FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
American Shared Hospital Services
California | 94-2918118 | ||||
(State or other jurisdiction of | |||||
incorporation or organization) | (IRS Employer Identification No.) |
Two Embarcadero Center, Suite 410, San Francisco, California | |||||
(Address of Principal Executive Offices) | 94111 (Zip Code) |
Yes
¨ NoTitle of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
American Shared Hospital Services Common Stock, No Par Value | AMS | NYSE AMERICAN |
PART I -– FINANCIAL INFORMATION
(unaudited) | ||||||||
ASSETS | September 30, 2017 | December 31, 2016 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,315,000 | $ | 2,871,000 | ||||
Restricted cash | 350,000 | 250,000 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $100,000 at September 30, 2017 and $100,000 at December 31, 2016 | 5,345,000 | 4,085,000 | ||||||
Other receivables | 221,000 | 290,000 | ||||||
Prepaid expenses and other current assets | 1,859,000 | 892,000 | ||||||
Total current assets | 9,090,000 | 8,388,000 | ||||||
Property and equipment: | ||||||||
Medical equipment and facilities | 95,865,000 | 96,270,000 | ||||||
Office equipment | 566,000 | 537,000 | ||||||
Deposits and construction in progress | 3,682,000 | 8,073,000 | ||||||
100,113,000 | 104,880,000 | |||||||
Accumulated depreciation and amortization | (50,057,000 | ) | (53,549,000 | ) | ||||
Net property and equipment | 50,056,000 | 51,331,000 | ||||||
Investment in equity securities | 579,000 | 579,000 | ||||||
Other assets | 251,000 | 300,000 | ||||||
Total assets | $ | 59,976,000 | $ | 60,598,000 |
LIABILITIES AND | (unaudited) | |||||||
SHAREHOLDERS’ EQUITY | September 30, 2017 | December 31, 2016 | ||||||
Current liabilities: | ||||||||
Accounts payable | $ | 261,000 | $ | 319,000 | ||||
Employee compensation and benefits | 240,000 | 184,000 | ||||||
Other accrued liabilities | 1,289,000 | 1,100,000 | ||||||
Current portion of long-term debt | 2,495,000 | 2,205,000 | ||||||
Current portion of obligations under capital leases | 4,538,000 | 4,873,000 | ||||||
Total current liabilities | 8,823,000 | 8,681,000 | ||||||
Long-term debt, less current portion | 4,221,000 | 5,106,000 | ||||||
Long-term capital leases, less current portion | 13,538,000 | 14,852,000 | ||||||
Deferred revenue, less current portion | 530,000 | 610,000 | ||||||
Deferred income taxes | 4,676,000 | 4,176,000 | ||||||
Shareholders’ equity: | ||||||||
Common stock, no par value (10,000,000 authorized; 5,710,000 shares issued and outstanding at September 30, 2017 and 5,468,000 shares at December 31, 2016) | 10,711,000 | 10,596,000 | ||||||
Additional paid-in capital | 6,107,000 | 5,949,000 | ||||||
Retained earnings | 5,455,000 | 4,950,000 | ||||||
Total equity-American Shared Hospital Services | 22,273,000 | 21,495,000 | ||||||
Non-controlling interest in subsidiary | 5,915,000 | 5,678,000 | ||||||
Total shareholders’ equity | 28,188,000 | 27,173,000 | ||||||
Total liabilities and shareholders’ equity | $ | 59,976,000 | $ | 60,598,000 |
ASSETS | September 30, 2019 | December 31, 2018 | ||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 1,297,000 | $ | 1,442,000 | ||||||||||
Restricted cash | 350,000 | 350,000 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $100,000 at September 30, 2019 and $100,000 at December 31, 2018 | 6,511,000 | 5,502,000 | ||||||||||||
Other receivables insurance proceeds | — | 1,137,000 | ||||||||||||
Other receivables | 261,000 | 239,000 | ||||||||||||
Prepaid expenses and other current assets | 1,825,000 | 1,276,000 | ||||||||||||
Total current assets | 10,244,000 | 9,946,000 | ||||||||||||
Property and equipment: | ||||||||||||||
Medical equipment and facilities | 90,672,000 | 94,031,000 | ||||||||||||
Office equipment | 578,000 | 589,000 | ||||||||||||
Deposits and construction in progress | 5,589,000 | 6,082,000 | ||||||||||||
96,839,000 | 100,702,000 | |||||||||||||
Accumulated depreciation and amortization | (53,836,000) | (54,008,000) | ||||||||||||
Net property and equipment | 43,003,000 | 46,694,000 | ||||||||||||
Right of use assets | 1,173,000 | — | ||||||||||||
Other assets | 838,000 | 862,000 | ||||||||||||
Total assets | $ | 55,258,000 | $ | 57,502,000 | ||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | September 30, 2019 | December 31, 2018 | ||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 1,097,000 | $ | 435,000 | ||||||||||
Employee compensation and benefits | 289,000 | 207,000 | ||||||||||||
Other accrued liabilities | 1,482,000 | 1,329,000 | ||||||||||||
Other accrued liabilities insurance payable | — | 977,000 | ||||||||||||
Current portion of lease liabilities | 272,000 | — | ||||||||||||
Current portion of long-term debt | 1,666,000 | 2,119,000 | ||||||||||||
Current portion of obligations under capital leases | 3,972,000 | 4,407,000 | ||||||||||||
Total current liabilities | 8,778,000 | 9,474,000 | ||||||||||||
Long-term lease liabilities, less current portion | 901,000 | — | ||||||||||||
Long-term debt, less current portion | 2,230,000 | 3,332,000 | ||||||||||||
Long-term capital leases, less current portion | 8,881,000 | 10,308,000 | ||||||||||||
Deferred revenue, less current portion | 302,000 | 382,000 | ||||||||||||
Deferred income taxes | 2,744,000 | 2,958,000 | ||||||||||||
Shareholders' equity: | ||||||||||||||
Common stock, no par value (10,000,000 authorized; 5,816,000 and 5,714,000 shares issued and outstanding at September 30, 2019 and at December 31, 2018) | 10,752,000 | 10,711,000 | ||||||||||||
Additional paid-in capital | 6,665,000 | 6,495,000 | ||||||||||||
Retained earnings | 8,362,000 | 7,896,000 | ||||||||||||
Total equity-American Shared Hospital Services | 25,779,000 | 25,102,000 | ||||||||||||
Non-controlling interest in subsidiary | 5,643,000 | 5,946,000 | ||||||||||||
Total shareholders' equity | 31,422,000 | 31,048,000 | ||||||||||||
Total liabilities and shareholders' equity | $ | 55,258,000 | $ | 57,502,000 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Rental income from medical services | $ | 4,613,000 | $ | 4,884,000 | $ | 14,472,000 | $ | 13,640,000 | ||||||||
Costs of revenue: | ||||||||||||||||
Maintenance and supplies | 331,000 | 163,000 | 811,000 | 657,000 | ||||||||||||
Depreciation and amortization | 1,674,000 | 1,687,000 | 5,000,000 | 4,898,000 | ||||||||||||
Other direct operating costs | 726,000 | 638,000 | 2,182,000 | 2,117,000 | ||||||||||||
2,731,000 | 2,488,000 | 7,993,000 | 7,672,000 | |||||||||||||
Gross Margin | 1,882,000 | 2,396,000 | 6,479,000 | 5,968,000 | ||||||||||||
Selling and administrative expense | 1,026,000 | 999,000 | 3,303,000 | 2,911,000 | ||||||||||||
Interest expense | 417,000 | 501,000 | 1,314,000 | 1,219,000 | ||||||||||||
Operating income | 439,000 | 896,000 | 1,862,000 | 1,838,000 | ||||||||||||
(Loss) on early extinguishment of debt | - | - | - | (108,000 | ) | |||||||||||
Interest and other income (loss) | - | 3,000 | (1,000 | ) | 11,000 | |||||||||||
Income before income taxes | 439,000 | 899,000 | 1,861,000 | 1,741,000 | ||||||||||||
Income tax expense | 164,000 | 267,000 | 600,000 | 424,000 | ||||||||||||
Net income | 275,000 | 632,000 | 1,261,000 | 1,317,000 | ||||||||||||
Less: Net (income) attributable to non-controlling interests | (176,000 | ) | (298,000 | ) | (756,000 | ) | (839,000 | ) | ||||||||
Net income attributable to American Shared Hospital Services | $ | 99,000 | $ | 334,000 | $ | 505,000 | $ | 478,000 | ||||||||
Net income per share: | ||||||||||||||||
Earnings per common share - basic | $ | 0.02 | $ | 0.06 | $ | 0.09 | $ | 0.09 | ||||||||
Earnings per common share - diluted | $ | 0.02 | $ | 0.06 | $ | 0.09 | $ | 0.09 |
Three Months ended September 30, | Nine Months ended September 30, | ||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
Revenues | $ | 5,301,000 | $ | 4,470,000 | $ | 15,819,000 | $ | 14,944,000 | |||||||||||||||||||||||||||
Costs of revenue: | |||||||||||||||||||||||||||||||||||
Maintenance and supplies | 648,000 | 470,000 | 1,968,000 | 1,723,000 | |||||||||||||||||||||||||||||||
Depreciation and amortization | 1,817,000 | 1,761,000 | 5,719,000 | 5,082,000 | |||||||||||||||||||||||||||||||
Other direct operating costs | 1,023,000 | 605,000 | 2,653,000 | 2,218,000 | |||||||||||||||||||||||||||||||
3,488,000 | 2,836,000 | 10,340,000 | 9,023,000 | ||||||||||||||||||||||||||||||||
Gross Margin | 1,813,000 | 1,634,000 | 5,479,000 | 5,921,000 | |||||||||||||||||||||||||||||||
Selling and administrative expense | 1,065,000 | 1,050,000 | 3,201,000 | 3,067,000 | |||||||||||||||||||||||||||||||
Interest expense | 302,000 | 399,000 | 1,015,000 | 1,230,000 | |||||||||||||||||||||||||||||||
Operating income | 446,000 | 185,000 | 1,263,000 | 1,624,000 | |||||||||||||||||||||||||||||||
Proceeds received from investment in equity securities | — | — | — | 22,000 | |||||||||||||||||||||||||||||||
Interest and other income | 7,000 | 185,000 | 15,000 | 194,000 | |||||||||||||||||||||||||||||||
Income before income taxes | 453,000 | 370,000 | 1,278,000 | 1,840,000 | |||||||||||||||||||||||||||||||
Income tax expense | 99,000 | 82,000 | 250,000 | 401,000 | |||||||||||||||||||||||||||||||
Net income | 354,000 | 288,000 | 1,028,000 | 1,439,000 | |||||||||||||||||||||||||||||||
Less: Net income attributable to non-controlling interest | (189,000) | (120,000) | (562,000) | (594,000) | |||||||||||||||||||||||||||||||
Net income attributable to American Shared Hospital Services | $ | 165,000 | $ | 168,000 | $ | 466,000 | $ | 845,000 | |||||||||||||||||||||||||||
Net income per share: | |||||||||||||||||||||||||||||||||||
Earnings per common share - basic | $ | 0.03 | $ | 0.03 | $ | 0.08 | $ | 0.14 | |||||||||||||||||||||||||||
Earnings per common share - diluted | $ | 0.03 | $ | 0.03 | $ | 0.08 | $ | 0.14 | |||||||||||||||||||||||||||
PERIODS ENDED DECEMBER 31, 2016 AND SEPTEMBER 30, 2017 | ||||||||||||||||||||||||||||
Additional | Non-controlling | |||||||||||||||||||||||||||
Common | Common | Paid-in | Retained | Sub-Total | Interests in | |||||||||||||||||||||||
Shares | Stock | Capital | Earnings | ASHS | Subsidiaries | Total | ||||||||||||||||||||||
Balances at January 1, 2016 | 5,364,000 | $ | 10,376,000 | $ | 5,734,000 | $ | 4,020,000 | $ | 20,130,000 | $ | 5,050,000 | $ | 25,180,000 | |||||||||||||||
Stock-based compensation expense | 4,000 | - | 215,000 | - | 215,000 | - | 215,000 | |||||||||||||||||||||
Warrants exercised | 100,000 | 220,000 | - | - | 220,000 | - | 220,000 | |||||||||||||||||||||
Non-controlling interest investment in subsidiaries | - | - | - | - | - | 7,000 | 7,000 | |||||||||||||||||||||
Cash distributions to non-controlling interests | - | - | - | - | - | (699,000 | ) | (699,000 | ) | |||||||||||||||||||
Net income | - | - | - | 930,000 | 930,000 | 1,320,000 | 2,250,000 | |||||||||||||||||||||
Balances at December 31, 2016 | 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 | - | 158,000 | - | 158,000 | - | 158,000 | |||||||||||||||||||||
Restricted stock awards | 162,000 | - | - | - | - | - | - | |||||||||||||||||||||
Warrants and options exercised | 76,000 | 115,000 | - | - | 115,000 | - | 115,000 | |||||||||||||||||||||
Cash distributions to non-controlling interests | - | - | - | - | - | (519,000 | ) | (519,000 | ) | |||||||||||||||||||
Net income | - | - | - | 505,000 | 505,000 | 756,000 | 1,261,000 | |||||||||||||||||||||
Balances at September 30, 2017 | 5,710,000 | $ | 10,711,000 | $ | 6,107,000 | $ | 5,455,000 | $ | 22,273,000 | $ | 5,915,000 | $ | 28,188,000 |
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Sub-Total ASHS | Non-controlling Interests in Subsidiaries | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2019 | 5,714,000 | $ | 10,711,000 | $ | 6,495,000 | $ | 7,896,000 | $ | 25,102,000 | $ | 5,946,000 | $ | 31,048,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 55,000 | — | 55,000 | — | 55,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (19,000) | (19,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 270,000 | 270,000 | 125,000 | 395,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2019 | 5,714,000 | 10,711,000 | 6,550,000 | 8,166,000 | 25,427,000 | 6,052,000 | 31,479,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 86,000 | — | 53,000 | — | 53,000 | — | 53,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (57,000) | (57,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 31,000 | 31,000 | 248,000 | 279,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2019 | 5,800,000 | 10,711,000 | 6,603,000 | 8,197,000 | 25,511,000 | 6,243,000 | 31,754,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 62,000 | — | 62,000 | — | 62,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options exercised | 16000 | 41000 | — | — | 41000 | $ | — | 41000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (789,000) | (789,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 165,000 | 165,000 | 189,000 | 354,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2019 | 5,816,000 | $ | 10,752,000 | $ | 6,665,000 | $ | 8,362,000 | $ | 25,779,000 | $ | 5,643,000 | $ | 31,422,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | Sub-Total ASHS | Non-controlling Interests in Subsidiaries | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2018 | 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 | — | — | 55,000 | — | 55,000 | — | 55,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 390,000 | 390,000 | 261,000 | 651,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2018 | 5,710,000 | 10,711,000 | 6,327,000 | 7,263,000 | 24,301,000 | 6,290,000 | 30,591,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | 4,000 | — | 57,000 | — | 57,000 | — | 57,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (77,000) | (77,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 287,000 | 287,000 | 213,000 | 500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2018 | 5,714,000 | 10,711,000 | 6,384,000 | 7,550,000 | 24,645,000 | 6,426,000 | 31,071,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 57,000 | — | 57,000 | — | 57,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash distributions to non-controlling interests | — | — | — | — | — | (393,000) | (393,000) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 168,000 | 168,000 | 120,000 | 288,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2018 | 5,714,000 | $ | 10,711,000 | $ | 6,441,000 | $ | 7,718,000 | $ | 24,870,000 | $ | 6,153,000 | $ | 31,023,000 |
Nine Months ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating activities: | ||||||||
Net income | $ | 1,261,000 | $ | 1,317,000 | ||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||
Depreciation and amortization | 5,050,000 | 4,929,000 | ||||||
Loss on sale or disposal of assets | 15,000 | - | ||||||
Loss on early extinguishment of debt | - | 108,000 | ||||||
Deferred income tax | 500,000 | 378,000 | ||||||
Stock based compensation expense | 158,000 | 161,000 | ||||||
Net accrued interest on lease financing | (79,000 | ) | - | |||||
Other non-cash items | - | 4,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and other receivables | (1,191,000 | ) | (1,281,000 | ) | ||||
Prepaid expenses and other assets | (944,000 | ) | (226,000 | ) | ||||
Deferred revenue | (84,000 | ) | (186,000 | ) | ||||
Accounts payable and accrued liabilities | 290,000 | 490,000 | ||||||
Net cash from operating activities | 4,976,000 | 5,694,000 | ||||||
Investing activities: | ||||||||
Payment for purchase of property and equipment | (760,000 | ) | (1,050,000 | ) | ||||
Proceeds from sale of equipment | 150,000 | - | ||||||
Net cash (used in) investing activities | (610,000 | ) | (1,050,000 | ) | ||||
Financing activities: | ||||||||
Principal payments on long-term debt | (1,595,000 | ) | (2,383,000 | ) | ||||
Principal payments on capital leases | (3,823,000 | ) | (3,054,000 | ) | ||||
Capital contributions from non-controlling interests | - | 7,000 | ||||||
Distributions to non-controlling interests | (519,000 | ) | (514,000 | ) | ||||
Proceeds from warrants and options exercised | 115,000 | - | ||||||
Reclassification of restricted cash | (100,000 | ) | (200,000 | ) | ||||
Proceeds from capital lease financing for reimbursement of payments for acquisition of equipment | - | 1,137,000 | ||||||
Net cash (used in) financing activities | (5,922,000 | ) | (5,007,000 | ) | ||||
Net change in cash and cash equivalents | (1,556,000 | ) | (363,000 | ) | ||||
Cash and cash equivalents at beginning of period | 2,871,000 | 2,209,000 | ||||||
Cash and cash equivalents at end of period | $ | 1,315,000 | $ | 1,846,000 | ||||
Supplemental cash flow disclosure: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 1,424,000 | $ | 1,614,000 | ||||
Income taxes paid | $ | 104,000 | $ | 219,000 | ||||
Schedule of non-cash investing and financing activities | ||||||||
Acquisition of equipment with capital lease financing | $ | 2,153,000 | $ | 8,332,000 | ||||
Acquisition of equipment with long-term debt financing | $ | 992,000 | $ | - |
Nine Months ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
Operating activities: | |||||||||||||||||
Net income | $ | 1,028,000 | $ | 1,439,000 | |||||||||||||
Adjustments to reconcile net income to net cash from operating activities: | |||||||||||||||||
Depreciation and amortization | 5,772,000 | 5,138,000 | |||||||||||||||
Non cash lease expense | 189,000 | — | |||||||||||||||
Deferred income tax | (214,000) | 45,000 | |||||||||||||||
Stock-based compensation expense | 170,000 | 169,000 | |||||||||||||||
Net accrued interest on lease financing | 9,000 | 39,000 | |||||||||||||||
Interest expense associated with lease liabilities | 59,000 | — | |||||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||||
Receivables | (896,000) | (398,000) | |||||||||||||||
Prepaid expenses and other assets | (559,000) | (473,000) | |||||||||||||||
Customer deposits/deferred revenue | (60,000) | (93,000) | |||||||||||||||
Lease liability | (248,000) | — | |||||||||||||||
Accounts payable and accrued liabilities | 877,000 | 359,000 | |||||||||||||||
Net cash provided by operating activities | 6,127,000 | 6,225,000 | |||||||||||||||
Investing activities: | |||||||||||||||||
Payment for purchase of property and equipment | (889,000) | (1,187,000) | |||||||||||||||
Proceeds from insurance | 160,000 | — | |||||||||||||||
Net cash used in investing activities | (729,000) | (1,187,000) | |||||||||||||||
Financing activities: | |||||||||||||||||
Principal payments on long-term debt | (1,564,000) | (1,875,000) | |||||||||||||||
Principal payments on capital leases | (3,155,000) | (3,006,000) | |||||||||||||||
Distributions to non-controlling interests | (865,000) | (470,000) | |||||||||||||||
Proceeds from options exercised | 41,000 | — | |||||||||||||||
Net cash used in financing activities | (5,543,000) | (5,351,000) | |||||||||||||||
Net change in cash, cash equivalents, and restricted cash | (145,000) | (313,000) | |||||||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | 1,792,000 | 2,502,000 | |||||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 1,647,000 | $ | 2,189,000 | |||||||||||||
Supplemental cash flow disclosure: | |||||||||||||||||
Cash paid during the period for: | |||||||||||||||||
Interest | $ | 1,015,000 | $ | 1,307,000 | |||||||||||||
Income taxes paid | $ | 418,000 | $ | 277,000 | |||||||||||||
Schedule of non-cash investing and financing activities | |||||||||||||||||
Right of use assets and lease liabilities | $ | 1,362,000 | $ | — | |||||||||||||
Interest capitalized to property and equipment | $ | 82,000 | $ | 77,000 | |||||||||||||
Acquisition of equipment with capital lease financing | $ | 1,293,000 | $ | 1,679,000 |
The Company continues to develop its design and business model for “TheThe Operating Room for the 21st Century”CenturySM (“OR21”), 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 withinfor at least the next two 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 the Notes to four members of the Company’s Board of Directors. During the nine-month period ended September 30, 2017, 100,000 of the warrants were exercised. 50,000 of the 100,000 warrants were exercised via a cashless exercise resulting in the net issuance of approximately 25,000 shares. There are no warrants outstanding as of September 30, 2017.
In April 2017, an existing customer exercised their option to purchase the Gamma Knife unit at its hospital at the end of the lease term for a predetermined purchase price, pursuant to the lease agreement. The lease terminated in April 2017, at which time, the unit was depreciated to the purchase price of the sale. Based on the guidance provided in ASC 360Property, Plant and Equipment (“ASC 360”), the Company did not classify or measure the asset as held for sale prior to the lease termination, because the Gamma Knife unit was not available for immediate sale.
On July 21, 2017, the Company entered into a Maintenance and Support Agreement (the “Mevion Service Agreement”) with Mevion Medical Systems, Inc. (“Mevion”), formerly Still River Systems, which provides for maintenance and support of the Company’s PBRT unit at Orlando Health. The Mevion Service Agreement began September 5, 2017 and required an upfront payment of $1,000,000 which was made on August 4, 2017, and further requires payments over the next 11 months. 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.
In May 2014, the Financial Accounting Standards Board “(FASB”(“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 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles (“GAAP”) when it becomes effective. In December 2016, FASB issued ASU 2016-20Technical Corrections and Improvements to Topic 606,(“ASU 2016-20”), which affects some narrow aspects of ASU 2014-09. The new standard is effective for the Company for annual reporting periods beginning after December 15, 2017 and interim reporting periods therein. Early application is permitted for reporting periods beginning after December 15, 2016. 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
In January 2016, the FASB issued ASU No. 2016-01Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The new guidance is effective for the Company on January 1, 2018. Early adoption is permitted. The standard permits the use of cumulative-effect transition method. The Company is evaluating the effect that ASU 2016-01 will have on its consolidated financial statements and related disclosures.
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 accountingclassification criteria for direct financing and sales-type leases is largely unchanged. Themodified. In July 2018, the FASB issued ASU No. 2018-10
2019-07
Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates ("ASU 2019-07") which clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning with the SEC's regulations, thereby eliminating redundancies and making the codification easier to apply. The new guidance was effective immediately upon issuance and did not have a material impact on the Company's financial statements and related disclosures.equity securities without a readily determinable fair value. In June 2016,August 2018, the FASB issued ASU No. 2016-13Financial Instruments2018-13
In August 2016, the FASB issued ASU No. 2016-15Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on eight specific cash flow issues: debt prepayment or extinguishment costs; settlement of zero-coupon or other debt instruments with coupon interest rates that are insignificant in relation toamended the effective interest ratedate and other certain measurement aspects of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the Predominance Principle. The new guidance is effective for fiscal periods beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the effect that ASU 2016-15 will have on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18Statement of Cash Flows (Topic 230) – Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.2018-03. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.years beginning after December 15, 2019. The Company is evaluating the effect thatdoes not expect ASU 2016-18 will2018-03 or ASU 2018-13 to have a significant impact on its consolidated financial statements and related disclosures.
In May 2017,
September 30, | December 31, | |||||||||||||
2019 | 2018 | |||||||||||||
Medical equipment and facilities | $ | 90,672,000 | $ | 94,031,000 | ||||||||||
Office equipment | 578,000 | 589,000 | ||||||||||||
Deposits and construction in progress | 3,339,000 | 3,832,000 | ||||||||||||
Deposits towards purchase of proton beam systems | 2,250,000 | 2,250,000 | ||||||||||||
96,839,000 | 100,702,000 | |||||||||||||
Accumulated depreciation | (53,836,000) | (54,008,000) | ||||||||||||
Net property and equipment | $ | 43,003,000 | $ | 46,694,000 |
Year ending December 31, | Operating Leases | ||||
2019 (excluding the nine-months ended September 30, 2019) | $ | 84,000 | |||
2020 | 340,000 | ||||
2021 | 347,000 | ||||
2022 | 331,000 | ||||
2023 | 214,000 | ||||
Thereafter | 6,000 | ||||
Total lease payments | 1,322,000 | ||||
Less imputed interest | (149,000) | ||||
Total | $ | 1,173,000 |
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income attributable to American Shared Hospital Services | $ | 99,000 | $ | 334,000 | $ | 505,000 | $ | 478,000 | ||||||||
Weighted average common shares for basic earnings per share | 5,947,000 | 5,554,000 | 5,745,000 | 5,553,000 | ||||||||||||
Diluted effect of stock options and restricted stock | 94,000 | 39,000 | 167,000 | 11,000 | ||||||||||||
Weighted average common shares for diluted earnings per share | 6,041,000 | 5,593,000 | 5,912,000 | 5,564,000 | ||||||||||||
Basic earnings per share | $ | 0.02 | $ | 0.06 | $ | 0.09 | $ | 0.09 | ||||||||
Diluted earnings per share | $ | 0.02 | $ | 0.06 | $ | 0.09 | $ | 0.09 |
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||
Net income attributable to American Shared Hospital Services | $ | 165,000 | $ | 168,000 | $ | 466,000 | $ | 845,000 | ||||||||||||||||||||||||||||||
Weighted average common shares for basic earnings per share | 5,889,000 | 5,841,000 | 5,899,000 | 5,831,000 | ||||||||||||||||||||||||||||||||||
Diluted effect of stock options and restricted stock | 19,000 | 50,000 | 18,000 | 24,000 | ||||||||||||||||||||||||||||||||||
Weighted average common shares for diluted earnings per share | 5,908,000 | 5,891,000 | 5,917,000 | 5,855,000 | ||||||||||||||||||||||||||||||||||
Basic earnings per share | $ | 0.03 | $ | 0.03 | $ | 0.08 | $ | 0.14 | ||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 0.03 | $ | 0.03 | $ | 0.08 | $ | 0.14 |
2022.
The following table summarizes restricted stock awards, consisting primarily of annual automatic grants and deferred compensation to non-employee directors, for the nine-month period ended September 30, 2017:
Restricted Stock Awards | Grant Date Weighted- Average Fair Value | Intrinsic Value | ||||||||||
Outstanding at January 1, 2017 | 4,000 | $ | 2.25 | $ | - | |||||||
Granted | 22,000 | $ | 3.47 | $ | - | |||||||
Vested | (17,000 | ) | $ | 3.16 | $ | - | ||||||
Forfeited | - | $ | - | $ | - | |||||||
Outstanding at September 30, 2017 | 9,000 | $ | 3.58 | $ | - |
The following table summarizes stock option activity for the nine-month period ended September 30, 2017:
Stock Options | Grant Date Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (in Years) | Intrinsic Value | |||||||||||||
Outstanding at January 1, 2017 | 625,000 | $ | 2.85 | 4.25 | $ | - | ||||||||||
Granted | 19,000 | $ | 3.62 | 6.80 | $ | - | ||||||||||
Exercised | (4,000 | ) | $ | 2.81 | - | $ | - | |||||||||
Forfeited | (23,000 | ) | $ | 2.82 | - | $ | - | |||||||||
Outstanding at September 30, 2017 | 617,000 | $ | 2.87 | 3.63 | $ | - | ||||||||||
Exercisable at September 30, 2017 | 300,000 | $ | 2.82 | 3.43 | $ | 9,000 |
Note 4. Investment in Equity Securities
As of September 30, 2017, and December 31, 2016, the Company had a $579,000 investment in the common stock of Mevion, representing an approximate 0.46% interest in Mevion. The Company accounts for this investment under the cost method. The Company carries its investment in Mevion at cost and reviews it for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying value of the investment may not be recoverable.
The Company reviewed this investment at September 30, 2017 in light of both current market conditions and the current operations of Mevion as they continue to grow their PBRT business. Based on its analysis, the Company determined no additional impairment needed to be recognized as of September 30, 2017.
Note 5. Fair Value of Financial Instruments
The Company’s disclosures of the fair value of financial instruments is based on a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
The estimated fair value of the Company’s assets and liabilities as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
Level 1 | Level 2 | Level 3 | Total | Carrying Value | ||||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash, cash equivalents, restricted cash | $ | 1,665 | $ | - | $ | - | $ | 1,665 | $ | 1,665 | ||||||||||
Investment in equity securities | - | - | 579 | 579 | 579 | |||||||||||||||
Total | $ | 1,665 | $ | - | $ | 579 | $ | 2,244 | $ | 2,244 | ||||||||||
Liabilities | ||||||||||||||||||||
Debt obligations | $ | - | $ | - | $ | 6,809 | $ | 6,809 | $ | 6,716 | ||||||||||
Total | $ | - | $ | - | $ | 6,809 | $ | 6,809 | $ | 6,716 | ||||||||||
December 31, 2016 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash, cash equivalents, restricted cash | $ | 3,121 | $ | - | $ | - | $ | 3,121 | $ | 3,121 | ||||||||||
Investment in equity securities | - | - | 579 | 579 | 579 | |||||||||||||||
Total | $ | 3,121 | $ | - | $ | 579 | $ | 3,700 | $ | 3,700 | ||||||||||
Liabilities | ||||||||||||||||||||
Debt obligations | $ | - | $ | - | $ | 7,354 | $ | 7,354 | $ | 7,311 | ||||||||||
Total | $ | - | $ | - | $ | 7,354 | $ | 7,354 | $ | 7,311 |
Note 6. Repurchase of Common Stock
In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares repurchased during the three and nine-month periods ended September 30, 2017 or 2016, respectively. There are approximately 72,000 shares remaining under this repurchase authorization as of September 30, 2017.
2019 and 2018:
Stock Options | Grant Date Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life (in Years) | Intrinsic Value | |||||||||||||||||||||||
Outstanding at January 1, 2019 | 613,000 | $ | 2.85 | 3.18 | $ | — | ||||||||||||||||||||
Granted | 18,000 | $ | 2.91 | 7.00 | $ | — | ||||||||||||||||||||
Exercised | (16,000) | $ | 2.59 | — | $ | — | ||||||||||||||||||||
Forfeited | (12,000) | $ | 3.05 | — | $ | — | ||||||||||||||||||||
Outstanding at September 30, 2019 | 603,000 | $ | 2.86 | 2.09 | $ | 42,000 | ||||||||||||||||||||
Exercisable at September 30, 2019 | 478,000 | $ | 2.86 | 1.97 | $ | — | ||||||||||||||||||||
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 September 30, 2018 | 613,000 | $ | 2.85 | 2.93 | $ | 337,000 | ||||||||||||||||||||
Exercisable at September 30, 2018 | 389,000 | $ | 2.86 | 2.83 | $ | — |
21, 2019. 2019 compared to $605,000 and $2,218,000 for the same periods in the prior year, respectively. The 2018. Company. $41,000. $55,258,000. 2023. In the event the Company is unable to enter into customer agreements within the requisite time frame or receive an extension from Mevion, the Company could forfeit its deposits.Company,expected continued expansion of the MEVION S250 systems, 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 risksrisk of variability of financial results between quarters, the risk of the Gamma Knife proton therapy and radiation therapy businesses, and the risks of developing The Operating Room for the 21st CenturySM program, and the risks of investing in Mevion. program. Further information on potential factors that could affect the financial condition, results of operations and future plans of the CompanyAmerican 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, 20162018 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 27, 2017.seventeensixteen Gamma Knife units, one PBRT system and one IGRT unitmachine in operation onas of September 30, 2017,2019 and on September 30, 2016, respectively.2018. Three of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. NineSeven of the Company’s sixteen current Gamma Knife customers are under fee-per-use contracts, and seveneight customers are under retail arrangements. The Company, through GKF, also owns and operates a single-unit Gamma Knife facility in Lima, Peru. This unit economically functions similarly to the Company’s turn-key retail arrangements. The Company’s contracts to provide radiation therapy and related equipment services to an existing Gamma Knife customer and the Company’s PBRT system at Orlando Health – UF Health Cancer Center (“Orlando Health”), are also considered retail arrangements.RevenueRevenues from fee-per-usefee per use contracts is determined by each hospital’s contracted rate. Revenue isRevenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate.rate and the number of procedures performed. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the Company receives payment from the hospital in the amount of 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.
For the three and nine-month periods ended September 30, 2019, the Company recognized revenues of approximately $5,013,000 and $15,024,000, respectively, under ASC 842.142017,2015, the Centers for Medicare and Medicaid (“CMS”) established a Comprehensive Ambulatory Payment Classification for single session radiosurgery treatments. CMS has established a 20172019 total reimbursement rate of approximately $9,000$9,300 ($8,8009,100 in 2016)2018) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of proton therapy for a simple treatment without compensation will be $494for 2019 is $520 ($506522 in 2016)2018) and $994$1,079 ($1,1501,053 in 2016)2018) for simple treatment with compensation, intermediate and complex treatments, respectively.Rental income from medicaldecreased by $271,000provided within a 90-day episode. If the RO APM is finalized as proposed, radiation therapy providers and suppliers may be mandatorily required to participate in the model based on whether the radiation therapy is provided within selected geographic areas. CMS projects that approximately 40% of the radiation oncology providers within randomly selected Core Based Statistical Areas (CBSAs) will be included in the model and approximately 60% will continue to receive reimbursement based on fee-for-service methodology. The Company, along with other interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded on September 16, 2019. It is uncertain whether CMS will finalize the rule as proposed. As a result, the Company cannot estimate the potential impact of adoption of the proposed rule. However, reductions in the reimbursement rates or changes in reimbursement methodology or administration for radiosurgery and radiation therapy could adversely affect the Company’s revenues and financial results.$832,000$831,000 and $875,000 to $4,613,000$5,301,000 and $14,472,000$15,819,000 for the three and nine-month periods ended September 30, 20172019 compared to $4,470,000 and $14,944,000 for the same periods in the prior year, respectively.$4,884,000the Company’s PBRT system increased by $636,000 and $13,640,000$1,106,000 to $1,677,000 and $4,728,000 for the three and nine-month periods ended September 30, 2016, respectively. The Company’s PBRT system at Orlando Health treated its first patient in April 2016. For the three and nine-month periods ended September 30, 2017, revenues generated from this system were $935,000 and $2,953,0002019 compared to $800,000$1,041,000 and $1,246,000 in$3,622,000 for the same periods in the prior year, respectively. The number ofincrease in PBRT fractions increased 71revenues was due to higher volumes for the three-month period ended September 30, 2019. For the nine-month period ended September 30, 2019, the increase in PBRT revenues was due to higher volumes and 2,038a higher average reimbursement compared to 940 and 3,349the Company's historical average. The increase in PBRT revenues for the three and nine-month periods ended September 30, 2017 compared to 869 and 1,311 in the same periods prior year, respectively. The increase is2019 was also due to the two weeks of down time the PBRT system ramping up volume in its second yearincurred during the three and nine-month periods ended September 30, 2018.operations.Gamma Knife revenues decreased $369,000PBRT fractions increased by 371 and $869,000810 to $3,564,0001,452 and $11,150,0004,407 for the three and nine-month periods ended September 30, 20172019 compared to $3,933,0001,081 and $12,019,000 in3,597 for the same periods in the prior year, respectively. Excluding the customer site who purchased their Gamma Knife unitloss on procedures from the down-time experienced in April 2017 and the customer site whose contract expired August 31, 2017, Gamma Knife revenues increased $142,000 and decreased $51,000prior year, PBRT fractions for the three and nine-month periods ended September 30, 2017,2019 were consistent with the same periods in the prior year and increased by 440 fractions compared to the same periods in the prior year, respectively. The increase in PBRT volume for the nine-month period ended September 30, 2019 was the result of the continuing increased awareness of the benefits of proton therapy treatment.2017,2019, the increase was due to a favorable payor mix atdepreciation incurred on the Company’s Gamma Knife retail sites.Company's IGRT equipment. For the nine-month period ended September 30, 2017,2019, the decreaseincrease was due to lower volumes atdepreciation incurred on the Company’s existing Gamma Knife sites. The Company had two new Gamma Knife sites begin operations duringsite in Merrillville, Indiana, the third quarter 2017. Both sites had minimal volume duringPBRT system, and the quarter and did not have a significant impact onCompany’s IGRT equipment, offset partially by the two Gamma Knife revenuecontracts which expired in April 2018 and January 2019. The Company also recognized additional fixed asset value in connection to the contractual adjustment related to Medicare reimbursement at an existing customer site, causing an increase in depreciation expense.2017.number of Gamma Knife procedures decreasedincrease was due to increased operating costs at the Company's retail sites and operating costs incurred at the Company’s new site in Merrillville, Indiana and the Company's stand-alone facility in Lima, Peru.104$15,000 and 193$134,000 to 379$1,065,000 and 1,253$3,201,000 for the three and nine-month periods ended September 30, 2017 from 4832019 compared to $1,050,000 and 1,446 in$3,067,000 for the same periods in the prior year, respectively. Excluding the customer site who purchased their Gamma Knife unit in April 2017 and the customer site whose contract expired August 31, 2017, Gamma Knife procedures increased 5 and decreased 26 for the three and nine-month periods ended September 30, 2017. The decrease for the nine-month period is due to normal, cyclical fluctuations. The Company had two new Gamma Knife sites begin operations during the third quarter 2017. Both sites had minimal volume during the quarter and did not have a significant impact on Gamma Knife volume for the three and nine-month periods ended September 30, 2017.15IGRT revenues decreased $38,000 and $6,000 to $114,000 and $369,000 for the three and nine-month periods ended September 30, 2017 from $152,000 and $375,000 in the same periods prior year, respectively. The decrease for the three and nine-month periods ended September 30, 2017 is due to lower volumes at the Company’s existing IGRT site.Total costs of revenue increased by $243,000 and $321,000 to $2,731,000 and $7,993,000 for the three and nine-month periods ended September 30, 2017 from $2,488,000 and $7,672,000 in the same periods prior year, respectively. Maintenance and supplies increased by $168,000 and $154,000 for the three and nine-month periods ended September 30, 2017, respectively, primarily due to the Mevion Service Agreement which commenced September 2017. Depreciation and amortization decreased by $13,000 and increased $102,000 for the three and nine-month periods ended September 30, 2017, respectively. The decrease for the three-month period was due to the Company’s contracts which ended in the second and third quarters of 2017, respectively, offset by depreciation expense for the Company’s two new units which began operations in same periods. The increase for the nine-month period ended September 30, 2017 is primarily due to depreciation incurred on the PBRT system and the Company’s two new units which began operations in the second and third quarters of 2017, offset by the expired contracts in the same periods. Other direct operating costs increased by $88,000 and $65,000 for the three and nine-month periods ended September 30, 2017, respectively. The increase for the three and nine-month periods ended September 30, 20172019, was primarily due to operating costs at the Company’s Gamma Knife site in Perulegal and operating costs for the PBRT system.Sellingother consulting fees.administrative costs increased by $27,000$215,000 to $302,000 and $392,000$1,015,000 for the three and nine-month periods ended September 30, 20172019 compared to $1,026,000$399,000 and $3,303,000 from $999,000 and $2,911,000$1,230,000 for the same periods in the prior year, respectively. For the three-month period ended September 30, 2017, the increase was driven by the Company’s new site in Peru. The increase for the nine-month period ended September 30, 2017 was driven by start-up costs for the Company’s new site in Peru, legal fees, consulting fees, travel costs, severance expense, and building rent. The Company moved offices on August 13, 2016. Prior to the move, the Company subleased a portion of its existing office space. The sublease income offset total rent expense over the term of the sublease, which ended in May 2016.Interest expense decreased by $84,000 and increased $95,000 to $417,000 and $1,314,000 for the three and nine-month periods ended September 30, 2017 from $501,000 and $1,219,000 for the same periods prior year, respectively. For the three-month period ended September 30, 2017 the decrease was due to a lower average principal base on the Gamma KnifeCompany’s debt and leases in the first half of 2019 compared to the same period in the prior year, effectively reducing interest expense. The increase for the nine-month period ended September 30, 2017 was dueinterest incurred on the PBRT lease financing, offset by a lower average principal base on the Gamma Knife debt$7,000 and leases, compared to prior year.16The Company incurred a loss on early extinguishment of debt of $0$15,000 for the three and nine-month periods ended September 30, 20172019 compared to $0$185,000 and $108,000$194,000 for the same periods in the prior year, respectively. During the three and nine-month periods ended September 30, 2018, the PBRT unit at Orlando Health sustained water damage resulting from the facility’s water evacuation system. The PBRT system was down for two weeks as a result. In February 2016,the first quarter of 2019, the Company usedreceived approximately $185,000 of reimbursement from its business interruption insurance, following a portion of the proceedsfive-day waiting period. The reimbursement from the lease financing for its first MEVION S250 to pay down the $1,000,000 of Notes that were issued pursuant to the Note agreements between the Company and four members of the Company’s Board of Directors. The Notes and warrant agreements permitted for early payment without penalty to the Company. The Notes were issued with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of $80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment of debt on the Company’s condensed consolidated Statement of Operations.Interest andbusiness interruption insurance is included in other income (loss) decreased by $3,000 and $12,000 to $0 and a loss of $1,000(or loss) for the three and nine-month periods ended September 30, 2017 from $3,000 and $11,000 for the same periods prior year, respectively. Interest and other income (loss) is related to exchange rate transactions with the Company’s stand-alone facility in Lima, Peru.$103,000by $151,000 to $99,000 and increased $176,000 to $164,000 and $600,000$250,000 for the three and nine-month periods ended September 30, 2017 from $267,0002019 compared to $82,000 and $424,000$401,000 for the same periods in the prior year, respectively. For2017, the decrease2019 was due to lower taxablestate taxes. The decrease in income attributable to Gamma Knife operations. For the nine-month period ended September 30, 2017, the increase was due to taxable income attributable to Orlando operations. Income tax expense for the nine-month period ended September 30, 2017 was also higher, compared2019 is due to lower taxable income attributable to the same periods prior year, because the Company’s income tax expense computation could not include the losses associated with the Company’s Gamma Knife unit in Peru for financial reporting purposes.$122,000by $32,000 to $189,000 and $83,000 to $176,000 and $756,000$562,000 for the three and nine-month periods ended September 30, 2017 from $298,0002019 compared to $120,000 and $839,000$594,000 for the same periods in the prior year, respectively. Non-controlling interest primarilyNet income attributable to non-controlling interests represents net income earned by the 19% non-controlling interest in GKF, and net income of GK Financing owned by a third party, as well asthe non-controlling interests in various subsidiaries of GK Financing ownedcontrolled by third parties that began operations in 2011. VariancesGKF. The decrease or increase in net income attributable to non-controlling interest representinterests reflects the relative increase or decrease in profitability of GKFGKF.these ventures.The Company had net income of $99,000,$379,000 to $165,000, or $0.02$0.03 per diluted share and net income of $505,000,$466,000, or $0.09$0.08 per diluted share, for the three and nine-month periods ended September 30, 20172019 compared to net income of $334,000,$168,000, or $0.06$0.03 per diluted share, and net income of $478,000,$845,000 or $0.09$0.14 per diluted share, infor the same periods in the prior year, respectively. Excluding the loss on early extinguishment of debt, net of estimated taxes,The decrease in net income decreased $37,000 for the nine-month period ended September 30, 2017. For the three and nine-month periods ended September 30, 2017, the decrease in net income2019 was primarily due to lower Gamma Knife volumes, following the expiration of two contracts, PBRT maintenance costs,increased operating expense and increased selling and administrative costs.17and cash equivalents and restricted cash of $1,665,000$1,647,000 at September 30, 20172019 compared to $3,121,000$1,792,000 at December 31, 2016.2018. The Company’s cash position decreased by $1,556,000$145,000 primarily due to the upfront payment of $1,000,000 for the Mevion Service Agreement and payments for the purchase of property and equipment of $760,000.$889,000, payments on long-term debt and capital leases of $4,719,000, and distributions to non-controlling interests of $865,000. These decreases were offset by cash from operating activities of $6,127,000, proceeds from the saleinsurance of equipment$160,000 and proceeds from options exercised of $150,000$2,933,000$1,853,000 and scheduled capital lease payments of approximately $5,942,000$5,033,000 during the next 12 months. The Company believes that its cash flow from cash on hand, operations, and other cash resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months. See additional discussion below related to commitments.20172019 had shareholders’ equity of $28,188,000,$31,422,000, working capital of $267,000$1,466,000 and total assets of $59,976,000.As of September 30, 2017, 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. The non-refundable deposits are recorded in the Condensed Consolidated Balance Sheets as deposits and construction in progress.July 21, 2017,December 20, 2018, the Company signed FirstSecond Amendments to two System Build Agreements (the “Amendments”) for the Company’s second and third PBRT units from Mevion PBRT units.Medical Systems, Inc. (“Mevion”). The Company and Mevion have agreed on preliminary construction and delivery timetables forto upgrade the second and third PBRT units for which the Company has purchase commitments. The Company’s delivery timeframe is triggered by USFDA 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 takecommence delivery of the second and third PBRT units no later than 2019 and 2020, respectively.2017,2019, the Company had commitments, after deposits, to purchase two MEVION S250i PBRT systems for $34,000,000 and the Company had $2,250,000 in non-refundable deposits toward the purchase of these two PBRT systems from Mevion. The non-refundable deposits are recorded in the Consolidated Balance Sheets as deposits and construction in progress.two Cobtalt-60five Cobalt-60 reloads and install five Leksell Gamma Knife Icon Systems ("Icon") at existing Gamma Knife customer sites.sites, and purchase one LINAC system, to be placed at a new customer site. The Cobalt-60 reloads, Icon upgrades, and LINAC system purchase are scheduled to occur between 2020 and 2022. Total Gamma Knife and LINAC commitments as of September 30, 20172019 were $1,500,000. The Cobalt-60 reloads are scheduled to occur in 2018.$6,960,000. It is the Company’s intent to finance these reloads.commitments. There are no significant cash requirements, pending financing, for the Cobalt-60 reloadsthese 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.18commitments for each of the equipment systems,commitments, service contracts, long-term debt and capital lease financing, and operating leases with expected timing of payments as follows as of September 30, 2017:2019: 2017 Thereafter Total Proton Beam Units $ - $ 25,800,000 $ 25,800,000 Gamma Knife Units - 1,500,000 1,500,000 Total Commitments $ - $ 27,300,000 $ 27,300,000 Payments Due by Period Contractual Obligations Total amounts
committedas of 9/30/2019 2020-2022 2023 After
5 yearsLong-term debt (includes interest) $ 4,383,000 $ 611,000 $ 2,686,000 $ 334,000 $ 752,000 Capital leases (includes interest) 14,509,000 1,195,000 11,947,000 846,000 521,000 Future equipment purchases 40,960,000 — 40,960,000 — — Equipment service contracts 10,182,000 86,000 7,651,000 345,000 2,100,000 Operating leases 1,224,000 86,000 962,000 176,000 — Total contractual obligations $ 71,258,000 $ 1,978,000 $ 64,206,000 $ 1,701,000 $ 3,373,000 Item 3.Quantitative and Qualitative Disclosures about Market Risk2017,2019, the Company had no significant long-term, market-sensitive investments.Item 4.Controls and Procedures2017,2019, our disclosure controls and procedures are 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 chief executive officer and the chief financial officer, and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.monthsand nine-months ended September 30, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 1.Legal Proceedings.None.19Item 1A.Risk Factors.There are no changes from those listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.None.Item 3.Defaults Upon Senior Securities.None.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other Information.None.20Item 6.Exhibit Index*Filed herewith.ǂFurnished herewith.#*Confidential material appearing inFiled herewith.ǂ Furnished herewith. # Portions of this document hasexhibit (indicated therein by asterisks) have been omitted and filed separately with the Securities and Exchange Commission in accordance with Rule 24b-2, promulgated under the Securities and Exchange Act of 1934, as amended. Omitted information has been replaced with asterisks. for confidential treatment.21Date:Date: November 13, 20177, 2019/s/ Ernest A. Bates, M.D. Ernest A. Bates, M.D. Chairman of the Board and Chief Executive Officer Date: November 13, 20177, 2019/s/ Craig K. Tagawa Craig K. Tagawa Senior Vice President Chief Operating and Financial Officer 22