What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-30 compared with 2021-04-06 · 181 added, 118 removed, 76 unchanged (80% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The COVID-19 pandemic, the resulting recession in the United States and its follow-on effects have impacted and will likely continue to impact business activity across industries, including the Company’s.

During 2020, due to factors related to the COVID-19 pandemic such as delays in service at medical facilities and restrictions imposed by government agencies, and the Company’s customers in response to the spread of COVID-19, the Company experienced some delays in delivering certain Gamma Knife procedures and PBRT treatments.

Similarly, the Company’s ability to conduct commercial efforts with its customers have been and are likely to continue to be disrupted as customers have turned their focus to dealing with the impact of the COVID-19 pandemic on their operations and have restricted access to their sites in efforts to contain the spread of the virus.

The global nature of the pandemic has resulted in authorities implementing numerous measures designed to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, business limitations and shutdowns.

The impact of the COVID-19 pandemic on the global economy and capital markets is significant, and on June 8, 2020 the National Bureau of Economic Research announced that the United States was in an economic recession.

An extended economic recession in the United States or elsewhere could have a material adverse effect on the Company’s ability to conduct its business and to access financing, as well as on the Company’s results of operation, financial condition, liquidity and cash flows.

The prioritization of COVID-19 treatment and containment has resulted in delays in decisions by the Company’s customers and their patients, obstacles to the Company’s ability to market and deliver its services, declines in treatment volumes and adverse impacts to revenues for both Gamma Knife procedures and PBRT treatments.

As a result of the pandemic and related governmental actions, Gamma Knife procedures and PBRT treatments, which currently make up all of the Company’s revenue, may be impacted differently at each of the Company’s various locations and may take longer to recover than other areas of the economy, which may have a material impact on the Company's business.

The Company’s Gamma Knife operations in Latin America have experienced a decline in procedures due to the COVID-19 pandemic.

Our Gamma Knife and PBRT operations in the United States have also experienced negative impacts from the COVID-19 pandemic.

As the COVID-19 pandemic continues to develop, additional impacts may arise that we are not aware of currently.

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 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, is also considered a retail arrangement.

The main drivers of the Company’s revenue are numbers of sites, procedure volume and reimbursement. 

A summary of the sites is set forth in the table below.

Number of Sites

Retail/Turn-key

Domestic Gamma Knife

International Gamma Knife

Total Gamma Knife

The Company had one customer contract expire in the fourth quarter of 2020 and one that expired in the first quarter of 2021.

The Company removed a third Gamma Knife unit in January 2022 and a fourth unit under contract through the second quarter of 2022 is currently in negotiation. The next customer contract expirations are in the first and fourth quarters of 2023.

A summary of the Company’s procedure volumes for fiscal years 2021 and 2020 are set forth in the table below.

Total Procedures

Same Centers Procedures

PBRT Procedures

The decrease in Gamma Knife volume during 2021 was due to the expiration of two contracts in the fourth quarter of 2020 and the first quarter of 2021.

The decrease in PBRT volume was due to the continued impact from the COVID-19 pandemic and down-time for repair of system components.

Reimbursement

CMS established a 2022 delivery code reimbursement rate of approximately $7,943 ($7,773 in 2021) for a Medicare Gamma Knife treatment.

The approximate CMS reimbursement rates for delivery of PBRT for a simple treatment without compensation for 2022 is $554 ($543 in 2021) and $1,321 ($1,298 in 2021) for simple with compensation, intermediate and complex treatments, respectively.

On September 18, 2020, CMS issued the final rule that would implement a new mandatory payment model for radiation oncology services:

The RO APM is scheduled to commence January 1, 2023 and will be in effect for a five year period.

The RO APM significantly alters 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 are mandatorily required to participate in the model based on whether the radiation therapy provider is located within a randomly selected CBSA.

CMS projects that providers treating approximately 30% of radiation oncology patients have been selected to participate in the RO APM.

The remaining providers not included in the RO APM will continue to receive reimbursement based on a fee-for-service methodology.

The RO APM includes but is not limited to PBRT and Gamma Knife services.

Three of the Company's Gamma Knife centers are included in the RO APM.

It is not anticipated that inclusion in the RO APM will 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 2022 for the most commonly used PBRT delivery codes increased by approximately 1.8% and increased by approximately 2.2% for Gamma Knife. 

Impact of the COVID-19 Pandemic

In 2020, the COVID-19 pandemic, the resulting recession in the United States and its follow-on effects impacted business activity across industries, including the Company’s.

Similarly, the Company’s ability to conduct commercial efforts with its customers were disrupted as customers turned their focus to dealing with the impact of the COVID-19 pandemic on their operations and restricted access to their sites in efforts to contain the spread of the virus.

The global nature of the pandemic resulted in authorities implementing numerous measures designed to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, business limitations and shutdowns.

The prioritization of COVID-19 treatment and containment resulted in delays in decisions by the Company’s customers and their patients, obstacles to the Company’s ability to market and deliver its services, declines in treatment volumes and adverse impacts to revenues for both Gamma Knife procedures and PBRT treatments.

In 2021, following the dissemination of the vaccine for the COVID-19 virus in the United States, there was a scale back of the safety measures put into place throughout 2020.

Some of the Company’s customers still experienced some delays and restrictions in providing service, but not to the same degree that occurred during 2020. Procedure volumes for the Company’s domestic Gamma Knife business for the twelve-month period ended December 31, 2021, are rebounding to pre-pandemic lev els. The Company’s PBRT business was impacted by COVID-19, and other factors, during 2021 as treatment volumes continued to lag from pre-pandemic levels.

T he Company’s business has been impacted differently at each of the Company’s various locations as a result of the pandemic and related governmental actions. However, as the COVID-19 pandemic evolves and new strains of the virus develop, additional impacts may arise which may have a material impact on the Company’s business. 

The impact of the COVID-19 pandemic for the year ended December 31, 2021 has varied by location based on the stage of containment and actions by government agencies.

The impact on treatments and costs in the three-month period ended March 31, 2020 did not appear material.

The impact of the COVID-19 pandemic has been greater for the three-month periods ended June 30, 2020, September 30, 2020, and December 31, 2020, including declines in patient volumes and corresponding reductions in Gamma Knife procedures and reduced PBRT fractions during the second and fourth quarters.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles and follow general practices within the industry in which it operates.

The impact on treatments and costs in the year ended December 31, 2021 did not appear material for the Gamma Knife.

The COVID-19 pandemic appears to have had a greater impact on PBRT fractions for the years ended December 31, 2021 and 2020.

The COVID-19 pandemic has led to supply chain disruptions for many of the Company’s suppliers. 

These disruptions have resulted in price increases for purchased services and capital acquisitions. 

To mitigate its cost increases, the Company has in many cases aggregated its purchase of services and capital goods to minimize these price increases.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s 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 financial statements and accompanying notes.

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These policies along with the disclosures presented in the other financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the 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 fixed assets and useful lives, and as such 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 financial statements:

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 fixed assets 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 financial statements:

Revenue Recognition

The Company recognizes revenues under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”).

The Company had sixteen (16) Gamma Knife units and one (1) PBRT system in operation as of December 31, 2020.

Four (4) of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner.

Six (6) of the Company’s sixteen (16) current Gamma Knife customers are under fee-per-use contracts, and eight (8) customers are under retail arrangements.

The Company, through GKF, also owns and operates 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 – UF Health Cancer Center (“Orlando Health”), is also considered a retail arrangement.

The Company recognizes revenues under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”).

The Company had thirteen domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system i n operation as of December 31, 2021.

Four of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner.

Six of the Company’s thirteen domestic Gamma Knife customers are under fee-per-use contracts, and seven customers are under retail arrangements.

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 is also considered a retail arrangement.

Rental Income from Medical Services

1 unchanged sentence

The terms of the contracts do not contain any guaranteed minimum payments.

The Company’s contracts are typically for a ten-year term and are classified as either fee per use or retail.

Retail arrangements are further classified as either turn-key or revenue sharing.

Revenues from fee per use contracts is determined by each hospital’s contracted rate.

Revenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate and the number of procedures performed.

Revenues from fee per use contracts is determined by each hospital’s contracted rate.

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.

1 unchanged sentence

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.

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The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations.

As of December 31, 2020 and 2019, the Company recognized revenues of approximately $16,204,000 and $19,396,000 under ASC 842, respectively.

As of December 31, 2021 and 2020, the Company recognized revenues of approximately $14,719,000 and $16,204,000 under ASC 842, respectively.

Revenue from retail arrangements amounted to approximately 60% and 64% of total revenue for the years ended December 31, 2021 and 2020, respectively.

1 unchanged sentence

Patient Income

The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where a contract exists between the Company’s facilities and the individual patient treated at the facility.

Under ASC 606, the Company acts as the principal in this transaction and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment.

Revenue related to a Gamma Knife treatment is recognized on a gross basis 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.

2 unchanged sentences

Accounts receivable earned by GKPeru were not significant for the year ended December 31, 2021 and 2020.

GKCE's accounts receivable were $467,000 for the year ended December 31, 2020.

As of December 31, 2020 and 2019, the Company recognized revenues of approximately $1,633,000 and $1,209,000 under ASC 606, respectively.

For the year ended December 31, 2020, 65% of the Company’s revenue was derived from its Gamma Knife business and 35% was derived from the PBRT system.

For the year ended December 31, 2019, 66% of the Company’s revenue was derived from its Gamma Knife business, 30% was derived from the PBRT system, and the remaining 4% from its IGRT business.

GKCE's accounts receivable were $435,000 and $467,000 for the years ended December 31, 2021 and 2020.

As of December 31, 2021 and 2020, the Company recognized revenues of approximately $2,909,000 and $1,633,000 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 Gamma Knife units in Peru or Ecuador because these are Model 4(C) units. 

The Company has not assigned salvage value to its PBRT equipment.  

As of  April 1, 2021, the Company reduced its estimate for salvage value for nine of its domestic Gamma Knife Perfexion units.

The net effect of this change in estimate for the year ended December 31, 2021, was a decrease in net income of approximately $342,000 or $0.06 per diluted share.

This change in estimate will also impact future periods. 

See Note 3 - Property and Equipment to the consolidated financial statements for further discussion on salvage value. 

2021 Results

For the year ended December 31, 2021, 66% of the Company’s revenue was derived from its Gamma Knife business and 34% was derived from the PBRT system.

For the year ended December 31, 2020, 65% of the Company’s revenue was derived from its Gamma Knife business and 35% was derived from the PBRT system.

TOTAL REVENUE

(in thousands) 2020 Increase

(in thousands)

Total revenue

Total revenue in 2020 decreased 13.4% compared to 2019 primarily due to a decrease in average reimbursement for Gamma Knife procedures and a decrease in PBRT fractions.

This decrease in volumes was partially attributable to the COVID-19 pandemic.

Total revenue in 2021 decreased 1.2% compared to 2020 primarily due to the expiration of two Gamma Knife contracts in the fourth quarter of 2020 and the first quarter of 2021, and a decrease in PBRT fractions.

The decrease in PBRT volume was primarily due to the continued impact from the COVID-19 pandemic and down-time for repair of system components.

Gamma Knife Revenue

2020 Increase

Revenue from Gamma Knife (in thousands)

1 unchanged sentence

Average revenue per procedure

Gamma Knife revenue for 2020 was $11,670,000 compared to $13,551,000 in 2019.

Gamma Knife revenue for 2020 decreased $1,881,000 compared to 2019 due to a lower average reimbursement at the Company's retail sites driven by an increase in patients with Medicare coverage and a decrease in patients with Commercial insurance.

The number of Gamma Knife procedures performed in 2020 increased 32 compared to 2019 due to the Company's acquisition of GKCE in June 2020.

This increase was offset by a Gamma Knife contract that terminated in October 2020 and due to the impact of the COVID-19 pandemic.

In April 2020, an existing Gamma Knife customer contract expired.

The site operated on a month-to-month basis through October 2020, when the customer notified the Company of their intent to terminate.

Two additional existing Gamma Knife customers notified the Company of their intent to not renew their contract during the third and fourth quarters of 2020.

One of the contracts terminated in February 2021 and the second is set to expire in December 2021.

Revenue per procedure decreased by $1,283 and in 2020 compared to 2019.

For 2020, the decrease was due to lower average reimbursement at the Company's retail sites.

Gamma Knife revenue for 2021 was $11,629,000 compared to $11,670,000 in 2020.

Gamma Knife revenue for 2021 decreased $41,000 compared to 2020 due to a decrease in procedures, offset by an increase in average reimbursement. 

The number of Gamma Knife procedures performed in 2021 decreased 94 compared to 2020 primarily due to the expiration of one contract in the fourth quarter of 2020 and another contract in the first quarter of 2021, offset by the acquisition of GKCE in June 2020. Excluding the two Gamma Knife contracts that expired and GKCE procedures, Gamma Knife procedures for existing sites increased 7% in 2021 compared to the prior year.

The number of Gamma Knife procedures performed by GKPeru and GKCE increased 70% and 116% in 2021 compared to 2020, respectively. 

GKPeru’s procedures increased in 2021 because the Company executed a contract with Peru’s national health program, Es Salud. 

These procedures are reimbursed at a lower rate than GKPeru’s historical average. 

The Company acquired GKCE in June 2020, driving the increase in volume in 2021. 

The COVID-19 pandemic has more strongly impacted procedure volumes in Peru and Ecuador compared to the US in 2021. 

Revenue per procedure increased by $335 in 2021 compared to 2020.

Excluding the two Gamma Knife contracts that expired and GKCE procedures for 2021, the average rate increased 4%.

This increase was due to higher reimbursement at the Company’s retail sites, driven by several large reimbursements from commercial payors, offset by the expiration of a fee-per-use contract in the fourth quarter of 2020, which was reimbursed at a lower rate.

Proton Therapy Revenue

2020 Increase

Revenue from PBRT (in thousands)

1 unchanged sentence

Average revenue per fraction

PBRT revenue for 2020 was $6,167,000 compared to $6,214,000 in 2019.

The number of PBRT fractions performed in 2020 was 5,868 compared to 6,018 in 2019.

Revenue per fraction in 2020 was $1,051 compared to $1,033 in 2019.

In 2020, the Company's PBRT revenue declined due to an impact on volumes in the second and fourth quarter from the COVID-19 pandemic.

The Company's proton therapy system also experienced some down-time for maintenance in the third quarter of 2020.

(in thousands) 2020 Increase

PBRT revenue for 2021 was $6,058,000 compared to $6,167,000 in 2020.

The number of PBRT fractions performed in 2021 was 4,426 compared to 5,868 in 2020.

Revenue per fraction in 2021 was $1,369 compared to $1,051 in 2020.

The decrease in PBRT volume was primarily due to the continued impact from the COVID-19 pandemic and down-time for repair of system components. 

This decrease was offset by an increase in average reimbursement. The average reimbursement increased due to a shift in payor mix from Medicare to commerical or other payors, which are reimbursed at a higher amount.

(in thousands)

Revenue from IGRT

IGRT revenue for 2020 was $0 compared to $840,000 in 2019.

IGRT revenue decreased for 2020 as the result of the winding down of the Company’s IGRT system, which was being used as a back-up system at the customer site.

The Company’s contract for its IGRT equipment expired in April 2020 and the Company agreed to sell the equipment to its existing customer for $150,000, which was equal to the equipment's salvage value.

The Company sold the equipment in July 2020.

The Company’s contract for IGRT equipment and related equipment services expired in April 2020.

As of March 31, 2021, the Company reviewed its estimate of related revenues and accounts receivable and determined the amount should be $0 and wrote off the balance of $59,000.

COSTS OF REVENUE

(In thousands) 2020 Increase

(In thousands)

Total costs of revenue

Percentage of total revenue

The Company's costs of revenue, consisting of maintenance and supplies, depreciation and amortization, and other operating expenses (such as insurance, property taxes, sales taxes, marketing costs and operating costs from the Company’s retail sites) decreased by $314,000 in 2020 compared to 2019.

Maintenance and supplies costs as a percentage of total revenue were 13.4% and 12.7% in 2020 and 2019.

Maintenance and supplies costs decreased by $233,000 in 2020 compared to 2019.

The decrease in 2020 compared to 2019 was due to a decrease in time and materials costs at the Company's existing sites.

Depreciation and amortization costs as a percentage of total revenue were 38.1% and 35.6% in 2020 and 2019.

Depreciation and amortization costs decreased $552,000 in 2020 compared to 2019.

The decrease in 2020 compared to 2019 was primarily due to depreciation incurred on the Company's Gamma Knife and IGRT equipment at its location in Boston, Massachusetts in 2019, offset by increased depreciation recognition at two of the Company's expiring Gamma Knife sites.

One of these contracts expired in October 2020 and the second expired in the first quarter of 2021.

Other direct operating costs as a percentage of total revenue were 23.5% and 18.1% in 2020 and 2019.

Other direct operating costs increased by $471,000 in 2020 compared to 2019.

The increase in 2020 is primarily due to operating costs from the Company's acquisition of GKCE in June 2020.

Maintenance and supplies costs as a percentage of total revenue were 14.1% and 13.4% in 2021 and 2020 , respectively. Maintenance and supplies costs increased by $105,000 in 2021 compared to 2020 .

The increase in 2021 compared to 2020was primarily due to a maintenance contract for one of the Company’s Gamma Knife Icon upgrades which commenced in the fourth quarter of 2020 .

Depreciation and amortization costs as a percentage of total revenue were 27.5% and 38.1% in 2021 and 2020 .

Depreciation and amortization costs decreased $1,933,000 in 2021 compared to 2020 .

The decrease in 2021 compared to 2020was primarily due to the expiration o f one contract in t he fourth quarter of 2020 and another contract in the first quarter of 2021.

In addition, the Company determined some of its Gamma Knife equipment was impaired as of December, 31, 2020 and the related equipment values were written off. Therefore, there was no depreciation expense incurred on this equipment for the twelve-month period ended December 31, 2021. These decreases were offset by a change in estimate for salvage value for nine of the Company’s Gamma Knife units effective in the second quarter of 2021.

The net effect of this change in estimate for the twelve-month period ended December 31, 2021, was a decrease in net income of approximately $342,000 or $0.06 per diluted share. Salvage value is based on the estimated fair value of the equipment at the end of its useful life. This change in estimate also impacts future periods.

Other direct operating costs as a percentage of total revenue were 20.2% and 23.5% in 2021 and 2020 , respectively. Other direct operating costs decreased by $641,000 in 2021 compared to 2020 .

The decrease in 2021  was 

primarily due to the expiration of one retail contract in the first quarter of 2021 and a decrease in operating costs for the Company’s existing retail sites .

SELLING AND ADMINISTRATIVE EXPENSE

(In thousands) 2020 Increase

(In thousands)

Selling and administrative costs

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The Company's selling and administrative costs increased $77,000 in 2021 compared to 2020.

The increase in 2020 was due to legal and other fees, including, but not limited to the COVID-19 pandemic and the transition in senior management and tax, legal, and consulting fees related to the Company's acquisition of GKCE of approximately $162,000.

The increase in 2021 was due to legal and related fees associated with new business opportunites.

INTEREST EXPENSE

(In thousands) 2020 Increase

(In thousands)

Interest expense

Percentage of total revenue

The Company's interest expense decreased $261,000 in 2020 compared to 2019.

The decrease in 2020 was primarily due to a lower average principal base for the Company’s lease and debt portfolio, effectively reducing interest expense.

The Company's interest expense decreased $318,000 in 2021 compared to 2020. On April 9, 2021, the Company refinanced predominantly all of its existing debt and finance lease portfolio at a lower effective interest rate compared to the Company's historic portfolio rate, reducing interest expense.

(LOSS) ON WRITE DOWN OF IMPAIRED ASSETS AND ASSOCIATED REMOVAL COSTS

(In thousands) 2020 Increase

(In thousands)

Loss on write down of impaired assets

Percentage of total revenue

*Not meaningful

As of December 31, 2020, the Company recognized a loss on the write down of impaired assets of $8,264,000.

The Company reviewed its long-lived assets and deposits during the fourth quarter of 2020 and concluded events and circumstances existed that indicated the value of these assets was more-than temporarily impaired.

The impaired assets included six (6) Gamma Knife units and related removal costs, and two (2) deposits towards the purchase of proton beam systems and related capitalized interest.

The six (6) Gamma Knife units that were impaired consisted of two (2) units that had been taken out of service in prior years, one (1) unit that was taken out of service in 2020 and three (3) units that have already been or the Company anticipates will be taken out of service in 2021.

INTEREST AND OTHER INCOME

(In thousands) 2020 Increase

Interest and other income $ 10 (37.5) % $ 16

Percentage of total revenue 0.1 % 0.1 %

Interest and other income decreased $6,000 in 2020 compared to 2019.

Interest and other income is generally comprised of interest expense and interest earned, and increases or decreases generally reflect fluctuations in these amounts.

As of December 31, 2021 and 2020, the Company recognized a loss on the write down of impaired assets of $105,000 and $8,264,000, respectively.

The Company reviewed its Gamma Knife and PBRT equipment, in light of available information as of December 31, 2020, and concluded events and circumstances existed that indicated the value of these assets was more-than temporarily impaired.

The impaired assets included six Gamma Knife units and related removal costs, and two deposits towards the purchase of proton beam systems and related capitalized interest.

The six Gamma Knife units that were impaired consisted of two units that had been taken out of service in prior years, one unit that was taken out of service in 2020, one unit that was taken out of service in 2021, one that was taken out of service in January 2022, and a fourth that the Company anticipates will be removed later in 2022. The Company reviewed its Gamma Knife and PBRT equipment, in light of available information as of December 31, 2021 and concluded no additional impairment exists. 

As of December 31, 2021, the Company recognized an additional $105,000 related to the removal costs of one of the unit that was removed in January 2022.  

INCOME TAX EXPENSE

(In thousands) 2020 Increase

Income tax (benefit) expense $ (1,737) * $ 128

(In thousands)

Income tax expense (benefit)

Percentage of total revenue

Percentage of income, after net income attributable to non-controlling interests, and before income taxes

*Not meaningful

Income tax expense decreased $1,865,000 in 2020 compared to 2019.

The decrease in income tax benefit provision in 2020 was due to the loss on write-down of impaired assets recorded during the year ended December 31, 2020.

Income tax expense increased $2,006,000 in 2021 compared to 2020.

The increase in income tax expense in 2021 was due to the loss on write-down of impaired assets recorded during the year ended December 31, 2020.

The Company anticipates that it will continue to record income tax expense if it operates profitably in the future.

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NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

(In thousands) 2020 Increase

Net (loss) income attributable to non-controlling interests $ (658) (185.3) % $ 771

(In thousands)

Net income (loss) attributable to non-controlling interests

Percentage of total revenue

Net income attributable to non-controlling interests decreased $1,429,000 in 2020 compared to 2019.

Net income attributable to non-controlling interests increased $1,142,000 in 2021 compared to 2020.

Net income attributable to non-controlling interests represents the pre-tax income earned by the 19% non-controlling interest in GKF, and the pre-tax income or losses 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.

The decrease in 2020 compared to 2019 was due to the loss on write off of impaired assets.

The increase in 2021 compared to 2020 was due to the loss on write off of impaired assets recorded during the year ended December 31, 2020.

NET INCOME ATTRIBUTABLE TO AMERICAN SHARED HOSPITAL SERVICES

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except per share amounts)

2020 Increase

Net (loss) income attributable to ASHS $ (7,058) * $ 659

Net (loss) income per share attributable to ASHS, diluted $(1.14)

*Not meaningful

Net (loss) attributable to American Shared Hospital Services was $7,058,000 in 2020 compared to net income of $659,000 in 2019.

Net loss decreased $7,717,000 in 2020 compared to 2019 due primarily to the loss on write down of impaired assets.

Net income (loss) attributable to ASHS

Net income (loss) per share attributable to ASHS, diluted

Net income (loss) attributable to American Shared Hospital Services increased $7,252,000 in 2021 compared to 2020.

The increase in 2021 compared to 2020 was primarily due to the loss on write down of impaired assets recorded during the year ended December 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and cash equivalents of $4,325,000 at December 31, 2020 compared to $1,779,000 at December 31, 2019, an increase of $2,546,000.

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.

Operating activities provided cash of $9,745,000 in 2020, which was driven by non-cash charges for depreciation and amortization of $6,970,000, stock-based compensation expense of $299,000, non-cash lease expense of $288,000, a loss on the write-down of impaired assets of $8,184,000, interest expense associated with lease liabilities of $65,000, changes in receivables of $2,966,000, changes in prepaid and other assets of $762,000, and changes in other accrued liabilities, income taxes payable of $179,000, and deferred revenue of $263,000.

These were offset by a net loss of $7,716,000, an income tax benefit of $2,162,000, and net lease liabilities of $353,000.

The Company’s trade accounts receivable decreased by $2,591,000 to $4,303,000 at December 31, 2020 from $6,894,000 at December 31, 2019, primarily due to an outstanding payment related to a contractual Medicare adjustment for one of the Company's Gamma Knife contracts, which was collected in January 2020, and an increase in collections from the Company's proton therapy customer.

The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31, 2020 decreased to 88 days compared to 122 days at December 31, 2019.

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 a $7,000,000 revolving line of credit. 

As of December 31, 2021, the Company has not drawn on its line of credit.

The Company had cash and cash equivalents of $8,263,000 at December 31, 2021 compared to $4,325,000 at December 31, 2020, an increase of $3,938,000.

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.

Operating activities provided cash of $6,267,000 in 2021, which was driven by net income of $678,000, non-cash charges for depreciation and amortization of $4,972,000, stock-based compensation expense of $420,000, amortization of deferred issuance costs of $59,000, a loss on the write-down of impaired assets of $105,000, a loss on sublease impairment of $74,000, a loss on early extinguishment of debt of $401,000, deferred income taxes of $60,000, and changes in payables and other accrued liabilities of $851,000.

These were offset by changes in receivables of $519,000, changes in prepaids and other assets of $14,000, payment of asset retirement obligations of $618,000, and income taxes payable of $230,000.

The Company’s trade accounts receivable decreased by $92,000 to $4,211,000 at December 31, 2021 from $4,303,000 at December 31, 2020.

The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31, 2021 was 87 days compared to 88 days at December 31, 2020.

DSO can and does fluctuate depending on timing of customer payments received and the mix of fee per use versus retail customers.

Retail sites generally have longer collection periods than fee per use sites.

Investing activities used $2,389,000 of cash in 2020 due to payments made towards the purchase of property and equipment of $455,000 and payment for the Acquisition of $2,084,000, offset by proceeds from the sale of equipment of $150,000.

Financing activities used $4,810,000 of cash during 2020, primarily due to principal payments on long-term debt of $1,726,000, principal payments towards finance leases of $3,199,000, principal payments on short-term financing of $519,000, and distributions to non-controlling interests of $761,000.

These decreases were offset by long-term debt financing of the Acquisition of $1,425,000.

The Company had a working capital deficit at December 31, 2020 of $1,530,000 compared to working capital of $2,528,000 at December 31, 2019.

The $4,058,000 decrease in net working capital was due to an decrease in accounts receivable and other receivables of $2,488,000, an increase in accounts payable of $126,000, an increase in employee compensation and benefits of $171,000, an increase in accrued liabilities of $266,000, asset retirement obligations of $1,270,000, an increase in income taxes payable of $243,000, working capital payment due of $197,000, increase in lease liabilities of $26,000, and an increase in finance leases of $2,236,000.

This was offset by an increase in cash and restricted cash of $2,546,000, increases in prepaid and other assets of $50,000, and a decrease in long term debt of $369,000.

The Company believes that its cash flow from cash on hand, operations, and other cash resources are adequate to meet its scheduled debt and finance lease obligations during the next 12 months.

See additional discussion below related to commitments.

Investing activities used $1,674,000 of cash in 2021 due to payments made towards the purchase of property and equipment.

Financing activities used $655,000 of cash during 2021.

On April 9, 2021, the Company refinanced certain of its existing debt and finance leases and used proceeds of $13,897,000 to pay principal payments on long-term debt and finance leases of $12,846,000.

The Company also incurred prepayment penalties of $401,000, and debt issuance costs of $325,000 from this transaction.

This was offset by $5,000 in proceeds from options exercised during 2021. The Company also made distributions to non-controlling interests of $514,000 and payments on short-term financing of insurance premiums of $471,000. 

Working Capital

The Company had working capital at December 31, 2021 of $9,196,000 compared to a working capital deficit of $1,530,000 at December 31, 2020.

The $10,726,000 increase in net working capital was primarily due to the refinancing that occurred during the second quarter of 2021.

The refinancing decreased the Company's current debt and finance obligations in addition to providing excess working capital. 

The Company also secured a $7,000,000 as part of the refinancing. 

The Company has not drawn on the line as of December 31, 2021.

The Company believes that its cash flow from operations, cash on hand and other cash resources are adequate to meet its scheduled debt and finance lease obligations during the next 12 months.

See additional discussion below related to commitments. See Note 6 - Long-Term Debt Financing to the consolidated financial statements for more information.

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

Prior to April 2021, GKF generally financed its U.S.

Gamma Knife units, upgrades and additions with loans or finance leases from various finance companies for typically 100% of the cost of each Gamma Knife, plus any sales tax, customs, and duties.

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 a $7,000,000 revolving line of credit that the Company has not drawn on as of December 31, 2021.

The Credit Agreement is 48% amortized over a 58-month period 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.

As of December 31, 2021, LIBOR will no longer be used to price new loans, but 1-month, 3-month, 6-month and 12-month maturities will continue to be published through 2023.

At that time, the Company will work with Fifth Third Bank to determine an alternative base rate. 

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 6 - Long Term Debt to the consolidated financial statements for additional information.

As of December 31, 2021, the Company had commitments to purchase two MEVION S250i PBRT systems for $34,000,000, and commitments to purchase and install Gamma Knife and LINAC equipment totaling $10,760,000.

There are no significant cash requirements, pending financing, for these commitments in the next 12 months.

There can be no assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company. 

However, the Company currently has cash on hand of $8,263,000 and a line of credit of $7,000,000 to fund these projects.

The Company also had commitments to service these various equipment commitments totaling $8,408,000.

The Gamma Knife and certain other service contracts are paid monthly, as service is performed.

The Company believes that cash flow from operations, cash on hand and its line of credit will be sufficient to cover these payments. 

See Note 13 - Commitments and Contingencies to the consolidated financial statements for further discussion on commitments.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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What changed 10-K

Item 7. Management’s Discussion and Analysis