| /s/ Daniel G. Kelly Jr. | | Director | | March 29, 2019April 6, 2021 |
| Daniel G. Kelly JR. | | | | |
| | | | |
| /s/ David A. Larson | | Director | | March 29, 2019April 6, 2021 |
| David A. Larson, M.D. | | | | |
| | | | |
| /s/ Sandra A. J. Lawrence | | Director | | March 29, 2019April 6, 2021 |
| Sandra A. J. Lawrence | | | | |
| | | | |
| /s/ S. Mert Ozyurek | | Director | | March 29, 2019April 6, 2021 |
| S. Mert Ozyurek | | | | |
| | | | |
/s/ John F. Ruffle | | Director | | March 29, 2019 |
John F. Ruffle | | | | |
| | | | |
/s/ Raymond C. Stachowiak | | Director | | March 29, 2019 |
Raymond C. Stachowiak | | | | |
| | | | |
/s/ Stanley S. Trotman, Jr. | | Director | | March 29, 2019 |
Stanley S. Trotman, Jr. | | | | |
| | | | |
| /s/ Craig K. Tagawa | | President, Chief Operating Officer and | | March 29, 2019 |
Craig K. Tagawa | |
Chief Financial Officer | | |
| |
(Principal Accounting Officer) | | April 6, 2021 |
AMERICAN SHARED HOSPITAL SERVICES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBERDecember 31,
20182020 and
2017,2019,
FOR THE
THREE YEARS ENDED DECEMBER 31,
20182020
Report of Independent Registered Public Accounting Firm
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,
20182020 and
2017,2019, and the related consolidated statements of operations,
stockholders’shareholders’ equity and cash flows for the
three years
then ended,
December 31, 2018.and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31,
20182020 and
2017,2019, and the consolidated results of its operations and its cash flows for the
three years
then ended,
December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
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 auditswe are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsincluded 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.basis
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Retail Revenue Recognition – Estimates of Reimbursement Rates and Payor Mix
As discussed in Note 2 in the Company’s consolidated financial statements, retail revenue amounted to approximately $11,418,000, which was approximately 64% of total consolidated revenue, during the year ended December 31, 2020. The related accounts receivable balance for total retail sites accounted for 68% of total accounts receivable at December 31, 2020. The Company has retail customer revenue classified as either turn-key or revenue sharing that are recognized under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”). 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:
a.Obtaining management’s reconciliation of retail revenue and accounts receivable by site agreeing to supporting documentation related to the estimated reimbursement rates and payor mix used in the calculation.
a.Obtaining third party confirmations, confirming number of procedures, payment dates and amounts paid, and reconciling confirmed amounts to management’s reconciliation, in order to validate approximate rate per procedure.
a.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.
a.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, property 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 3 – 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.
We identified management’s estimates of salvage 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 the Gamma Knife units due to limited sellers and buyers and trade-ins for the equipment are not guaranteed. Trade-ins are highly dependent on future demand, values and the Company’s relationship with supplier, a related party of the Company. In turn, auditing management’s judgments and estimates related to salvage value of certain equipment, involved a high degree of subjectivity.
The primary procedure we performed to address this critical audit matter included:
a.Evaluating management’s determination of salvage values by comparing determined salvages values with historical trade-in transactions and publicly available transaction information, which included reviewing relevant purchase agreements, supplier agreements and evaluating publicly available transaction information.
Valuation of Certain Tangible and Intangible Assets Acquired Through Business Combination
As described in Note 4 to the consolidated financial statements, the Company completed the acquisition of Gamma Knife Center Ecuador S.A. (“GKCE”) from GKCE’s selling majority shareholders in June 2020. The Company subsequently executed agreements to acquire 1.3% of the total outstanding shares in July 2020 and intends to acquire the remaining 0.7% at later date. The total purchase consideration for 100% of the outstanding shares of GKCE was approximately $2,869,000, including a base purchase price of $2,000,000, subject to certain price adjustments for current assets and liabilities and tax withholding. The transaction was accounted for as a business combination using the acquisition method, whereby the total consideration transferred, identifiable assets acquired, and liabilities assumed are based on the respective acquisition-date fair values.
As part of the acquisition, the Company acquired tangible assets, including building, equipment and other property and equipment with a fair value of approximately $723,000 and intangible assets, consisting of the acquired entity’s trade name, with a fair value of approximately $78,000. We identified the judgment and estimation of the methodologies and assumptions used in the valuation by management, in the determination of the fair value of these assets, as a critical audit matter. Significant assumptions used to estimate the fair value of these tangible and intangible assets included discount rates, useful lives, expected future cash flows, internal rate of return, revenue forecast and growth rates. Given these factors, the related audit effort in evaluating management’s estimates required a high degree of auditor judgment.
The primary procedures we performed to address this critical audit matter included:
a.Evaluating the appropriateness of the methodologies and assumptions used to estimate the fair value of certain tangible (real property and equipment) and intangible (trade name) assets, including involving valuation specialists, where specialized skill or knowledge was needed, to assist with our opinion.evaluation. Our valuation specialist assisted primarily in the evaluation of the qualification of the appraiser and valuation specialist used by management, consideration of methodologies used in the appraisal of real property, including review of market information utilized to determine fair value, and in relation to the valuation of trade name, review of the methodology, discount rate, royalty rate, useful life (indefinite), and internal rate of return.
a.Evaluating assumptions and inputs used in projected financial information of the acquired entity, which primarily related to revenue growth rates, including testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Specifically, when evaluating the assumptions related to the revenue growth rates and changes in the business that would drive these forecasted growth rates, we compared the assumptions to industry trends and subsequent interim period results to evaluate management’s estimates as of the date of the transaction.
San Francisco,
CAMarch 29, 2019
California
April 6, 2021
We have served as the Company’s auditor since
1999.F- 5
American Shared Hospital Services |
Consolidated Balance sheets |
| | | DECEMBER 31, | |
| | | 2018 | | | 2017 | |
| ASSETS | | | | | | | | |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | | $ | 1,442,000 | | | $ | 2,152,000 | |
| Restricted cash | | | 350,000 | | | | 350,000 | |
| Trade accounts receivable, net of allowance for doubtful accounts of $100,000 at December 31, 2018 and December 31, 2017 | | | 5,502,000 | | | | 5,019,000 | |
| Other receivables insurance proceeds | | | 1,137,000 | | | | - | |
| Other receivables | | | 239,000 | | | | 216,000 | |
| Prepaid expenses and other current assets | | | 1,276,000 | | | | 1,156,000 | |
| Total current assets | | | 9,946,000 | | | | 8,893,000 | |
| PROPERTY AND EQUIPMENT, net | | | 46,694,000 | | | | 48,491,000 | |
| OTHER ASSETS | | | 862,000 | | | | 792,000 | |
| TOTAL ASSETS | | $ | 57,502,000 | | | $ | 58,176,000 | |
| | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable | | $ | 435,000 | | | $ | 359,000 | |
| Employee compensation and benefits | | | 207,000 | | | | 187,000 | |
| Other accrued liabilities | | | 1,329,000 | | | | 1,188,000 | |
| Other accrued liabilities insurance payable | | | 977,000 | | | | - | |
| Current portion of long-term debt | | | 2,119,000 | | | | 2,459,000 | |
| Current portion of capital leases | | | 4,407,000 | | | | 4,814,000 | |
| Total current liabilities | | | 9,474,000 | | | | 9,007,000 | |
| LONG-TERM DEBT, less current portion | | | 3,332,000 | | | | 3,598,000 | |
| LONG-TERM CAPITAL LEASES, less current portion | | | 10,308,000 | | | | 12,272,000 | |
| DEFERRED REVENUE, less current portion | | | 382,000 | | | | 504,000 | |
| DEFERRED INCOME TAXES | | | 2,958,000 | | | | 2,910,000 | |
| COMMITMENTS AND CONTINGENCIES (See Note 11) | | | | | | | | |
| SHAREHOLDERS’ EQUITY | | | | | | | | |
| Common stock, no par value | | | | | | | | |
| Common stock, no par value (10,000,000 authorized; Issued and outstanding shares – 5,714,000 at December 31, 2018 and 5,710,000 at December 31, 2017 | | | 10,711,000 | | | | 10,711,000 | |
| Additional paid-in capital | | | 6,495,000 | | | | 6,272,000 | |
| Retained earnings | | | 7,896,000 | | | | 6,873,000 | |
| Total equity- American Shared Hospital Services | | | 25,102,000 | | | | 23,856,000 | |
| Non-controlling interests in subsidiaries | | | 5,946,000 | | | | 6,029,000 | |
| Total shareholders’ equity | | | 31,048,000 | | | | 29,885,000 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 57,502,000 | | | $ | 58,176,000 | |
| | | | | | | | | | | |
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED BALANCE SHEETS |
| | | |
| DECEMBER 31, |
| 2020 | | 2019 |
| ASSETS | | | |
| CURRENT ASSETS | | | |
| Cash and cash equivalents | $ | 3,961,000 | | | $ | 1,429,000 | |
| Restricted cash | 364,000 | | | 350,000 | |
| Accounts receivable, net of allowance for doubtful accounts of $100,000 at December 31, 2020 and December 31, 2019 | 4,303,000 | | | 6,894,000 | |
| Other receivables | 272,000 | | | 169,000 | |
| Prepaid expenses and other current assets | 1,950,000 | | | 1,900,000 | |
| Total current assets | 10,850,000 | | | 10,742,000 | |
| PROPERTY AND EQUIPMENT, net | 30,418,000 | | | 41,480,000 | |
| LAND | 19,000 | | | 0 | |
| GOODWILL | 1,265,000 | | | 0 | |
| INTANGIBLE ASSETS | 78,000 | | | 0 | |
| RIGHT OF USE ASSETS | 886,000 | | | 1,106,000 | |
| OTHER ASSETS | 137,000 | | | 455,000 | |
| TOTAL ASSETS | $ | 43,653,000 | | | $ | 53,783,000 | |
| | | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| CURRENT LIABILITIES | | | |
| Accounts payable | $ | 683,000 | | | $ | 557,000 | |
| Employee compensation and benefits | 405,000 | | | 234,000 | |
| Other accrued liabilities | 2,045,000 | | | 1,779,000 | |
| Asset retirement obligations | 1,270,000 | | | 0 | |
| Income taxes payable | 373,000 | | | 130,000 | |
| Working capital payment due | 197,000 | | | 0 | |
| Current portion of lease liabilities | 305,000 | | | 279,000 | |
| Current portion of long-term debt | 1,157,000 | | | 1,526,000 | |
| Current portion of finance leases | 5,945,000 | | | 3,709,000 | |
| Total current liabilities | 12,380,000 | | | 8,214,000 | |
| LONG-TERM LEASE LIABILITIES, less current portion | 581,000 | | | 827,000 | |
| LONG-TERM DEBT, less current portion | 3,440,000 | | | 1,954,000 | |
| LONG-TERM FINANCE LEASES, less current portion | 2,974,000 | | | 8,177,000 | |
| DEFERRED REVENUE, less current portion | 210,000 | | | 286,000 | |
| DEFERRED INCOME TAXES | 418,000 | | | 2,514,000 | |
| COMMITMENTS AND CONTINGENCIES (See Note 12) | 0 | | 0 |
| SHAREHOLDERS’ EQUITY | | | |
| Common stock, no par value | | | |
| Common stock, 0 par value (10,000,000 authorized; Issued and outstanding shares – 5,791,000 at December 31, 2020 and 5,817,000 at December 31, 2019 | 10,753,000 | | | 10,753,000 | |
| Additional paid-in capital | 7,024,000 | | | 6,725,000 | |
| Retained earnings | 1,497,000 | | | 8,555,000 | |
| Total equity- American Shared Hospital Services | 19,274,000 | | | 26,033,000 | |
| Non-controlling interests in subsidiaries | 4,376,000 | | | 5,778,000 | |
| Total shareholders’ equity | 23,650,000 | | | 31,811,000 | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 43,653,000 | | | $ | 53,783,000 | |
| | | | | | | | | | | | | | | |
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF OPERATIONS |
| |
| YEARS ENDED DECEMBER 31, |
| 2020 | | 2019 | | |
| | | | | |
| Revenues | $ | 17,837,000 | | | $ | 20,605,000 | | | |
| 17,837,000 | | | 20,605,000 | | | |
| Costs of revenue: | | | | | |
| Maintenance and supplies | 2,385,000 | | | 2,618,000 | | | |
| Depreciation and amortization | 6,789,000 | | | 7,341,000 | | | |
| Other direct operating costs | 4,197,000 | | | 3,726,000 | | | |
| 13,371,000 | | | 13,685,000 | | | |
| | | | | |
| Gross margin | 4,466,000 | | | 6,920,000 | | | |
| | | | | |
| Selling and administrative expense | 4,608,000 | | | 4,060,000 | | | |
| Interest expense | 1,057,000 | | | 1,318,000 | | | |
| Loss on write down of impaired assets and associated removal costs | 8,264,000 | | | 0 | | | |
| Operating (loss) income | (9,463,000) | | | 1,542,000 | | | |
| | | | | |
| | | | | |
| | | | | |
| Interest and other income | 10,000 | | | 16,000 | | | |
| (Loss) income before income taxes | (9,453,000) | | | 1,558,000 | | | |
| Income tax (benefit) expense | (1,737,000) | | | 128,000 | | | |
| Net (loss) income | (7,716,000) | | | 1,430,000 | | | |
| Less: net loss (income) attributable to non-controlling interests | 658,000 | | | (771,000) | | | |
| Net (loss) income attributable to American Shared Hospital Services | $ | (7,058,000) | | | $ | 659,000 | | | |
| | | | | |
| Net (loss) income per share attributable to American Shared Hospital Services: | | | | | |
| (Loss) income per common share- basic | $ | (1.14) | | | $ | 0.11 | | | |
| (Loss) income per common share- diluted | $ | (1.14) | | | $ | 0.11 | | | |
See accompanying notes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY |
| | | | | | | | | | | | | |
| YEARS ENDED DECEMBER 31, 2020 AND 2019 |
| Common Shares | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Sub-Total ASHS | | Non-controlling Interests in Subsidiaries | | Total |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 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 | |
| Stock-based compensation expense | 103,000 | | | — | | | 299,000 | | | — | | | 299,000 | | | — | | | 299,000 | |
| Cash distributions to non-controlling interests | — | | | — | | | — | | | — | | | — | | | (761,000) | | | (761,000) | |
| NCI investment in acquisition | — | | | — | | | — | | | — | | | — | | | 17,000 | | | 17,000 | |
| Restricted common shares returned to plan | (129,000) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net (loss) income | — | | | — | | | — | | | (7,058,000) | | | (7,058,000) | | | (658,000) | | | (7,716,000) | |
| 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 | |
See accompanying notes
| | | | | | | | | | | | | | | |
AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | | | |
| YEARS ENDED DECEMBER 31, |
| 2020 | | 2019 | | |
| OPERATING ACTIVITIES | | | | | |
| Net (loss) income | $ | (7,716,000) | | | $ | 1,430,000 | | | |
| Adjustments to reconcile net income to net cash from operating activities (excluding assets acquired and liabilities assumed): | | | | | |
| Depreciation and amortization | 6,970,000 | | | 7,411,000 | | | |
| | | | | |
| Non cash lease expense | 288,000 | | | 256,000 | | | |
| | | | | |
| Loss on write down impaired assets | 8,184,000 | | | 0 | | | |
| | | | | |
| Deferred income taxes | (2,162,000) | | | (444,000) | | | |
| Accrued interest on lease financing | 0 | | | 29,000 | | | |
| Stock-based compensation expense | 299,000 | | | 230,000 | | | |
| Interest expense associated with lease liabilities | 65,000 | | | 76,000 | | | |
| Changes in operating assets and liabilities: | | | | | |
| Receivables | 2,966,000 | | | (1,187,000) | | | |
| Prepaid expenses and other assets | 762,000 | | | 260,000 | | | |
| Accounts payable, accrued liabilities and deferred revenue | 263,000 | | | 28,000 | | | |
| Lease liabilities | (353,000) | | | (332,000) | | | |
| Income taxes payable | 179,000 | | | 130,000 | | | |
| Net insurance proceeds receivable | 0 | | | 160,000 | | | |
| Net cash from operating activities | 9,745,000 | | | 8,047,000 | | | |
| INVESTING ACTIVITIES | | | | | |
| Payment for purchase of property and equipment | (455,000) | | | (990,000) | | | |
| Payment for acquisition, net of cash acquired | (2,084,000) | | | 0 | | | |
| | | | | |
| Proceeds from sale of equipment | 150,000 | | | 0 | | | |
| Net cash (used in) investing activities | (2,389,000) | | | (990,000) | | | |
| FINANCING ACTIVITIES | | | | | |
| Principal payments on long-term debt | (1,726,000) | | | (1,980,000) | | | |
| Principal payments on finance leases | (3,199,000) | | | (4,142,000) | | | |
| Proceeds from financing from acquisition | 1,425,000 | | | 0 | | | |
| Distributions to non-controlling interests | (761,000) | | | (939,000) | | | |
| Debt issuance costs | (30,000) | | | 0 | | | |
| Proceeds from warrants and options exercised | 0 | | | 42,000 | | | |
| Principal payments on short-term financing | (519,000) | | | (51,000) | | | |
| Net cash (used in) financing activities | (4,810,000) | | | (7,070,000) | | | |
| Net change in cash, cash equivalents and restricted cash | 2,546,000 | | | (13,000) | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year | 1,779,000 | | | 1,792,000 | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year | $ | 4,325,000 | | | $ | 1,779,000 | | | |
| | | | | | | | | | | | | | | |
| | | | | |
| SUPPLEMENTAL CASH FLOW DISCLOSURE | | | | | |
| Cash paid for interest | $ | 938,000 | | | $ | 1,318,000 | | | |
| Cash paid for income taxes | $ | 339,000 | | | $ | 397,000 | | | |
| | | | | |
| SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | |
| Lease reassessment right of use assets and lease liabilities | $ | 67,000 | | | $ | — | | | |
| Right of use assets and lease liabilities | $ | 135,000 | | | $ | 1,362,000 | | | |
| Interest capitalized to property and equipment | $ | 119,000 | | | $ | 110,000 | | | |
| Acquisition of equipment with finance leases | $ | 496,000 | | | $ | 1,293,000 | | | |
| Acquisition of equipment with long-term debt financing | $ | 1,184,000 | | | $ | 0 | | | |
| Acquisition of insurance with short-term financing | $ | 634,000 | | | $ | 526,000 | | | |
| First working capital payment related to acquisition, withholding taxes | $ | 43,000 | | | $ | — | | | |
| Estimated subsequent working capital payment for acquisition | $ | 154,000 | | | $ | — | | | |
| | | | | |
| | | | | |
See accompanying notes
Table of Contents
F-4 | | |
AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
American Shared Hospital Services |
Statements of operations |
| | | YEARS ENDED DECEMBER 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
| Revenues: | | | | | | | | | | | | |
| Rental income from medical services | | $ | 19,714,000 | | | $ | 19,556,000 | | | $ | 18,700,000 | |
| | | | 19,714,000 | | | | 19,556,000 | | | | 18,700,000 | |
| Costs of revenue: | | | | | | | | | | | | |
| Maintenance and supplies | | | 2,399,000 | | | | 1,359,000 | | | | 874,000 | |
| Depreciation and amortization | | | 6,745,000 | | | | 6,601,000 | | | | 6,262,000 | |
| Other direct operating costs | | | 3,084,000 | | | | 2,933,000 | | | | 2,769,000 | |
| | | | 12,228,000 | | | | 10,893,000 | | | | 9,905,000 | |
| Gross margin | | | 7,486,000 | | | | 8,663,000 | | | | 8,795,000 | |
| Selling and administrative expense | | | 3,994,000 | | | | 4,323,000 | | | | 3,802,000 | |
| Interest expense | | | 1,631,000 | | | | 1,927,000 | | | | 1,707,000 | |
| Operating income | | | 1,861,000 | | | | 2,413,000 | | | | 3,286,000 | |
| Proceeds received from investment in equity securities | | | 22,000 | | | | - | | | | - | |
| (Loss) on write down of investment in equity securities | | | - | | | | (579,000 | ) | | | - | |
| (Loss) on early extinguishment of debt | | | - | | | | - | | | | (108,000 | ) |
| Interest and other income | | | 198,000 | | | | 3,000 | | | | 15,000 | |
| Income before income taxes | | | 2,081,000 | | | | 1,837,000 | | | | 3,193,000 | |
| Income tax expense (benefit) | | | 451,000 | | | | (1,103,000 | ) | | | 943,000 | |
| Net income | | | 1,630,000 | | | | 2,940,000 | | | | 2,250,000 | |
| Less: net income attributable to non-controlling interests | | | (607,000 | ) | | | (1,017,000 | ) | | | (1,320,000 | ) |
| Net income attributable to American Shared Hospital Services | | $ | 1,023,000 | | | $ | 1,923,000 | | | $ | 930,000 | |
| | | | | | | | | | | | | |
| Net income per share attributable to American Shared Hospital Services: | | | | | | | | | | | | |
| Income per common share- basic | | $ | 0.18 | | | $ | 0.33 | | | $ | 0.17 | |
| Income per common share- diluted | | $ | 0.17 | | | $ | 0.33 | | | $ | 0.17 | |
See accompanying notes
American Shared Hospital Services |
Consolidated Statement of Shareholders’ Equity |
| | | THREE YEARS ENDED DECEMBER 31, 2018 | |
| | | | | | | | | Additional | | | | | | | | | Non-controlling | | | | |
| | | Common | | | Common | | | Paid-in | | | Retained | | | Sub-Total | | | Interests in | | | | |
| | | Shares | | | Stock | | | Capital | | | Earnings | | | ASHS | | | Subsidiaries | | | Total | |
| Balances at January 1, 2016 | | | 5,364,000 | | | $ | 10,376,000 | | | $ | 5,734,000 | | | $ | 4,020,000 | | | $ | 20,130,000 | | | $ | 5,050,000 | | | $ | 25,180,000 | |
| Stock-based compensation expense | | | 4,000 | | | | - | | | | 215,000 | | | | - | | | | 215,000 | | | | - | | | | 215,000 | |
| Proceeds from warrants exercised | | | 100,000 | | | | 220,000 | | | | - | | | | - | | | | 220,000 | | | | - | | | | 220,000 | |
| Non-controlling interest investment in subsidiaries | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,000 | | | | 7,000 | |
| Cash distributions to non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | (699,000 | ) | | | (699,000 | ) |
| Net income | | | - | | | | - | | | | - | | | | 930,000 | | | | 930,000 | | | | 1,320,000 | | | | 2,250,000 | |
| 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 | |
See accompanying notes
American Shared Hospital Services |
Consolidated Statements of Cash Flows |
| | | YEARS ENDED DECEMBER 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| OPERATING ACTIVITIES | | | | | | | | | | | | |
| Net income | | $ | 1,630,000 | | | $ | 2,940,000 | | | $ | 2,250,000 | |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 6,818,000 | | | | 6,677,000 | | | | 6,327,000 | |
| Loss on disposal of assets | | | - | | | | 15,000 | | | | - | |
| Loss on early extinguishment of debt | | | - | | | | - | | | | 108,000 | |
| Loss on write down investment in equity securities | | | - | | | | 579,000 | | | | - | |
| Amortization of accrued interest on lease financing | | | - | | | | 80,000 | | | | - | |
| Deferred income tax expense (benefit) | | | 48,000 | | | | (1,266,000 | ) | | | 772,000 | |
| Accrued interest on lease financing | | | 39,000 | | | | 33,000 | | | | 414,000 | |
| Stock-based compensation expense | | | 223,000 | | | | 323,000 | | | | 215,000 | |
| Other non-cash items | | | - | | | | - | | | | 4,000 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Receivables | | | (420,000 | ) | | | (860,000 | ) | | | (1,230,000 | ) |
| Prepaid expenses and other assets | | | (231,000 | ) | | | (793,000 | ) | | | (283,000 | ) |
| Accounts payable, accrued liabilities and deferred revenue | | | 115,000 | | | | 125,000 | | | | (199,000 | ) |
| Net insurance proceeds receivable | | | (160,000 | ) | | | - | | | | - | |
| Net cash from operating activities | | | 8,062,000 | | | | 7,853,000 | | | | 8,378,000 | |
| INVESTING ACTIVITIES | | | | | | | | | | | | |
| Payment for purchase of property and equipment | | | (1,577,000 | ) | | | (803,000 | ) | | | (1,042,000 | ) |
| Proceeds from insurance | | | 51,000 | | | | - | | | | - | |
| Proceeds from sale of equipment | | | - | | | | 150,000 | | | | - | |
| Net cash (used in) investing activities | | | (1,526,000 | ) | | | (653,000 | ) | | | (1,042,000 | ) |
| FINANCING ACTIVITIES | | | | | | | | | | | | |
| Principal payments on long-term debt | | | (2,467,000 | ) | | | (2,314,000 | ) | | | (2,968,000 | ) |
| Principal payments on capital leases | | | (4,089,000 | ) | | | (4,954,000 | ) | | | (4,171,000 | ) |
| Capital contributions from non-controlling interests | | | - | | | | - | | | | 7,000 | |
| Distributions to non-controlling interests | | | (690,000 | ) | | | (666,000 | ) | | | (699,000 | ) |
| Proceeds from warrants and options exercised | | | - | | | | 115,000 | | | | 220,000 | |
| Proceeds from capital lease financing for reimbursement of payments for acquisition of equipment | | | - | | | | - | | | | 1,137,000 | |
| Net cash (used in) financing activities | | | (7,246,000 | ) | | | (7,819,000 | ) | | | (6,474,000 | ) |
| Net change in cash and cash equivalents | | | (710,000 | ) | | | (619,000 | ) | | | 862,000 | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year | | | 2,502,000 | | | | 3,121,000 | | | | 2,259,000 | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year | | $ | 1,792,000 | | | $ | 2,502,000 | | | $ | 3,121,000 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL CASH FLOW DISCLOSURE | | | | | | | | | | | | |
| Cash paid for interest | | $ | 1,727,000 | | | $ | 1,712,000 | | | $ | 2,150,000 | |
| Cash paid for income taxes | | $ | 459,000 | | | $ | 126,000 | | | $ | 266,000 | |
| | | | | | | | | | | | | |
| SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | | | | | | | | | | | | |
| Acquisition of equipment with capital lease financing | | $ | 1,679,000 | | | $ | 2,153,000 | | | $ | 8,878,000 | |
| Acquisition of equipment with long-term debt financing | | $ | 1,853,000 | | | $ | 992,000 | | | $ | 570,000 | |
| Insurance proceeds receivable and due | | $ | 977,000 | | | $ | - | | | $ | - | |
See accompanying notes
American Shared Hospital Services |
Notes to Consolidated Financial Statements |
NoteNOTE 1 – BUSINESS AND BASISOF PRESENTATION
Business and Basis of PresentationBusiness
–These consolidated financial statements include the accounts of American Shared Hospital Services (the “Company”) and its subsidiaries (the “Company”) as follows: Thethe Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (��(“Orlando”), OR21, Inc., and MedLeader.com, Inc. (“MedLeader”). The; the Company is also the majority owner of Long Beach Equipment, LLC (“LBE”).; ASRS is the majority-owner of GK Financing, LLC (“GKF”) which wholly-owns the subsidiary Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”). GKF is also the majority-ownermajority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”), and Jacksonville GK Equipment, LLC (“JGKE”). GKF formed HoldCo GKC S.A. (“HoldCo”) to acquire Gamma Knife Center Ecuador S.A. (“GKCE”).
The Company (through ASRS) and Elekta
AB,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
GK Financing, LLC.GKF. During
20182020 GKF provided Gamma Knife units to
sixteenfifteen medical centers in the United States in the states of Arkansas, California, Florida, Illinois,
Indiana, Massachusetts, Mississippi, Nebraska,
Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Tennessee, and Texas. GKF also owns and operates
a single-unit Gamma Knife
facilityfacilities in Lima,
Peru.Peru and Guayaquil, Ecuador. The Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment to a customer in the United States. The Company also directly provides radiation therapy and related equipment, including Intensity Modulated Radiation Therapy (“IMRT”), Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an existing Gamma Knife site in Massachusetts.
The Company formed the subsidiariessubsidiary GKPeru and GK Financing U.K., Limited (“GKUK”)acquired GKCE for the purposes of expanding its business internationally into Peru and the United Kingdom, respectively;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 June 12, 2020, GKF, through HoldCo, purchased approximately 98% of the total outstanding shares of GKCE, from GKCE’s majority shareholders (the “Acquisition”). As of December 31, 2020, the Company had acquired approximately 99.3% of the total outstanding shares of GKCE and intends to acquire the remaining 0.7% at a later date. The base purchase price for the Acquisition, including acquisition of the minority shares was
dissolvedapproximately $2,000,000. This purchase price was paid with $575,000 in
November 2018.cash and a $1,425,000 loan from the United States International Development Finance Corporation (“DFC”). The purchase price is subject to certain post-closing adjustments, including adjustment for GKCE's working capital and excess cash. The DFC loan is denominated in U.S. dollars, which is also the currency of Ecuador. See “Note 4. GKCE Acquisition” for further discussion.
The Company continues to develop its design and business model for “TheThe Operating Room for the 21st Century”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
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic and the extent and duration of the future impact on the Company's business is highly uncertain and difficult to predict. The COVID-19 pandemic has adversely impacted, and is likely to further adversely impact, nearly all aspects of the Company’s business and markets, including its employees, operations, contractors, customers, government and third party payors and others. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition will depend on future developments that are highly uncertain and difficult to predict.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 – Accounting PoliciesA
CCOUNTING POLICIES 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 – The Company expenses advertising costs as incurred. Advertising costs were $113,000, $140,000,$237,000 and $279,000$144,000 during the years ended December 31, 2018, 20172020 and 2016, respectively.2019. Advertising costs are recorded in other direct operating costs and sales and administrative costs in the consolidated statements of operations.American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
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, the minimum cash that must be maintained by GKF per it’s financing agreement with DFC, and the minimum cash that must be maintained in Orlando per the subsidiary’s financing agreement.
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, 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 eighteen
twenty, and
eighteenseventeen customers in
2018, 2017,2020 and
2016, respectively.2019. One customer accounted for approximately
26%, 21%,35% and
10%30% of the Company’s total revenue in
2018, 2017,2020 and
2016,2019. At December 31, 2020, four customers each individually accounted for 11%, 11%, 11% and 20% of total accounts receivable, respectively. At December 31,
2018 and 2017,2019, three customers each individually accounted for
more than 10%12%, 15% and 30% 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 and other comprehensive income allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements of operations.
Property and equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife, IGRT, 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 3 – 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. The Company acquired a building as part of the Acquisition in June 2020. Depreciation for buildings is determined using the straight-line method over 20 years.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 – ACCOUNTING POLICIES (CONTINUED)
Depreciation 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 capitalizes interest incurred on property and equipment that is under construction, for which deposits or progress payments have been made. When a rate is not readily available, imputed interest is calculated using the Company’s incremental borrowing rate. The interest capitalized for property and equipment is the portion of interest cost incurred during the acquisition periods that could have been avoided if expenditures for the equipment had not been made. The Company capitalized interest of
$115,000, $138,000,$119,000 and
$443,000$110,000 in
2018, 2017,2020 and
2016,2019, respectively, as costs of medical equipment.
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
The Company leases Gamma Knife and radiation therapy equipment to its customers under arrangements typically accounted for as operating leases. At December 31, 2018,2020, the Company held equipment under operating lease contracts with customers with an original cost of $94,031,000$75,241,000 and accumulated depreciation of $53,716,000.$45,416,000. At December 31, 2017,2019, the Company held equipment under operating lease contracts with customers with an original cost of $95,923,000$92,135,000 and accumulated depreciation of $51,403,000.
In April 2017, an existing customer exercised their option to purchase$55,148,000.
As of December 31, 2020, the
Company recognized a loss on the write down of impaired assets of $8,264,000. The impaired assets included six (6) Gamma Knife
unit at its hospital atunits and the
endCompany's deposits towards purchase 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”) 360Property, 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.During the year ended December 31, 2018, the Company recorded a receivable of $1,137,000 for insurance coverage related to damage that was incurred on the Company’s PBRT unit. The Company contracted with Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, to repair the damaged 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 recorded $185,000 of income from its business interruption insurance for the period the PBRT unit was down undergoing repair. All insurance proceedsproton beam systems and related costs were receivedcapitalized interest. See further discussion under Note 2 - Long-lived asset impairment and paid subsequent to year-end.
Note 3 - Property and Equipment for further discussion.
Fair value of financial instruments – The Company’s disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
The estimated fair value of the Company’s assets and liabilities as of December 31, 20182020 and 20172019 were as follows (in thousands):
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Carrying Value | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents, restricted cash | | $ | 2,502 | | | $ | - | | | $ | - | | | $ | 2,502 | | | $ | 2,502 | |
| Total | | $ | 2,502 | | | $ | - | | | $ | - | | | $ | 2,502 | | | $ | 2,502 | |
| | | | | | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | | | | |
| Debt obligations | | $ | - | | | $ | - | | | $ | 6,082 | | | $ | 6,082 | | | $ | 6,057 | |
| Total | | $ | - | | | $ | - | | | $ | 6,082 | | | $ | 6,082 | | | $ | 6,057 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Carrying Value |
| December 31, 2020 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash, cash equivalents, restricted cash | $ | 4,325 | | | $ | 0 | | | $ | 0 | | | $ | 4,325 | | | $ | 4,325 | |
| Total | $ | 4,325 | | | $ | 0 | | | $ | 0 | | | $ | 4,325 | | | $ | 4,325 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Debt obligations | $ | 0 | | | $ | 0 | | | $ | 4,662 | | | $ | 4,662 | | | $ | 4,624 | |
| Total | $ | 0 | | | $ | 0 | | | $ | 4,662 | | | $ | 4,662 | | | $ | 4,624 | |
| | | | | | | | | |
| December 31, 2019 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash, cash equivalents, restricted cash | $ | 1,779 | | | $ | 0 | | | $ | 0 | | | $ | 1,779 | | | $ | 1,779 | |
| Total | $ | 1,779 | | | $ | 0 | | | $ | 0 | | | $ | 1,779 | | | $ | 1,779 | |
| | | | | | | | | |
| Liabilities | | | | | | | | | |
| Debt obligations | $ | 0 | | | $ | 0 | | | $ | 3,075 | | | $ | 3,075 | | | $ | 3,480 | |
| Total | $ | 0 | | | $ | 0 | | | $ | 3,075 | | | $ | 3,075 | | | $ | 3,480 | |
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 – ACCOUNTING POLICIES (CONTINUED)
Revenue recognition-The Company recognizes revenues under ASC 840842 Leases (“ASC 840”842”) and ASC 606Revenue from Contracts with Customers (“ASC 606)”606”).
Rental income from medical services – The Company recognizes revenues under ASC 840842 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 year10-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 amount of itsthe 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. For the year endedoperations. As of December 31, 2018,2020 and 2019, the Company recognized revenues of approximately $18,987,000$16,204,000 and $19,396,000 under ASC 840.842, respectively.
Patient income – 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. The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method. The cumulative effect of adopting ASC 606 did not have a material impact on retained earnings as reported by the Company, and there was no change to the Company’s IT environment following adoption. Accounts receivable earned by GKPeru were not significant for the year ended December 31, 2018. For2020 and 2019. GKCE's accounts receivable were $467,000 for the year ended December 31, 2018,2020. As of December 31, 2020 and 2019, the Company recognized revenues of approximately $727,000$1,633,000 and $1,209,000 under ASC 606.606, respectively.
Stock-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 Note 89 for additional information on the Company’s stock-based compensation programs.
Costs of revenue –The Company's costs of revenue consist primarily 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). Costs of revenues are recognized as incurred.
Sales and Marketing – The Company markets its services through its preferred provider status with Elekta and a direct sales effort led by its Senior Vice President of Sales and Business Development, its President and Chief Financial and Operating Officer and its Chief Operating Officer. The Company’s current business is the outsourcing of stereotactic radiosurgery services and radiation therapy services.Executive Officer (“CEO”). American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
The Company typically provides the equipment, as well as planning, installation, reimbursement and marketing support services.
Income 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.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
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
78 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 will change its accounting for the operation to the local currency from the U.S. dollar. The Company analyzed it’s Gamma Knife site in Peru under ASC 830 as of December 31, 20182020 and 2019 and concluded the functional currency was the U.S. dollar. As facts and circumstances change, the Company will revisit this conclusion.
Asset Retirement Obligations –Based on the guidance provided in ASC 410Asset Retirement Obligations (“ASC 410”), the Company analyzed its existing lease agreements and determined an asset retirement obligation (“ARO”) exists to remove the respective units at the end of the lease terms. The fair valueAs of December 31, 2020, four (4) of the Company's Gamma Knife customers notified the Company of their intent to terminate their contracts at the contract lease term. The Company recorded an ARO liability is not reasonable to estimate at this time, due to uncertainties about timing, cost and, outcome of the ARO, therefore nofor these four (4) sites, using estimates from Elekta. No liability has been recorded as of December 31, 2018.2020 for the remaining Gamma Knife sites, or as of December 31, 2019, because it is uncertain these units will be removed and the Company historically has not removed the Gamma Knife equipment at the end of the lease term. The Company will re-evaluate this positionthe need to record additional ARO liabilities on a periodic basis when facts and circumstances change that could affect this conclusion.
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, 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. Because the Company reported a loss for the year ended December 31, 2020, the potentially dilutive effects of approximately 13,000, of the Company's unvested restricted stock awards were not considered for the reporting periods.
On March 31, 2020, the Company’s Award Agreements (as defined below) expired and the unvested performance share awards were returned to the Company’s stock incentive plan - see Note 9 for further discussion. Based on the guidance provided in accordance with ASC 260, the weighted average common shares for basic earnings per share, for the year ended December 31, 2019 excluded the weighted average impact of the unvested performance share awards. These awards were legally outstanding but not deemed participating securities and therefore were excluded from the calculation of basic earnings per share. The unvested shares were also excluded from the denominator for diluted earnings per share because they were considered contingent shares not deemed probable as of December 31, 2019.
The following table illustrates the computations of basic and diluted earnings per share for the years ended December 31,
2018, 20172020 and
2016.| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| Numerator for basic and diluted earnings per share | | $ | 1,023,000 | | | $ | 1,923,000 | | | $ | 930,000 | |
| Denominator: | | | | | | | | | | | | |
| Denominator for basic and diluted earnings per share – weighted-average shares | | | 5,836,000 | | | | 5,754,000 | | | | 5,570,000 | |
| Effect of dilutive securities Employee stock options and restricted stock | | | 17,000 | | | | 130,000 | | | | 13,000 | |
| Denominator for diluted earnings per share – adjusted weighted-average shares | | | 5,853,000 | | | | 5,884,000 | | | | 5,583,000 | |
| Earnings per common share- basic | | $ | 0.18 | | | $ | 0.33 | | | $ | 0.17 | |
| Earnings per common share- diluted | | $ | 0.17 | | | $ | 0.33 | | | $ | 0.17 | |
2019.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 2 – ACCOUNTING POLICIES (CONTINUED)
| | | | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Numerator for basic and diluted (loss) earnings per share | $ | (7,058,000) | | | $ | 659,000 | | | |
| Denominator: | | | | | |
| Denominator for basic and diluted (loss) earnings per share – weighted-average shares | 6,182,000 | | | 5,919,000 | | | |
| Effect of dilutive securities Employee stock options and restricted stock | 0 | | | 11,000 | | | |
| Denominator for diluted (loss) earnings per share – adjusted weighted-average shares | 6,182,000 | | | 5,930,000 | | | |
| (Loss) earnings per common share- basic | $ | (1.14) | | | $ | 0.11 | | | |
| (Loss) earnings per common share- diluted | $ | (1.14) | | | $ | 0.11 | | | |
In
2018,2020, options outstanding to purchase
519,000406,000 shares of common stock at an exercise price range of
$2.82$2.25 - $3.90 per share and
4,00013,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive.
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
In 2017,2019, options outstanding to purchase 14,000387,000 shares of common stock at an exercise price range of $2.68 - $3.90 per share and 4,0003,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive.
In 2016, options outstanding to purchase 581,000 shares of common stock at an exercise price range of $2.43 - $3.15 per share and 4,000 restricted stock units were not included in the calculation of diluted earnings per share because they would be anti-dilutive.
Business segment information-Based on the guidance provided in accordance with ASC 280Segment Reporting (“ASC 280”), the Company has analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there is oneare 2 reportable segment, Medical Services Revenue.segments, domestic and foreign. The Company provides Gamma Knife PBRT, and IGRTPBRT equipment to sixteenfifteen hospitals in the United States and owns and operates atwo single-unit facilityfacilities in Lima, Peru and Guayaquil, Ecuador as of December 31, 2018. These seventeen locations operate under different subsidiaries2020. The Company determined 2 reportable segments existed due to similarities in economics of the Company, but offer the same service, radiosurgerybusiness operations and radiation therapy.geographic location. The operating results of the subsidiaries2 reportable segments are reviewed by the Company’s CEO and President, Chief Executive OfficerOperating and Chief Financial Officer, who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”). As of December 31, 2019, the Company had one reportable segment. Following the Company's acquisition of GKCE in June 2020, the Company concluded it had 2 reportable segments.
The revenues, profit or loss, and
this is done in conjunction with all ofnet property and equipment allocations for the
subsidiaries and locations.Geographical information –The Company did not have any international operationsCompany's two reportable segments as of December 31, 2016, but2020 consists of the Company’s single-unit facility in Peru treated its first patient in July 2017. The following table provides a break outfollowing:
| | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Revenues | | | | | |
| Domestic | $ | 16,204,000 | | | $ | 19,396,000 | | | |
| Foreign | 1,633,000 | | | 1,209,000 | | | |
| Total | $ | 17,837,000 | | | $ | 20,605,000 | | | |
| | | | | | | | | | | |
| 2020 | | 2019 |
| Profit or (loss) | | | |
| Domestic | $ | (7,082,000) | | | $ | 769,000 | |
| Foreign | 24,000 | | | (110,000) | |
| Total | $ | (7,058,000) | | | $ | 659,000 | |
| | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Property and equipment, net | | | | | |
| Domestic | $ | 27,223,000 | | | $ | 38,593,000 | | | |
| Foreign | 3,195,000 | | | 2,887,000 | | | |
| Total | $ | 30,418,000 | | | $ | 41,480,000 | | | |
Table of
domestic and foreign allocations of medical services revenues and net property and equipment:| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| Medical services revenues | | | | | | | | | | | | |
| Domestic | | | 96 | % | | | 99 | % | | | 100 | % |
| Foreign | | | 4 | % | | | 1 | % | | | 0 | % |
| Total | | | 100 | % | | | 100 | % | | | 100 | % |
| | | 2018 | | | 2017 | | | 2016 | |
| Property and equipment, net | | | | | | | | | | | | |
| Domestic | | | 93 | % | | | 93 | % | | | 93 | % |
| Foreign | | | 7 | % | | | 7 | % | | | 7 | % |
| Total | | | 100 | % | | | 100 | % | | | 100 | % |
Contents
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
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 operations in the period in which management determines such impairment. NoAs of December 31, 2020, the Company determined circumstances existed indicating its assets could be impaired, concluded an impairment existed, and recognized a loss on the write down of impaired assets of $8,264,000. NaN such impairment has been noted as of December 31, 20182019. See Note 3 - Property and 2017.Equipment for further discussion. American Shared Hospital Services
NotesGoodwill 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 in June 2020. The intangible asset identified was GKCE's trade name and the Company assigned an indefinite useful life to Consolidated Financial Statements
the asset. Based on the guidance provided in accordance with ASC 350 Intangibles-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, 2020, there has been no change to the Company's assessment of the value of intangible assets or goodwill. Acquisitions - The Company records acquisitions according to ASC 805 Business Combinations (“ASC 805”) using the acquisition method of accounting. Under the acquisition method of accounting, all assets acquired, including goodwill and other intangible assets, should be stated at fair value at the time of acquisition. The allocation of purchase price consideration is preliminary, pending the completion of the fair value of certain tangible, intangible assets, and residual goodwill. During the measurement period, which can be no more than one year from the Closing Date, the Company expects to continue to obtain information to assist in determining the final fair value of assets acquired. See Note 2 – Accounting Policies (continued)
4 - GKCE Acquisition for further discussion on acquisitions.
Accounting pronouncement issued and not yet adopted – In February 2016, the FASB issued ASU No. 2016-02Leases (“ASU 2016-02”) which requires lessees to recognize, for all leases, at the commencement date, a lease liability, and a right-of-use asset. Under the new guidance, lessor classification criteria for direct financing and sales-type leases is modified. In July 2018, the FASB issued ASU No. 2018-10Leases (Topic 842) Codification Improvements to Topic 842, Leases (“ASU 2018-10”) and ASU No. 2018-11Leases (Topic 842) Targeted Improvements (“ASU 2018-11”), in December 2018 the FASB issued ASU No. 2018-20Leases (Topic 842) Narrow-Scope Improvements (“ASU 2018-20”), and in February 2019 the FASB issued ASU No. 2019-01Leases (Topic 842) Codification Improvements(“ASU 2019-01”). ASU 2018-11 provides a new transition method in which an entity can initially apply the new lease standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for annual periods beginning after December 15, 2018. The new guidance is effective for the Company on January 1, 2019. The Company is evaluating the effect that the ASUs (2016-02, 2018-10, 2018-11, 2018-20, and 2019-01) will have on its consolidated financial statements and related disclosures. Using the modified retrospective transition method, the Company will elect to initially apply the ASUs beginning January 1, 2019 and intends to elect certain other practical expedients upon adoption. The Company performed an analysis to determine if its revenue agreements with customers fall under the scope of ASU 2016-02 or ASU 2014-09 and concluded that, other than with respect to the Company’s stand-alone facility in Lima, Peru, ASU 2016-02 applied. The Company expects adoption of the ASUs will result in the recognition of lease liabilities and right-of-use assets of approximately $1.0M for its operating leases at January 1, 2019, with no initial material impact to its consolidated statements of operations.American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 2 – Accounting Policies (continued)
In June 2016, the FASB issued ASU No. 2016-13Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The new guidance is effective for fiscal periods beginning after December 15, 2018. The Company does not expect ASU 2016-13 to have a significant impact on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-03Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2018-03”), which clarifies certain aspects of ASU 2016-01.2016-1. These are: equity securities without a readily determinable fair value – discontinuation, equity securities without a readily determinable fair value – adjustments, forward contracts and purchased options, presentation requirements for certain fair value option liabilities, fair value option liabilities denominated in a foreign currency, and transition guidance for equity securities without a readily determinable fair value. In August 2018, the FASB issued ASU No. 2018-13Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements to Fair Value Measurement (“ASU 2018-13”), which amended the effective date and other certain measurement aspects of ASU 2018-03. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company does not expectadopted ASU 2018-03 orand ASU 2018-13 to have aon January 1, 2020. There was no significant impact on its consolidated financial statements and related disclosures. Accounting pronouncement issued and not yet adopted –In July 2018,December 2019, the FASB issued ASU No. 2018-09,Codification Improvements2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2018-09”2019-12”). This standard does not prescribe any which removes specific exceptions to the general principles in Topic 740 and eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The new accounting guidance but instead makes minor improvementsis effective for fiscal years and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal yearinterim periods beginning after December 15, 2018.2020. The Company is currently evaluating this guidanceASU 2019-12 to determine the impact it may have on its consolidated financial statements.Note
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 3 – Property and EquipmentP
ROPERTYAND EQUIPMENT Property and equipment consists of the following:
| | | DECEMBER 31, | |
| | | 2018 | | | 2017 | |
| | | | | | | |
| Medical equipment and facilities | | $ | 94,031,000 | | | $ | 95,923,000 | |
| Office equipment | | | 589,000 | | | | 576,000 | |
| Deposits and construction in progress | | | 3,832,000 | | | | 1,658,000 | |
| Deposits towards purchase of proton beam systems | | | 2,250,000 | | | | 2,000,000 | |
| | | | 100,702,000 | | | | 100,157,000 | |
| Accumulated depreciation | | | (54,008,000 | ) | | | (51,666,000 | ) |
| Net property and equipment | | $ | 46,694,000 | | | $ | 48,491,000 | |
| | | | | | | | | | | |
| DECEMBER 31, |
| 2020 | | 2019 |
| Medical equipment and facilities | $ | 75,657,000 | | | $ | 92,132,000 | |
| Office equipment | 330,000 | | | 594,000 | |
| Construction in progress | 170,000 | | | 1,965,000 | |
| Deposits towards purchase of proton beam systems | 0 | | | 2,250,000 | |
| 76,157,000 | | | 96,941,000 | |
| Accumulated depreciation | (45,739,000) | | | (55,461,000) | |
| Net property and equipment | $ | 30,418,000 | | | $ | 41,480,000 | |
As of December 31, 2020, approximately $3,195,000 of the net property and equipment balance is outside of the United States. As December 31, 2020, the Company recognized a loss on the write down of impaired assets of $8,264,000. The impaired assets included six (6) Gamma Knife units and related removal costs, and two (2) deposits towards the purchase of proton beam systems and related capitalized interest. The six (6) Gamma Knife units that were impaired consisted of two (2) units that had been taken out of service in prior years, one (1) unit that was taken out of service in 2020 and three (3) units that have already been, or the Company anticipates will be, taken out of service in 2021, totaling $3,051,000. In addition to this impairment write-off of $3,051,000 were estimated costs of de-install and removal (ARO) of four (4) of the Gamma Knife units of $1,350,000 (of which, the Company has equipment that is secured under capitalized leases, which is included in Medical equipment and facilities, with a total cost of $46,559,000 and associated accumulated depreciation of $20,292,000paid $80,000) as of December 31, 2018 and2020. Total impairment related to the Gamma Knife business was $4,401,000 for the year ended December 31, 2020.
The Company reviews the carrying value of its long-lived assets for impairment on a total costquarterly basis, or as events or circumstances might indicate that the carrying value may not be recoverable. The Company has reviewed its Gamma Knife equipment, in light of $44,758,000 and associated accumulated depreciation of $16,777,000available information as of December 31, 2017. As2020 and based on current customer prospects, the probability of future contract extensions or renewals, and the high turnover rate in contract terminations compared to the Company's historical contract termination rate, the Company determined that these six (6) Gamma Knife units were more-than temporarily impaired.
Prior to December 31,
2018,2020, the Company
has one idle Gamma Knife unit with a cumulative net book value of $729,000. There are currently no commitments to place into service or trade in this unit during 2019.As of December 31, 2018, the Company has $3,832,000 in construction in progress. The construction in progress consists of costs associated with the Company’s new Gamma Knife site, which began treating patients in January 2019, deposits payments made for two Cobalt-60 reloads, capitalized and imputed interest, and other costs associated with on-going projects of the Company.
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 3 – Property and Equipment (continued)
As of December 31, 2018, the Company hashad $2,250,000 in deposits toward the purchase of two MEVION S250i PBRT systems from Mevion. The Company has a commitment for the remaining balance for each system. The Company’s first MEVION S250 treated its first patient in April 2016. The Company has entered into a partnership agreement (LBE) with a radiation oncology physician group, which has contributed $400,000 towards the deposits on the third machine. The Company currently does not have customer contracts for the second and third units. The Company reviews the carrying value of theseits deposits for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value may not be recoverable. The Company has reviewed the deposits, in light of available information, as of December 31, 20182020 and based on its current customer prospects, the impact that the COVID-19 pandemic has not identified any impairment. See Note 11-Commitmentshad on medical centers undertaking large capital expenditure projects for a limited patient base, and Contingenciesthe length of time required to negotiate and implement a proton therapy project, the Company determined that its deposits of $2,250,000, related capitalized interest and other charges of $1,613,000 were other-than temporarily impaired. Total impairment related to the proton therapy business was $3,863,000.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4 - GKCE ACQUISITION
On June 18, 2019, the Company entered into a Stock Purchase Agreement to acquire Gamma Knife Center Ecuador S.A. (“GKCE”) from GKCE’s selling majority shareholders. GKCE is a well-established Gamma Knife operation founded in 2009 as a private clinic to introduce advanced stereotactic radiosurgery into Ecuador and continues to operate the only Gamma Knife unit in the country. The Company acquired GKCE for
additional discussion on purchase commitments.Note 4 – Investment in Equity Securities
the continued expansion of its business internationally.
On June 12, 2020 (the “Closing Date”), the Company acquired approximately 98% of the total outstanding shares of GKCE. As of December 31, 2018 and 20172020, the Company hadacquired approximately 99.3% of the total outstanding shares of GKCE and intends to acquire the remaining 0.7% at a $0 investment in the common stock of Mevion.later date. The Company previously accounted for this investment under the cost method. The Company previously carried its investment in Mevion at cost and reviewed it for impairment on a quarterly basis, or as events or circumstances might have indicated that the carryingfair value of the investment may notnon-controlling interests (“NCI”) on the Closing Date was approximately $58,000, which was consistent with the purchase price in the executed NCI agreements. The total purchase consideration for 100% of the outstanding shares of GKCE was $2,883,000, including $2,000,000 of base purchase price, subject to certain price adjustments for current assets and liabilities and tax withholding.
The base purchase price of $2,000,000 was paid with $575,000 of cash and a $1,425,000 loan from the United States International Development Finance Corporation (“DFC”). The DFC loan is denominated in U.S. dollars, which is also the currency of Ecuador. The price adjustments will be
recoverable.Based on guidance provided in ASC 320Investments–Debt and Equity Securities (“ASC 320”) and Staff Accounting Bulletins (“SAB”) Topic 5MOther Than Temporary Impairment (“OTTI”)of Certain Investments in Equity Securities (“SAB Topic 5M”),paid by the Company analyzed the related events of Mevion, that occurred in the second and third quarterspost-closing period with the adjustments related to the amount of 2015 and its impactworking capital that GKCE had as of the Closing Date. The first price adjustment for working capital as of the Closing Date was approximately $515,000, which was paid by the Company in August 2020. As of December 31, 2020, the Company owed the withholding taxes related to this payment totaling approximately $43,000. The Company estimates an additional contingent consideration of approximately $368,000 will be remitted to the seller based on the Company’s investment.collection of Closing Date accounts receivable balances, net of related costs, during the three-month, six-month and twelve-month periods after the Closing Date. As of December 31, 2020, $214,000 of the contingent considerations had been paid and $154,000 is estimated to be paid for the twelve-month period after the Closing Date. The Company determined that these circumstances indicated a decline in value of its Mevion investment that was other-than-temporaryreviewed historical patient treatments, invoice, and concluded that a write-downcollection data from GKCE to determine an appropriate estimate of the carrying valuecontingent consideration at the Closing Date.
The acquisition has been accounted for according to ASC 805 using the acquisition method of accounting. Under the acquisition method of accounting, all assets acquired, including goodwill and other intangible assets, should be
recognized. As of June 30, 2015, the Company adjusted its investment in Mevion to the estimatedstated at fair value
at the time of
$600,000 and recorded a $2,114,000 impairment loss.acquisition. The
$2,114,000 other than temporary impairmentallocation of
its investment in Mevionpurchase price consideration is
recorded in other income (loss) onpreliminary, pending the
Company’s Condensed Consolidated Statement of Operations.During the period ended December 31, 2015, the Company engaged a third-party expert to review and corroborate its assessmentcompletion of the fair value of certain tangible, intangible assets, and residual goodwill. During the Mevion investment. Basedmeasurement period, which can be no more than one year from the Closing Date, the Company expects to continue to obtain information to assist in determining the final fair value of assets acquired. The assets acquired were recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. Thus, the provisional measurements of fair value discussed below are subject to change.
As of December 31, 2020, accounting for the Closing Date accounts receivable balances, allowance on the third-party analysis,uncollected accounts receivable balances, and related liabilities, was not complete. The accounting for these amounts will be complete following the twelve-month period after the Closing Date, per the terms of the Stock Purchase Agreement. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the Closing Date. While the Company believes its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired, and the resulting amount of goodwill.
After the Acquisition date, the Company received additional information regarding the amounts recorded as accounts receivable as of June 12, 2020. After reviewing the information obtained, the Company booked an additional impairment loss$27,000 of $26,000 was recognized by the Company during the three months endedaccounts receivable as of December 31, 2015. 2020. As a result, related liabilities were increased by $13,000 and the contingent consideration increased by $14,000. There was no impact to goodwill or net loss as of December 31, 2020.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4 - GKCE ACQUISITION (CONTINUED)
The fair value of assets acquired and liabilities assumed were as follows:
| | | | | | | | | | | |
| | | June 12, 2020 |
| Cash and cash equivalents | | | $ | 432,000 | |
| Accounts receivable | | | 854,000 | |
| Prepaid expense and other | | | 22,000 | |
| Building | | | 385,000 | |
| Land | | | 19,000 | |
| Medical equipment | | | 319,000 | |
| Purchased intangible assets | | | 78,000 | |
| Goodwill | | | 1,265,000 | |
| Total assets acquired | | | $ | 3,374,000 | |
| | | |
| Accounts payable | | | $ | (193,000) | |
| Income taxes payable | | | (141,000) | |
| Deferred income taxes | | | (66,000) | |
| Employee compensation and benefits | | | (91,000) | |
| Total liabilities assumed | | | (491,000) | |
| Consideration allocated to assets acquired and liabilities assumed | | $ | 2,883,000 | |
| | | |
| First working capital payment | | | $ | (515,000) | |
| Estimated subsequent working capital payment | | | (368,000) | |
| Base purchase consideration | | | $ | 2,000,000 | |
The Company has allocated the
Company’s investment in Mevion, aspurchase price of
December 31, 2015 was approximately $579,000. The impairment loss forGKCE to the
year ended December 31, 2015 was $2,140,000.Duringtangible assets, liabilities, and intangible asset acquired, based on their estimated fair values. Goodwill represents the year ended December 31, 2017,excess of the Company reviewed its investment in Mevion and determinedpurchase price consideration over the fair value of its investmentthe identifiable tangible and intangible assets assumed. The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to expected synergies from an assembled and trained workforce and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisition is not tax deductible.
The preliminary value of the acquired tangible assets acquired are as follows:
| | | | | | | | | | | | | | |
| Fair Value | | Useful Life (in Years) | |
| | | | |
| Building | $ | 385,000 | | | 20 | |
| Land | 19,000 | | | | |
| Medical equipment | 302,000 | | | 2 | |
| Other fixed assets | 17,000 | | | 2 | |
| Total tangible assets | $ | 723,000 | | | | |
The Company also acquired intangible assets with a fair value of $78,000. The intangible asset identified was $0. Based onGKCE's trade name and the Company assigned an indefinite useful life to the asset.
The Company incurred costs related to the acquisition of approximately $93,000 for the three-month period ended June 30, 2020 and $69,000 for the three-month period ended September 30, 2020. All acquisition related costs were expensed as incurred and have been recorded in selling and administrative expense in the Company's consolidated statement of operations.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 4 - GKCE ACQUISITION (CONTINUED)
The revenue and earnings of GKCE have been included in the Company’s
assessmentconsolidated results since the Closing Date and are not material to the Company’s consolidated financial results. Historical financial statements and pro forma results of
its investment in Mevion,the operations of GKCE as if the Acquisition occurred earlier than the Closing Date have not been presented, as the applicable significance thresholds are not exceeded by the Acquisition and the corresponding requirements to provide historical financial statements and corresponding pro forma financial information are not applicable to the Acquisition. In addition, the Company
recognized an impairment loss forbelieves that the
year then ended December 31, 2017financial impact of
$579,000.During 2018, Mevion entered into a merger transaction with Mevion Medical Technology Group Limited, andthe Acquisition to the Company’s common shares in Mevion were cancelled.Noteconsolidated financial statements is not material and such historical financial information and pro forma financial information would not be meaningful for investors and financial statement users.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 5 – Long-Term Debt- LONG TERM DEBT
Long-term debt consists primarily of
seven7 notes with three financing companies collateralized by the Gamma Knife equipment having an aggregate net book value of
$13,016,000,$11,023,000, the individual customer contracts, and related accounts receivable
of $1,718,000 at December 31,
2018.2020. These notes are
predominantly payable in 36 to 84 fully amortizing monthly installments, mature between
December 2019January 2021 and
March 2026, and are collateralized by the respective Gamma Knife units.September 2027. The notes accrue interest at fixed annual rates between
4.96%3.67% and 6.90%.
As of December 31, 2019, the Company had 6 notes with two financing companies collateralized by the Gamma Knife equipment having an aggregate net book value of $13,130,000, the individual customer contracts, and related accounts receivable of $1,848,000. American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 5 – Long-Term Debt (continued)
The following are contractual maturities of long-term debt by year at December 31, 2018:
| Year ending December 31, | | Principal | | | Interest | |
| 2019 | | $ | 2,119,000 | | | $ | 276,000 | |
| 2020 | | | 1,378,000 | | | | 163,000 | |
| 2021 | | | 712,000 | | | | 100,000 | |
| 2022 | | | 263,000 | | | | 71,000 | |
| 2023 | | | 280,000 | | | | 54,000 | |
| Thereafter | | | 699,000 | | | | 53,000 | |
| | | $ | 5,451,000 | | | $ | 717,000 | |
Note2020, excluding debt issuance costs of $27,000:
| | | | | | | | | | |
| Year ending December 31, | | Principal | | |
| 2021 | | $ | 1,157,000 | | | |
| 2022 | | 768,000 | | | |
| 2023 | | 802,000 | | | |
| 2024 | | 839,000 | | | |
| 2025 | | 592,000 | | | |
| Thereafter | | 466,000 | | | |
| | $ | 4,624,000 | | | |
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 6 – Obligations Under Capital Leases- FINANCE LEASES
The Company has eleven capital6 finance lease obligations with two financing companies, collateralized by Gamma Knife and PBRT equipment having an aggregate net book value of $18,093,000, the individual customer contracts, and related accounts receivable of $1,892,000 at December 31, 2020. These obligations have imputed interest rates ranging between 4.73% and 13.00%, are predominantly payable in 36 to 84 monthly installments, and mature between November 2021 and September 2024.
As of December 31, 2019, the Company had 10 finance lease obligations with three financing companies, collateralized by Gamma Knife and PBRT equipment, having an aggregate net book value of $26,267,000,$22,860,000, the individual customer contracts, and related accounts receivable at December 31, 2018. These obligations have imputed interest rates ranging between 4.73% and 13.00%, are payable in 44 to 84 monthly installments, and mature between July 2019 and October 2024. As of December 31, 2017, the Company had twelve capital lease obligations with four financing companies, collateralized by Gamma Knife and PBRT equipment having an aggregate net book value of $27,981,000. $4,600,000.
At the end of each lease term, the Company has a bargain purchase option to purchase the equipment.
Future minimum lease payments, together with the present value of the net minimum lease payments under
capitalfinance leases at December 31,
2018,2020, are summarized as follows:
| | | Net Present Value | |
| | | of Minimum | |
| | | Lease Payments | |
| Year ending December 31, | | | | |
| 2019 | | $ | 5,524,000 | |
| 2020 | | | 4,017,000 | |
| 2021 | | | 5,992,000 | |
| 2022 | | | 970,000 | |
| 2023 | | | 524,000 | |
| Thereafter | | | 308,000 | |
| Total capital lease payments | | | 17,335,000 | |
| Less imputed interest | | | 2,620,000 | |
| | | | 14,715,000 | |
| Less current portion | | | 4,407,000 | |
| | | $ | 10,308,000 | |
| | | | | |
| Net Present Value of Minimum Lease Payments |
| Year ending December 31, | |
| 2021 | $ | 6,590,000 | |
| 2022 | 1,576,000 | |
| 2023 | 1,083,000 | |
| 2024 | 522,000 | |
| |
| |
| Total finance lease payments | 9,771,000 | |
| Less imputed interest | 852,000 | |
| 8,919,000 | |
| Less current portion | 5,945,000 | |
| $ | 2,974,000 | |
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F-17 | | |
AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
American Shared Hospital Services
NotesThe Company determines if a contract is a lease at inception. Under ASC 842, the Company is a lessor of equipment to Consolidated Financial Statements
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 and PBRT 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
7 – Income Taxes2). 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 receivables.
The Company’s lessee operating leases are accounted for as right-of-use (“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 2 and 3 years, some of which include options to renew or extend the lease. As of December 31, 2018, 20172020, operating ROU assets and 2016 the Company recorded income tax provision expense of $451,000, an income tax provision benefit of $1,103,000, and income tax provision expense of $943,000, respectively. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affect fiscal 2017, including, but not limited to requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years. The Tax Act also establishes new tax laws that will affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate from 34% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss deduction limitations, a base erosion, anti-tax abuse tax and a deduction for foreign-derived intangible income and a new provision designed to tax global intangible low-taxed income. As a result of the Tax Act, the Company revalued its federal and state deferred tax liabilities based on a 21% tax rate as opposed to a 34% tax rate. The net effect of this change on the Company’s income tax provision forwere $886,000.
During the year ended December 31, 20172020, the Company elected to not renew its lease for a satellite office in Fairfield, California. The Company previously included the renewal term in its assessment of the lease term for the ROU asset and liability. The Company accounted for this change as a lease reassessment under ASC 842. At the reassessment date, the remaining lease balance was not material to the Company's consolidated balance sheets and the Company wrote off the related ROU assets and liabilities of $67,000. Also during the year ended December 31, 2020, the Company agreed to a rent increase for its clinic space for its stand-alone facility in Lima, Peru. The rent increase was effective as of January 1, 2020 and the Company increased the related ROU assets and liabilities by $135,000.
The following table summarizes maturities of lessee operating lease ROU assets and liabilities as of December 31, 2020:
| | | | | | | | |
| Year ending December 31, | | Operating Leases |
| | |
| 2021 | | 346,000 | |
| 2022 | | 353,000 | |
| 2023 | | 248,000 | |
| 2024 | | 8,000 | |
| | |
| | |
| Total lease payments | | 955,000 | |
| Less imputed interest | | (69,000) | |
| Total | | $ | 886,000 | |
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 8 – INCOME TAXES
As of December 31, 2020 and 2019 the Company recorded an income tax benefit of
$1,546,000.$1,737,000 and income tax expense of $128,000, respectively. The increasedecrease in the Company’s provision for income taxes as of December 31, 2018 and December 31, 20162020 is due to income froma loss on the PBRT system and operationswrite down of the Company’s subsidiaries. The income tax provision benefit recognized as of December 31, 2017 was due to the Tax Act.
impaired assets.
The components of the provision
(benefit) for income taxes as of December 31,
2018, 20172020 and
20162019 consist of the following:
| | | YEARS ENDED DECEMBER 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 13,000 | | | $ | 55,000 | | | $ | 24,000 | |
| State | | | 389,000 | | | | 109,000 | | | | 146,000 | |
| Total current | | | 402,000 | | | | 164,000 | | | | 170,000 | |
| | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | 259,000 | | | | (1,335,000 | ) | | | 680,000 | |
| State | | | (210,000 | ) | | | 68,000 | | | | 93,000 | |
| Total deferred | | | 49,000 | | | | (1,267,000 | ) | | | 773,000 | |
| | | | | | | | | | | | | |
| | | $ | 451,000 | | | $ | (1,103,000 | ) | | $ | 943,000 | |
| | | | | | | | | | | | | | | |
| YEARS ENDED DECEMBER 31, |
| 2020 | | 2019 | | |
| Current: | | | | | |
| Federal | $ | 209,000 | | | $ | 443,000 | | | |
| State | 88,000 | | | 207,000 | | | |
| Foreign | 117,000 | | | 130,000 | | | |
| Total current | 414,000 | | | 780,000 | | | |
| | | | | |
| Deferred: | | | | | |
| Federal | (1,909,000) | | | (311,000) | | | |
| State | (266,000) | | | (251,000) | | | |
| Foreign | 24,000 | | | (90,000) | | | |
| Total deferred | (2,151,000) | | | (652,000) | | | |
| | | | | |
| $ | (1,737,000) | | | $ | 128,000 | | | |
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 7 – Income Taxes (continued)
Significant components of the Company’s deferred tax liabilities and assets as of December 31,
20182020 and
20172019 are as follows:
| | | DECEMBER 31, | |
| | | 2018 | | | 2017 | |
| Deferred tax liabilities: | | | | | | | | |
| Property and equipment | | $ | (3,566,000 | ) | | $ | (5,009,000 | ) |
| | | | | | | | | |
| Total deferred tax liabilities | | | (3,566,000 | ) | | | (5,009,000 | ) |
| | | | | | | | | |
| Deferred tax assets: | | | | | | | | |
| Net operating loss carryforwards | | | 80,000 | | | | 1,421,000 | |
| Accruals and allowances | | | 275,000 | | | | 157,000 | |
| Tax credits | | | 194,000 | | | | 438,000 | |
| Other – net | | | 206,000 | | | | 186,000 | |
| Capital loss carryover | | | 948,000 | | | | 959,000 | |
| | | | | | | | | |
| Total deferred tax assets | | | 1,703,000 | | | | 3,161,000 | |
| | | | | | | | | |
| Valuation allowance | | | (1,096,000 | ) | | | (1,062,000 | ) |
| | | | | | | | | |
| Deferred tax assets net of valuation allowance | | | 607,000 | | | | 2,099,000 | |
| | | | | | | | | |
| Net deferred tax liabilities | | $ | (2,959,000 | ) | | $ | (2,910,000 | ) |
| | | | | | | | | | | |
| DECEMBER 31, |
| 2020 | | 2019 |
| Deferred tax liabilities: | | | |
| Property and equipment | $ | (564,000) | | | $ | (3,112,000) | |
| | | |
| Total deferred tax liabilities | (564,000) | | | (3,112,000) | |
| | | |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | 99,000 | | | 117,000 | |
| Accruals and allowances | 43,000 | | | 248,000 | |
| Tax credits | 5,000 | | | 4,000 | |
| Other – net | 50,000 | | | 229,000 | |
| Capital loss carryover | 627,000 | | | 921,000 | |
| | | |
| Total deferred tax assets | 824,000 | | | 1,519,000 | |
| | | |
| Valuation allowance | (678,000) | | | (921,000) | |
| | | |
| Deferred tax assets net of valuation allowance | 146,000 | | | 598,000 | |
| | | |
| Net deferred tax liabilities | $ | (418,000) | | | $ | (2,514,000) | |
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 8 – INCOME TAXES (CONTINUED)
These amounts are presented in the financial statements as follows:
| | | DECEMBER 31, | |
| | | 2018 | | | 2017 | |
| | | | | | | |
| Deferred income taxes (non-current) | | $ | (2,959,000 | ) | | $ | (2,910,000 | ) |
| | | $ | (2,959,000 | ) | | $ | (2,910,000 | ) |
| | | | | | | | | | | |
| DECEMBER 31, |
| 2020 | | 2019 |
| Deferred income taxes (non-current) | $ | (418,000) | | | $ | (2,514,000) | |
| $ | (418,000) | | | $ | (2,514,000) | |
The (benefit) provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in
2018,2020 and
34% in 2017 and 2016)2019) to income before taxes as follows:
| | | | | | | | | | | | | | | |
| YEARS ENDED DECEMBER 31, |
| 2020 | | 2019 | | |
| Computed expected federal income tax | $ | (1,844,000) | | | $ | 167,000 | | | |
| State income taxes, net of federal benefit | (199,000) | | | (80,000) | | | |
| Non-deductible expenses | 6,000 | | | 29,000 | | | |
| | | | | |
| Return to Provision True-up | 22,000 | | | 39,000 | | | |
| Uncertain Tax Positions | 16,000 | | | 80,000 | | | |
| Capital loss carryforward expiration | 246,000 | | | 0 | | | |
| Change in valuation allowance | (243,000) | | | (175,000) | | | |
| Other deferred tax adjustments | 259,000 | | | 68,000 | | | |
| | | | | |
| $ | (1,737,000) | | | $ | 128,000 | | | |
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 7 – Income Taxes (continued)
| | | YEARS ENDED DECEMBER 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| Computed expected federal income tax | | $ | 313,000 | | | $ | 279,000 | | | $ | 637,000 | |
| State income taxes, net of federal benefit | | | 125,000 | | | | 28,000 | | | | 169,000 | |
| Non-deductible expenses | | | (12,000 | ) | | | 41,000 | | | | 42,000 | |
| Impact of US Tax Reform | | | - | | | | (1,546,000 | ) | | | - | |
| Change in valuation allowance | | | 34,000 | | | | 180,000 | | | | 25,000 | |
| Other | | | (9,000 | ) | | | (85,000 | ) | | | 70,000 | |
| | | | | | | | | | | | | |
| | | $ | 451,000 | | | $ | (1,103,000 | ) | | $ | 943,000 | |
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code including, but not limited to, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years (the "Transition Tax"), a reduction of the U.S. federal corporate tax rate from 34% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss deduction limitations, a base erosion, anti-tax abuse tax (“BEAT”) and a deduction for foreign-derived intangible income (“FDII”) and a new provision designed to tax global intangible low-taxed income ("GILTI").
In December 2017, the SEC staff issued SAB No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740Income taxes (“ASC 740”). In accordance with SAB 118 a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities. Any subsequent adjustment to these amounts would be recorded to current tax expense in the quarter of 2018 when the analysis was complete. We included a provisional estimate in the financial statements for the period ended December 31, 2017, as our accounting for the Tax Act under ASC 740 was not completed. As of December 31, 2018, the Company completed its analysis of the income tax effects of the Tax Act and there was no material impact to the Company’s consolidated financial statements.
Beginning in 2018, the GILTI provisions in the Tax Act require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. On December 31, 2018, we finalized our policy and have elected to use the period cost method for GILTI. In 2018, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses.
The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum base erosion anti-abuse tax if greater than regular tax. In 2018, our Company was not subject to BEAT as it did not meet the requirements to be subject to BEAT.
At December 31, 2018,2020, the Company is expected to utilizeexhausted 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 of approximately $636,000$2,219,000 that begin to expire in 2029. The Company has net operating loss carryforwards for Peru and UK income tax purposesits international subsidiaries of approximately $444,000.
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 7 – Income Taxes (continued)
Utilization of the domestic NOLnet operating loss and tax credit forwardscarryforwards may be subject to a substantialan annual limitation due to the ownership change limitations that may have occurred or that could occur in the future, as requiredprovided by the Internal Revenue Code Section 382,of 1986, as well asamended (the “Code”), and similar state provisions. In general, an “ownership change,” as defined by the code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any annual limitation may result in the expiration of all or a portion of the NOL or tax credit carryforwardsnet operating losses and credits before utilization.
At December 31,
2018,2020, the Company has a capital loss carryforward for federal income tax return purposes of approximately
$3,873,000$2,586,000 which starts to expire in
2020.2021. The Company has capital loss carryforwards for state income tax purposes of approximately
$195,000$129,000 which starts to expire in
2020.2021.
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
increaseddecreased by
$34,000,$243,000 and
decreased $303,000, and $25,000$175,000 for the tax years ended December 31,
2018, 2017,2020 and
2016,2019, respectively.
During the year ended December 31, 2019, the Company released the valuation allowance related to GKPeru deferred tax assets, which resulted in an income tax benefit of $104,000. The Company concluded, based upon the preponderance of positive evidence (i.e. cumulative profit before tax adjusted for permanent items over the previous twelve quarters, a history of taxable income in recent periods, and the current forecast of income before taxes for GKPeru going forward) over negative evidence and the anticipated ability to use the deferred tax assets, that it was more likely than not that the deferred tax assets will be realized. If there are unfavorable changes to actual operating results or to projections of future income, the Company may determine that it is more likely than not such deferred tax assets may not be realizable.
The tax return years
20142016 through
20172019 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject.
TheIn 2019, the Company
is currently under examination insettled a New York State
examination for tax years 2015 through
2017. The Company believes the examination will conclude2017 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 and 2018 remain open to examination by the major domestic taxing jurisdictions.
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 8 – 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'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,
2018,2020, the unrecognized tax benefit was
$87,000$275,000 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, | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| Balance at beginning of year | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Additions based on tax positions of prior years | | | 87,000 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| Balance at end of year | | $ | 87,000 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | |
| YEARS ENDED DECEMBER 31, |
| 2020 | | 2019 | | |
| Balance at beginning of year | $ | 259,000 | | | $ | 87,000 | | | |
| | | | | |
| Additions based on tax positions of prior years | 16,000 | | | 172,000 | | | |
| | | | | |
| Balance at end of year | $ | 275,000 | | | $ | 259,000 | | | |
The Company's policy for deducting interest and penalties is to treat interest as interest expense and penalties as taxes. As of December 31,
2018,2020, the Company had
no amount$15,000 accrued for the payment of
interestpenalties and
penaltieszero interest related to unrecognized tax benefits. The Company does not expect any material changes to our uncertain tax positions within the next 12 months.
Note 8
NOTE 9 – Shareholders’ EquityS
TOCK-BASED COMPENSATION EXPENSE Incentive Compensation Plan
In June 2010 shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non- 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
27, 2017,21, 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,
2020.2022. As of December 31,
2018,2020, approximately
320,000437,000 shares remain available for grant under the Plan.
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 8 – Shareholders’ Equity (continued)
The Plan provides for nonqualified stock options, qualified (or incentive) stock options and stock grants. The Plan has a provision to reduce the number of shares reserved for award and issuance under the Plan by a ratio of 1.59 shares of common stock for each share of common stock that is issued pursuant to a Full Value Award (stock grant). The Plan also provides for an Incentive Bonus Program with incentive bonus opportunities through performance unit awards and special cash incentive programs tied to the attainment of pre-established performance milestones.
Provisions of the Plan include an automatic annual grant to each non-employee director of options to purchase up to 2,000 shares on the date of the Company’s Annual Shareholder Meeting, at an exercise price equal to the market price of the Company’s common shares on that date, an automatic annual grant of 500 restricted stock units of the Company’s common shares and an annual cash retainer fee for Board or Board Committee service, which may be converted to restricted stock unit awards. Options and restricted stock units awarded under the automatic annual grant program for non-employee directors vest after one year. Restricted stock units awarded in lieu of retainer fees vest quarterly, over a one year period. These awards become outstanding upon the conclusion of the individual Board members service on the Company’s Board of Directors. Other options may vest fully and immediately, or over periods of time as determined by the Plan Administrator, but no longer than seven years from the grant date. Discretionary options currently awarded under the Plan vest over a period of 5 years.
Under the Plan, a total of 276,000456,000 restricted stock units have been granted, consisting of 38,00043,000 of annual automatic grants to non-employee directors and the corporate secretary, 228,000293,000 of deferred retainer fees to non-employee members of the Board, and 10,00020,000 grants issued in lieu of commission, to one employeetwo (2) employees of the Company.Company and 100,000 restricted stock units issued to the CEO during 2020, see further discussion below. Of the total restricted stock units granted under the Plan 272,000210,000 of them are fully vested but not yet deemed issued and outstanding, 233,000 are fully vested and outstanding, and 13,000 are outstanding as of December 31, 2018.
2020.
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| | |
AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9 – STOCK-BASED COMPENSATION EXPENSE (CONTINUED)
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
20182020 and
20172019 are as follows:
| | | Restricted Stock Units | | | Grant Date Weighted- Average Fair Value | | | Intrinsic Value | |
| Outstanding at January 1, 2017 | | | 4,000 | | | $ | 2.25 | | | $ | - | |
| Granted | | | 22,000 | | | $ | 3.47 | | | $ | - | |
| Vested | | | (22,000 | ) | | $ | 4.06 | | | $ | - | |
| Outstanding at December 31, 2017 | | | 4,000 | | | $ | 3.77 | | | $ | - | |
| | | | | | | | | | | | | |
| 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 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Restricted Stock Units | | Grant Date Weighted- Average Fair Value | | Intrinsic Value |
| Outstanding at January 1, 2019 | 4,000 | | | $ | 2.68 | | | $ | 0 | |
| Granted | 36,000 | | | $ | 2.50 | | | $ | 0 | |
| Vested | (37,000) | | | $ | 2.47 | | | $ | 0 | |
| Outstanding at December 31, 2019 | 3,000 | | | $ | 3.03 | | | $ | 0 | |
| | | | | |
| | | | | |
| Granted | 144,000 | | | $ | 1.96 | | | $ | 0 | |
| Vested | (134,000) | | | $ | 1.98 | | | $ | 0 | |
| Outstanding at December 31, 2020 | 13,000 | | | $ | 1.97 | | | $ | 2,000 | |
For the year ended December 31,
2018,2020, 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,
2018,2020, total compensation expense recorded in the consolidated statements of income for annual restricted stock units awarded was
$13,000,$7,000, with an offsetting tax benefit of
$3,000,$1,000, as this expense is deductible for income tax purposes. As of December 31,
2018,2020, there was
$5,000$2,000 of total unrecognized compensation cost related to annual restricted stock units which is expected to be recognized over a period of
.50.5 years. During
2018, 2017,2020 and
20162019, shares of restricted stock units totaling
3,000 and 4,000 each, respectively, with a fair value of approximately
$11,000, $15,000$9,000 and
$8,000,$11,000, respectively, vested and became unrestricted.
Certain Executive Equity Awards American Shared Hospital Services
NotesEffective May 4, 2020, the Company appointed Raymond C. Stachowiak as Interim President and Chief Executive Officer (“Interim CEO”). As part of his Offer Letter, the Interim CEO was granted 50,000 restricted stock awards that vested in full on August 3, 2020. The Interim CEO was granted additional restricted stock awards totaling 10,000 common shares per month, which vest in full at the end of each 30-day period following issuance. On October 1, 2020 the Interim CEO was appointed the CEO. For the year ended December 31, 2020, 100,000 restricted stock awards were issued to Consolidated Financial Statements
the CEO and 90,000 became fully vested. Additionally, Ernest R. Bates, Senior Vice President, Sales and Business Development, International Operations, was awarded 10,000 restricted stock awards, which vested in full on December 31, 2020. For the year ended December 31, 2020, total compensation expense recorded in the consolidated financial statements of operations related to executive equity awards was $195,000.Note 8 – Shareholders’ Equity (continued)
On January 4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award Agreements expireexpired on March 31, 2020. Based on the guidance in ASC 718Stock Compensation (“ASC 718”), the Company concluded these were performance-based awards with vesting criteria tied to performance metrics. As of 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, 2018 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$421,000 and unvested restricted stock awards wereof approximately 129,000 were returned to the plan as of DecemberMarch 31, 2018. If and when the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.2020.
As of December 31, 2016, the Company had warrants outstanding representing the right to purchase 100,000 shares of the Company’s common2020, stock at $2.20 per share. These warrants were issued with the Notes to four members of the Company’s Board of Directors. See Note 12 – Note, Warrant, & Common Stock Purchase Agreement for further discussion regarding these warrants. During the year ended December 31, 2017, 100,000 of the warrants were exercised. 50,000 of the 100,000 warrants were exercised via a cashless exercise resultingcompensation expense recorded in the net issuanceconsolidated financial statements is summarized as follows:
Table of
approximately 25,000 shares. There are no warrants outstanding as of December 31, 2018 and 2017.Contents
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 9 – STOCK-BASED COMPENSATION EXPENSE (CONTINUED)
| | | | | | | | | | | | | | | | | |
| | | | | Stock-Based |
| | | Awards Issued | | Compensation |
| Award Type | | | and Vested | | Expense |
| Options | | | 0 | | | $ | 17,000 | |
| RSUs Issued in Lieu of Retainer Fees | | | 0 | | | 80,000 | |
| Annual RSU Awards | | | 3,000 | | | 7,000 | |
| Executive Compensation | | | 100,000 | | | 195,000 | |
| Balance at of December 31, 2020 | | | 103,000 | | | $ | 299,000 | |
Stock Options
Changes in stock options outstanding under the Incentive Compensation Plans during
20182020 and
20172019 are as follows:
| | | | | | | | | Weighted | | | | |
| | | | | | Weighted | | | Average | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| | | Number | | | Exercise | | | Contractual | | | Intrinsic | |
| Options | | of Options | | | Price | | | Term (Years) | | | Value | |
| | | | | | | | | | | | | |
| Balance at December 31, 2016 | | | 625,000 | | | $ | 2.85 | | | | 4.25 | | | | | |
| Granted | | | 27,000 | | | $ | 3.31 | | | | 6.66 | | | | | |
| Exercised | | | (4,000 | ) | | $ | 2.81 | | | | - | | | | | |
| Forfeited | | | (33,000 | ) | | $ | 2.82 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | | 615,000 | | | $ | 2.87 | | | | 3.48 | | | $ | 22,000.00 | |
| Granted | | | 16,000 | | | $ | 2.68 | | | | 6.46 | | | | | |
| Forfeited | | | (18,000 | ) | | $ | 3.15 | | | | - | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2018 | | | 613,000 | | | $ | 2.85 | | | | 3.14 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2017 | | | 395,000 | | | $ | 2.86 | | | | 3.35 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2018 | | | 488,000 | | | $ | 2.87 | | | | 2.55 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | | | | | | | |
| Balance at December 31, 2018 | | 613,000 | | | $ | 2.85 | | | 3.14 | | $ | 0 | |
| 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 | |
| Granted | | 10,000 | | | $ | 1.88 | | | 7.00 | | $ | — | |
| | | | | | | | |
| Forfeited | | (43,000) | | | $ | 2.54 | | | — | | $ | — | |
| | | | | | | | |
| Balance at December 31, 2020 | | 417,000 | | | $ | 2.79 | | | 1.61 | | $ | 2,000 | |
| | | | | | | | |
| Exercisable at December 31, 2019 | | 425,000 | | | $ | 2.79 | | | 2.25 | | $ | 0 | |
| | | | | | | | |
| Exercisable at December 31, 2020 | | 405,000 | | | $ | 2.80 | | | 1.48 | | $ | 0 | |
The weighted average grant-date fair value of the options granted during the years
2018, 20172020 and
20162019 was
$1.45, $1.50,$0.78 and
$0.97,$1.54, respectively. There were
no0 options exercised and accordingly, no
total intrinsic value of options exercised during the year ended December 31,
2018.2020. There were
4,00016,000 options exercised during the year ended December 31,
2017. There were no options exercised and accordingly, no total intrinsic value of options exercised during the year ended December 31, 2016.2019. Total stock-based compensation expense recognized for stock options for the years ended December
2018, 2017,2020 and
20162019 was
$109,000, $144,000,$17,000 and
$139,000,$141,000, respectively.
The Company received approximately $6,000 from the exercise of 2,000 options under share-based payment arrangements for the year ended December 31, 2017.
There was
no0 cash received from options exercised under any share-based payment arrangements for the
yearsyear ended December 31,
2018 and 2016,2020, and as a result, there was no actual tax benefit realized for tax deductions from option exercises in
anythat year. The Company received approximately $42,000 from the exercise of
those years.16,000 options under the share-based arrangements for the year ended December 31, 2019.
Table of Contents
F-23 | | |
AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 8NOTE 9 – Shareholders’ Equity (continued)
STOCK-BASED COMPENSATION EXPENSE (CONTINUED)
A summary of the status of the Company’s non-vested stock options as of December 31,
20182020 and
2017,2019, and changes during the years ended December 31,
20182020 and
20172019 is presented below:
| | | | | | Weighted | |
| | | | | | Average | |
| | | Number | | | Grant-Date | |
| Nonvested Options | | of Options | | | Fair Value | |
| | | | | | | |
| Nonvested at December 31, 2016 | | | 321,000 | | | $ | 1.18 | |
| Granted | | | 27,000 | | | $ | 1.50 | |
Vested
| | | (117,000 | ) | | $ | 1.20 | |
| Forfeited | | | (11,000 | ) | | $ | 1.27 | |
| | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | |
| Nonvested Options | | Number of Options | | Weighted Average Grant-Date Fair Value |
| 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 | |
| Granted | | 10,000 | | | $ | 0.78 | |
| Vested | | (23,000) | | | $ | 1.22 | |
| | | | |
| Nonvested at December 31, 2020 | | 12,000 | | | $ | 1.07 | |
At December 31,
2018,2020, there was approximately
$138,000$12,000 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
fivethree 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
2018, 20172020 and
20162019 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’s option grants under the Plan in
2018, 20172020 and
20162019 was estimated using the following assumptions:
| | | 2018 | | | 2017 | | | 2016 | |
| | | | | | | | | | |
| Expected life (years) | | | 7.0 | | | | 7.0 | | | | 7.0 | |
| Expected forfeiture rate | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Expected volatility | | | 50 | % | | | 53 | % | | | 53 | % |
| Dividend yield | | | 0 | % | | | 0 | % | | | 0 | % |
| Risk-free interest rate | | | 2.9 | % | | | 2.0 | % | | | 2.0 | % |
| | | | | | | | | | | | | | | |
| 2020 | | 2019 | | |
| Expected life (years) | 7.0 | | 7.0 | | |
| Expected forfeiture rate | 0.0 | % | | 0.0 | % | | |
| Expected volatility | 40 | % | | 50 | % | | |
| Dividend yield | 0 | % | | 0 | % | | |
| Risk-free interest rate | 0.4 | % | | 1.9 | % | | |
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 2018, 20172020 or 2016.2019. There are approximately 72,000 shares remaining under this repurchase authorization.
Table of Contents
F-24 | | |
AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 9NOTE 10 – Retirement Plan
RETIREMENT PLAN
The Company has a defined-contribution retirement plan (the “Retirement Plan”) that allows for a matching safe harbor contribution. For 2018,2020, 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 $31,000$37,000 for the estimated safe harbor matching contribution for the year ended December 31, 2018.2020. The Company contributed $29,000 and $27,000$38,000 to the Retirement Plan for the safe harbor match for the yearsyear ended December 31, 2017 and December2019.
| | |
AMERICAN SHARED HOSPITAL SERVICES |
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 11 – Operating LeasesO
PERATING LEASES The Company leases office space and equipment under operating leases expiring at various dates through
20192021 and
2023.2024. On August 13, 2016, the Company entered into a 7 year operating lease for an office space located in San Francisco, CA. The Company also
hasowns and operates a
satellite officestand-alone Gamma Knife facility in
Fairfield, CALima, Peru where it leases approximately 1,600 square feet for approximately $7,800 per month with a lease expiration date in
April 2020.January 2024.
Future minimum payments under non-cancelable operating leases
net of expected sublease income, having initial terms of more than one year consisted of the following:
| Year ending December 31, | | | |
| | | | |
| 2019 | | $ | 275,000 | |
| 2020 | | | 257,000 | |
| 2021 | | | 252,000 | |
| 2022 | | | 259,000 | |
| 2023 | | | 165,000 | |
| Thereafter | | | - | |
| | | | | |
| | | $ | 1,208,000 | |
| | | | | |
| Year ending December 31, | |
| |
| 2021 | $ | 350,000 | |
| 2022 | 355,000 | |
| 2023 | 259,000 | |
| 2024 | 8,000 | |
| |
| |
| |
| |
| $ | 972,000 | |
Payments for repair and maintenance agreements incorporated in operating lease agreements are not included in the future minimum operating lease payments shown above.
Net rent expense was
$298,000, $308,000,$404,000 and
$307,000$380,000 for the years ended December 31,
2018, 20172020 and
2016,2019, respectively, and includes the above operating leases as well as month-to-month rental and certain executory costs.
Total rent expense was recognized net
Table of
sublease income of $0, $0, and $76,000 for the years ended December 31, 2018, 2017 and 2016, respectively. In 2013, the Company subleased a portion of its existing office space through the remainder of its lease term at a rate lower than its lease rate, resulting in a cumulative loss of $115,000. This loss was amortized against total rent expense over the term of the sublease and it is included in total rent expense for 2016.Note 11Contents
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AMERICAN SHARED HOSPITAL SERVICES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 12 – Commitments and ContingenciesC
OMMITMENTSAND CONTINGENCIES On December 20, 2018, the Company signed Second Amendments to two System Build Agreements
(the “Amendments”) for the Company’s second and third Mevion PBRT units. The Company and Mevion have agreed to upgrade the second and third PBRT units for which the Company has purchase commitments. The Company is actively seeking sites for these units but, to date, has not entered into agreements with any party for either placement of a PBRT unit or the related financing. The Company projects that it will be required to commence delivery of the second and third PBRT units no later than 2023. In the event the Company is unable to enter into customer agreements within the requisite time frame or receive an extension from Mevion, the Company could forfeit its
deposits.deposits, which are described below.
As of December 31,
2018, the Company had commitments 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. The non-refundable deposits are recorded in the Consolidated Balance Sheets as deposits and construction in progress.American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 11 – Commitments and Contingencies (continued)
As of December 31, 2018,2020, the Company had commitments to perform three (3) Cobalt-60 reloads and install four (4) Leksell Gamma Knife Icon Systems (“Icon”) at existing customer sites, and purchase two (2) Linear Accelerator ("LINAC") systems, one LINAC system, to be placed at an existing customer site and one at a new customer sitesite. The Company also has a commitment to upgrade the Gamma Knife unit at its stand-alone facility in 2019.Ecuador to a Perfexion. The Cobalt-60 reloads, Icon upgrades, and LINAC purchases are scheduled to occur between 2021 and 2022. The Company expects to upgrade the equipment in 2019.Ecuador in the second quarter of 2021. Total Gamma Knife and LINAC commitments as of December 31, 20182020 were $4,235,000. It is the Company’s intent to finance these commitments.$12,210,000. There are no significant cash requirements, pending financing, for these commitments in the next 12 months. 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, the Company entered into a Maintenance and Support Agreement (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 September 5, 2017, was amended in 2018, and renews annually.annually over a five (5) year period. The agreement requires an annual prepayment of $1,285,000 which was made on August 6, 2018$1,572,000 for the current contractual period. 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, if a second Mevion PBRT unit is not placed at Orlando Health prior to September 2019. The Company has accrued the pro-rata portion of this additional maintenance expense for the year ended December 31, 2018.
As of December 31, 2018,2020, 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 Elekta AB. 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 2021 and 2022.The Company’s commitmentcommitments to purchase atwo LINAC in 2019 includessystems also include a 9-year and 5-year agreement to service the equipment.equipment, respectively. Total service commitments as of December 31, 20182020 were $7,523,000.$10,493,000. 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 estimates the following commitments for each of the equipment systems, with expected timing of payments as follows as of December 31,
2018:| | | 2019 | | | Thereafter | | | Total | |
| | | | | | | | | | |
| Proton Beam Units | | $ | - | | | $ | 34,000,000 | | | $ | 34,000,000 | |
| | | | | | | | | | | | | |
| Gamma Knife & Linac Units | | | 4,235,000 | | | | - | | | | 4,235,000 | |
| | | | | | | | | | | | | |
| Service Contracts | | | 1,664,000 | | | | 5,859,000 | | | | 7,523,000 | |
| | | | | | | | | | | | | |
| Total Commitments | | $ | 5,899,000 | | | $ | 39,859,000 | | | $ | 45,758,000 | |
Note 12 – Note, Warrant, & Common Stock Purchase Agreement with related parties
In October 2014, the Company entered into a Note and Warrant Purchase Agreement (the “Note and Warrant Purchase Agreement”) with four members of the Company’s Board of Directors to issue an aggregate of $1,000,000 in principal amount of promissory notes (the “Notes”) and warrants (the “Warrants”) to purchase an aggregate of 200,000 shares of the common stock, no par value (the “Common Stock”), of the Company (the “Notes and Warrants Offering”). The Notes incurred interest at a rate of 15.0% per annum and had a maturity date of October 22, 2017. Interest only payments were due monthly with the option to prepay the outstanding principal on or after December 31, 2015. The Warrants expire three years after their initial issuance date and may be exercised for a purchase price equal to $2.20 per share of Common Stock, the closing price per share of the Company’s Common Stock on the New York Stock Exchange MKT on the date preceding the date of the Note and Warrant Purchase Agreement. During the year ended December 31, 2016, 100,000 of the warrants were exercised and 100,000 remain outstanding as of the year ended.
2020: | | | | | | | | | | | | | | | | | | | | |
| | Total amounts committed | 2021 | 2022-2023 | 2024-2025 | After 5 years |
| | | | | | |
| Long-term debt (includes interest) | | $ | 5,251,000 | | $ | 1,373,000 | | $ | 1,854,000 | | $ | 1,543,000 | | $ | 481,000 | |
| Finance leases (includes interest) | | 9,771,000 | | 6,590,000 | | 2,659,000 | | 522,000 | | 0 | |
| Future equipment purchases | | 46,210,000 | | 2,175,000 | | 44,035,000 | | 0 | | 0 | |
| Equipment service contracts | | 10,493,000 | | 2,030,000 | | 2,585,000 | | 2,999,000 | | 2,879,000 | |
| Acquisition working capital payments | | 197,000 | | 197,000 | | 0 | | 0 | | 0 | |
| Operating leases | | 972,000 | | 350,000 | | 614,000 | | 8,000 | | 0 | |
| | | | | | |
| Total Commitments | | $ | 72,894,000 | | $ | 12,715,000 | | $ | 51,747,000 | | $ | 5,072,000 | | $ | 3,360,000 | |
F-26 | | |
AMERICAN SHARED HOSPITAL SERVICES |
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS
|
American Shared Hospital Services
Notes to Consolidated Financial Statements
Note 12NOTE 13 – Note, Warrant, & Common Stock Purchase Agreement (continued)
During the year ended December 31, 2016, the Company paid down the Notes. Based on the guidance provided in accordance with ASC 405Extinguishment of Liabilities (“ASC 405”) and ASC 470Debt Modifications and Extinguishments (“ASC 470”),the pay-down of the Notes is considered an extinguishment of debt and, as such, the difference between the net carrying amount of the Notes and the costs of extinguishment was recognized as a loss on the Company’s condensed consolidated statements of operations. During the year ended December 31, 2016, the Company recorded a loss on early extinguishment of debt of $108,000. The Notes were issued with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of $80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment.
Concurrently with the Note and Warrant Purchase Agreement, the Company entered into a common stock purchase agreement (the “Common Stock Purchase Agreement”) with one member of the Company’s Board of Directors to sell, in a private offering, 100,000 shares of the Company’s Common Stock (the “Private Placement Shares”), for gross proceeds of $220,000 (the “Common Stock Offering” and, together with the Notes and Warrants Offering, the “Private Offering”). The Common Stock Purchase Agreement contains terms and conditions that are customary for a transaction of this type.
The Company received gross proceeds of $1,220,000 in the Private Offering, which were used, together with cash on hand, to make two payments of $1,000,000 each to Mevion as deposits pursuant to the terms of purchase commitments with Mevion.
Note 13 –Related Party Transactions
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 equipment, deposits for such equipment purchases, and costs to maintain the equipment. The Company believes that all its transactions with Elekta are arm’s-length transactions. At December 31, 2018,2020, the Company had commitments to purchase three (3) Cobalt-60 reloads, one (1) Perfexion upgrade, and install four (4) Leksell Gamma Knife Icon Systems (“Icon”) and service the related equipment, as discussed in Note 1112 – Commitments and Contingencies.The Company purchased one MEVION S250 PBRT machine from Mevion, and has $2,250,000 in non-refundable deposits towards the purchase 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.