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 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 December 31, 2023, 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. A summary of the Company’s medical equipment leases and direct patient service sites is set forth in the table below: Number of Sites 12/31/2023 12/31/2022 Revenue Sharing 5 6 Fee Per Use 5 6 Medical Equipment Leasing - Gamma Knife 10 12 Medical Equipment Leasing - Proton Bream Radiation Therapy 1 1 Medical Equipment Leasing - Total 11 13 Direct Patient Services ("Retail") - Gamma Knife 2 2 The Company had two contracts expire in the second and third quarters of 2023, respectively. The Company had a third contract up for renewal in 2023. This lease was extended and the equipment was upgraded to an Esprit during the fourth quarter. The Company has one customer contract that will expire in November 2024. A summary of the Company’s procedure volumes for fiscal years 2023 and 2022 are set forth in the table below. 18 Table of Contents Volume Increase Increase Gamma Knife 12/31/2023 12/31/2022 (Decrease) (Decrease) Medical Equipment Leasing - Gamma Knife 824 954 (130 ) (13.6 )% Direct Patient Services ("retail") - Gamma Knife 371 332 39 11.7 % Gamma Knife - Total 1,195 1,286 (91 ) (7.1 )% PBRT Procedures (medical equipment leasing) 5,369 5,296 73 1.4 % The decrease in Gamma Knife volume, under medical equipment lease, during 2023 was primarily due to the expiration of two contracts in the second and third quarters of 2023 , respectively. Same center procedures decreased 4% compared to 2022 due to downtime for the upgrade of two Gamma Knife systems to the Esprit during the third and fourth quarters of 2023 . The increase in Gamma Knife volume, under direct patient services, during 2023 was due to improved marketing and physician outreach at the Company’s international locations, offset by downtime to upgrade the Gamma Knife equipment in Ecuador to the Icon. The increase in PBRT volume was due to normal, cyclical fluctuations. Reimbursement CMS 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 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. Pending Acquisition On November 10, 2023, the Company entered into the IPA with GenesisCare and GC Holdings pursuant to which GenesisCare agreed to sell to the Company its entire equity interest in each of RI Target Companies together with the assignment of certain payor contacts for a purchase price of $2,850,000. 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 is contingent upon certain closing conditions, including Genesis Care 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 to a First Amendment to 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 from March 10, 2024 to April 30, 2024. The Company anticipates that the closing conditions will be met in April 2024. 19 Table of Contents 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 revenue sharing customers, and the salvage value of equipment, 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 delivers radiation therapy through medical equipment leasing (“leasing”) and direct patient services (“retail”). The Company leased ten Gamma Knife systems and one PBRT system as of December 31, 2023. The leasing business operates by fee-per-use contracts or revenue sharing, where the Company shares in the revenue and operating costs of the equipment. The Company, through GKF, also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador, which provide radiation therapy services directly to the patient, or, retail. Rental Revenue from Medical Equipment Leasing (“Leasing”) The Company recognizes leasing revenue 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 are typically for a ten-year term and are classified as either fee per use or revenue sharing. Revenue from fee per use contracts is determined by each hospital’s lease agreement with the Company. 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 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 operating costs of the equipment 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 and profit. The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations. For the years ended, December 31, 2023 and 2022, the Company recognized leasing revenue of approximately $17,772,000 and $16,655,000 under ASC 842, respectively, of which approximately $10,133,000 and $8,952,000 were for PBRT services, respectively. Revenue sharing arrangements amounted to approximately 70 % and 67% of total revenue for the years ended December 31, 2023 and 2022, 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 revenue sharing 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, 2023, by approximately $113,000 to $226,000 . Direct Patient Services Revenue (“Retail”) 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 between three and six months, following issuance of invoice. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable under ASC 606 at December 31, 2023 was $1,626,000. Accounts receivable under ASC 606 at January 1, 2022 and December 31, 2022 was $668,000 and $1,119,000. For the years ended December 31, 2023 and 2022, the Company recognized retail revenues of approximately $3,553,000 and $3,091,000 under ASC 606, respectively. Equipment Sales During the year-ended December 31, 2023, the Company completed a sale of equipment to a new customer. The Company assessed this transaction under ASC 606 and concluded the Company acted as the agent in this transaction and provided, at a point in time, two performance obligations, in the form of an equipment sale of an Icon and Cobalt-60 reload. The performance obligation to sell, assign, transfer and deliver the equipment to the customer was carried out via Elekta. Revenue related to the equipment sale is recognized on a net basis when the sale is complete. The Company recognized net revenue of $200,000 on the sale of equipment for the year-ended December 31, 2023. 20 Table of Contents 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. 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. See Note 3 - Property and Equipment to the consolidated financial statements for further discussion on salvage value. As of December 31, 2023, the Company had 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 $676,000. 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 31, 2024. The Company is currently evaluating ASU 2023-09 to determine the impact it may have on its consolidated financial statements. 2023 Results For each of the years ended December 31, 2023 and 2022, 84% and 16% of the Company’s revenue was derived from the leasing segment versus the retail segment, respectively. For the year ended December 31, 2023, 51% of the Company’s revenue was derived from its Gamma Knife business, 48% was derived from its PBRT business and 1% was derived from equipment sales. 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 its PBRT business. TOTAL REVENUE Increase (in thousands) 2023 (Decrease) 2022 Total revenue $ 21,325 8.0 % $ 19,746 Total revenue in 2023 increased 8.0% compared to 2022 primarily due to an increase in PBRT revenues and equipment sales during the current year. Revenues from the Company’s leasing segment increased $1,117,000 in 2023 compared to 2022 due to an increase in PBRT volumes and PBRT average reimbursement, offset slightly by lower Gamma Knife revenues. Revenues from the Company’s retail segment increased by $462,000 in 2023 compared to 2022 primarily due to an increase in volume. Gamma Knife Revenue Increase 2023 (Decrease) 2022 Revenue from Gamma Knife (in thousands) $ 10,992 1.8 % $ 10,794 Number of Gamma Knife procedures 1,195 (7.1 )% 1,286 Average revenue per procedure $ 9,198 9.6 % $ 8,393 Gamma Knife revenue for 2023 was $10,992,000 compared to $10,794,000 in 2022. Gamma Knife revenue for 2023 increased $198,000 compared to 2022 due to an increase in average reimbursement, offset by lower procedure volume. The number of Gamma Knife procedures performed in 2023 decreased by 91 compared to 2022 primarily due to the expiration of two contracts in the second and third quarters of 2023. Excluding the two Gamma Knife contracts that expired, Gamma Knife procedures for existing sites increased 1% in 2023 compared to the prior year. The increase in Gamma Knife procedures for existing customer sites was driven by a 12% increase in the Company’s retail segment, partially offset by a 4% decrease in the Company’s Gamma Knife leasing segment in 2023 compared to 2022, respectively. The increase in Gamma Knife volumes from retail sites was due to improved marketing and physician outreach at the Company’s international locations, partially offset by downtime due to upgrade the Gamma Knife equipment in Ecuador to the Icon. Revenue per procedure increased by $805 in 2023 compared to 2022. 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 2023 (Decrease) 2022 Revenue from PBRT (in thousands) $ 10,133 13.2 % $ 8,952 Number of PBRT fractions 5,369 1.4 % 5,296 Average revenue per fraction $ 1,887 11.7 % $ 1,690 21 Table of Contents PBRT revenue for 2023 was $10,133,000 compared to $8,952,000 in 2022. The number of PBRT fractions performed in 2023 was 5,369 compared to 5,296 in 2022. Revenue per fraction in 2023 was $1,887 compared to $1,690 in 2022. The increase in PBRT volume was due to the higher utilization of the equipment by the customer. 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) 2023 (Decrease) 2022 Total costs of revenue $ 11,981 5.4 % $ 11,364 Percentage of total revenue 56.2 % 57.6 % 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 revenue sharing and international sites) increased by $617,000 in 2023 compared to 2022. Maintenance and supplies and other direct operating costs, related party, as a percentage of total revenue were 13.5% and 15.1% in 2023 and 2022 , respectively. Maintenance and supplies and other direct operating costs, related party decreased by $89,000 in 2023 compared to 2022 . The decrease in 2023 compared to 2022was primarily due to maintenance for one of the Company’s Gamma Knife contracts that expired in June 2023 . Depreciation and amortization costs as a percentage of total revenue were 23.8% and 23.9% in 2023 and 2022 . Depreciation and amortization costs increased $347,000 in 2023 compared to 2022 . The increase in 2023 compared to 2022was due to a change in estimate for useful life for one of the Company’s Gamma Knife units. As of January 1, 2023, the Company reduced its estimated useful life for one of its retail Gamma Knife units. The net effect of the change in estimate made January 1, 2023, for the year ended December 31, 2023, was a decrease in net income of approximately $207,000 or $0.03 per diluted share. This change in estimate also impacts future periods. Other direct operating costs as a percentage of total revenue were 18.9% and 18.6% in 2023 and 2022 , respectively. Other direct operating costs increased by $359,000 in 2023 compared to 2022 . The increase in 2023 was primarily due to increased volume and therefore increased operating costs from the retail segment. SELLING AND ADMINISTRATIVE EXPENSE Increase (In thousands) 2023 (Decrease) 2022 Selling and administrative expense $ 7,022 36.5 % $ 5,145 Percentage of total revenue 32.9 % 26.1 % The Company’s selling and administrative costs increased $1,877,000 in 2023 compared to 2022. The increase in 2023 was due to increased staffing in the sales, finance and customer retention areas and approximately $919,000 in fees associated with new business opportunities, including the Company’s pending RI Acquisition. INTEREST EXPENSE Increase (In thousands) 2023 (Decrease) 2022 Interest expense $ 1,112 38.0 % $ 806 Percentage of total revenue 5.2 % 4.1 % The Company’s interest expense increased $306,000 in 2023 compared to 2022. The debt under the Credit Agreement carries a floating interest rate of LIBOR plus 3%. The increase for the year ended December 31, 2023 was due to an increase in LIBOR compared to the same period of the prior year. 22 Table of Contents (LOSS) ON WRITE DOWN OF IMPAIRED ASSETS AND ASSOCIATED REMOVAL COSTS Increase (In thousands) 2023 (Decrease) 2022 Loss on write down of impaired assets $ 940 * $ — Percentage of total revenue 4.4 % 0.0 % As of December 31, 2023 and 2022, the Company recognized a loss on the write down of impaired assets of $940,000 and $0, respectively. During the year ended December 31, 2023, the Company recorded an asset removal obligation (“ARO”) for one of the customer contracts that expired during 2023. An ARO for the second contract that expired during 2023 was recorded and impaired in a prior period. For the ARO recorded during 2023, the Company concluded the related increase to the underlying assets could not be supported by the cash flows of the equipment and therefore the Company recorded a loss on the write-down of the ARO during the three-month period ended June 30, 2023. The Company also reviewed its long-lived assets during the fourth quarter of 2023 and concluded events and circumstances existed that indicated additional impairment existed at a third Gamma Knife site related to the existing equipment. See Note 3 - Property and Equipment to the consolidated financial statements for further discussion on impairment. INTEREST AND OTHER INCOME Increase (In thousands) 2023 (Decrease) 2022 Interest and other income (loss) $ 422 385.1 % $ 87 Percentage of total revenue 2.0 % 0.4 % Interest and other income increased $422,000 in 2023 compared to 2022. The increases are primarily due to increases in the interest paid on the Company’s cash in 2023 compared to 2022. INCOME TAX EXPENSE Increase (In thousands) 2023 (Decrease) 2022 Income tax expense $ 431 (55.2 )% $ 963 Percentage of total revenue 2.0 % 4.9 % Percentage of income, after net income attributable to non-controlling interests, and before income taxes 41.4 % 42.0 % Income tax expense decreased $532,000 in 2023 compared to 2022. The decrease in income tax expense in 2023 was due to lower earnings during 2023, and return-to-provision adjustments arising from foreign tax returns filed during 2022, as well as permanent domestic tax differences recorded in the prior year. 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. 23 Table of Contents NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS Increase (In thousands) 2023 (Decrease) 2022 Net (loss) income attributable to non-controlling interests $ (345 ) (252.0 )% $ 227 Percentage of total revenue (1.6 )% 1.1 % Net income attributable to non-controlling interests decreased $572,000 in 2023 compared to 2022. 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 2023 compared to 2022 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) 2023 (Decrease) 2022 Net income attributable to ASHS $ 610 (54.1 )% $ 1,328 Net income per share attributable to ASHS, diluted $ 0.10 (52.4 )% $ 0.21 Net income attributable to American Shared Hospital Services decreased $718,000 in 2023 compared to 2022. Net income for the Company’s retail segment decreased $49,000 in 2023 compared to 2022. The decrease in 2023 compared to 2022 was primarily due to down time for the upgrade of the equipment in Ecuador. Net income for the Company’s leasing segment decreased $669,000 in 2023 compared to 2022. The decrease in 2023 compared to 2022 was due to higher selling and administrative expense to support the Company’s pursuit of new business opportunities as well as higher interest expense, losses on the write-down of impaired equipment and associated removal costs, and the Company’s change in estimate for depreciation. 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, 2023, the Company borrowed $2,500,000 on its line of credit, which was paid off in January 2024. The Company had cash and cash equivalents, including restricted cash, of $13,808,000 at December 31, 2023 compared to $12,453,000 at December 31, 2022, an increase of $1,355,000. The Company’s expected primary cash needs on both a short and long-term basis are for capital expenditures, business expansion (including the payment of the purchase price in connection with the RI acquisition), working capital, and other general corporate purposes. The Company believes that its borrowing capacity under its Revolving Line and its access to capital resources are sufficient to continue funding its present operations, to meet its commitments on its existing debt, and to meet its operating capital and funding requirements for the next 12 months from the date of this Annual Report. Cash Flows Cash Flows Provided by Operating Activities Operating activities pr ovided $5,718,000 of cash in 2023, which was driven by net income of $265,000, non-cash charges for depreciation and amortization of $5,165,000, a loss on the write down of impaired assets of $940,000, stock-based compensation expense of $389,000, accretion of deferred issuance costs of $46,000, income taxes payable of $974,000, and changes in prepaids and other assets of $21,000. These increases were offset by net changes in Right-of-Use assets and lease liabilities of $34,000, deferred income taxes of $759,000, changes in payables and other accrued liabilities of $79,000, changes in receivables of $719,000, and changes in related party liabilities of $491,000. The Company’s trade accounts receivable increased by $542,000 to $4,343,000 at December 31, 2023 from $3,801,000 at December 31, 2022. The number of days revenue (sales) outstanding (“DSO”) in accounts receivable as of December 31, 2023 was 74 days compared to 70 days at December 31, 2022. DSO fluctuates depending on timing of customer payments received and the mix of fee per use versus revenue sharing and retail customers. The revenue sharing and retail sites generally have longer collection periods than fee per use sites. Cash Flows Used in Investing Activities Investing activities used $6,273,000 of cash in 2023, due to payments made towards the purchase of property and equipment. During 2023, the Company completed one Esprit upgrade and began a second Esprit upgrade at existing customer sites, and predominantly completed the installation of a LINAC at it’s new site in Puebla, Mexico. The Company amended its Credit Agreement to include financing for the LINAC equipment in in January 2024. Cash Flows Provided by (Used in) Financing Activities Financing activities provided $1,910,000 of cash during 2023, which was driven by long-term debt financing from the second tranche of the DFC Loan of $1,750,000 and net borrowings on the Revolving Line of $2,500,000. These increases were offset by payments on long-term debt of $2,129,000, debt issuance costs of $9,000 and payments on short-term financing of insurance premiums of $202,000. Working Capital The Company had working capital at December 31, 2023 of $9,677,000 compared to working capital of $13,548,000 at December 31, 2022. The $3,871,000 decrease in net working capital was primarily due to a decrease in cash driven by payments for equipment that the Company financed subsequent to year-end. The Company paid substantially all of the project invoices for the Puebla equipment during 2023. On January 25, 2024, the Company amended the Credit Agreement to include financing for the LINAC equipment in Puebla totaling $2,700,000. See Note 5 - Long-Term Debt to the consolidated financial statements for more information. 24 Table of Contents 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 $2,500,000 under the Revolving Line as of December 31, 2023, which the Company repaid in January 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 December 31, 2023, 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 December 31, 2023. 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 Company’s loan with DFC also contains customary covenants and representations, which, following the funding of the second Tranche, the Company was not in compliance with as of December 31, 2023. The Company obtained a waiver for the covenants for December 31, 2023. The DFC Loan contains customary covenants among other covenants and obligations, requirements that the Company maintain certain financial ratios related to liquidity and cash flow as well as depository requirements. On March 28, 2024 the Company 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. The Company expects to be in compliance with all debt covenants pursuant to the DFC Loan as amended and waived at March 31, 2024. If the Company fails to comply with the Credit Agreement Covenants or the DFC Loan Covenants, the Company’s credit commitments could be terminated and the principal of any outstanding borrowings, together with any accrued but unpaid interest, under the Credit Agreement or the DFC Loan could be declared immediately due and payable. Furthermore, The lenders under the Credit Agreement and the DFC Loan could also exercise their rights to take possession of, and to dispose of, the collateral securing the credit facilities and loans and could take any additional remedies upon default as set forth in each such agreement. The Company’s combined long-term debt, net, totaled $13,125,000 as of December 31, 2023. See Note 5 - Long Term Debt to the consolidated financial statements for additional information. Commitments As of December 31, 2023, the Company had commitments to purchase and install Gamma Knife and LINAC equipment totaling $15,925,000. 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 $13,808,000 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 $14,805,000. 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. The Company’s commitments to purchase a second and third PBRT unit expired in January 2024. 25 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 de-install and maintain the equipment . The following summarizes related party activity for the years ended December 31, 2023 and 2022: December 31, 2023 2022 Equipment purchases and de-install costs $ 6,918,000 $ 1,844,000 Costs incurred to maintain equipment 851,000 1,094,000 Total related party transactions $ 7,769,000 $ 2,938,000 The Company also had related party commitments to install three Esprit upgrades, one Cobalt-60 reload, purchase one MR LINAC, purchase one Gamma Plan workstation, and service the related equipment. The Company also has two commitments to de-install Gamma Knife units at existing customer sites. Total related party commitments were $18,968,000 as of December 31, 2023. Related party liabilities on the consolidated balance sheets consist of the following as of December 31, 2023 and 2022: December 31, 2023 2022 Accounts payable and other accrued liabilities $ 1,961,000 $ 497,000 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.