UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________.
Commission file number
American Shared Hospital Services
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of | (IRS Employer |
| | Suite 1112 | | | |
| (Address of principal executive offices) | (Zip code) | |||
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller reporting company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 10, 2024, there were outstanding
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| ASSETS | March 31, 2024 | December 31, 2023 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of $ at March 31, 2024 and at December 31, 2023 | ||||||||
| Other receivables | ||||||||
| Prepaid maintenance | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Land | ||||||||
| Goodwill | ||||||||
| Intangible asset | ||||||||
| Right of use assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Employee compensation and benefits | ||||||||
| Other accrued liabilities | ||||||||
| Related party liabilities | ||||||||
| Asset retirement obligations, related party (includes $ non-related party at March 31, 2024 and December 31, 2023) | ||||||||
| Income taxes payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Line of credit | ||||||||
| Current portion of long-term debt, net | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net, less current portion | ||||||||
| Deferred income taxes | ||||||||
| Total liabilities | ||||||||
| Commitments (see Note 9) | ||||||||
| Shareholders' equity: | ||||||||
| Common stock, par value ( authorized shares; Issued and outstanding shares - at March 31, 2024 and at December 31, 2023) | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total equity-American Shared Hospital Services | ||||||||
| Non-controlling interests in subsidiaries | ||||||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Rental revenue from medical equipment leasing | $ | $ | ||||||
| Direct patient services revenue | ||||||||
| Costs of revenue: | ||||||||
| Maintenance and supplies | ||||||||
| Depreciation and amortization | ||||||||
| Other direct operating costs | ||||||||
| Other direct operating costs, related party | ||||||||
| Gross margin | ||||||||
| Selling and administrative expense | ||||||||
| Interest expense | ||||||||
| Operating (loss) income | ( | ) | ||||||
| Interest and other income, net | ||||||||
| Income before income taxes | ||||||||
| Income tax (benefit) expense | ( | ) | ||||||
| Net income | ||||||||
| Plus: Net loss attributable to non-controlling interests | ||||||||
| Net income attributable to American Shared Hospital Services | $ | $ | ||||||
| Net income per share: | ||||||||
| Income per common share - basic | $ | $ | ||||||
| Income per common share - diluted | $ | $ | ||||||
| Weighted average common shares for basic earnings per share | ||||||||
| Weighted average common shares for diluted earnings per share | ||||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
| FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2024 AND 2023 | ||||||||||||||||||||||||||||
| Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Sub-Total ASHS | Non-controlling Interests in Subsidiaries | Total | ||||||||||||||||||||||
| Balances at January 1, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | |||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Balances at January 1, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | ||||||||||||||||||||||||
| Vested restricted stock awards | - | - | - | - | - | |||||||||||||||||||||||
| Capital contribution non-controlling interests | - | |||||||||||||||||||||||||||
| Cash distributions to non-controlling interests | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | |||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Depreciation, amortization, and other | ||||||||
| Accretion of debt issuance costs | ||||||||
| Non cash lease expense | ||||||||
| Deferred income taxes | ||||||||
| Stock-based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ||||||||
| Related party liabilities | ( | ) | ( | ) | ||||
| Accounts payable, accrued liabilities, and deferred revenue | ||||||||
| Income taxes payable | ( | ) | ||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Investing activities: | ||||||||
| Payment for purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Principal payments on long-term debt | ( | ) | ( | ) | ||||
| Payments on line of credit | ( | ) | ||||||
| Advances on line of credit | ||||||||
| Long-term debt financing | ||||||||
| Principal payments on short-term financing | ( | ) | ||||||
| Capital contribution non-controlling interests | ||||||||
| Distributions to non-controlling interests | ( | ) | ||||||
| Debt issuance costs long-term debt | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
| Supplemental cash flow disclosure | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Schedule of noncash investing and financing activities | ||||||||
| Equipment included in accounts payable and accrued liabilities | $ | $ | ||||||
| Detail of cash, cash equivalents and restricted cash at end of period | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
See accompanying notes
AMERICAN SHARED HOSPITAL SERVICES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
In the opinion of the management of American Shared Hospital Services (“ASHS”), the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for the fair presentation of ASHS consolidated financial position as of March 31, 2024, the results of its operations for the three-month periods ended March 31, 2024 and 2023, and the cash flows for the three-month periods ended March 31, 2024 and 2023. The results of operations for the three-month periods ended March 31, 2024 are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2023 have been derived from the 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, 2023 included in the ASHS Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024.
These condensed consolidated financial statements include the accounts of ASHS and its subsidiaries (the “Company”) including as follows: ASHS wholly owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), ASHS-Mexico, S.A. de C.V. (“ASHS-Mexico”), ASHS-Rhode Island Proton Beam Radiation Therapy, LLC, ASHS-Bristol Radiation Therapy, LLC, OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); ASHS is 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”) and HoldCo GKC S.A. (“HoldCo”). HoldCo wholly owns the subsidiary Gamma Knife Center Ecuador S.A. (“GKCE”). 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 (“Elekta”), the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. As of March 31, 2024, GKF provides Gamma Knife units to medical centers in the United States in the states of Florida, Illinois, Indiana, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, and Texas. GKF also owns and operates two single-unit Gamma Knife facilities in Lima, 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.
On April 27, 2022, the Company signed a Joint Venture Agreement with the principal owners of Guadalupe Amor y Bien S.A. de C.V. (“Guadalupe”) to establish AB Radiocirugia y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients and provide radiation therapy and radiosurgery services locally in Mexico. The Company and Guadalupe hold
The Company formed the subsidiaries GKPeru and Puebla and acquired GKCE for the purposes of expanding its business internationally; Orlando and LBE to provide PBRT equipment and services in Orlando, Florida and Long Beach, California, respectively; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. 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 CenturySM through its
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.
On November 10, 2023, the Company entered into an Investment Purchase Agreement (the “IPA”) with GenesisCare USA, Inc. (the “GenesisCare”) and GenesisCare USA Holdings, Inc. (“GC Holdings”), pursuant to which GenesisCare agreed to sell to the Company its entire equity interest in each of Southern New England Regional Cancer Center, LLC and Roger Williams Radiation Therapy, LLC, (collectively, the “RI Target Companies”) and to assign certain payor contacts to the Company for a purchase price of $
The RI acquisition will be accounted for as a business combination under ASC 805 Business Combinations, which requires, among other things, that purchase consideration, assets acquired, and liabilities assumed be measured at their fair values as of the acquisition date. The initial purchase allocation for the business combination is incomplete at this time, subject to initial accounting. Disclosures regarding amounts recognized for major classes of assets acquired and liabilities assumed will be provided once the initial accounting is completed.
Costs related to legal, financial and due diligence services performed in connection with the RI Acquisition recorded in selling and administrative expense in the condensed consolidated statement of operations were $
All significant intercompany accounts and transactions have been eliminated in consolidation.
Accounting pronouncements issued and not yet adopted - In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) which enhances the disclosure requirements for segment reporting, primarily disclosures around significant segment expenses. The key provisions of the amendments require disclosure of significant segment expense reviewed by the Chief Operating Decision Maker (the “CODM”), require disclosure of an “other” segment category, require disclosure of segment profit or loss and assets for interim periods, clarify and require disclosure of other measurements used by the CODM in assessing segment performance and allocating resources, and require disclosure of the CODM’s title and position and an explanation of how the CODM assesses segment performance. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating ASU 2023-07 to determine the impact it may have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures (“ASU 2023-09”) which requires entities, on an annual basis, to disclose: specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, the amount of income taxes paid, net of refunds, disaggregated by jurisdiction, income or loss from continuing operations before income tax, income tax expense from continuing operations disaggregated between foreign and domestic, and income tax expense from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating ASU 2023-09 to determine the impact it may have on its consolidated financial statements.
Revenue recognition - The Company recognizes revenues under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”).
Rental revenue from medical equipment leasing (“leasing”) – The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s lease contracts typically have a ten-year term and are classified as either fee per use or revenue sharing. Fee per use 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. Some of the Company’s revenue sharing arrangements also have a cost sharing component and net profit share for the operating costs of the center. 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 and profit. The operating costs and estimated net operating profit are recorded as other direct operating costs in the condensed consolidated statements of operations. For the three-month periods ended March 31, 2024 and 2023, the Company recognized leasing revenue of approximately $
Direct patient services income (“retail”) – The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where contracts exist between the Company’s facilities and the individual patients treated at the facility. Under ASC 606, the Company acts as the principal in these transactions 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. GKPeru’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 between three and six months following issuance of an invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable balances under ASC 606 at March 31, 2024 and January 1, 2024 were $
Business segment information - Based on the guidance provided in accordance with ASC 280 Segment Reporting (“ASC 280”), the Company analyzed its subsidiaries which are all in the business of providing radiosurgery and radiation therapy services, either through leasing to healthcare providers or directly to patients, and concluded there are reportable segments, leasing and retail. As of March 31, 2024, the Company provided Gamma Knife and PBRT equipment to hospitals in the United States and owns and operates single-unit facilities in Lima, Peru and Guayaquil, Ecuador. An operating segment is defined by ASC 280 as it engages in business activities in which it may recognize revenues and incur expenses, its operating results are regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”), and its discrete financial information is available. The Company determined two reportable segments existed due to similarities in economics of business operations and how the Company recognizes revenue for the patient treatment. The operating results of the
For the three-month period ended March 31, 2024, the Company’s PBRT operations represented a significant majority of the net income attributable to the Company, disclosed below. The revenues, depreciation, interest expense, interest income, tax expense and net income attributable to American Shared Hospital Services for the Company’s two reportable segments as of March 31, 2024 and 2023 consist of the following:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ||||||||
| Total | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Depreciation expense | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ||||||||
| Total | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Interest expense | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ||||||||
| Total | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Interest income | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ||||||||
| Total | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Income tax (benefit) expense | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ( | ) | ||||||
| Total | $ | ( | ) | $ | ||||
| 2024 | 2023 | |||||||
| Net income (loss) attributable to American Shared Hospital Services | ||||||||
| Leasing | $ | $ | ||||||
| Retail | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Reclassifications - Certain comparative balances as of and for the year ended have been reclassified to make them consistent with the current year presentation.
Note 2. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife units 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 between and years, and after accounting for salvage value on the equipment where indicated. The Company determines salvage value 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
The following table summarizes property and equipment as of March 31, 2024 and December 31, 2023:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Medical equipment and facilities | $ | $ | ||||||
| Office equipment | ||||||||
| Construction in progress | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
| Net property and equipment held outside of the United States | $ | $ | ||||||
Depreciation expense in the condensed consolidated statements of operations for the three-month periods ended March 31, 2024 and 2023 is as follows:
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Depreciation expense | $ | $ | ||||||
Note 3. Long-Term Debt Financing
On April 9, 2021 the Company along with certain of its domestic subsidiaries (collectively, the “Loan Parties”) entered into a five year $
On January 25, 2024 (the “First Amendment Effective Date”), the Company and Fifth Third entered into a First Amendment to Credit Agreement (the “First Amendment”), which amended the Credit Agreement to add a new term loan in the aggregate principal amount of $
The loan entered into with United States International Development Finance Corporation (“DFC”) in connection with the acquisition of GKCE in June 2020 (the “DFC Loan”) was obtained through the Company’s wholly-owned subsidiary, HoldCo and is guaranteed by GKF. The DFC Loan is secured by a lien on GKCE’s assets. The first tranche of the DFC Loan was funded in June 2020. During the fourth quarter of 2023, the second tranche of the DFC loan was funded to finance the equipment upgrade in Ecuador. The amount outstanding under the first tranche of the DFC Loan is payable in 29 quarterly installments with a fixed interest rate of
The DFC Loan contains customary covenants including without limitation, requirements that HoldCo maintain certain financial ratios related to liquidity and cash flow as well as depository requirements. On March 28, 2024 the HoldCo received a waiver and amendment from DFC for certain covenants as of December 31, 2023 and through December 31, 2024 and amended other covenants and definitions permanently. HoldCo was in compliance with all debt covenants pursuant to the DFC Loan as amended and waived at March 31, 2024.
The accretion of debt issuance costs for the three-month periods ended March 31, 2024 and 2023 was $
As of March 31, 2024, long-term debt on the condensed consolidated balance sheets was $
| Year ending December 31, | Principal | |||
| 2024 (excluding the three-months ended March 31, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
Note 4. Other Accrued Liabilities
Other accrued liabilities consist of the following as of March 31, 2024 and December 31, 2023:
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Professional services | $ | $ | ||||||
| Operating costs | ||||||||
| Other | ||||||||
| Total other accrued liabilities | $ | $ | ||||||
Note 5. Leases
The Company determines if a contract is a lease at inception. Under ASC 842, the Company is a lessor of equipment to various customers. Leases that commenced prior to the 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 or modified 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 has elected not to recognize right-of-use (“ROU”) assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset.
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 condensed consolidated balance sheets. 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.
On November 3, 2021, the Company entered into an agreement to sublease (the “Sublease”) its corporate office located at Two Embarcadero Center, Suite 410, San Francisco, California, where it leased approximately
The Company’s lessee operating leases are accounted for as ROU assets, current portion of lease liabilities, and lease liabilities on the condensed 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. The Company determined its incremental borrowing rate to be in the range of approximately
The following table summarizes the maturities of the Company's lessee operating lease liabilities as of March 31, 2024:
| Year ending December 31, | Operating Leases | |||
| 2024 (excluding the three-months ended March 31, 2024) | $ | |||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total | $ | |||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Lease cost | ||||||||
| Operating lease cost | $ | $ | ||||||
| Sublease income | ( | ) | ||||||
| Total lease cost | $ | $ | ||||||
| Other information | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities - Operating leases | $ | $ | ||||||
| Weighted-average remaining lease term - Operating leases in years | ||||||||
| Weighted-average discount rate - Operating leases | % | % | ||||||
Note 6. 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 Company calculates diluted shares using the treasury stock method. The computation for the three-month periods ended March 31, 2024 and 2023 excluded approximately
The following table sets forth the computation of basic and diluted earnings per share for the three-month periods ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net income attributable to American Shared Hospital Services | $ | $ | ||||||
| Weighted average common shares for basic earnings per share | ||||||||
| Dilutive effect of stock options and restricted stock awards | ||||||||
| Weighted average common shares for diluted earnings per share | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
Note 7. Stock-based Compensation
In June 2021, the Company’s shareholders approved an amendment and restatement of the Company’s Incentive Compensation Plan (the “Plan”), that among other things, increased the number of shares of the Company’s common stock reserved for issuance under the Plan to
Stock-based compensation expense associated with the Company’s stock options to employees is calculated using the Black-Scholes valuation model. The Company’s stock 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 expensed 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 $
The following table summarizes stock option activity for the three-month periods ended March 31, 2024 and 2023:
| Stock Options | Grant Date Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (in Years) | Intrinsic Value | |||||||||||||
| Outstanding at January 1, 2024 | $ | $ | ||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | - | |||||||||||||
| Outstanding at January 1, 2023 | $ | $ | ||||||||||||||
| Granted | $ | $ | - | |||||||||||||
| Forfeited | ( | ) | $ | - | $ | - | ||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | - | |||||||||||||
Note 8. Income Taxes
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 international operations. A small change in estimated annual pretax income 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-month periods ended March 31, 2024 and 2023 by applying the actual effective tax rates to income or reported within the condensed consolidated financial statements through those periods. The provision for income taxes for the three-month period ended March 31, 2024 included a non-recurring adjustment for unrecognized tax benefits related to foreign taxes of $
Note 9. Commitments
As of March 31, 2024, the Company had commitments to purchase and install two Leksell Gamma Knife Esprit Systems (“Esprit”), one Gamma Plan workstation, one Linear Accelerator (“LINAC”) system, and one Magnetic Resonance imaging guided LINAC (“MR LINAC”). The LINAC, MR LINAC and one Esprit will be placed at future customer sites. The remaining Esprit upgrade is scheduled to occur during 2024 at an existing customer site. The Company also has one commitment to de-install a Gamma Knife unit at an existing customer site. Total Gamma Knife and LINAC commitments as of March 31, 2024 were $
As of March 31, 2024, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion, Elekta and Mobius Imaging, LLC. The Company’s commitments to purchase two LINAC systems also include a
Note 10. Related Party Transactions and Balances
The Company’s Gamma Knife business is operated through its
The following table summarizes related party activity for the three-month periods ended March 31, 2024 and 2023:
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Equipment purchases and de-install costs | $ | $ | ||||||
| Costs incurred to maintain equipment | ||||||||
| Total related party transactions | $ | $ | ||||||
The Company also had commitments to purchase and install Gamma Knife units, purchase a LINAC and MR LINAC system and service the related equipment of $
Related party liabilities on the condensed consolidated balance sheets consist of the following as of March 31, 2024 and December 31, 2023
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts payable, asset retirement obligation and other accrued liabilities | $ | $ | ||||||
Note 11. Subsequent Events
On May 7, 2024, the Company completed its purchase of GenesisCare’s
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report to the SEC may be deemed to contain certain 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 and include, but are not limited to, such things as capital expenditures, earnings, liquidity and capital resources, financing of our business, government programs and regulations, legislation affecting the health care industry, the expansion of our proton beam radiation therapy business, accounting matters, compliance with debt covenants, completed and pending acquisitions, competition, customer concentration, contractual obligations, timing of payments, technology and interest rates. These forward-looking statements involve known and unknown risks that may cause our actual results in future periods to differ materially from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to, such things as our level of debt, the limited market for our capital-intensive services, the impact of lowered federal reimbursement rates, the impact of 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, restrictions in our debt agreements that limit our flexibility to operate our business, our ability to repay our indebtedness, our ability to integrate the RI Target Companies with our existing business, breaches in security of our information technology, the small and illiquid market for our stock. These lists are not all-inclusive because it is not possible to predict all factors. 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 SEC, including the Annual Report on Form 10-K for the year ended December 31, 2023 and the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 25, 2024. 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.
Overview
American Shared Hospital Services is a leading provider of turn-key technology solutions for stereotactic radiosurgery and advanced radiation therapy equipment and services. The main drivers of the Company’s revenue are numbers of sites, procedure volume, and reimbursement. The Company delivers radiation therapy through medical equipment leasing and direct patient services, its two reportable segments. The medical equipment leasing segment, which we also refer to as the Company’s leasing segment, operates by fee-per-use contracts or revenue sharing contracts where the Company shares in the revenue and operating costs of the equipment. The Company leases ten Gamma Knife systems and one PBRT system as of March 31, 2024, where a contract exists between the hospital and the Company. The Company, through GKF, also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. The Company’s facilities in Peru and Ecuador are considered direct patient services, which we also refer to as the Company’s retail segment, where a contract exists between the Company's facilities and the individual treated at the facility.
Based on the guidance provided in accordance with ASC 280, the Company determined it has two reportable segments, leasing and retail. See Note 1 - Basis of Presentation to the condensed consolidated financial statements for additional information. The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects activity for both segments and specifically addresses a segment when appropriate to the discussion.
Reimbursement
The Centers for Medicare and Medicaid (“CMS”) has established a 2024 delivery code reimbursement rate of approximately $7,420 ($7,691 in 2023) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of PBRT for a simple treatment without compensation for 2024 is $561 ($572 in 2023) and $1,362 ($1,323 in 2023) for simple with compensation, intermediate and complex treatments, respectively.
On September 29, 2020, CMS published a final rule that would have implemented a new mandatory payment model for radiation oncology services delivered to certain Medicare beneficiaries: the Radiation Oncology Alternative Payment Method (“RO APM”). On August 29, 2022, CMS published a final rule that delayed the start date of the RO APM to a date to be determined through future rulemaking and amended the definition of “model performance period” to provide that the start and end dates of the five-year model performance period will be established by CMS through future rulemaking. If the RO APM had not been delayed, it would have significantly altered CMS’ payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation services provided within a 90 day episode of care. Under the RO APM, hospital based and free-standing radiation therapy providers would have been required to participate in the model based on whether the radiation therapy provider is located within a randomly selected core-based statistical area. At this time, it is not clear if the RO APM will be implemented and, if it is implemented, the timing for implementation and in what form it will be implemented. If a start date for the RO APM is proposed, CMS will provide at least six months’ notice in advance of the proposed start date, and the proposed start date will be subject to public comment.
Rhode Island Acquisition
On November 10, 2023, the Company entered into an Investment Purchase Agreement (the “IPA”) with GenesisCare USA, Inc. (the “GenesisCare”) and GenesisCare USA Holdings, Inc. (“GC Holdings”), pursuant to which GenesisCare agreed to sell to the Company its entire equity interest in each of Southern New England Regional Cancer Center, LLC and Roger Williams Radiation Therapy, LLC, (collectively, the “RI Target Companies”) and to assign certain payor contacts to the Company for a purchase price of $2,850,000 (such transaction, the “RI Acquisition”). The equity interests to be acquired by the Company under the IPA equates to a 60% interest in each RI Target Company. The RI Target Companies operate three functional radiation therapy cancer centers in Rhode Island. The RI Acquisition was contingent upon certain closing conditions, including GenesisCare and the Company entering into a consent agreement with the Rhode Island Department of Health and approval of all equity holders and managers of each RI Target Company. On March 1, 2024, the Company, GenesisCare and GC Holding entered into a First Amendment to the Investment Agreement pursuant to which the parties agreed to extend the date on which a party could terminate the IPA if the closing conditions had not been met (the “Permitted Termination Date”) from March 10, 2024 to April 30, 2024. On April 18, 2024, the parties agreed to a Second Amendment to the Investment Agreement pursuant to which GenesisCare agreed to sell a Discovery RT OPEN OC Mid CTM to the Company for $175,000, payment for which is required 5 days following the close of the acquisition. On April 24 2024, the Company, GenesisCare and GC Holdings, entered into a Third Amendment to the Investment Agreement that further extended the Permitted Termination Date to May 31, 2024. On May 7, 2024, the parties entered into a Fourth Amendment to the Investment Purchase Agreement, pursuant to which GenesisCare agreed to transfer certain assets and payor contracts to the RI Target Companies, rather than transferring such assets and payor contracts to the Company. The parties completed the remaining closing conditions pursuant to the IPA and closed the RI Acquisition on May 7, 2024.
Application of Critical Accounting Policies and Estimates
The Company’s condensed 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 condensed consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the condensed consolidated financial statements; accordingly, as this information changes, the condensed consolidated 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 in the Company’s annual report on Form 10-K for the year ended December 31, 2023. These policies along with the disclosures presented in the other condensed consolidated financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the condensed consolidated 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 property and equipment and useful lives, and as such the aforementioned could be most subject to revision as new information becomes available. The following are our critical accounting policies in which management’s estimates, assumptions and judgments most directly and materially affect the condensed consolidated financial statements:
Revenue Recognition
The Company recognizes revenues under ASC 842 and ASC 606. The Company had ten domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of March 31, 2024 and twelve domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of March 31, 2023. Five of the Company’s ten domestic Gamma Knife customers are under fee-per-use contracts, and five customers are under revenue sharing arrangements. The ten domestic Gamma Knife contracts operate under the Company’s leasing segment. The Company’s PBRT system at Orlando Health is considered a revenue share contract operating under the leasing segment. The Company, through GKF, also owns and operates two single-unit, international Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. These two units economically operate under the Company’s retail segment.
Rental revenue from medical equipment leasing (“leasing”) – The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s lease contracts typically have a ten-year term and are classified as either fee per use or revenue sharing. Fee per use 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. Some of the Company’s revenue sharing arrangements also have a cost sharing component and net profit share for the operating costs of the center. 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 and profit. The operating costs and estimated net operating profit are recorded as other direct operating costs in the condensed consolidated statements of operations. For the three-month periods ended March 31, 2024 and 2023, the Company recognized leasing revenue of approximately $4,253,000 and $4,229,000 of which approximately $2,649,000 and $2,314,000 were for PBRT services, respectively.
Direct patient services income (“retail”) – The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where contracts exist between the Company’s facilities and the individual patients treated at the facility. Under ASC 606, the Company acts as the principal in these transactions 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. GKPeru’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 between three and six months following issuance of an invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable balances under ASC 606 at March 31, 2024 and January 1, 2024 were $1,882,000 and $1,626,000, respectively. Accounts receivable balances under ASC 606 at March 31, 2023 and January 1, 2023 were $1,058,000 and $1,021,000, respectively. For the three-month periods ended March 31, 2024, the Company recognized revenues of approximately $963,000 and $696,000 under ASC 606, respectively.
Salvage Value on Equipment
Salvage value is based on the estimated fair value of the equipment at the end of its useful life. The Company determines salvage value based on the estimated fair value of the equipment at the end of its useful life. There is no active resale market of Gamma Knife or PBRT equipment, but the Company believes its salvage value estimates were a reasonable assessment of the economic value of the equipment when the contract ends. There is no salvage value assigned to the two international Gamma Knife units as of March 31, 2024. The Company has not assigned salvage value to its PBRT equipment.
Accounting Pronouncements Issued and Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) which enhances the disclosure requirements for segment reporting, primarily disclosures around significant segment expenses. The key provisions of the amendments require disclosure of significant segment expense reviewed by the CODM, require disclosure of an “other” segment category, require disclosure of segment profit or loss and assets for interim periods, clarify and require disclosure of other measurements used by the CODM in assessing segment performance and allocating resources, and require disclosure of the CODM's title and position and explanation of how the CODM assesses segment performance. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating ASU 2023-07 to determine the impact it may have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures (“ASU 2023-09”) which requires entities, on an annual basis, to disclose: specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, the amount of income taxes paid, net of refunds, disaggregated by jurisdiction, income or loss from continuing operations before income tax, income tax expense from continuing operations disaggregated between foreign and domestic, and income tax expense from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating ASU 2023-09 to determine the impact it may have on its consolidated financial statements.
First Quarter 2024 Results
Revenues increased by $291,000 to $5,216,000 for the three-month period ended March 31, 2024 compared to $4,925,000 for the same period in the prior year. Revenues from the Company’s leasing segment increased by $24,000 to $4,253,000 for the three-month period ended March 31, 2024 compared to $4,229,000for the same period in the prior year. The increase in leasing revenue was driven by an increase PBRT average reimbursement, offset by lower Gamma Knife volumes. Revenues from the Company’s retail segment increased by $267,000 to $963,000 for the three-month period ended March 31, 2024 compared to $696,000 for the same period in the prior year. The increase in retail revenue was due to higher volumes at the Company’s international locations.
Revenues generated from the Company’s PBRT system increased by $335,000 to $2,649,000 for the three-month period ended March 31, 2024 compared to $2,314,000 for the same period in the prior year. The increase for the three-month period ended March 31, 2024 was due to an increase in average reimbursement due to a shift in payor mix from Medicare to commercial or other payors, which are reimbursed at a higher rate.
The number of PBRT fractions decreased by 260 to 1,276 for the three-month period ended March 31, 2024 compared to 1,536 for the same period in the prior year. The decrease in PBRT volumes for the three-month period ended March 31, 2024 was due to normal, cyclical fluctuations.
Gamma Knife revenue decreased by $44,000 to $2,567,000 for the three-month period ended March 31, 2024 compared to $2,611,000 for the same period in the prior year. The decrease in Gamma Knife revenue for the three-month period ended March 31, 2024 was due to lower procedure volume, offset by an increase in average reimbursement at the Company’s revenue sharing locations.
The number of Gamma Knife procedures decreased by 20 to 273 for the three-month period ended March 31, 2024 compared to 293 for the same period in the prior year. The decrease in Gamma Knife procedures for the three-month period ended March 31, 2024 was due to the expiration of two customer contracts in the second and third quarters of 2023. Excluding the two customer contracts that expired, Gamma Knife procedures increased by 10 or 4% for the three-month period ended March 31, 2024.
Gamma Knife procedures for the Company’s leasing segment decreased by 53 for the three-month period ended March 31, 2024 due to the expiration of two customer contracts. Gamma Knife procedures for the Company’s retail segment increased by 33 for the three-month period ended March 31, 2024 compared to the same period in the prior year, due to improved marketing and physician outreach at the Company’s international locations. The Company also performed a Cobalt-60 reload and upgrade of the equipment at it’s site in Ecuador in the fourth quarter of 2023. The replacement of the Cobalt-60 provides for faster treatment times.
Total costs of revenue increased by $56,000 to $3,073,000 for the three-month period ended March 31, 2024 compared to $3,017,000 for the same period in the prior year.
Maintenance and supplies and other direct operating costs, related party, decreased by $98,000 to $683,000 for the three-month period ended March 31, 2024 compared to $781,000 for the same period in the prior year. The decrease in maintenance and supplies and other direct operating costs, related party, was primarily due to the expiration of two service contracts that expired in the second and third quarters of 2023, with the related customer contracts.
Depreciation and amortization decreased by $60,000 to $1,297,000 for the three-month period ended March 31, 2024 compared to $1,357,000 for the same period in the prior year. The decrease in depreciation and amortization for the three-month period ended March 31, 2024 was due to the Company’s contract that expired in the third quarter of 2023, offset by higher depreciation for upgraded equipment at two of the Company’s operating locations.
Other direct operating costs increased by $214,000 to $1,093,000 for the three-month period ended March 31, 2024 compared to $879,000 for the same period in the prior year. The increase in other direct operating costs for the three-month period ended March 31, 2024 was primarily due to higher volumes and therefore higher operating costs from the Company’s retail segment.
Selling and administrative expense increased by $340,000 to $1,879,000 for the three-month period ended March 31, 2024 compared to $1,539,000 for the same period in the prior year. The increase in selling and administrative expense for the three-month period ended March 31, 2024 was due to approximately $377,000 in fees associated with new business opportunities, including the Company’s RI Acquisition.
Interest expense increased by $78,000 to $349,000 for the three-month period ended March 31, 2024 compared to $271,000 for the same period in the prior year. The debt under the Credit Agreement carries a floating interest rate of SOFR plus 3%. The increase for the three-month period ended March 31, 2024 was due to an increase in SOFR and borrowings compared to the same period of the prior year.
Interest and other income increased by $36,000 to $106,000 for the three-month period ended March 31, 2024 compared to income of $70,000 for the same period in the prior year. The increase for the three-month period ended March 31, 2024 is due to increases in the interest received on the Company’s cash compared to the same period in the prior year.
Income tax expense decreased by $112,000 to a benefit of $44,000 for the three-month period ended March 31, 2024 compared to income tax expense of $68,000 for the same period in the prior year. The decrease in income tax benefit for the three-month period ended March 31, 2024 was due primarily to a non-recurring adjustment for unrecognized tax benefits related to foreign taxes.
Net loss attributable to non-controlling interests decreased by $34,000 to $54,000 for the three-month period ended March 31, 2024 compared to a loss of $88,000 for the same period in the prior year. Net income or loss attributable to non-controlling interests represents net income or loss earned by the 19% non-controlling interest in GKF, and net income or loss of the non-controlling interests in various subsidiaries controlled by GKF. The decrease or increase in net income or loss attributable to non-controlling interests reflects the relative profitability of GKF.
Net income decreased by $69,000 to net income of $119,000, or $0.02 per diluted share for the three-month period ended March 31, 2024 compared to net income of $188,000, or $0.03 per diluted share for the same period in the prior year. Net income decreased for the three-month period ended March 31, 2024 due to higher interest expense and higher selling and administrative expense to support the Company’s pursuit of new business opportunities, including the RI Acquisition.
Liquidity and Capital Resources
The Company’s primary liquidity needs are to fund capital expenditures as well as support working capital requirements. In general, the Company’s principal sources of liquidity are cash and cash equivalents on hand and the $7,000,000 Revolving Line. As of March 31, 2024, the Company borrowed $2,400,000 on its Revolving Line, which was repaid in April 2024. The Company had cash, cash equivalents and restricted cash of $13,042,000 at March 31, 2024 compared to $13,808,000 at December 31, 2023. The Company’s cash position decreased by $766,000 during the first three months of 2024 due to cash used in operating activities of $1,865,000, payment for the purchase of property and equipment of $1,183,000, payments on long-term debt of $164,000, net payments on the line of credit of $100,000, debt issuance costs of $97,000 and distributions to non-controlling interests of $95,000. These decreases were offset by capital contributions of $38,000 and long-term debt financing of $2,700,000. 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. The Company has scheduled interest and principal payments under its debt obligations of approximately $3,997,000 during the next 12 months.
Working Capital
The Company had working capital at March 31, 2024 of $10,586,000 compared to $9,677,000 at December 31, 2023. The $909,000 increase in working capital was primarily due to increases in accounts receivable offset by decreases in cash and prepaid maintenance. The Company believes that its cash on hand, cash flow from operations, and other cash resources are adequate to meet its scheduled debt obligations and working capital requirements during the next 12 months. See additional discussion in the “Commitments” section below. 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.
Long-Term Debt
On April 9, 2021, the Company and certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A., which refinanced its existing domestic Gamma Knife portfolio. The lease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement. The Credit Agreement includes three loan facilities: (1) a $9,500,000 term loan (the “Term Loan”), which was used to refinance the domestic Gamma Knife debt and finance leases and the associated closing costs; (2) a $5,500,000 delayed draw term loan (the “DDTL”), which was used to refinance the Company’s PBRT finance leases and associated closing costs and to provide additional working capital for the Company; and (3) a $7,000,000 revolving line of credit (the “Revolving Line”), which is available for the Company’s future projects and general corporate purposes. The Company borrowed $2,400,000 under the Revolving Line as of March 31, 2024, which the Company repaid in April 2024. The Credit Agreement is 48% amortized over a 58-month period with a balloon payment upon maturity and is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The Revolving Loan, the Term Loan, and the DDTL will mature on April 9, 2026 unless accelerated due to the occurrence of certain events specified in the Credit Agreement. The Revolving Line is charged an unused line fee of 0.25% per annum. The Term Loan and DDTL have interest and principal payments due quarterly. Principal amortization on an annual basis for the Term Loan and DDTL equates to 48% of the original principal loan commitments in years one through five and an end of term payment of the remaining principal balance.
On January 25, 2024, the, the Company entered into a First Amendment to Credit Agreement with Fifth Third which amended the Credit Agreement to add the Supplemental Term Loan, a new term loan in the aggregate principal amount of $2,700,000. The proceeds of the Supplemental Term Loan were advanced in a single borrowing on January 25, 2024, and were used to finance capital expenditures that the Company paid cash for during 2023 for its operations in Puebla, Mexico and other related transaction costs. The Supplemental Term Loan will mature on January 25, 2030, unless accelerated due to the occurrence of certain events specified in the Credit Agreement. Interest on the Supplemental Term Loan is payable monthly during the initial twelve month period following the First Amendment Effective Date. Following such twelve month period, the Company is required to make equal monthly payments of principal and interest to fully amortize the amount outstanding under the Supplemental Term Loan by the Maturity Date. The Supplemental Term Loan is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The First Amendment also replaces the LIBOR-based rates in the Credit Agreement with SOFR-based rates. Pursuant to the First Amendment, advances under the Credit Agreement bear interest at a floating rate per annum equal to SOFR plus 3.00%, subject to a SOFR floor of 0.00%.
As of March 31, 2024, the Company was subject to customary covenants under the Credit Agreement which included, among other covenants and obligations, a minimum fixed charge coverage ratio of 1.25 to 1.0 and a total funded debt to EBITDA ratio of 3.0 to 1.0 (tested on a trailing twelve-month basis at the end of each fiscal quarter), along with an annual clean-up covenant that requires the Company to cause the outstanding principal balance under the Revolving Loan to be less than $3,500,000 for at least 30 consecutive days during each calendar year (the “Credit Agreement Covenants”). The Company was in compliance with the Credit Agreement Covenants as of March 31, 2024.
The Company’s acquisition of GKCE and the Gamma Knife Esprit in Ecuador is financed with DFC. The loan entered into with DFC in June 2020 was obtained through the Company's wholly-owned subsidiary, HoldCo, and is guaranteed by GKF. The DFC Loan is secured by a lien on GKCE’s assets. The first tranche of the DFC Loan was funded in June 2020. In October 2023, the second tranche of the DFC Loan was funded in the amount of $1,750,000 to finance its equipment upgrade in Ecuador. The amount outstanding under the first tranche of the DFC Loan is payable in 29 quarterly installments with a fixed interest rate of 3.67%. The amount outstanding under the second tranche of the DFC Loan is payable in 16 quarterly installments with a fixed interest rate of 7.49%.
The DFC Loan contains customary covenants including without limitation, requirements that HoldCo maintain certain financial ratios related to liquidity and cash flow as well as depository requirements. On March 28, 2024, HoldCo received a waiver and amendment from DFC for certain covenants as of December 31, 2023 and through December 31, 2024 and amended other covenants and definitions permanently. HoldCo was in compliance with all debt covenants pursuant to the DFC Loan as amended and waived at March 31, 2024.
The Company’s combined long-term debt, net of deferred issuance costs, totaled $15,602,000 as of March 31, 2024. See Note 3 - Long Term Debt to the condensed consolidated financial statements for additional information.
Commitments
As of March 31, 2024, the Company had commitments to purchase and install two Leksell Gamma Knife Esprit Systems (“Esprit”), one Gamma Plan workstation, one Linear Accelerator (“LINAC”) system, and one Magnetic Resonance imaging guided LINAC (“MR LINAC”). The LINAC, MR LINAC and one Esprit will be placed at future customer sites. The remaining Esprit upgrade is scheduled to occur during 2024 at an existing customer site. The Company also has one commitment to de-install a Gamma Knife unit at an existing customer site. Total Gamma Knife and LINAC commitments as of March 31, 2024 were $13,752,000. There are no deposits on the condensed consolidated balance sheets related to these commitments as of March 31, 2024. It is the Company’s intent to finance substantially all of these commitments. 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. However, the Company currently has cash on hand of $13,042,000 and a line of credit of $7,000,000 and is actively engaged with financing resources to fund these projects. The Company borrowed $2,400,000 on the Revolving Line as of March 31, 2024, which was paid off in April 2024.
Related Party Transactions
The Company’s Gamma Knife business is operated through its 81% indirect interest in its GKF subsidiary. The remaining 19% of GKF is owned by a wholly owned U.S. subsidiary of Elekta, which is the manufacturer of the Gamma Knife. Since the Company purchases its Gamma Knife units from Elekta, there are significant related party transactions with Elekta, such as equipment purchases, commitments to purchase and service equipment, and costs to maintain the equipment.
The following table summarizes related party activity for the three-month periods ended March 31, 2024 and 2023:
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Equipment purchases and de-install costs |
$ | 2,416,000 | $ | 201,000 | ||||
| Costs incurred to maintain equipment |
170,000 | 295,000 | ||||||
| Total related party transactions |
$ | 2,586,000 | $ | 496,000 | ||||
The Company also had commitments to purchase and install Gamma Knife units, purchase a LINAC and MR LINAC system and service the related equipment of $16,625,000 as of March 31, 2024.
Related party liabilities on the condensed consolidated balance sheets consist of the following as of March 31, 2024 and December 31, 2023
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Accounts payable, asset retirement obligation and other accrued liabilities |
$ | 1,637,000 | $ | 2,361,000 | ||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage or prepayment features. The Company does not have affiliation with partnerships, trusts or other entities whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements, and therefore has no exposure to the financing, liquidity, market or credit risks associated with such entities. At March 31, 2024, the Company had no significant long-term, market-sensitive investments.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. These controls and procedures are designed to ensure that material information relating to the Company and its subsidiaries is communicated to the principal executive officer and our principal financial officer. Based on that evaluation, our principal executive officer and our principal financial officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the principal executive officer and our principal financial officer, and recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the three-month period ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
Except as set forth below, there were no material changes during the period covered in this report to the risk factors previously disclosed in Part 1, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The Company may fail to successfully integrate the interests acquired in the RI Acquisition with its existing business in a timely manner, which could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows, or the Company may fail to realize all of the expected benefits of the RI Acquisition, which could negatively impact the Company’s future results of operations.
The integration of any acquisitions, including the Company’s RI Acquisition, which was completed on May 7, 2024, requires significant time and resources. A failure by the Company to successfully integrate the businesses, operations, and contractual obligations of the RI Target Companies with the Company’s existing business in a timely manner could have a material adverse effect on the Company’s business, financial condition, cash flows, or results of operations. Acquiring majority interests in the RI Target Companies, assuming obligations under the commercial payor contracts set forth in the IPA, and integrating the businesses of the three turn-key radiation therapy cancer centers that the RI Target Companies operate in Rhode Island involves several risks that could undermine the success and expected benefits of the RI Acquisition. Such risks include but are not limited to the following:
| ● |
the potential difficulty of assimilating the businesses and operations of the RI Target Companies with our existing business and operations; |
| ● |
the added costs that could be incurred from coordinating the integration of personnel from diverse business backgrounds and consolidating the corporate and administrative functions of the Company and the RI Target Companies; |
| ● |
the potential disruption to our existing operations that could result from the Company expanding into another state and expending time and resources to oversee the RI Target Companies’ operation of their three radiation oncology centers; |
| ● |
the added costs and burdens that the Company will incur in connection with obtaining the governmental and regulatory approvals that are necessary to effect the RI Acquisition and to stay regulatorily compliant under Rhode Island law if the RI Acquisition is effected; |
| ● |
the diversion of the resources of the Company and the attention of the Company’s management from the Company’s existing operations and business ventures to the operations of the RI Target Companies, which could hinder the performance of the Company and its subsidiaries; |
| ● |
the potential management differences that could result from the Company gaining majority interests in the RI Target Companies and taking control from GenesisCare; and |
| ● |
the risk of financial loss due to the existing debts and liabilities of the RI Target Companies and the potential need for the Company to expend substantial capital to stabilize the businesses of the RI Target Companies due to any instability created by the GenesisCare bankruptcy, with no guarantee of return on investment. |
If the Company is not successful in addressing these risks effectively, the Company’s business and operations could be impaired.
Flaws in the Company’s due-diligence assessment in connection with the equity interests and payor contracts acquired in the RI Acquisition could have a significant negative effect on the Company’s financial condition and results of operations.
The Company conducted due diligence when evaluating the RI Acquisition prior to executing the IPA and continued due diligence during the interim period between signing the IPA and the closing of the RI Acquisition on May 7, 2024. The process of completing due diligence was expensive and time consuming due to the operations, accounting, finance, and legal professionals who were involved in the due-diligence process. The time and costs of the due-diligence process were amplified with respect to the Company’s evaluation of the potential costs and benefits of the RI Acquisition due to the distressed state and bankruptcy of GenesisCare. Despite the thoroughness of the Company’s review, diligence may not reveal all material issues that could affect the Company’s interests in the RI Target Companies. In addition, factors outside of the Company’s control could later arise. The Company’s failure to identify material issues specific to the business and operations of the RI Target Companies and the liabilities and obligations the Company is assuming upon the assignment of the payor could negatively impact the Company’s financial condition and results of operations after the closing of the RI Acquisition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
During the three-month period ended March 31, 2024, of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K
Item 6. Exhibit Index
| Incorporated by reference herein |
||||||
| Exhibit Number |
Description |
Form |
Exhibit |
Date |
||
| 10.1 | *# | Amendment Three to Equipment Lease Agreement (Esprit Upgrade) dated as of April 24, 2024 between GK Financing, LLC and Northern Westchester Hospital Center. | ||||
| 10.2 | * | Second Amendment to Investment Agreement dated as of April 18, 2024 between the Company, GenesisCare USA Inc., and the Company. | ||||
| 10.3 | * | Third Amendment to Investment Agreement dated as of April 24, 2024 between the Company, GenesisCare USA Inc., and the Company. | ||||
| 10.4 | * | Fourth Amendment to Investment Agreement dated as of May 7, 2024 between the Company, GenesisCare USA Inc., and the Company. | ||||
| * |
Certification of Principal Executive Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||
| * |
Certification of Principal Financial Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||||
| ǂ |
Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||||
| 101.INS |
* |
Inline XBRL Instance Document |
||||
| 101.SCH |
* |
Inline XBRL Taxonomy Extension Schema Document |
||||
| 101.CAL |
* |
Inline XBRL Taxonomy Calculation Linkbase Document |
||||
| 101.DEF |
* |
Inline XBRL Taxonomy Definition Linkbase Document |
||||
| 101.LAB |
* |
Inline XBRL Taxonomy Label Linkbase Document |
||||
| 101.PRE |
* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
||||
| 104 |
* |
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline Instance XBRL contained in Exhibit 101 |
||||
| * |
Filed herewith. |
|||||
| ǂ |
Furnished herewith. |
|||||
| # |
Portions of this exhibit (indicated therein by asterisks) have been omitted for confidential treatment. |
|||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN SHARED HOSPITAL SERVICES
Registrant
| Date: |
May 15, 2024 |
/s/ Raymond C. Stachowiak |
||||||
| Raymond C. Stachowiak |
||||||||
| Executive Chairman of the Board and Chief Executive Officer (principal executive officer) |
||||||||
| Date: |
May 15, 2024 |
/s/ Robert L. Hiatt |
||||||
| Robert L. Hiatt |
||||||||
| Chief Financial Officer (principal financial and principal accounting officer) |