|
ITEM 1.
|
FINANCIAL STATEMENTS
|
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,493,000
|
|
|
$
|
2,152,000
|
|
Restricted cash
|
|
|
350,000
|
|
|
|
350,000
|
|
Accounts receivable, net of allowance for doubtful accounts of $100,000 at June 30, 2018 and $100,000 at December 31, 2017
|
|
|
5,002,000
|
|
|
|
5,019,000
|
|
Other receivables
|
|
|
293,000
|
|
|
|
216,000
|
|
Prepaid expenses and other current assets
|
|
|
626,000
|
|
|
|
1,156,000
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
9,764,000
|
|
|
|
8,893,000
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Medical equipment and facilities
|
|
|
93,596,000
|
|
|
|
95,923,000
|
|
Office equipment
|
|
|
582,000
|
|
|
|
576,000
|
|
Deposits and construction in progress
|
|
|
3,883,000
|
|
|
|
3,658,000
|
|
|
|
|
98,061,000
|
|
|
|
100,157,000
|
|
Accumulated depreciation and amortization
|
|
|
(50,569,000
|
)
|
|
|
(51,666,000
|
)
|
Net property and equipment
|
|
|
47,492,000
|
|
|
|
48,491,000
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
818,000
|
|
|
|
792,000
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,074,000
|
|
|
$
|
58,176,000
|
|
LIABILITIES AND
|
|
(unaudited)
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
411,000
|
|
|
$
|
359,000
|
|
Employee compensation and benefits
|
|
|
256,000
|
|
|
|
187,000
|
|
Other accrued liabilities
|
|
|
1,269,000
|
|
|
|
1,188,000
|
|
Income tax payable
|
|
|
318,000
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
2,169,000
|
|
|
|
2,459,000
|
|
Current portion of obligations under capital leases
|
|
|
4,381,000
|
|
|
|
4,814,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
8,804,000
|
|
|
|
9,007,000
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
2,618,000
|
|
|
|
3,598,000
|
|
Long-term capital leases, less current portion
|
|
|
12,325,000
|
|
|
|
12,272,000
|
|
Deferred revenue, less current portion
|
|
|
435,000
|
|
|
|
504,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
2,821,000
|
|
|
|
2,910,000
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock (10,000,000 authorized; 5,714,000 shares issued and outstanding at June 30, 2018 and 5,710,000 shares at December 31, 2017)
|
|
|
10,711,000
|
|
|
|
10,711,000
|
|
Additional paid-in capital
|
|
|
6,384,000
|
|
|
|
6,272,000
|
|
Retained earnings
|
|
|
7,550,000
|
|
|
|
6,873,000
|
|
Total equity-American Shared Hospital Services
|
|
|
24,645,000
|
|
|
|
23,856,000
|
|
Non-controlling interest in subsidiaries
|
|
|
6,426,000
|
|
|
|
6,029,000
|
|
Total shareholders’ equity
|
|
|
31,071,000
|
|
|
|
29,885,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
58,074,000
|
|
|
$
|
58,176,000
|
|
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income from medical services
|
|
$
|
5,169,000
|
|
|
$
|
4,945,000
|
|
|
$
|
10,474,000
|
|
|
$
|
9,859,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance and supplies
|
|
|
627,000
|
|
|
|
248,000
|
|
|
|
1,253,000
|
|
|
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,664,000
|
|
|
|
1,722,000
|
|
|
|
3,321,000
|
|
|
|
3,326,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other direct operating costs
|
|
|
797,000
|
|
|
|
724,000
|
|
|
|
1,613,000
|
|
|
|
1,456,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,088,000
|
|
|
|
2,694,000
|
|
|
|
6,187,000
|
|
|
|
5,262,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
2,081,000
|
|
|
|
2,251,000
|
|
|
|
4,287,000
|
|
|
|
4,597,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense
|
|
|
1,032,000
|
|
|
|
1,138,000
|
|
|
|
2,017,000
|
|
|
|
2,277,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
406,000
|
|
|
|
444,000
|
|
|
|
831,000
|
|
|
|
897,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
643,000
|
|
|
|
669,000
|
|
|
|
1,439,000
|
|
|
|
1,423,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from investment in equity securities
|
|
|
22,000
|
|
|
|
-
|
|
|
|
22,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (loss)
|
|
|
4,000
|
|
|
|
(5,000
|
)
|
|
|
9,000
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
669,000
|
|
|
|
664,000
|
|
|
|
1,470,000
|
|
|
|
1,422,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
169,000
|
|
|
|
220,000
|
|
|
|
319,000
|
|
|
|
436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
500,000
|
|
|
|
444,000
|
|
|
|
1,151,000
|
|
|
|
986,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net (income) attributable to non-controlling interests
|
|
|
(213,000
|
)
|
|
|
(331,000
|
)
|
|
|
(474,000
|
)
|
|
|
(580,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to American Shared Hospital Services
|
|
$
|
287,000
|
|
|
$
|
113,000
|
|
|
$
|
677,000
|
|
|
$
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - basic
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share - diluted
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY
|
|
PERIODS ENDED DECEMBER 31,
2017 AND JUNE 30, 2018
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Non-controlling
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Sub-Total
|
|
|
Interests in
|
|
|
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
ASHS
|
|
|
Subsidiaries
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2017
|
|
|
5,468,000
|
|
|
$
|
10,596,000
|
|
|
$
|
5,949,000
|
|
|
$
|
4,950,000
|
|
|
$
|
21,495,000
|
|
|
$
|
5,678,000
|
|
|
$
|
27,173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
4,000
|
|
|
|
-
|
|
|
|
323,000
|
|
|
|
-
|
|
|
|
323,000
|
|
|
|
-
|
|
|
|
323,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
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
|
|
|
|
-
|
|
|
|
112,000
|
|
|
|
-
|
|
|
|
112,000
|
|
|
|
-
|
|
|
|
112,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions to non-controlling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(77,000
|
)
|
|
|
(77,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
677,000
|
|
|
|
677,000
|
|
|
|
474,000
|
|
|
|
1,151,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2018 (unaudited)
|
|
|
5,714,000
|
|
|
$
|
10,711,000
|
|
|
$
|
6,384,000
|
|
|
$
|
7,550,000
|
|
|
$
|
24,645,000
|
|
|
$
|
6,426,000
|
|
|
$
|
31,071,000
|
|
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,151,000
|
|
|
$
|
986,000
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,364,000
|
|
|
|
3,364,000
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets
|
|
|
-
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax
|
|
|
229,000
|
|
|
|
366,000
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
112,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Net accrued interest on lease financing
|
|
|
7,000
|
|
|
|
(53,000
|
)
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
77,000
|
|
|
|
(723,000
|
)
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
481,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
Customer deposits/deferred revenue
|
|
|
(58,000
|
)
|
|
|
(57,000
|
)
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
191,000
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
5,554,000
|
|
|
|
4,038,000
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Payment for purchase of property and equipment
|
|
|
(792,000
|
)
|
|
|
(477,000
|
)
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equipment
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(792,000
|
)
|
|
|
(327,000
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(1,278,000
|
)
|
|
|
(1,163,000
|
)
|
|
|
|
|
|
|
|
|
|
Principal payments on capital leases
|
|
|
(2,066,000
|
)
|
|
|
(2,642,000
|
)
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interests
|
|
|
(77,000
|
)
|
|
|
(291,000
|
)
|
|
|
|
|
|
|
|
|
|
Proceeds from warrants and options exercised
|
|
|
-
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing activities
|
|
|
(3,421,000
|
)
|
|
|
(3,981,000
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents, and restricted cash
|
|
|
1,341,000
|
|
|
|
(270,000
|
)
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
|
|
2,502,000
|
|
|
|
3,121,000
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
3,843,000
|
|
|
$
|
2,851,000
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosure:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
884,000
|
|
|
$
|
978,000
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
88,000
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Acquisition of equipment with capital lease financing
|
|
$
|
1,679,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment with long-term debt financing
|
|
$
|
-
|
|
|
$
|
992,000
|
|
See accompanying notes
AMERICAN
SHARED HOSPITAL SERVICES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
Note 1.
|
Basis of Presentation
|
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary
to present fairly American Shared Hospital Services’ consolidated financial position as of June 30, 2018 and the results
of its operations for the three and six-month periods ended June 30, 2018 and 2017, which results are not necessarily indicative
of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2017 have been derived from audited consolidated
financial statements.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2017 included in the Company’s 10-K filed with the Securities and Exchange Commission.
These
consolidated financial statements include the accounts of American Shared Hospital Services and its subsidiaries (the “Company”)
as follows: the Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando,
LLC (“Orlando”), OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); the Company is the majority owner of
Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”) which wholly-owns
the subsidiaries Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and GK Financing U.K., Limited (“GKUK”);
GKF is the majority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville GK Equipment,
LLC (“JGKE”).
The
Company (through ASRS) and Elekta AB, the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV
Investments, Inc.), entered into an operating agreement and formed GKF. As of June 30, 2018, GKF provided Gamma Knife units to
fifteen medical centers in the United States in the states of Arkansas, California, Florida, Illinois, Massachusetts, Mississippi,
Nebraska, Nevada, New Mexico, Tennessee, Ohio, Oregon, and Texas. GKF also owns and operates a single-unit Gamma Knife facility
in Lima, Peru.
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 subsidiaries GKPeru and GKUK for the purposes of expanding its business internationally into Peru and the United Kingdom, respectively;
Orlando and LBE to provide proton beam therapy equipment and services in Orlando, Florida and Long Beach, California; and AGKE
and JGKE to provide Gamma Knife 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 began operations in April 2016.
GKPeru treated its first patient in July 2017. GKUK is inactive and LBE is not expected to generate revenue within the next two
years.
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 LLC”). The remaining 50% is owned by an architectural design company. OR21 LLC 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.
Based
on the guidance provided in accordance with Accounting Standards Codification (“ASC”) 280
Segment 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 one reportable segment, Medical Services Revenue. The Company
provides Gamma Knife, PBRT, and IGRT equipment to sixteen hospitals in the United States and owns and operates a stand-alone facility
in Lima, Peru as of June 30, 2018. These seventeen locations operate under different subsidiaries of the Company but offer the
same radiosurgery and radiation therapy service. The operating results of the subsidiaries are reviewed by the Company’s
Chief Executive Officer and Chief Financial Officer, who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”)
and this is done in conjunction with all of the subsidiaries and locations.
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, (“ASU 2014-09”), which requires an entity to recognize
the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced
most existing revenue recognition guidance in United States Generally Accepted Accounting Principles (“GAAP”). In December
2016, FASB issued ASU 2016-20
Technical Corrections and Improvements to Topic 606
, (“ASU 2016-20”), which affects
some narrow aspects of ASU 2014-09. The new standard was effective for the Company for annual reporting periods beginning after
December 15, 2017 and interim reporting periods therein. The standard permits the use of either the retrospective or cumulative
effect transition method. The Company performed an analysis to determine if its revenue agreements with customers fall under the
scope of ASU No. 2016-02
Leases
(“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 2014-09 was not applicable.
The
Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective method. The cumulative effect of adopting ASU
2014-09 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. Under ASU 2014-09, the Company determined that, as it relates to the stand-alone facility in
Lima, Peru, a contract exists between GKPeru and the individual patient treated at the facility. 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 in the month 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. Payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net
30 days. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable
and revenues earned by GKPeru were not material for the six-month period ended June 30, 2018, therefore, no additional disclosures
have been made at this time.
In
February 2016, the FASB issued 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 accounting is largely unchanged. The new guidance is effective
for the Company on January 1, 2019. Early adoption is permitted. The Company is evaluating the effect that ASU 2016-02 will have
on its consolidated financial statements and related disclosures. 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 believes it is following an appropriate timeline
to allow for proper recognition, presentation, and disclosure upon adoption of ASU 2016-02.
In
June 2016, the FASB issued ASU No. 2016-13
Financial 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. 2018-03
Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2018-03”), which clarifies certain aspects of ASU 2016-01. 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. The new guidance
is effective for fiscal years beginning after December 31, 2017 and interim periods within those fiscal years beginning after June
15, 2018. The Company does not expect ASU 2018-03 to have a significant impact on its consolidated financial statements and related
disclosures.
In July 2018, the FASB
issued ASU No. 2018-09,
Codification Improvements
(“ASU 2018-09”). This standard does not prescribe any
new accounting guidance, but instead makes minor improvements 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 year beginning after December 15, 2018. The Company
is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
|
Note 2.
|
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.
Depreciation
for PBRT 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
following table summarizes property and equipment as of June 30, 2018 and December 31, 2017:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Medical equipment and facilities
|
|
$
|
93,596,000
|
|
|
$
|
95,923,000
|
|
Office equipment
|
|
|
582,000
|
|
|
|
576,000
|
|
Deposits and construction in progress
|
|
|
1,883,000
|
|
|
|
1,658,000
|
|
Deposits towards purchase of proton beam systems
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,061,000
|
|
|
|
100,157,000
|
|
Accumulated depreciation
|
|
|
(50,569,000
|
)
|
|
|
(51,666,000
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
47,492,000
|
|
|
$
|
48,491,000
|
|
As
of June 30, 2018, the Company has one idle Gamma Knife unit with a cumulative net book value of $729,000. There are currently no
plans to place into service or trade this unit in during 2018.
Long-term
debt consists of seven notes with three financing companies collateralized by the Gamma Knife equipment, the individual customer
contracts, and related accounts receivable at June 30, 2018. As of June 30, 2018, long-term debt on the Condensed Consolidated
Balance Sheets was $4,787,000.
|
Note 4.
|
Obligations Under Capital Leases
|
The
Company has twelve capital lease obligations with two financing companies, collateralized by Gamma Knife and PBRT equipment, the
individual customer contracts, and related accounts receivable at June 30, 2018. As of June 30, 2018, obligations under capital
lease on the Condensed Consolidated Balance Sheets were $16,706,000.
|
Note 5.
|
Per Share Amounts
|
Per
share information has been computed based on the weighted average number of common shares and dilutive common share equivalents
outstanding. The computation for the three and six-month periods ended June 30, 2018 excluded approximately 547,000 of the Company’s
stock options because the exercise price of the options was higher than the average market price during the period. The computation
for the three and six-month periods ended June 30, 2017 included all of the Company’s outstanding stock options because the
exercise price of the options was lower than the average market price during those periods.
Based
on the guidance provided in accordance with ASC 260
Earnings Per Share
(“ASC 260”), the weighted average common
shares for basic earnings per share, for the three and six-month periods ended June 30, 2018 and 2017, excluded the weighted average
impact of the unvested performance share awards, discussed below. These awards are legally outstanding but are not deemed participating
securities and therefore are excluded from the calculation of basic earnings per share. The unvested shares are also excluded from
the denominator for diluted earnings per share because they are considered contingent shares not deemed probable for the three
and six-month periods ended June 30, 2018 and 2017.
The
following table sets forth the computation of basic and diluted earnings per share for the three and six-month periods ended June
30, 2018 and 2017:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net income attributable to American Shared Hospital Services
|
|
$
|
287,000
|
|
|
$
|
113,000
|
|
|
$
|
677,000
|
|
|
$
|
406,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
5,834,000
|
|
|
|
5,935,000
|
|
|
|
5,826,000
|
|
|
|
5,725,000
|
|
Diluted effect of stock options and restricted stock
|
|
|
28,000
|
|
|
|
208,000
|
|
|
|
29,000
|
|
|
|
196,000
|
|
Weighted average common shares for diluted earnings per share
|
|
|
5,862,000
|
|
|
|
6,143,000
|
|
|
|
5,855,000
|
|
|
|
5,921,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
Diluted earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
Note 6.
|
Stock-based Compensation
|
In June 2010, the
Company’s 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, 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.
Stock-based
compensation expense associated with the Company’s stock-based options to employees is calculated using the Black-Scholes
valuation model. 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 fair value estimates. The estimated fair value of the
Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest
rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during
which an employee is required to provide service in exchange for the award (requisite service period), usually the vesting period.
Accordingly, stock-based compensation cost before income tax effect for the Company’s options and restricted stock awards,
in the amount of $57,000 and $112,000 is reflected in net income for the three and six-month periods ended June 30, 2018 compared
to $50,000 and $100,000 in the same periods prior year, respectively. At June 30, 2018, there was approximately $244,000 of unrecognized
compensation cost related to non-vested share-based compensation arrangements granted under the Plan, excluding the unrecognized
compensation cost associated with the performance awards, discussed below. This cost is expected to be recognized over a period
of approximately four years.
As of December 31,
2016, the Company had warrants outstanding representing the right to purchase 100,000 shares of the Company’s common stock
at $2.20 per share. These warrants were issued with $1,000,000 of promissory notes to four members of the Company’s Board
of Directors in a prior year. During the six-month period ended June 30, 2017, warrants to purchase all 100,000 shares of the Company’s
common stock were exercised. Of the 100,000 outstanding, 50,000 of the warrants exercised were done so through a cashless exercise
issuance, totaling approximately 25,000 shares. There are no warrants outstanding as of June 30, 2018.
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 expire
on March 31, 2020. Based on the guidance in ASC 718
Stock 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 those certain performance metrics under the Award Agreements and recognized stock compensation expense of approximately
$108,000 related to these awards. As of June 30, 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 and unvested awards
were approximately 129,000 shares as of June 30, 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.
The following table summarizes stock option activity for the six-month period ended June 30, 2018:
|
|
Stock
Options
|
|
|
Grant Date
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in
Years)
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2018
|
|
|
615,000
|
|
|
$
|
2.87
|
|
|
|
3.48
|
|
|
$
|
-
|
|
Granted
|
|
|
16,000
|
|
|
$
|
2.68
|
|
|
|
6.96
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(18,000
|
)
|
|
$
|
3.15
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2018
|
|
|
613,000
|
|
|
$
|
2.85
|
|
|
|
3.18
|
|
|
$
|
32,000
|
|
Exercisable at June 30, 2018
|
|
|
382,000
|
|
|
$
|
2.86
|
|
|
|
3.04
|
|
|
$
|
-
|
|
|
Note 7.
|
Fair Value of Financial Instruments
|
The Company’s
disclosures of the fair value of financial instruments is based on a fair value hierarchy that 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.
The
estimated fair value of the Company’s assets and liabilities as of June 30, 2018 and December 31, 2017 were as follows (in
thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Carrying
Value
|
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June 30, 2018
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Assets:
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Cash, cash equivalents, restricted cash
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$
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3,843
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$
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-
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$
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-
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$
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3,843
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$
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3,843
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Total
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$
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3,843
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$
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-
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$
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-
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$
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3,843
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$
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3,843
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Liabilities:
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Debt obligations
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$
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-
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$
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-
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$
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4,768
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$
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4,768
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$
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4,787
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Total
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$
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-
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$
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-
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$
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4,768
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$
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4,768
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$
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4,787
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December 31, 2017
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Assets:
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Cash, cash equivalents, restricted cash
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$
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2,502
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$
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-
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$
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-
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$
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2,502
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$
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2,502
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Total
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$
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2,502
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$
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-
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$
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-
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$
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2,502
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$
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2,502
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Liabilities
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Debt obligations
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$
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-
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$
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-
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$
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6,082
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$
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6,082
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$
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6,057
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Total
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$
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-
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$
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-
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$
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6,082
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$
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6,082
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$
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6,057
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The
Company generally calculates its effective income tax rate at the end of an interim period using an estimate of the annualized
effective income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annualized
effective income tax rate cannot be made, the Company computes its provision for income taxes using the actual effective income
tax rate for the results of operations reported within the year-to-date periods. The Company’s effective income tax rate
is highly influenced by relative income or losses reported and the amount of the nondeductible stock-based compensation associated
with grants of its common stock options and from the results of foreign operations. A small change in estimated annual pre-tax
income (loss) can produce a significant variance in the annualized effective income tax rate given the expected amount of these
items. As a result, the Company has computed its provision for income taxes for the three and six-month periods ended June 30,
2018 by applying the actual effective tax rates to income or (loss) reported within the condensed consolidated financial statements
through those periods.
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 for the year ended
December 31, 2017.
On Saturday, July
28, 2018, the Company’s proton therapy system at Orlando Health sustained water damage resulting from the facility’s
water evacuation system. We currently estimate that the proton therapy service will be down for two weeks from the date damaged,
pending further developments. We expect repairs to the system to be covered under existing insurance and any interruption in service
also to be an insurable event after a five-day waiting period. Accordingly, we do not currently anticipate that this interruption
in service will have a significant impact on our financial performance.
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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This
quarterly report to the Securities and Exchange Commission may be deemed to contain certain forward looking statements with respect
to the financial condition, results of operations and future plans of American Shared Hospital Services (including statements regarding
the expected continued growth in volume of the MEVION S250 system, the expansion of the Company’s proton therapy business, and
the timing of treatments by new Gamma Knife systems) which involve risks and uncertainties including, but not limited to, the risks
of variability of financial results between quarters, the risks of the Gamma Knife and radiation therapy businesses, the risks
of developing The Operating Room for the 21st Century program, and the risks of the timing, financing, and operations of the Company’s
proton therapy business. Further information on potential factors that could affect the financial condition, results of operations
and future plans of American Shared Hospital Services is included in the filings of the Company with the Securities and Exchange
Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and the definitive Proxy Statement
for the Annual Meeting of Shareholders held on June 14, 2018.
The
Company had fifteen Gamma Knife units, one PBRT system and one IGRT unit in operation at June 30, 2018, and sixteen Gamma Knife
units, one PBRT system and one IGRT machine in operation at June 30, 2017. Three of the Company’s customer contracts are
through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Eight of the Company’s fifteen
current Gamma Knife customers are under fee-per-use contracts, and seven customers are under retail arrangements. The Company’s
contracts to provide radiation therapy and related equipment services to an existing Gamma Knife customer and the Company’s
PBRT system at Orlando Health – UF Health Cancer Center (“Orlando Health”), are also considered retail arrangements.
Retail arrangements are further classified as either turn-key or revenue sharing. Revenue from fee-per-use contracts is determined
by each hospital’s contracted rate.
Rental
income from medical services is recognized 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 with customers do not contain any guaranteed minimum payments.
These contracts are typically for a ten-year term and are classified as either fee per use or retail. 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 the hospital’s reimbursement
from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are
determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate
of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating
costs. For turn-key sites, the Company also shares a percentage of net operating profit. The Company records an estimate of net
operating profit based on estimated revenues, less estimated operating costs. The operating costs and estimated net operating profit
are recorded as other direct operating costs in the condensed consolidated statement of operations.
Effective
January 1, 2015, the Centers for Medicare and Medicaid (“CMS”) established a Comprehensive Ambulatory Payment Classification
for single session radiosurgery treatments. CMS has established a 2018 total reimbursement rate of approximately $9,100 ($9,000
in 2017) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of proton therapy for a simple
treatment without compensation will be $522 ($494 in 2017) and $1,053 ($994 in 2017) for simple with compensation, intermediate
and complex treatments, respectively.
Rental
income from medical services revenue increased by $224,000 and $615,000 to $5,169,000 and $10,474,000 for the three and six-month
periods ended June 30, 2018 from $4,945,000 and $9,859,000 for the same periods prior year, respectively.
For
the three and six-month periods ended June 30, 2018, revenues generated from the Company’s PBRT system increased by $501,000
and $565,000 to $1,363,000 and $2,582,000 compared to $862,000 and $2,017,000 for the same periods prior year, respectively.
The
number of PBRT fractions increased 109 and 107 to 1,298 and 2,516 for the three and six-month periods ended June 30, 2018 compared
to 1,189 and 2,409 for the same periods prior year, respectively. The increase for the three and six-month periods ended June 30,
2018, was the result of increased use of the PBRT machine by Orlando Health during those periods.
Gamma
Knife revenues decreased $374,000 and $305,000 to $3,594,000 and $7,282,000 for the three and six-month periods ended June 30,
2018 compared to $3,968,000 and $7,587,000 in the same periods prior year, respectively. The decrease in revenue was due to the
loss of three customer sites due to the expiration of their contract terms in April 2017, August 2017, and April 2018. This decrease
was partially offset by revenues from the Company’s two new Gamma Knife sites which began treating patients in July 2017
and August 2017.
The
number of Gamma Knife procedures decreased by 41 and 105 to 377 and 769 for the three and six-month periods ended June 30, 2018
from 418 and 874 in the same periods prior year, respectively. Excluding the three sites lost due to the expiration of their contract
term and the Company’s two new sites, Gamma Knife procedures decreased by 33 and 17 for the three and six-month periods ended
June 30, 2018 compared to the same periods prior year, respectively. For the three and six-month periods ended June 30, 2018, the
lower volume was attributable to two customer sites experiencing downtime in order to perform Cobalt-60 reloads.
IGRT
revenues increased $97,000 and $355,000 to $212,000 and $610,000 for the three and six-month periods ended June 30, 2018 compared
to $115,000 and $255,000 in the same periods prior year, respectively. For the three and six-month periods ended June 30, 2018,
the increase in revenue was due to increased volumes at the Company’s IGRT site.
Total
costs of revenue increased by $394,000 and $925,000 to $3,088,000 and $6,187,000 for the three and six-month periods ended June
30, 2018 from $2,694,000 and $5,262,000 for the same periods prior year, respectively. Maintenance and supplies increased by $379,000
and $773,000 for the three and six-month periods ended June 30, 2018, respectively. The increase in maintenance and supplies was
due to the Mevion Service Agreement which began September 2017 (see further discussion below). Depreciation and amortization decreased
by $58,000 and $5,000 for the three and six-month periods ended June 30, 2018, respectively. The decrease in depreciation expense
was due to the expiration of three Gamma Knife contracts in April 2017, August 2017, and April 2018, as the Company no longer incurs
depreciation expense for the expired units. This decrease was partially offset by the Company’s two new Gamma Knife sites
and two Cobalt-60 reloads performed in the second quarter 2018. Other direct operating costs increased by $73,000 and $157,000
for the three and six-month periods ended June 30, 2018, respectively. The increase in other direct operating costs was primarily
due to operating costs associated with the Company’s stand-alone facility in Lima, Peru which began treating patients in
July 2017.
Selling
and administrative costs decreased by $106,000 and $260,000 to $1,032,000 and $2,017,000 for the three and six-month periods ended
June 30, 2018 from $1,138,000 and $2,277,000 for the same periods prior year, respectively. For the three-month period ended June
30, 2018, the decrease was due to a decline in legal and consulting fees. For the six-month period ended June 30, 2018, the decrease
was due to a decline in legal fees, consulting fees, and severance expense.
Interest
expense decreased by $38,000 and $66,000 to $406,000 and $831,000 for the three and six-month periods ended June 30, 2018 from
$444,000 and $897,000 for same periods prior year, respectively. Interest expense decreased for the three and six-month periods
ended June 30, 2018, due to a lower average principal base on the Company’s debt and leases, compared to the same periods
prior year, effectively reducing interest expense.
The
Company received proceeds from its investment in equity securities of $22,000 for the three and six-month periods ended June 30,
2018. As of December 31, 2017, the Company adjusted the carrying value of its investment in equity securities to the determined
fair value of $0 and recorded 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 equity investment.
Interest
and other income or loss increased by $9,000 and $10,000 to income of $4,000 and $9,000 for the three and six-month periods ended
June 30, 2018 from a loss of $5,000 and $1,000 for the same periods prior year, respectively. Interest and other income or loss
is comprised of interest expense and interest earned.
Income
tax expense decreased $51,000 and $117,000 to $169,000 and $319,000 for the three and six-month periods ended June 30, 2018 compared
to $220,000 and $436,000 for the same periods prior year, respectively. The decrease in income tax expense is due to the Tax Act
enacted December 2017. The Tax Act reduced the federal corporate tax rate from 34% to 21%, effectively reducing the Company’s
income tax rate.
Net
income attributable to non-controlling interest decreased by $118,000 and $106,000 to $213,000 and $474,000 for the three and six-month
periods ended June 30, 2018 from $331,000 and $580,000 for the same periods prior year, respectively. Non-controlling interest
primarily represents the 19% interest of GKF owned by a third party, as well as non-controlling interests in subsidiaries of GKF
owned by third parties that began operations in 2011. Variances in net income attributable to non-controlling interest represent
the relative increase or decrease in profitability of GKF and these ventures.
Net
income attributable to American Shared Hospital Services increased $174,000 and $271,000 to $287,000, or $0.05 per diluted share,
and $677,000, or $0.12 per diluted share, for the three and six-month periods ended June 30, 2018, compared to net income of $113,000,
or $0.02 per diluted share, and $406,000, or $0.07 per diluted share, in the same periods prior year, respectively. The increase
in net income for the three and six-month periods ended June 30, 2018 was due to increased revenues and a decrease in selling
and administrative costs. The increase in net income was also due to a decrease in income tax expense due to the Tax Act.
Liquidity and
Capital Resources
The
Company had cash, cash equivalents, and restricted cash of $3,843,000 at June 30, 2018 compared to $2,502,000 at December 31, 2017.
The Company’s cash position increased by $1,341,000 due to net cash from operating activities of $5,554,000, offset by payments
for the purchase of property and equipment of $792,000, principal payments on long term debt and capital leases of $3,344,000,
and distributions to non-controlling interests of $77,000. The Company also had acquisitions of equipment through capital lease
financing of $1,679,000 as of June 30, 2018.
The
Company has scheduled interest and principal payments under its debt obligations of approximately $2,411,000 and scheduled capital
lease payments of approximately $4,952,000 during the next 12 months. The Company believes that its cash flow from cash on hand,
operations, and other resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months.
See additional discussion below related to commitments.
As
of June 30, 2018, the Company had shareholders’ equity of $31,071,000, working capital of $960,000 and total assets of $58,074,000.
Commitments
As of June 30, 2018,
the Company had commitments to purchase two MEVION S250 PBRT systems for $25,800,000 and the Company had $2,000,000 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.
On July 21, 2017, the
Company signed First Amendments to two System Build Agreements (the “Amendments”) for the Company’s second and
third Mevion PBRT units. The Company and Mevion have agreed on preliminary construction and delivery timetables for the second
and third PBRT units for which the Company has purchase commitments. The Company’s delivery timeframe is triggered by United
States Food and Drug Administration’s 510K clearance of Mevion’s recently developed treatment nozzle. 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 take delivery of the second and third PBRT units
no later than 2019 and 2020, respectively. 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 June 30, 2018,
the Company had commitments to perform two Cobalt-60 reloads at existing customer sites and purchase one Perfexion unit, to be
placed at a new customer site in the second half of 2018. The Cobalt-60 reloads are scheduled to occur in 2019, or later. Total
Gamma Knife commitments as of June 30, 2018 were $3,100,000. The Company has a commitment letter to finance the Perfexion unit.
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.
As of June 30, 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. Total service commitments as of June 30, 2018 were $6,308,000. The Gamma Knife and certain
other service contracts are paid monthly, as service is performed. The Company believes that cash flow from cash on hand and operations
will be sufficient to cover these payments.
The Company estimates
the following commitments for each of the equipment systems with expected timing of payments as follows as of June 30, 2018:
|
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2018
|
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Thereafter
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Total
|
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|
|
|
|
|
|
|
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|
|
Proton Beam Units
|
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$
|
-
|
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$
|
25,800,000
|
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$
|
25,800,000
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Gamma Knife Units
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1,600,000
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1,500,000
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|
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3,100,000
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|
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Service Contracts
|
|
|
1,480,000
|
|
|
|
4,828,000
|
|
|
|
6,308,000
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Total Commitments
|
|
$
|
3,080,000
|
|
|
$
|
32,128,000
|
|
|
$
|
35,208,000
|
|