AMERICAN SHARED HOSPITAL SERVICES 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   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 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       12/31/2022   12/31/2021 Retail/Turn-key   6   7 Fee Per Use   6   6 Domestic Gamma Knife   12   13                   International Gamma Knife   2   2                   Total Gamma Knife   14   15                   PBRT   1   1   The Company removed one Gamma Knife unit in January 2022, whose contract expired in the fourth quarter of 2021.  Another Gamma Knife contract expired in the second quarter of 2022 is currently leased on a month-to-month basis and the Company is in negotiations with this site to renew the lease. The next customer contract expirations are in the first and fourth quarters of 2023.  The Company is in active negotiations with both of these sites as well.  A summary of the Company’s procedure volumes for fiscal years 2022 and 2021 are set forth in the table below.   15 Table of Contents   Volume                       Increase   Increase Gamma Knife   12/31/2022   12/31/2021   (Decrease)   (Decrease) Total Procedures   1,286   1,436   (150 )   (10.4 )% Same Centers Procedures   1,286   1,360   (74 )   (5.4 )%                                   PBRT Procedures   5,296   4,426   870   19.7 %   The decrease in Gamma Knife volume during 2022 was primarily due to the expiration of two contracts in the first and fourth quarters of 2021. Same center procedures decreased 5% compared to 2021 due to temporary staffing shortages at several of the Company’s domestic customers and normal, cyclical fluctuations .  The increase in PBRT volume was due to lower volumes during 2021 driven by the continued impact from the COVID-19 pandemic and down-time for repair of system components.   Reimbursement   CMS 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 18, 2020, CMS issued the final rule that would have implemented a new mandatory payment model for radiation oncology services: the Radiation Oncology Alternative Payment Method (“RO APM”). The RO APM, which was to be in effect for a five year period, has been delayed indefinitely. 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.   Impact of the COVID-19 Pandemic   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 year ended December 31, 2021, began to rebound to pre-pandemic levels. 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. The Company’s business has been impacted differently at each of the Company’s various locations as a result of the COVID-19 pandemic and related governmental actions.    Despite a decrease in volumes for the year ended December 31, 2022 compared to the same period in the prior year, domestic Gamma Knife volumes for existing customers rebounded to pre-pandemic levels.  This decrease in volume was due to normal, cyclical fluctuations and the Company does not anticipate a significant impact on domestic Gamma Knife volumes from the COVID-19 pandemic going forward. The Company’s stand-alone facilities in Peru and Ecuador have also begun to return to pre-pandemic levels for the year ended December 31, 2022 and the Company expects this trend to continue through 2023. 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. However, for the year ended December 31, 2022, the Company’s PBRT site also returned to pre-pandemic levels. 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 future business.    16 Table of Contents   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 consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, consolidated the 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 – Accounting Policies to the consolidated financial statements. These policies along with the disclosures presented in the other consolidated financial statement notes and, in this discussion, and analysis, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of the consolidated 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 consolidated financial statements:   Revenue Recognition   The Company recognizes revenues under Accounting Standards Codification (“ASC”) 842 Leases (“ASC 842”) and ASC 606 Revenue from Contracts with Customers (“ASC 606”). The Company had twelve domestic Gamma Knife units, two international Gamma Knife units, and one PBRT system i n operation as of December 31, 2022. 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 twelve 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 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   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 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. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Under turn-key arrangements, the Company receives payment from the hospital at an agreed upon percentage share of the hospital’s reimbursement from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs. For turn-key sites, the Company also shares a percentage of net operating profit. The Company records an estimate of net operating profit based on estimated revenues, less estimated operating costs. The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations. As of December 31, 2022 and 2021, the Company recognized revenues of approximately $16,655,000 and $14,719,000 under ASC 842, respectively, of which approximately $8,952,000 and $6,058,000 were for PBRT services, respectively.   Revenue from retail arrangements amounted to approximately 67% and 60% of total revenue for the years ended December 31, 2022 and 2021, respectively. Because the revenue estimates are reviewed on a quarterly basis, any adjustments required for past revenue estimates would result in an increase or reduction in revenue during the current quarterly period.  Payor mix is a significant variable in the Company’s estimate for retail revenues. Fluctuations in payor mix that may result in a 5% to 10% change in the estimate could increase or decrease revenues as of December 31, 2022, by approximately $114,000 to $227,000.     17 Table of Contents   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. GKCE's patient population is primarily covered by a government payor and payments are paid approximately 30 to 60 days upon invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable earned by GKPeru were not significant for the years ended December 31, 2022 and 2021. GKCE’s accounts receivable were $862,000 and $435,000 for the years ended December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company recognized revenues of approximately $3,091,000 and $2,909,000 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. As of October 1, 2022, the Company further reduced its estimate for salvage value for one of its domestic Gamma Knife Perfexion units. The net effect of the change in estimate made October 1, 2022, for the year ended December 31, 2022, was a decrease in net income of approximately $17,000 or $0.00 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.  As of December 31, 2022, the Company has seven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000. A further change in estimate for salvage value could have an impact on future earnings of the Company.  For example, if the Company determined the salvage value of the existing seven domestic Gamma Knife units should be $0, there could be an annual increase to depreciation expense of approximately $514,000.       2022 Results   For the year ended December 31, 2022, 55% of the Company’s revenue was derived from its Gamma Knife business and 45% was derived from the PBRT system. 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.   TOTAL REVENUE               Increase         (in thousands)   2022   (Decrease)   2021 Total revenue   $ 19,746   12.0 %   $ 17,628   Total revenue in 2022 increased 12.0% compared to 2021 primarily due an increase in PBRT revenues, offset by a decrease in domestic Gamma Knife revenue.  Domestic Gamma Knife volumes were down compared to the prior year, offset by an increase in average reimbursement. Revenues from the Company’s domestic segment increased $1,936,000 in 2022 compared to 2021 due to an increase in PBRT volumes and PBRT and Gamma Knife average reimbursement, offset by lower Gamma Knife volumes.  Revenues from the Company’s international segment increased by $182,000 in 2022 compared to 2021 due to an increase in volume and average reimbursement.     Gamma Knife Revenue             Increase             2022   (Decrease)   2021 Revenue from Gamma Knife (in thousands)   $ 10,794   (7.2 )%   $ 11,629 Number of Gamma Knife procedures   1,286   (10.4 )%   1,436 Average revenue per procedure   $ 8,393   3.6 %   $ 8,098   Gamma Knife revenue for 2022 was $10,794,000 compared to $11,629,000 in 2021. Gamma Knife revenue for 2022 decreased $835,000 compared to 2021 due to a decrease in procedures, offset by an increase in average reimbursement.    The number of Gamma Knife procedures performed in 2022 decreased 150 compared to 2021 primarily due to the expiration of two contracts in the first and fourth quarters of 2021. Excluding the two Gamma Knife contracts that expired, Gamma Knife procedures for existing sites decreased 5% in 2022 compared to the prior year. The decrease in Gamma Knife procedures for existing customer sites was due to normal, cyclical fluctuations. The number of international Gamma Knife procedures increased 2% in 2022 compared to 2021.     Revenue per procedure increased by $295 in 2022 compared to 2021. This increase was due to higher reimbursement at the Company’s retail sites, driven by several large reimbursements from commercial payors at a few of the customer sites.   Proton Therapy Revenue             Increase             2022   (Decrease)   2021 Revenue from PBRT (in thousands)   $ 8,952   47.8 %   $ 6,058 Number of PBRT fractions   5,296   19.7 %   4,426 Average revenue per fraction   $ 1,690   23.5 %   $ 1,369   18 Table of Contents   PBRT revenue for 2022 was $8,952,000 compared to $6,058,000 in 2021. The number of PBRT fractions performed in 2022 was 5,296 compared to 4,426 in 2021. Revenue per fraction in 2022 was $1,690 compared to $1,369 in 2021. The increase in PBRT volume was due to lower volumes in the prior year driven by the continued impact from the COVID-19 pandemic and down-time for repair of system components.  The average reimbursement increased due to a shift in payor mix from Medicare to commercial or other payors, which are reimbursed at a higher amount.   COSTS OF REVENUE               Increase         (In thousands)   2022   (Decrease)   2021 Total costs of revenue   $ 11,364   4.2 %   $ 10,902 Percentage of total revenue   57.6 %           61.8 %   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) increased by $462,000 in 2022 compared to 2021.   Maintenance and supplies and other direct operating costs, related party as a percentage of total revenue were 15.1% and 14.1% in 2022 and 2021 , respectively. Maintenance and supplies and other direct operating costs, related party increased by $482,000 in 2022 compared to 2021 . The increase in 2022 compared to 2021was primarily due to a maintenance contract for one of the Company’s Gamma Knife Icon upgrades, which commenced in the fourth quarter of 2021 and maintenance contracts for existing domestic customers, which commenced in September 2021 and January 2022 .   Depreciation and amortization costs as a percentage of total revenue were 23.9% and 27.5% in 2022 and 2021 . Depreciation and amortization costs decreased $130,000 in 2022 compared to 2021 . The decrease in 2022 compared to 2021was due to the expiration of one contract in each of the first and fourth quarters of 2021, offset by the Company’s change in estimate for salvage value. As of  April 1, 2021, the Company reduced its estimate for salvage value for nine of its Gamma Knife units. As of October 1, 2022, the Company further reduced its estimate for salvage value for one of its domestic Gamma Knife Perfexion units. The net effect of the change in estimate made October 1, 2022, for the year ended December 31, 2022, was a decrease in net income of approximately $17,000 or $0.00 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 18.6% and 20.2% in 2022 and 2021 , respectively. Other direct operating costs increased by $110,000 in 2022 compared to 2021 . The increase in 2022  was primarily due to increased operating costs at the Company’s international sites.   SELLING AND ADMINISTRATIVE EXPENSE               Increase         (In thousands)   2022   (Decrease)   2021                           Selling and administrative expense   $ 5,145   13.6 %   $ 4,531 Percentage of total revenue   26.1 %           25.7 %   The Company’s selling and administrative costs increased $614,000 in 2022 compared to 2021. The increase in 2022 was due to higher sales and related fees associated with new business opportunities.   INTEREST EXPENSE               Increase         (In thousands)   2022   (Decrease)   2021                           Interest expense   $ 806   9.1 %   $ 739 Percentage of total revenue   4.1 %           4.2 %   The Company's interest expense increased $67,000 in 2022 compared to 2021. On April 9, 2021, the Company refinanced predominantly all of its existing debt and finance lease portfolio.  The term loan (the “Term Loan”) and delayed draw term loan (the “DDTL”) carry a floating interest rate of LIBOR plus 3%.  The increase for the year ended December 31, 2022 was due to an increase in LIBOR compared to the same period of the prior year.   19 Table of Contents   (LOSS) ON WRITE DOWN OF IMPAIRED ASSETS AND ASSOCIATED REMOVAL COSTS               Increase         (In thousands)   2022   (Decrease)   2021                           Loss on write down of impaired assets   $ —   *   $ 105                           Percentage of total revenue   0.0 %           0.6 %   As of December 31, 2022 and 2021, the Company recognized a loss on the write down of impaired assets of $0 and $105,000, respectively. The Company reviewed its Gamma Knife and PBRT equipment, in light of available information as of December 31, 2022 and 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 impaired in 2020 and removed in January 2022.     (LOSS) ON EARLY EXTINGUISHMENT OF DEBT               Increase           (In thousands)   2022     (Decrease)     2021                             (Loss) on extinguishment of debt   $ —       *     $ (401 )                           Percentage of total revenue     *               (2.3 )%   The Company recorded a loss on the extinguishment of debt of $401,000 for the year ended December 31, 2021. On April 9, 2021, the Company refinanced the majority of its existing debt and finance lease portfolio with a new lender.  The prepayment penalties charged by the existing lenders of $401,000 was recorded as a loss on extinguishment during the year ended December 31, 2021.   INCOME TAX EXPENSE               Increase         (In thousands)   2022   (Decrease)   2021                           Income tax expense   $ 963   258.0 %   $ 269 Percentage of total revenue   4.9 %           1.5 % Percentage of income, after net income attributable to non-controlling interests, and before income taxes   42.0 %           58.1 %   Income tax expense increased $694,000 in 2022 compared to 2021. The increase in income tax expense in 2022 was due to higher earnings during 2022, return-to-provision adjustments arising from foreign tax returns filed during 2022, as well as permanent domestic tax differences.   The Company anticipates that it will continue to record income tax expense if it operates profitably in the future. Currently there are state income tax payments required for most states in which the Company operates. At December 31, 2022, the Company exhausted the remainder of its net operating loss carryforward for federal income tax return purposes. The Company has net operating loss carryforwards for state income tax purposes.   20 Table of Contents   NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS               Increase         (In thousands)   2022   (Decrease)   2021                           Net income attributable to non-controlling interests   $ 227   (53.1 )%   $ 484                           Percentage of total revenue   1.1 %           2.7 %   Net income attributable to non-controlling interests decreased $257,000 in 2022 compared to 2021. 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 2022 compared to 2021 was due to lower pre-tax income for GKF stand-alone operations.   NET INCOME ATTRIBUTABLE TO AMERICAN SHARED HOSPITAL SERVICES   (In thousands,           Increase         except per share amounts)   2022   (Decrease)   2021                           Net income attributable to ASHS   $ 1,328   584.5 %   $ 194 Net income per share attributable to ASHS, diluted   $ 0.21   600.0 %   $ 0.03   Net income attributable to American Shared Hospital Services increased $1,134,000 in 2022 compared to 2021. The increase in 2022 compared to 2021 was primarily due to increased revenues in 2022 and the loss on extinguishment of debt recorded in 2021.   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 a $7,000,000 revolving line of credit.  As of December 31, 2022, the Company has not drawn on its line of credit. The Company had cash and cash equivalents, including restricted cash, of $12,453,000 at December 31, 2022 compared to $8,263,000 at December 31, 2021, an increase of $4,190,000. 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 pr ovided $7,235,000 of cash in 2022, which was driven by net income of $1,555,000, non-cash charges for depreciation and amortization of $4,783,000, stock-based compensation expense of $399,000, amortization of deferred issuance costs of $84,000, deferred income taxes of $344,000, income taxes payable of $159,000 changes in payables and other accrued liabilities of $608,000, and changes in receivables of $696,000. These were offset by net changes in Right-of-Use assets and lease liabilities of $40,000, changes in prepaids and other assets of $111,000, changes in related party liabilities of $845,000 and payment of asset retirement obligations of $397,000.   The Company’s trade accounts receivable decreased by $410,000 to $3,801,000 at December 31, 2022 from $4,211,000 at December 31, 2021. The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31, 2022 was 70 days compared to 87 days at December 31, 2021. 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 $388,000 of cash in 2022, due to payments made towards the purchase of property and equipment.   Financing activities used $2,657,000 of cash during 2022, which was driven by payments on long-term debt of $2,032,000, distributions to non-controlling interests of $573,000, debt issuance costs of $9,000 and payments on short-term financing of insurance premiums of $48,000. This was offset by $5,000 in proceeds from options exercised during 2022.    21 Table of Contents   Working Capital   The Company had working capital at December 31, 2022 of $13,548,000 compared to working capital of $9,196,000 at December 31, 2021. The $4,352,000 increase in net working capital was primarily due to increased cash generation from a lower DSO and 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 revolving line of credit as part of the refinancing.  The Company has not drawn on the line as of December 31, 2022. 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 5 - 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, 2022. 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 29 quarterly installments with a fixed interest rate of 3.67%.   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. The Company is working 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 5 - Long Term Debt to the consolidated financial statements for additional information.   Commitments   As of December 31, 2022, 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 $13,243,000. 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 $12,453,000 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 $15,374,000. 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 10 - Commitments and Contingencies to the consolidated financial statements for further discussion on commitments.   22 Table of Contents   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 summarizes related party activity for the years ended December 31, 2022 and 2021:     December 31,     2022   2021 Equipment purchases and de-install costs   $ 1,844,000   $ 1,906,000 Costs incurred to maintain equipment   1,094,000   759,000 Total related party transactions   $ 2,938,000   $ 2,665,000   The Company also had related party commitments to purchase one Icon, install four Icon upgrades, purchase two Gamma Plan workstations, purchase two LINACs, and service the related equipment of $17,407,000 as of December 31, 2022.   Related party liabilities on the consolidated balance sheets consist of the following as of December 31, 2022 and 2021:       December 31,     2022   2021 Accounts payable and other accrued liabilities   $ 497,000   $ 1,992,000   ITEM 7A. 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 Exchange Act, the Company is not required to provide the information required by this item.   ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   See the Index to Consolidated Financial Statements and Financial Statement Schedules included at page F-1 of this report.   ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   None.