# American Shared Hospital Services: Form 10-Q for the period ended Sep 30, 2023

- Company: [American Shared Hospital Services](/companies/ams.md) (CIK 744825)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 14:29 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031902
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/744825/000143774923031902/asha20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/744825/000143774923031902/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $5.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $15.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $9.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $2.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $6.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $1.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $5.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $90.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$137.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $277.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $825.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $60.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $93.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $118.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $195.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 6,432,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 6,406,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $8.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $6.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $14.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $20.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $47.4m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $10.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $21.4m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $10.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $1.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $22.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,405 characters.

This quarterly report to the SEC may be deemed to contain certain forward-looking statements with respect to the financial condition, results of operations and future plans of American Shared Hospital Services, including, statements regarding the expected continued treatment growth of the Company’s MEVION S250 system, the expansion of the Company’s PBRT business, the timing and expansion of treatments by new Gamma Knife systems, the Company’s expansion into new markets and the Company’s acquisitions and potential market segments for its services, which involve risks and uncertainties including, but not limited to, the risks of economic and market conditions, the risks of variability of financial results between quarters, the risks of the Gamma Knife and radiation therapy businesses, the risks of changes to The Centers for Medicare and Medicaid (“CMS”) reimbursement rates or reimbursement methodology, the risks of the timing, financing, and operations of the Company’s PBRT business, the risk of expanding within or into new markets, and the risk that the integration or continued operation of acquired businesses could adversely affect financial results and the risk that current and future acquisitions may negatively affect the Company’s financial position. 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, 2022 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 20, 2023.

### Overview

American Shared Hospital Services is a leading provider of turnkey technology solutions for stereotactic radiosurgery and advanced radiation therapy equipment and services. The Company’s domestic Gamma Knife business operates by fee-per-use contracts or retail contracts, where the Company shares in the revenue and operating costs of the equipment. The Company, through GKF, also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. These units economically function similar to the Company’s turn-key retail arrangements. The Company’s PBRT system at Orlando Health Cancer Institute (“Orlando Health”), is also considered a retail arrangement. The main drivers of the Company’s revenue are numbers of sites, procedure volume and reimbursement.

Based on the guidance provided in accordance with ASC 280, the Company determined it has two reportable segments, domestic and international. 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

CMS has established a 2023 delivery code reimbursement rate of approximately $7,691 ($7,943 in 2022) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of PBRT for a simple treatment without compensation for 2023 is $572 ($554 in 2022) and $1,323 ($1,321 in 2022) for simple with compensation, intermediate and complex treatments, respectively.

On September 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”). As discussed below, the RO APM, which was to be in effect for a five year period, was delayed indefinitely by CMS in August 2022. If the RO APM had not been delayed, it would have significantly altered CMS’ payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation services provided within a 90 day episode of care. Under the RO APM, hospital based and free-standing radiation therapy providers would have been required to participate in the model based on whether the radiation therapy provider is located within a randomly selected core-based statistical area. CMS projects that providers treating approximately 30% of radiation oncology patients would have been selected to participate in the RO APM. The remaining providers not included in the RO APM would have continued to receive reimbursement based on a fee-for-service methodology. The RO APM would have included but would not have been limited to PBRT and Gamma Knife services. Three of the Company's Gamma Knife centers were expected to be included in the RO APM. It was not anticipated that inclusion in the RO APM would have a significant impact on the Company's Gamma Knife revenues. The Company's PBRT center was not selected for inclusion in the RO APM. Medicare reimbursement in 2023 for the most commonly used PBRT delivery codes increased by approximately 3.2% and 0.2%, and decreased by approximately 3.2% for Gamma Knife.

On August 29, 2022, CMS published a final rule that delayed the start date of the RO APM to a date to be determined through future rulemaking and amended the definition of “model performance period” to provide that the start and end dates of the five-year model performance period will be established by CMS through future rulemaking. At this time, it is not clear if the RO APM will be implemented and, if it is implemented, the timing for implementation and in what form it will be implemented. If a start date for the RO APM is proposed, CMS will provide at least six months’ notice in advance of the proposed start date, and the proposed start date will be subject to public comment.

### 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, 2022. 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 eleven domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of September 30, 2023 and twelve domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of September 30, 2022. Five of the Company’s eleven domestic Gamma Knife customers are under fee-per-use contracts, and six customers are under retail arrangements. 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 function similarly to the Company’s turn-key retail arrangements. The Company’s PBRT system at Orlando Health is also considered a retail arrangement.

*Rental income from medical equipment services –* The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The Company’s contracts are typically for a ten-year term and are priced 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 after considering certain operating costs of the center. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience and patient mix. Revenue estimates are reviewed periodically and adjusted as necessary. The operating costs are recorded as other direct operating costs in the condensed consolidated statements of operations. For the three and nine-month periods ended September 30, 2023, the Company recognized revenues of approximately $3,946,000 and $12,987,000, respectively, compared to $4,101,000 and $12,382,000 for the same periods in the prior year, respectively, under ASC 842. Of the ASC 842 revenue, for the three and nine-month periods ended September 30, 2023, approximately $2,219,000 and $7,078,000 were for PBRT services, respectively, compared to $2,358,000 and $6,705,000 for the same periods in the prior year, respectively.

*Patient income –* 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. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable balances under ASC 606 at September 30, 2023, July 1, 2023 and January 1, 2023 were $1,416,000, $980,000 and $1,119,000, respectively. Accounts receivable balances under ASC 606 at September 30, 2022, July 1, 2022, and January 1, 2022 were $1,248,000, $1,145,000 and $668,000, respectively. For the three and nine-month periods ended September 30, 2023, the Company recognized revenues of approximately $988,000 and $2,440,000, respectively, under ASC 606 compared to $727,000 and $2,327,000 for the same periods in the prior year, respectively.

During the three-month period ended September 30, 2023, the Company completed a sale of equipment to a new customer. The Company assessed this transaction under ASC 606 and concluded the Company acted as the agent in this transaction and provided, at a point in time, two performance obligations, in the form of an equipment sale of an Icon and Cobalt-60 reload. The performance obligation to sell, assign, transfer and deliver the equipment to the customer was carried out via Elekta. Revenue related to the equipment sale is recognized on a net basis when the sale is complete. The Company recognized net revenue of $200,000 on the sale of equipment for the three and nine-month periods ended September 30, 2023.

### 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. As of January 1, 2023, the Company changed its estimate for salvage value for one of its international units. There is no salvage value assigned to the second international Gamma Knife unit. The Company has not assigned salvage value to its PBRT equipment. See Note 3 - Property and Equipment to the condensed consolidated financial statements for further discussion on salvage value.

### Third Quarter 2023 Results

Revenues increased by $306,000 and $918,000 to $5,134,000 and $15,627,000 for the three and nine-month periods ended September 30, 2023 compared to $4,828,000 and $14,709,000 for the same periods in the prior year, respectively. Revenues from the Company’s domestic segment increased by $45,000 and $805,000 to $4,146,000 and $13,187,000 for the three and nine-month periods ended September 30, 2023 compared to $4,101,000 and $12,382,000 for the same periods in the prior year, respectively. Revenues from the Company’s international segment increased by $261,000 and $113,000 to $988,000 and $2,440,000 for the three and nine-month periods ended September 30, 2023 compared to $727,000 and $2,327,000 for the same periods in the prior year, respectively.

Revenues generated from the Company’s PBRT system decreased by $139,000 and increased by $373,000 to $2,219,000 and $7,078,000 for the three and nine-month periods ended September 30, 2023 compared to $2,358,000 and $6,705,000 for the same periods in the prior year, respectively. The decrease for the three-month period ended September 30, 2023 was due to lower volumes. The increase for the nine-month period ended September 30, 2023 was due to an increase in average reimbursement.

The number of PBRT fractions decreased by 175 and 221 to 1,188 and to 4,094 for the three and nine-month periods ended September 30, 2023 compared to 1,363 and 4,315 for the same periods in the prior year, respectively. The decrease in PBRT volumes for the three and nine-month periods ended September 30, 2023 was due to normal, cyclical fluctuations.

Gamma Knife revenue increased by $245,000 and $345,000 to $2,715,000 and $8,349,000 for the three and nine-month periods ended September 30, 2023 compared to $2,470,000 and $8,004,000 in the same periods in the prior year, respectively. The increase in Gamma Knife revenues for the three-month period was due to higher procedure volume and average reimbursement. The increase in Gamma Knife revenues for the nine-month period ended September 30, 2023 was due to higher average reimbursement, offset by lower procedure volume. The overall increase in average reimbursement was driven by a shift in payor mix to more commercial payors.

The number of Gamma Knife procedures increased by 23 and decreased by 39 to 316 and 918 for the three and nine-month periods ended September 30, 2023 compared to 293 and 957 for the same periods in the prior year, respectively. The increase in Gamma Knife procedures for the three-month period ended September 30, 2023 was due to normal, cyclical fluctuations. The decrease in Gamma Knife procedures for the nine-month period ended September 30, 2023 was due to the expiration of one existing customer contract, offset by increased volumes at other customer sites.

During the three and nine-month periods ended September 30, 2023 the Company sold equipment to a new customer for net revenue of $200,000. The revenue was recorded net of the Company’s cost to purchase the equipment from Elekta. There were no similar transactions in the same periods in the prior year.

Total costs of revenue increased by $161,000 and $502,000 to $3,032,000 and $9,099,000 for the three and nine-month periods ended September 30, 2023 compared to $2,871,000 and $8,597,000 for the same periods in the prior year, respectively, consistent with the growth in revenues.

Maintenance and supplies and other direct operating costs, related party, decreased by $35,000 and increased $96,000 to $709,000 and $2,290,000 for the three and nine-month periods ended September 30, 2023, compared to $744,000 and $2,194,000 for the same periods in the prior year, respectively. The increase in maintenance and supplies and other direct operating costs, related party, was primarily due to the annual increase on the Company’s PBRT maintenance agreement.

Depreciation and amortization increased by $57,000 and $298,000 to $1,228,000 and $3,812,000 for the three and nine-month periods ended September 30, 2023 compared to $1,171,000 and $3,514,000 for the same periods in the prior year, respectively. The increase in depreciation and amortization for the three and nine-month periods ended September 30, 2023 was primarily due to the Company’s change in estimate for salvage value and useful life. As of January 1, 2023, the Company reduced its estimated useful life and assigned salvage value for one of its international Gamma Knife units. The net effect of the change in estimate made January 1, 2023, for the three and nine-month periods ended September 30, 2023, was a decrease in net income of approximately $50,000 or $0.01 per diluted share and $151,000 or $0.02 per diluted share, respectively. These changes in estimate will also impact future periods. Salvage value is based on the estimated fair value of the equipment at the end of its useful life.

Other direct operating costs increased by $139,000 and $108,000 to $1,095,000 and $2,997,000 for the three and nine-month periods ended September 30, 2023 compared to $956,000 and $2,889,000 for the same periods in the prior year, respectively. The increase in other direct operating costs for the three and nine-month periods ended September 30, 2023 was primarily due to higher volumes at one of the Company’s international sites.

Selling and administrative expense increased by $475,000 and $1,537,000 to $1,735,000 and $5,262,000 for the three and nine-month periods ended September 30, 2023 compared to $1,260,000 and $3,725,000 for the same periods in the prior year, respectively. The increase in selling and administrative expense for the three and nine-month periods ended September 30, 2023 was due to increased staffing in the sales, finance and customer retention areas and approximately $319,000 and $570,000, respectively, in fees associated with new business opportunities.

Interest expense increased by $28,000 and $279,000 to $277,000 and $825,000 for the three and nine-month periods ended September 30, 2023 compared to $249,000 and $546,000 for the same periods in the prior year, respectively. On April 9, 2021, the Company refinanced predominantly all of its existing debt and finance lease portfolio. The Term Loan and DDTL carry a floating interest rate of LIBOR plus 3%. The increase for the three and nine-month periods ended September 30, 2023 was due to an increase in LIBOR compared to the same periods of the prior year. See the “Liquidity and Capital Resources” section below for a discussion of the Company’s long-term debt and expected changes to the index used to calculate interest.

During the three-month period ended June 30, 2023, the Company increased its asset retirement obligation accrual. The related increase to the underlying leased assets could not be supported by the cash flows of those particular units and as such the Company recorded a loss on the write down of those assets. The loss on write down of impaired assets and associated removal costs was $0 and $578,000 for the three and nine-month periods ended September 30, 2023. The loss on write down of impaired assets and associated removal costs for the nine-month period ended September 30, 2023 was due to the non-renewal of two Gamma Knife contracts in the second quarter of 2023. There were no similar write downs in the same periods in the prior year.

Interest and other income increased by $99,000 and $287,000 to $135,000 and $318,000 for the three and nine-month periods ended September 30, 2023 compared to income of $36,000 and $31,000 for the same periods in the prior year, respectively. The increases are consistent with the Company’s increases in cash and cash equivalents and rising interest rates.

Income tax expense decreased by $116,000 and $537,000 to expense of $60,000 and $93,000 for the three and nine-month periods ended September 30, 2023 compared to income tax expense of $176,000 and $630,000 for the same periods in the prior year, respectively. The decrease in income tax expense for the three and nine-month periods ended September 30, 2023 was due primarily to lower earnings during the current periods.

Net income attributable to non-controlling interest increased by $55,000 and decreased by $267,000 to income of $47,000 and a loss $107,000 for the three and nine-month periods ended September 30, 2023 compared to a loss of $8,000 and income of $160,000 for the same periods in the prior year, respectively. Net income attributable to non-controlling interests represents net (income) loss earned by the 19% non-controlling interest in GKF, and net income of the non-controlling interests in various subsidiaries controlled by GKF. The decrease or increase in net income attributable to non-controlling interests reflects the relative profitability of GKF.

Net income decreased by $198,000 and $887,000 to a net income of $118,000, or $0.02 per diluted share and net income of $195,000, or $0.03 per diluted share for the three and nine-month periods ended September 30, 2023 compared to net income of $316,000, or $0.05 per diluted share and $1,082,000, or $0.17 per diluted share for the same periods in the prior year, respectively. Net income decreased for the three and nine-month periods ended September 30, 2023 due to higher interest expense and higher selling and administrative expense to support the Company’s pursuit of new business opportunities. The decrease for the nine-month period ended September 30, 2023 was also driven by the write down of impaired assets and associated removal costs.

### 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 September 30, 2023, the Company borrowed $1,400,000 on its line of credit. The Company had cash, cash equivalents and restricted cash of $14,655,000 at September 30, 2023 compared to $12,453,000 at December 31, 2022. The Company’s cash position increased by $2,202,000 during the first nine months of 2023 due to cash from operating activities of $8,778,000 and advances on the line of credit of $1,400,000. These increases were offset by payment for the purchase of property and equipment of $6,176,000, payments on long-term debt of $1,589,000, debt issuance costs of $9,000 and payments on short-term financing of $202,000. 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 $2,488,000 during the next 12 months.

### Working Capital

The Company had working capital at September 30, 2023 of $10,322,000 compared to $13,548,000 at December 31, 2022. The $3,226,000 decrease in working capital was primarily due to increases in other accrued liabilities, related party liabilities, and the increase in asset retirement obligations. 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 then 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 the $7,000,000 Revolving Line of which the Company has drawn $1,400,000 on as of September 30, 2023. 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 Company’s Gamma Knife unit in Ecuador is financed with DFC. The DFC Loan is secured by a lien on GKCE’s assets. The amount outstanding under the DFC Loan is payable in 17 quarterly installments with a fixed interest rate of 3.67%.

The Company’s Gamma Knife unit in Ecuador is financed with DFC. The DFC Loan is secured by a lien on GKCE’s assets. The amount outstanding under the DFC Loan is payable in 17 quarterly installments with a fixed interest rate of 3.67%. On October 23, 2023, the Company completed the financing for the Icon upgrade at its stand-alone facility in Ecuador. The financing is with DFC and is the second and final disbursement from the DFC Loan. The second disbursement was for $1,750,000 payable in 16 quarterly installments with a fixed interest rate of 7.49%. The covenants and representations are consistent with the initial borrowing under the DFC Loan, see Note 3 - Long-Term Debt Financing.

As of December 31, 2021, LIBOR will no longer be used to price new loans, but 1-month, 3-month, and 6-month maturities will continue to be published using a synthetic methodology until September 30, 2024. The Company is working with Fifth Third Bank, N.A. to transition its loan pricing to be based on the Secured Overnight Financing Rate (“SOFR”) rather than LIBOR. Any credit extended by Fifth Third Bank, N. A. after July 1, 2023 will be a SOFR based loan. 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.

See Note 3 - Long Term Debt Financing to the condensed consolidated financial statements for additional information regarding the Company’s long-term debt.

### Commitments

On December 20, 2018, the Company signed Second Amendments to two System Build Agreements for the Company’s second and third Mevion PBRT units. The Company and Mevion Medical Systems Inc. (“Mevion”) have agreed to upgrade the second and third PBRT units for which the Company has purchase commitments. The Company is actively seeking sites for these units but, to date, has not entered into agreements with any party for either placement of a PBRT unit or the related financing. The Company projects that it will be required to commence delivery of the second and third PBRT units no later than December 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. During the year-ended December 31, 2020, the Company impaired these deposits and wrote-off the deposits and related capitalized interest. As of September 30, 2023, the Company had commitments, after deposits, to purchase two MEVION S250i PBRT systems for $34,000,000.

As of September 30, 2023, the Company had commitments to install one Icon, with software, at an existing site, one Gamma Plan workstation, two Esprit Gamma Knife systems, both at existing customer sites, two Linear Accelerator (“LINAC”) systems, one Cobalt-60 reload, with software upgrade, and one Magnetic Resonance imaging guided LINAC (“MR LINAC”) system at a future customer site. The Company also has two commitments to de-install Gamma Knife units at existing customer sites. One LINAC system will be placed at a future customer site and one LINAC system will be placed at the Company’s new site in Puebla, Mexico. The Puebla installation is in process and the site is expected to begin treating patients in January 2024. The Company has made significant progress payments towards this installation as of September 30, 2023 and has a commitment to finance the project. The Company is also in the process of upgrading its existing Gamma Knife equipment in Ecuador and expects to begin treating patients on the new system in November 2023. The Company completed financing of this upgrade in October 2023. See Note 11 - Subsequent Events for additional discussion . The remaining Esprit, software upgrades and LINAC purchases are expected to occur in 2024. Total Gamma Knife and LINAC commitments as of September 30, 2023 were $15,921,000. There are no deposits on the condensed consolidated balance sheets related to these commitments as of September 30, 2023 . 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 $14,655,000 and a line of credit of $7,000,000 and is actively engaged with financing resources to fund these projects. The Company borrowed $1,400,000 on the Revolving Line as of September 30, 2023, which was paid off in October 2023.

On September 4, 2022, the Company entered into a Maintenance and Support Agreement, which provides for maintenance and support of the Company’s PBRT unit at Orlando Health from September 2022 through April 2026. The agreement requires an annual prepayment of $1,865,000 for the current contractual period (one year). This payment portion was recorded as a prepaid contract and is being amortized over the one-year service period.

As of September 30, 2023, 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 9-year and 5-year agreement to service the equipment, respectively. Total service commitments as of September 30, 2023 were $12,645,000. The Gamma Knife and certain other service contracts are paid monthly, as service is performed. The Company believes that cash flow from cash on hand and operations will be sufficient to cover these payments.

### 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 and nine-month periods ended September 30, 2023 and 2022:

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Equipment purchases and de-install costs | $2,147,000 | $231,000 | $3,565,000 | $1,594,000 |
| Costs incurred to maintain equipment | 191,000 | 272,000 | 781,000 | 820,000 |
| Total related party transactions | $2,338,000 | $503,000 | $4,346,000 | $2,414,000 |

The Company also had commitments to purchase or upgrade Gamma Knife units, purchase a LINAC system and service the related equipment of $16,311,000 as of September 30, 2023.

Related party liabilities on the condensed consolidated balance sheets consist of the following as of September 30, 2023 and December 31, 2022

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Accounts payable, asset retirement obligation and other accrued liabilities | $3,726,000 | $857,000 |

17

## Market risk

As filed, 541 characters.

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 September 30, 2023, the Company had no significant long-term, market-sensitive investments.

## Controls and procedures

As filed, 1,777 characters.

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 September 30, 2023, 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 nine-month period ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 214 characters.

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, 2022.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031902. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.