# American Shared Hospital Services: Form 10-Q for the period ended Mar 31, 2024

- Company: [American Shared Hospital Services](/companies/ams.md) (CIK 744825)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 16:42 ET
- Period: 2024-03-31
- Accession: 0001437749-24-017104
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/744825/000143774924017104/asha20240331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/744825/000143774924017104/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $5.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $3.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $2.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $1.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$85.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $349.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | −$44.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $119.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 6,576,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$1.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $1.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $12.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $21.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $50.1m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $10.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $23.7m | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $12.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $2.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $22.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,656 characters.

This quarterly report to the SEC may be deemed to contain certain forward-looking statements. The Private Securities Litigation Reform Act of 1995 has established that these statements qualify for safe harbors from liability. Forward-looking statements may include words like we “believe”, “anticipate”, “target”, “expect”, “pro forma”, “estimate”, “intend”, “will”, “is designed to”, “plan” and words of similar meaning. Forward-looking statements describe our future plans, objectives, expectations or goals. Such statements address future events and conditions and include, but are not limited to, such things as capital expenditures, earnings, liquidity and capital resources, financing of our business, government programs and regulations, legislation affecting the health care industry, the expansion of our proton beam radiation therapy business, accounting matters, compliance with debt covenants, completed and pending acquisitions, competition, customer concentration, contractual obligations, timing of payments, technology and interest rates. These forward-looking statements involve known and unknown risks that may cause our actual results in future periods to differ materially from those expressed in any forward-looking statement. Factors that could cause or contribute to such differences include, but are not limited to, such things as our level of debt, the limited market for our capital-intensive services, the impact of lowered federal reimbursement rates, the impact of U.S. health care reform legislation, competition and alternatives to our services, technological advances and the risk of equipment obsolescence, our significant investment in the proton beam radiation therapy business, restrictions in our debt agreements that limit our flexibility to operate our business, our ability to repay our indebtedness, our ability to integrate the RI Target Companies with our existing business, breaches in security of our information technology, the small and illiquid market for our stock. These lists are not all-inclusive because it is not possible to predict all factors. Further information on potential factors that could affect the financial condition, results of operations and future plans of American Shared Hospital Services is included in the filings of the Company with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2023 and the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 25, 2024. Any forward-looking statement speaks only as of the date such statement was made, and we are not obligated to update any forward-looking statement to reflect events or circumstances after the date on which such statement was made, except as required by applicable laws or regulations.

### Overview

American Shared Hospital Services is a leading provider of turn-key technology solutions for stereotactic radiosurgery and advanced radiation therapy equipment and services. The main drivers of the Company’s revenue are numbers of sites, procedure volume, and reimbursement. The Company delivers radiation therapy through medical equipment leasing and direct patient services, its two reportable segments. The medical equipment leasing segment, which we also refer to as the Company’s leasing segment, operates by fee-per-use contracts or revenue sharing contracts where the Company shares in the revenue and operating costs of the equipment. The Company leases ten Gamma Knife systems and one PBRT system as of March 31, 2024, where a contract exists between the hospital and the Company. The Company, through GKF, also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. The Company’s facilities in Peru and Ecuador are considered direct patient services, which we also refer to as the Company’s retail segment, where a contract exists between the Company's facilities and the individual treated at the facility.

Based on the guidance provided in accordance with ASC 280, the Company determined it has two reportable segments, leasing and retail. See Note 1 - Basis of Presentation to the condensed consolidated financial statements for additional information. The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects activity for both segments and specifically addresses a segment when appropriate to the discussion.

### Reimbursement

The Centers for Medicare and Medicaid (“CMS”) has established a 2024 delivery code reimbursement rate of approximately $7,420 ($7,691 in 2023) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of PBRT for a simple treatment without compensation for 2024 is $561 ($572 in 2023) and $1,362 ($1,323 in 2023) for simple with compensation, intermediate and complex treatments, respectively.

On September 29, 2020, CMS published a final rule that would have implemented a new mandatory payment model for radiation oncology services delivered to certain Medicare beneficiaries: the Radiation Oncology Alternative Payment Method (“RO APM”). On August 29, 2022, CMS published a final rule that delayed the start date of the RO APM to a date to be determined through future rulemaking and amended the definition of “model performance period” to provide that the start and end dates of the five-year model performance period will be established by CMS through future rulemaking. If the RO APM had not been delayed, it would have significantly altered CMS’ payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation services provided within a 90 day episode of care. Under the RO APM, hospital based and free-standing radiation therapy providers would have been required to participate in the model based on whether the radiation therapy provider is located within a randomly selected core-based statistical area. At this time, it is not clear if the RO APM will be implemented and, if it is implemented, the timing for implementation and in what form it will be implemented. If a start date for the RO APM is proposed, CMS will provide at least six months’ notice in advance of the proposed start date, and the proposed start date will be subject to public comment.

### Rhode Island Acquisition

On November 10, 2023, the Company entered into an Investment Purchase Agreement (the “IPA”) with GenesisCare USA, Inc. (the “GenesisCare”) and GenesisCare USA Holdings, Inc. (“GC Holdings”), pursuant to which GenesisCare agreed to sell to the Company its entire equity interest in each of Southern New England Regional Cancer Center, LLC and Roger Williams Radiation Therapy, LLC, (collectively, the “RI Target Companies”) and to assign certain payor contacts to the Company for a purchase price of $2,850,000 (such transaction, the “RI Acquisition”). The equity interests to be acquired by the Company under the IPA equates to a 60% interest in each RI Target Company. The RI Target Companies operate three functional radiation therapy cancer centers in Rhode Island. The RI Acquisition was contingent upon certain closing conditions, including GenesisCare and the Company entering into a consent agreement with the Rhode Island Department of Health and approval of all equity holders and managers of each RI Target Company. On March 1, 2024, the Company, GenesisCare and GC Holding entered into a First Amendment to the Investment Agreement pursuant to which the parties agreed to extend the date on which a party could terminate the IPA if the closing conditions had not been met (the “Permitted Termination Date”) from March 10, 2024 to April 30, 2024. On April 18, 2024, the parties agreed to a Second Amendment to the Investment Agreement pursuant to which GenesisCare agreed to sell a Discovery RT OPEN OC Mid CTM to the Company for $175,000, payment for which is required 5 days following the close of the acquisition. On April 24 2024, the Company, GenesisCare and GC Holdings, entered into a Third Amendment to the Investment Agreement that further extended the Permitted Termination Date to May 31, 2024. On May 7, 2024, the parties entered into a Fourth Amendment to the Investment Purchase Agreement, pursuant to which GenesisCare agreed to transfer certain assets and payor contracts to the RI Target Companies, rather than transferring such assets and payor contracts to the Company. The parties completed the remaining closing conditions pursuant to the IPA and closed the RI Acquisition on May 7, 2024.

### Application of Critical Accounting Policies and Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the condensed consolidated financial statements; accordingly, as this information changes, the condensed consolidated financial statements could reflect different estimates, assumptions and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

The most significant accounting policies followed by the Company are presented in Note 2 to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2023. These policies along with the disclosures presented in the other condensed consolidated financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the condensed consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts, and the methods, assumptions and estimates underlying those amounts, management has identified revenue recognition and costs of sales for turn-key and revenue sharing arrangements, and the carrying value of property and equipment and useful lives, and as such the aforementioned could be most subject to revision as new information becomes available. The following are our critical accounting policies in which management’s estimates, assumptions and judgments most directly and materially affect the condensed consolidated financial statements:

### Revenue Recognition

The Company recognizes revenues under ASC 842 and ASC 606. The Company had ten domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of March 31, 2024 and twelve domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system in operation in the United States as of March 31, 2023. Five of the Company’s ten domestic Gamma Knife customers are under fee-per-use contracts, and five customers are under revenue sharing arrangements. The ten domestic Gamma Knife contracts operate under the Company’s leasing segment. The Company’s PBRT system at Orlando Health is considered a revenue share contract operating under the leasing segment. The Company, through GKF, also owns and operates two single-unit, international Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. These two units economically operate under the Company’s retail segment.

*Rental revenue from medical equipment leasing (“leasing”) –* The Company recognizes revenues under ASC 842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts do not contain any guaranteed minimum payments. The Company’s lease contracts typically have a ten-year term and are classified as either fee per use or revenue sharing. Fee per use revenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate and the number of procedures performed. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Some of the Company’s revenue sharing arrangements also have a cost sharing component and net profit share for the operating costs of the center. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs and profit. The operating costs and estimated net operating profit are recorded as other direct operating costs in the condensed consolidated statements of operations. For the three-month periods ended March 31, 2024 and 2023, the Company recognized leasing revenue of approximately $4,253,000 and $4,229,000 of which approximately $2,649,000 and $2,314,000 were for PBRT services, respectively.

*Direct patient services income (“retail”) –* The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where contracts exist between the Company’s facilities and the individual patients treated at the facility. Under ASC 606, the Company acts as the principal in these transactions and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment. Revenue related to a Gamma Knife treatment is recognized on a gross basis at the time when the patient receives treatment. There is no variable consideration present in the Company’s performance obligation and the transaction price is agreed upon per the stated contractual rate. GKPeru’s payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net 30 days. GKCE’s patient population is primarily covered by a government payor and payments are paid between three and six months following issuance of an invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable balances under ASC 606 at March 31, 2024 and January 1, 2024 were $1,882,000 and $1,626,000, respectively. Accounts receivable balances under ASC 606 at March 31, 2023 and January 1, 2023 were $1,058,000 and $1,021,000, respectively. For the three-month periods ended March 31, 2024, the Company recognized revenues of approximately $963,000 and $696,000 under ASC 606, respectively.

### Salvage Value on Equipment

Salvage value is based on the estimated fair value of the equipment at the end of its useful life. The Company determines salvage value based on the estimated fair value of the equipment at the end of its useful life. There is no active resale market of Gamma Knife or PBRT equipment, but the Company believes its salvage value estimates were a reasonable assessment of the economic value of the equipment when the contract ends. There is no salvage value assigned to the two international Gamma Knife units as of March 31, 2024. The Company has not assigned salvage value to its PBRT equipment.

#### Accounting Pronouncements Issued and Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 *Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“*ASU 2023-07”) which enhances the disclosure requirements for segment reporting, primarily disclosures around significant segment expenses. The key provisions of the amendments require disclosure of significant segment expense reviewed by the CODM, require disclosure of an “other” segment category, require disclosure of segment profit or loss and assets for interim periods, clarify and require disclosure of other measurements used by the CODM in assessing segment performance and allocating resources, and require disclosure of the CODM's title and position and explanation of how the CODM assesses segment performance. ASU 2023-07 is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating ASU 2023-07 to determine the impact it may have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 *Income Taxes (Topic 740) Improvements to Income Tax Disclosures (“*ASU 2023-09”) which requires entities, on an annual basis, to disclose: specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, the amount of income taxes paid, net of refunds, disaggregated by jurisdiction, income or loss from continuing operations before income tax, income tax expense from continuing operations disaggregated between foreign and domestic, and income tax expense from continuing operations disaggregated by federal, state and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating ASU 2023-09 to determine the impact it may have on its consolidated financial statements.

### First Quarter 2024 Results

Revenues increased by $291,000 to $5,216,000 for the three-month period ended March 31, 2024 compared to $4,925,000 for the same period in the prior year. Revenues from the Company’s leasing segment increased by $24,000 to $4,253,000 for the three-month period ended March 31, 2024 compared to $4,229,000for the same period in the prior year. The increase in leasing revenue was driven by an increase PBRT average reimbursement, offset by lower Gamma Knife volumes. Revenues from the Company’s retail segment increased by $267,000 to $963,000 for the three-month period ended March 31, 2024 compared to $696,000 for the same period in the prior year. The increase in retail revenue was due to higher volumes at the Company’s international locations.

Revenues generated from the Company’s PBRT system increased by $335,000 to $2,649,000 for the three-month period ended March 31, 2024 compared to $2,314,000 for the same period in the prior year. The increase for the three-month period ended March 31, 2024 was due to an increase in average reimbursement due to a shift in payor mix from Medicare to commercial or other payors, which are reimbursed at a higher rate.

The number of PBRT fractions decreased by 260 to 1,276 for the three-month period ended March 31, 2024 compared to 1,536 for the same period in the prior year. The decrease in PBRT volumes for the three-month period ended March 31, 2024 was due to normal, cyclical fluctuations.

Gamma Knife revenue decreased by $44,000 to $2,567,000 for the three-month period ended March 31, 2024 compared to $2,611,000 for the same period in the prior year. The decrease in Gamma Knife revenue for the three-month period ended March 31, 2024 was due to lower procedure volume, offset by an increase in average reimbursement at the Company’s revenue sharing locations.

The number of Gamma Knife procedures decreased by 20 to 273 for the three-month period ended March 31, 2024 compared to 293 for the same period in the prior year. The decrease in Gamma Knife procedures for the three-month period ended March 31, 2024 was due to the expiration of two customer contracts in the second and third quarters of 2023. Excluding the two customer contracts that expired, Gamma Knife procedures increased by 10 or 4% for the three-month period ended March 31, 2024.

Gamma Knife procedures for the Company’s leasing segment decreased by 53 for the three-month period ended March 31, 2024 due to the expiration of two customer contracts. Gamma Knife procedures for the Company’s retail segment increased by 33 for the three-month period ended March 31, 2024 compared to the same period in the prior year, due to improved marketing and physician outreach at the Company’s international locations. The Company also performed a Cobalt-60 reload and upgrade of the equipment at it’s site in Ecuador in the fourth quarter of 2023. The replacement of the Cobalt-60 provides for faster treatment times.

Total costs of revenue increased by $56,000 to $3,073,000 for the three-month period ended March 31, 2024 compared to $3,017,000 for the same period in the prior year.

Maintenance and supplies and other direct operating costs, related party, decreased by $98,000 to $683,000 for the three-month period ended March 31, 2024 compared to $781,000 for the same period in the prior year. The decrease in maintenance and supplies and other direct operating costs, related party, was primarily due to the expiration of two service contracts that expired in the second and third quarters of 2023, with the related customer contracts.

Depreciation and amortization decreased by $60,000 to $1,297,000 for the three-month period ended March 31, 2024 compared to $1,357,000 for the same period in the prior year. The decrease in depreciation and amortization for the three-month period ended March 31, 2024 was due to the Company’s contract that expired in the third quarter of 2023, offset by higher depreciation for upgraded equipment at two of the Company’s operating locations.

Other direct operating costs increased by $214,000 to $1,093,000 for the three-month period ended March 31, 2024 compared to $879,000 for the same period in the prior year. The increase in other direct operating costs for the three-month period ended March 31, 2024 was primarily due to higher volumes and therefore higher operating costs from the Company’s retail segment.

Selling and administrative expense increased by $340,000 to $1,879,000 for the three-month period ended March 31, 2024 compared to $1,539,000 for the same period in the prior year. The increase in selling and administrative expense for the three-month period ended March 31, 2024 was due to approximately $377,000 in fees associated with new business opportunities, including the Company’s RI Acquisition.

Interest expense increased by $78,000 to $349,000 for the three-month period ended March 31, 2024 compared to $271,000 for the same period in the prior year. The debt under the Credit Agreement carries a floating interest rate of SOFR plus 3%. The increase for the three-month period ended March 31, 2024 was due to an increase in SOFR and borrowings compared to the same period of the prior year.

Interest and other income increased by $36,000 to $106,000 for the three-month period ended March 31, 2024 compared to income of $70,000 for the same period in the prior year. The increase for the three-month period ended March 31, 2024 is due to increases in the interest received on the Company’s cash compared to the same period in the prior year.

Income tax expense decreased by $112,000 to a benefit of $44,000 for the three-month period ended March 31, 2024 compared to income tax expense of $68,000 for the same period in the prior year. The decrease in income tax benefit for the three-month period ended March 31, 2024 was due primarily to a non-recurring adjustment for unrecognized tax benefits related to foreign taxes.

Net loss attributable to non-controlling interests decreased by $34,000 to $54,000 for the three-month period ended March 31, 2024 compared to a loss of $88,000 for the same period in the prior year. Net income or loss attributable to non-controlling interests represents net income or loss earned by the 19% non-controlling interest in GKF, and net income or loss of the non-controlling interests in various subsidiaries controlled by GKF. The decrease or increase in net income or loss attributable to non-controlling interests reflects the relative profitability of GKF.

Net income decreased by $69,000 to net income of $119,000, or $0.02 per diluted share for the three-month period ended March 31, 2024 compared to net income of $188,000, or $0.03 per diluted share for the same period in the prior year. Net income decreased for the three-month period ended March 31, 2024 due to higher interest expense and higher selling and administrative expense to support the Company’s pursuit of new business opportunities, including the RI Acquisition.

### Liquidity and Capital Resources

The Company’s primary liquidity needs are to fund capital expenditures as well as support working capital requirements. In general, the Company’s principal sources of liquidity are cash and cash equivalents on hand and the $7,000,000 Revolving Line. As of March 31, 2024, the Company borrowed $2,400,000 on its Revolving Line, which was repaid in April 2024. The Company had cash, cash equivalents and restricted cash of $13,042,000 at March 31, 2024 compared to $13,808,000 at December 31, 2023. The Company’s cash position decreased by $766,000 during the first three months of 2024 due to cash used in operating activities of $1,865,000, payment for the purchase of property and equipment of $1,183,000, payments on long-term debt of $164,000, net payments on the line of credit of $100,000, debt issuance costs of $97,000 and distributions to non-controlling interests of $95,000. These decreases were offset by capital contributions of $38,000 and long-term debt financing of $2,700,000. The Company’s expected primary cash needs on both a short and long-term basis are for capital expenditures, business expansion, working capital, and other general corporate purposes. The Company has scheduled interest and principal payments under its debt obligations of approximately $3,997,000 during the next 12 months.

### Working Capital

The Company had working capital at March 31, 2024 of $10,586,000 compared to $9,677,000 at December 31, 2023. The $909,000 increase in working capital was primarily due to increases in accounts receivable offset by decreases in cash and prepaid maintenance. The Company believes that its cash on hand, cash flow from operations, and other cash resources are adequate to meet its scheduled debt obligations and working capital requirements during the next 12 months. See additional discussion in the “Commitments” section below. The Company, in the past, has secured financing for its Gamma Knife and radiation therapy units. The Company has secured financing for its projects from several lenders and anticipates that it will be able to secure financing on future projects from these or other lending sources, but there can be no assurance that financing will continue to be available on acceptable terms.

### Long-Term Debt

On April 9, 2021, the Company and certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A., which refinanced its existing domestic Gamma Knife portfolio. The lease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement. The Credit Agreement includes three loan facilities: (1) a $9,500,000 term loan (the “Term Loan”), which was used to refinance the domestic Gamma Knife debt and finance leases and the associated closing costs; (2) a $5,500,000 delayed draw term loan (the “DDTL”), which was used to refinance the Company’s PBRT finance leases and associated closing costs and to provide additional working capital for the Company; and (3) a $7,000,000 revolving line of credit (the “Revolving Line”), which is available for the Company’s future projects and general corporate purposes. The Company borrowed $2,400,000 under the Revolving Line as of March 31, 2024, which the Company repaid in April 2024. The Credit Agreement is 48% amortized over a 58-month period with a balloon payment upon maturity and is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The Revolving Loan, the Term Loan, and the DDTL will mature on April 9, 2026 unless accelerated due to the occurrence of certain events specified in the Credit Agreement. The Revolving Line is charged an unused line fee of 0.25% per annum. The Term Loan and DDTL have interest and principal payments due quarterly. Principal amortization on an annual basis for the Term Loan and DDTL equates to 48% of the original principal loan commitments in years one through five and an end of term payment of the remaining principal balance.

On January 25, 2024, the, the Company entered into a First Amendment to Credit Agreement with Fifth Third which amended the Credit Agreement to add the Supplemental Term Loan, a new term loan in the aggregate principal amount of $2,700,000. The proceeds of the Supplemental Term Loan were advanced in a single borrowing on January 25, 2024, and were used to finance capital expenditures that the Company paid cash for during 2023 for its operations in Puebla, Mexico and other related transaction costs. The Supplemental Term Loan will mature on January 25, 2030, unless accelerated due to the occurrence of certain events specified in the Credit Agreement. Interest on the Supplemental Term Loan is payable monthly during the initial twelve month period following the First Amendment Effective Date. Following such twelve month period, the Company is required to make equal monthly payments of principal and interest to fully amortize the amount outstanding under the Supplemental Term Loan by the Maturity Date. The Supplemental Term Loan is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The First Amendment also replaces the LIBOR-based rates in the Credit Agreement with SOFR-based rates. Pursuant to the First Amendment, advances under the Credit Agreement bear interest at a floating rate per annum equal to SOFR plus 3.00%, subject to a SOFR floor of 0.00%.

As of March 31, 2024, the Company was subject to customary covenants under the Credit Agreement which included, among other covenants and obligations, a minimum fixed charge coverage ratio of 1.25 to 1.0 and a total funded debt to EBITDA ratio of 3.0 to 1.0 (tested on a trailing twelve-month basis at the end of each fiscal quarter), along with an annual clean-up covenant that requires the Company to cause the outstanding principal balance under the Revolving Loan to be less than $3,500,000 for at least 30 consecutive days during each calendar year (the “Credit Agreement Covenants”). The Company was in compliance with the Credit Agreement Covenants as of March 31, 2024.

The Company’s acquisition of GKCE and the Gamma Knife Esprit in Ecuador is financed with DFC. The loan entered into with DFC in June 2020 was obtained through the Company's wholly-owned subsidiary, HoldCo, and is guaranteed by GKF. The DFC Loan is secured by a lien on GKCE’s assets. The first tranche of the DFC Loan was funded in June 2020. In October 2023, the second tranche of the DFC Loan was funded in the amount of $1,750,000 to finance its equipment upgrade in Ecuador. The amount outstanding under the first tranche of the DFC Loan is payable in 29 quarterly installments with a fixed interest rate of 3.67%. The amount outstanding under the second tranche of the DFC Loan is payable in 16 quarterly installments with a fixed interest rate of 7.49%.

The DFC Loan contains customary covenants including without limitation, requirements that HoldCo maintain certain financial ratios related to liquidity and cash flow as well as depository requirements. On March 28, 2024, HoldCo received a waiver and amendment from DFC for certain covenants as of December 31, 2023 and through December 31, 2024 and amended other covenants and definitions permanently. HoldCo was in compliance with all debt covenants pursuant to the DFC Loan as amended and waived at March 31, 2024.

The Company’s combined long-term debt, net of deferred issuance costs, totaled $15,602,000 as of March 31, 2024. See Note 3 - Long Term Debt to the condensed consolidated financial statements for additional information.

### Commitments

As of March 31, 2024, the Company had commitments to purchase and install two Leksell Gamma Knife Esprit Systems (“Esprit”), one Gamma Plan workstation, one Linear Accelerator (“LINAC”) system, and one Magnetic Resonance imaging guided LINAC (“MR LINAC”). The LINAC, MR LINAC and one Esprit will be placed at future customer sites. The remaining Esprit upgrade is scheduled to occur during 2024 at an existing customer site. The Company also has one commitment to de-install a Gamma Knife unit at an existing customer site. Total Gamma Knife and LINAC commitments as of March 31, 2024 were $13,752,000. There are no deposits on the condensed consolidated balance sheets related to these commitments as of March 31, 2024. It is the Company’s intent to finance substantially all of these commitments. There can be no assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company. However, the Company currently has cash on hand of $13,042,000 and a line of credit of $7,000,000 and is actively engaged with financing resources to fund these projects. The Company borrowed $2,400,000 on the Revolving Line as of March 31, 2024, which was paid off in April 2024.

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 March 31, 2024, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion, Elekta and Mobius Imaging, LLC. The Company’s commitments to purchase two LINAC systems also include a 9-year and 5-year agreement to service the equipment, respectively. Total service commitments as of March 31, 2024 were $14,120,000. 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-month periods ended March 31, 2024 and 2023:

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Equipment purchases and de-install costs | $2,416,000 | $201,000 |
| Costs incurred to maintain equipment | 170,000 | 295,000 |
| Total related party transactions | $2,586,000 | $496,000 |

The Company also had commitments to purchase and install Gamma Knife units, purchase a LINAC and MR LINAC system and service the related equipment of $16,625,000 as of March 31, 2024.

Related party liabilities on the condensed consolidated balance sheets consist of the following as of March 31, 2024 and December 31, 2023

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Accounts payable, asset retirement obligation and other accrued liabilities | $1,637,000 | $2,361,000 |

17

## Market risk

As filed, 537 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 March 31, 2024, the Company had no significant long-term, market-sensitive investments.

## Controls and procedures

As filed, 1,770 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 March 31, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the principal executive officer and our principal financial officer, and recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting during the three-month period ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,824 characters.

Except as set forth below, there were no material changes during the period covered in this report to the risk factors previously disclosed in Part 1, Item 1A, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

***The Company may fail to successfully integrate the interests acquired in the RI Acquisition with its existing business in a timely manner, which could have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows, or the Company may fail to realize all of the expected benefits of the RI Acquisition, which could negatively impact the Company’s future results of operations.***

The integration of any acquisitions, including the Company’s RI Acquisition, which was completed on May 7, 2024, requires significant time and resources. A failure by the Company to successfully integrate the businesses, operations, and contractual obligations of the RI Target Companies with the Company’s existing business in a timely manner could have a material adverse effect on the Company’s business, financial condition, cash flows, or results of operations. Acquiring majority interests in the RI Target Companies, assuming obligations under the commercial payor contracts set forth in the IPA, and integrating the businesses of the three turn-key radiation therapy cancer centers that the RI Target Companies operate in Rhode Island involves several risks that could undermine the success and expected benefits of the RI Acquisition. Such risks include but are not limited to the following:

- the potential difficulty of assimilating the businesses and operations of the RI Target Companies with our existing business and operations;
- the added costs that could be incurred from coordinating the integration of personnel from diverse business backgrounds and consolidating the corporate and administrative functions of the Company and the RI Target Companies;
- the potential disruption to our existing operations that could result from the Company expanding into another state and expending time and resources to oversee the RI Target Companies’ operation of their three radiation oncology centers;
- the added costs and burdens that the Company will incur in connection with obtaining the governmental and regulatory approvals that are necessary to effect the RI Acquisition and to stay regulatorily compliant under Rhode Island law if the RI Acquisition is effected;
- the diversion of the resources of the Company and the attention of the Company’s management from the Company’s existing operations and business ventures to the operations of the RI Target Companies, which could hinder the performance of the Company and its subsidiaries;
- the potential management differences that could result from the Company gaining majority interests in the RI Target Companies and taking control from GenesisCare; and
- the risk of financial loss due to the existing debts and liabilities of the RI Target Companies and the potential need for the Company to expend substantial capital to stabilize the businesses of the RI Target Companies due to any instability created by the GenesisCare bankruptcy, with no guarantee of return on investment.

If the Company is not successful in addressing these risks effectively, the Company’s business and operations could be impaired.

***Flaws in the Company’s due-diligence assessment in connection with the equity interests and payor contracts acquired in the RI Acquisition could have a significant negative effect on the Company’s financial condition and results of operations.***

The Company conducted due diligence when evaluating the RI Acquisition prior to executing the IPA and continued due diligence during the interim period between signing the IPA and the closing of the RI Acquisition on May 7, 2024. The process of completing due diligence was expensive and time consuming due to the operations, accounting, finance, and legal professionals who were involved in the due-diligence process. The time and costs of the due-diligence process were amplified with respect to the Company’s evaluation of the potential costs and benefits of the RI Acquisition due to the distressed state and bankruptcy of GenesisCare. Despite the thoroughness of the Company’s review, diligence may not reveal all material issues that could affect the Company’s interests in the RI Target Companies. In addition, factors outside of the Company’s control could later arise. The Company’s failure to identify material issues specific to the business and operations of the RI Target Companies and the liabilities and obligations the Company is assuming upon the assignment of the payor could negatively impact the Company’s financial condition and results of operations after the closing of the RI Acquisition.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-017104. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.