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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

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

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.

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Volume

Increase Increase

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.

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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 in 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.

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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

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

Revenue from Gamma Knife (in thousands) $ 10,794 (7.2 )% $ 11,629

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

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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

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

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

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.

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

Increase

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

(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

Percentage of total revenue 4.9 % 1.5 %

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.

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NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

Increase

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 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 provided $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.

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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.

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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,

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,

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.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

(b) Management’s report on internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding directors is incorporated herein by reference from the Company’s definitive Proxy Statement for the 2023 Annual Meeting of Shareholders (the “2023 Proxy Statement”). Information regarding executive officers of the Company, included herein under the caption “Executive Officers of the Company” in “Part I, Item 1. Business” above, is incorporated herein by reference.

Information concerning the identification of our standing audit committee required by this Item is incorporated by reference from the 2023 Proxy Statement.

Information concerning our audit committee financial experts required by this Item is incorporated by reference from the 2023 Proxy Statement.

Information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference from the 2023 Proxy Statement.

We have adopted a Code of Ethics that is available on our website at www.ashs.com. The information on our website is not part of this report. You may also request a copy of this document free of charge by writing our Corporate Secretary.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this Item is incorporated herein by reference from the 2023 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this Item is incorporated herein by reference from the 2023 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this Item is incorporated herein by reference from the 2023 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to the section entitled “Ratification of the Appointment of Our Independent Registered Public Accounting Firm” in our Proxy Statement for the 2023 Annual Meeting of Stockholders.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules.

The following Financial Statements and Schedules are filed with this Report:

Report of Independent Registered Public Accounting Firm

Audited Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statement of Shareholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

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(b) Exhibits.

The following Exhibits are filed with this Report.

Exhibit Incorporated by reference herein

Number Description Form Exhibit Date

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21.1 * Subsidiaries of American Shared Hospital Services

23.1 * Consent of Independent Registered Public Accounting Firm

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101.INS * Inline XBRL Instance Document

101.SCH * Inline XBRL Taxonomy Extension Schema Document

101.CAL * Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF * Inline XBRL Taxonomy Definition Linkbase Document

101.LAB * Inline XBRL Taxonomy Label Linkbase Document

101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

ǂ Furnished herewith.

• Indicates management compensatory plan, contract, or arrangement.

ITEM 16. FORM 10-K SUMMARY

The optional summary in Item 16 has not been included in this Form 10-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN SHARED HOSPITAL SERVICES

(Registrant)

March 31, 2023 By: /s/ Raymond C. Stachowiak

Raymond C. Stachowiak

Executive Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature Title Date

Raymond C. Stachowiak

/s/ Daniel G. Kelly Jr. Director March 31, 2023

Daniel G. Kelly JR.

/s/ Ernest A. Bates Director March 31, 2023

Ernest A. Bates, M.D.

/s/ Kathleen Miles Director March 31, 2023

Kathleen Miles

/s/ Vicki L. Wilson Director March 31, 2023

Vicki Wilson

/s/ Craig K. Tagawa President and Chief Financial Officer March 31, 2023

Craig K. Tagawa (principal financial officer and principal accounting officer)

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AMERICAN SHARED HOSPITAL SERVICES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

and

CONSOLIDATED FINANCIAL STATEMENTS

AS OF December 31, 2022 and 2021,

and

FOR THE YEARS THEN ENDED

CONTENTS

PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F- 1

CONSOLIDATED FINANCIAL STATEMENTS

Balance sheets F- 3

Statements of income F- 4

Statement of shareholders’ equity F- 5

Statements of cash flows F- 6

Notes to financial statements F- 8

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

American Shared Hospital Services, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of American Shared Hospital Services, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Retail Revenue Recognition – Estimates of Reimbursement Rates and Payor Mix

As described in Note 2 in the Company’s consolidated financial statements, the Company has retail customer revenue classified as either turn-key or revenue sharing that are recognized under Accounting Standards Codification 842 Leases. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. Under turn-key arrangements, the Company receives payment from the hospital based on the amount of the hospital’s reimbursement from third party payors.

We identified management’s estimates of reimbursement rates and payor mix to record retail revenue and related accounts receivable, as a critical audit matter. Retail revenue and related accounts receivable involves significant judgment and estimation, including measurement uncertainty, by management based on the estimates and assumptions used and are subject to adjustments based on actual reimbursements received by the Company. In turn, auditing management’s judgments and estimates related to retail revenue and related accounts receivable involved a high degree of subjectivity, as they are based on estimates of reimbursement rates and payor mix.

The primary procedures we performed to address this critical audit matter included:

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Property and Equipment - Salvage Value on Equipment

As described in Note 2 to the consolidated financial statements, property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife, and other equipment is determined using the straight-line method over the estimated useful lives of the assets, which for medical and office equipment is generally from 3 to 10 years, and after accounting for salvage value on the equipment where indicated. Salvage value is based on the estimated fair value of the equipment at the end of its useful life. As of December 31, 2022, the Company had seven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000.

We identified management’s estimates of salvage value including qualitative assessments of certain equipment as a critical audit matter. Determination of salvage values involves significant judgment and estimation, involving measurement uncertainty, as there is no active resale market for the Gamma Knife units due to limited sellers and buyers and trade-ins for the equipment are not guaranteed. Trade-ins are highly dependent on future demand, values and the Company’s relationship with the supplier, a related party of the Company. In turn, auditing management’s judgments and estimates related to salvage value of certain equipment, involved a high degree of subjectivity.

The primary procedure we performed to address this critical audit matter included evaluating management’s determination of salvage values by comparing determined salvages values with historical trade-in transactions and publicly available transaction information, if available, which may include reviewing relevant purchase agreements, supplier agreements or information, and evaluating publicly available transaction information.

/s/ Moss Adams LLP

San Francisco, California

March 31, 2023

We have served as the Company’s auditor since 2000.

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AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED BALANCE SHEETS

December 31,

ASSETS

CURRENT ASSETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES

LONG-TERM LEASE LIABILITIES, less current portion 59,000 359,000

COMMITMENTS AND CONTINGENCIES (See Note 10)

SHAREHOLDERS’ EQUITY

Common stock

See accompanying notes

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AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED December 31,

Revenues:

Costs of revenue:

Loss on write down of impaired assets and associated removal costs — 105,000

(Loss) on early extinguishment of debt — (401,000 )

Interest and other (loss) income 87,000 (3,000 )

Net income per share attributable to American Shared Hospital Services:

Earnings per common share - basic $ 0.21 $ 0.03

Earnings per common share - diluted $ 0.21 $ 0.03

Weighted average common shares for basic earnings per share 6,297,000 6,044,000

See accompanying notes

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AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Issuance of deferred restricted stock awards 123,000 — — — — — —

Vested restricted stock awards 130,000 — — — — — —

Cash distributions to non-controlling interests — — — — — (514,000 ) (514,000 )

Vested restricted stock awards 132,000 — — — — — —

Cash distributions to non-controlling interests — — — — — (573,000 ) (573,000 )

See accompanying notes

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AMERICAN SHARED HOSPITAL SERVICES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED December 31,

OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash from operating activities:

Loss on write down impaired assets — 105,000

Loss on sublease impairment, net — 74,000

Loss on extinguishment of debt — 401,000

Interest expense associated with lease liabilities 29,000 42,000

Changes in operating assets and liabilities:

Asset retirement obligations, related party (397,000 ) (618,000 )

Accounts payable, accrued liabilities and deferred revenue 608,000 76,000

INVESTING ACTIVITIES

Payment for purchases of property and equipment (388,000 ) (1,674,000 )

FINANCING ACTIVITIES

Principal payments on finance leases — (8,919,000 )

Prepayment penalties — (401,000 )

Distributions to non-controlling interests (573,000 ) (514,000 )

Debt issuance costs long-term debt (9,000 ) (325,000 )

Proceeds from options exercised 5,000 5,000

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year $ 12,453,000 $ 8,263,000

See accompanying notes

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SUPPLEMENTAL CASH FLOW DISCLOSURE

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Right of use assets and lease liabilities $ — $ 151,000

Acquisition of equipment with long-term debt financing $ — $ 1,103,000

DETAIL OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

See accompanying notes

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1– BUSINESS AND BASIS OF PRESENTATION

Business – These consolidated financial statements include the accounts of American Shared Hospital Services (“ASHS”) and its subsidiaries (the “Company”) as follows: ASHS wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); ASHS is the majority owner of Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”) which wholly-owns the subsidiary Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”). GKF is the majority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville GK Equipment, LLC (“JGKE”). GKF formed HoldCo GKC S.A. (“HoldCo”) to acquire Gamma Knife Center Ecuador S.A. (“GKCE”).

The Company (through ASRS) and Elekta AG (“Elekta”), the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. During 2022, GKF leased Gamma Knife units to twelve medical centers in the United States in the states of California, Florida, Illinois, Indiana, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, and Texas. GKF also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. The Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment to a customer in the United States.

The Company formed the subsidiary GKPeru and acquired GKCE for the purposes of expanding its business internationally; Orlando and LBE to provide PBRT equipment and services in Orlando, Florida and Long Beach, California, respectively; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. AGKE began operations in the second quarter of 2011 and JGKE began operations in the fourth quarter of 2011. Orlando treated its first patient in April 2016. GKPeru treated its first patient in July 2017. LBE is not expected to generate revenue within the next two years.

On April 27, 2022, the Company signed a Joint Venture Agreement (the “Agreement”) with the principal owners of Guadalupe Amor Y Bien (“Guadalupe”) to establish AB Radiocirugia Y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients. The Company and Guadalupe will hold 85% and 15% ownership interests, respectively, in Puebla. Under the Agreement, the Company will be responsible for providing a linear accelerator upgrade to an Elekta Versa HD, and Guadalupe will be accountable for all site modification costs. The Company formed ASHS-Mexico, S.A. de C.V. on October 3, 2022 to establish Puebla in order to provide radiation therapy and radiosurgery services locally in Mexico. Puebla was formed on December 15, 2022.

The Company continues to develop its design and business model for The Operating Room for the 21st CenturySM through its 50% owned OR21, LLC (“OR21”). The remaining 50% of OR21 is owned by an architectural design company. OR21 is not expected to generate significant revenue within the next two years.

MedLeader was formed to provide continuing medical education online and through videos for doctors, nurses, and other healthcare workers. This subsidiary is not operational at this time.

All significant intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2– ACCOUNTING POLICIES

Use of estimates in the preparation of financial statements – In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the estimated useful lives of fixed assets and its salvage values, revenues and costs of sales for turn-key and revenue sharing arrangements. Actual results could differ from those estimates.

Advertising and marketing – The Company expenses advertising and marketing costs as incurred (collectively, “marketing costs”). Marketing costs were $233,000 and $211,000 during the years ended December 31, 2022 and 2021, respectively. Marketing costs include joint marketing with customers and corporate advertising costs. Marketing costs are recorded in other direct operating costs and sales and administrative costs in the consolidated statements of income.

Sales and Service – The Company markets its financial and turnkey solutions directly to cancer treatment centers, hospitals, and large cancer networks worldwide through its sales staff. Sales expense includes payroll and travel costs for the Company’s sales staff. The Company also typically provides the equipment, as well as planning, installation, reimbursement and marketing support services to its customers.

Cash and cash equivalents – The Company considers all liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted cash is not considered a cash equivalent for purposes of the consolidated statements of cash flows.

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted cash – Restricted cash represents the minimum cash that must be maintained in GKF to fund operations, per the subsidiary’s operating agreement and the minimum cash that must be maintained by GKF per it’s financing agreement with the United States International Development Finance Corporation (“DFC”). See further discussion at Note 5 - Long Term Debt.

Business and credit risk – The Company maintains its cash balances, which exceed federally insured limits, in financial institutions. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. The Company monitors the financial condition of the financial institutions it uses on a regular basis.

All of the Company’s revenue was provided by fifteen and seventeen customers in 2022 and 2021, respectively. One customer accounted for approximately 45% and 34% of the Company’s total revenue in 2022 and 2021, respectively. At December 31, 2022, four customers each individually accounted for 12%, 14%, 16% and 22% of total accounts receivable, respectively. At December 31, 2021, two customers each individually accounted for 31% and 10% of total accounts receivable, respectively. The Company performs credit evaluations of its customers and generally does not require collateral. The Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular geographic area.

All of the Company’s radiosurgery devices have been purchased through Elekta, to date. However, there are other manufacturers that also make radiosurgery devices.

Accounts receivable and doubtful accounts – Accounts receivable are recorded at net realizable value. An allowance for doubtful accounts is estimated based on historical collections plus an allowance for probable losses. Receivables are considered past due based on contractual terms and are charged off in the period that they are deemed uncollectible. Recoveries of receivables previously charged off are offset against bad debt expense when received.

Non-controlling interests - The Company reports its non-controlling interests as a separate component of shareholders’ equity. The Company also presents the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements of income.

Property and equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife and other equipment is determined using the straight-line method over the estimated useful lives of the assets, which for medical and office equipment is generally 3 – 10 years, and after accounting for salvage value on the equipment where applicable. The Company acquired a building as part of the acquisition of GKCE in June 2020. Depreciation for buildings is determined using the straight-line method over 20 years. The Company determines salvage value based on the estimated fair value of the equipment at the end of its useful life. 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. As of December 31, 2022, the Company had seven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000. As of December 31, 2021, the Company had seven domestic Gamma Knife units with salvage value ranging from $175,000 to $400,000.

Depreciation for PBRT and related equipment is determined using the modified units of production method, which is a function of both time and usage of the equipment. This depreciation method allocates costs considering the projected volume of usage through the useful life of the PBRT unit, which has been estimated at 20 years. The estimated useful life of the PBRT unit is consistent with the estimated economic life of 20 years.

The Company leases Gamma Knife and radiation therapy equipment to its customers under arrangements accounted for as operating leases. At December 31, 2022, the Company held equipment under operating lease contracts with customers with an original cost of $69,306,000 and accumulated depreciation of $47,992,000. At December 31, 2021, the Company held equipment under operating lease contracts with customers with an original cost of $68,994,000 and accumulated depreciation of $43,400,000.

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2– ACCOUNTING POLICIES (CONTINUED)

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

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 10-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.

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 between 3 and 6 months. Timing of payments from the government payor can fluctuate year to year based on local social or economic changes. 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.

Stock-based compensation – The Company measures all stock-based compensation awards at fair value and records such expense in its consolidated financial statements over the requisite service period of the related award. See Note 8 - Stock-Based Compensation Expense for additional information on the Company’s stock-based compensation programs.

Costs of revenue – The Company’s costs of revenue consist primarily 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). Costs of revenues are recognized as incurred.

Income taxes – The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2– ACCOUNTING POLICIES (CONTINUED)

The Company accounts for uncertainty in income taxes as required by the provisions of ASC 740Income taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes.

See Note 7 - Income Taxes for further discussion on income taxes.

Functional currency – Based on guidance provided in accordance with ASC 830,Foreign Currency Matters (“ASC 830”), the Company analyzes its operations outside the United States to determine the functional currency of each operation. Management has determined that these operations are initially accounted for in U.S. dollars since the primary transactions incurred are in U.S. dollars and the Company provides significant funding towards the startup of the operation. When Management determines that an operation has become predominantly self-sufficient, the Company will reassess its accounting for the operation to the local currency from the U.S. dollar. The Company analyzed it’s Gamma Knife site in Peru under ASC 830 as of December 31, 2022 and 2021 and concluded the functional currency was the U.S. dollar. As facts and circumstances change, the Company will revisit this conclusion. The functional currency of the Company’s Gamma Knife site in Ecuador is the U.S. dollar because that is the local currency of Ecuador.

Asset Retirement Obligations – Based on the guidance provided in ASC 410,Asset Retirement Obligations (“ASC 410”), the Company analyzed its existing lease agreements and determined whether an asset retirement obligation (“ARO”) exists to remove the respective units at the end of the lease terms. As of December 31, 2020, four of the Company's Gamma Knife customers notified the Company of their intent to terminate their contracts at the contract lease term. The Company recorded an ARO liability for these four sites, using estimates from Elekta. As of December 31, 2022, the Company removed three of these four units and has an ARO recorded for the remaining site. The Company increased its estimate for one of the AROs as of December 31, 2021 by approximately $105,000. The Company paid approximately $457,000 for the Gamma Knife unit that was removed in January 2022. No liability has been recorded as of December 31, 2022 for the remaining Gamma Knife sites, because it is uncertain these units will be removed and the Company historically has not removed the Gamma Knife equipment at the end of the lease term. The Company will re-evaluate the need to record additional ARO liabilities on a periodic basis when facts and circumstances change that could affect this conclusion.

Earnings per share – Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the year. The fully vested restricted stock units not issued and outstanding and unvested restricted stock units, are also included therein. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options or warrants. The computation for the years ended December 31, 2022 and 2021 excluded approximately 20,000 and 31,000, respectively, of the Company’s stock options because the exercise price of the options was higher than the average market price during the period. The weighted average common shares outstanding for the years ended December 31, 2022 and 2021 included approximately 123,000 and 123,000, respectively, of the Company's restricted stock awards that are fully vested but are deferred for issuance.

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2– ACCOUNTING POLICIES (CONTINUED)

The following table illustrates the computations of basic and diluted earnings per share for the years ended December 31, 2022 and 2021.

Numerator for basic and diluted earnings per share $ 1,328,000 $ 194,000

Denominator:

Earnings per common share- basic $ 0.21 $ 0.03

Earnings per common share- diluted $ 0.21 $ 0.03

Business segment information - Based on the guidance provided in accordance with ASC 280Segment Reporting (“ASC 280”), the Company analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there are fifteen locations that meet the definition of an operating segment and these fifteen locations are aggregated into two reportable segments, domestic and foreign. The Company provides Gamma Knife and PBRT equipment to thirteen hospitals in the United States and owns and operates two single-unit facilities in Lima, Peru and Guayaquil, Ecuador as of December 31, 2022. An operating segment is defined by ASC 280 as it engages in business activities in which it may recognize revenues and incur expense, its operating results are regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”), and its discrete financial information is available. The Company determined two reportable segments existed due to similarities in economics of business operations and geographic location. The operating results of the two reportable segments are reviewed by the Company’s CEO, who is also the CODM.

For the years ended December 31, 2022 and 2021, the Company’s PBRT operations represented a significant majority of the domestic profit, disclosed below. The revenues, profit or loss, and total asset allocations for the Company’s two reportable segments as of December 31, 2022 and 2021 consists of the following:

Revenues

Net income (loss) attributable to American Shared Hospital Services

Total assets

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AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2– ACCOUNTING POLICIES (CONTINUED)

Long lived asset impairment – The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value may not be recoverable. Such events or changes in circumstances may include: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to the consolidated statement of income in the period in which management determines such impairment. As of December 31, 2021, impairment of $105,000 related to the removal costs of one of the Gamma Knife units that was impaired in the prior year was recorded. No other additional impairment has been noted as of December 31, 2022. See Note 3 - Property and Equipment for further discussion.

Goodwill and intangible assets - The Company recorded goodwill of $1,265,000 and an intangible asset with a fair value of $78,000 as part of the acquisition of GKCE in June 2020. The intangible asset identified was GKCE’s trade name and the Company assigned an indefinite useful life to the asset. Based on the guidance provided in accordance with ASC 350Intangibles-Goodwill and Other (“ASC 350”), the Company does not amortize the intangible asset because it has an indefinite life. The Company assesses goodwill at the reporting unit level, which has been determined to be GKCE. Each reporting period, the Company assesses whether events or circumstances continue to support an indefinite useful life for the intangible asset. Per ASC 350, the Company tests goodwill and intangibles for impairment annually or as events or circumstances change that indicate the fair value may be below the carrying amount. As of December 31, 2022 and 2021, there has been no change to the Company's assessment of the value of intangible assets or goodwill.

Accounting pronouncements issued and not yet adopted - In January 2021, the FASB issued ASU 2021-01Reference Rate Reform (Topic 848) (“ASU 2021-01”) which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2021-01 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2021-01 is effective any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications. The Company is currently evaluating ASU 2021-01 to determine the impact it may have on its consolidated financial statements. See Note 5 - Long-term debt for additional discussion on transition from LIBOR.

Reclassifications – Certain comparative balances as of and for the year ended December 31, 2021 have been reclassified to make them consistent with the current year presentation.

NOTE 3– PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

December 31,

As of December 31, 2022 and 2021, approximately $2,201,000 and $2,697,000, respectively, of the net property and equipment balance is outside of the United States. Depreciation expense recorded in costs of revenue and selling and administrative expense in the consolidated statements of income for the years ended December 31, 2022 and 2021, was $4,783,000 and $4,972,000, respectively.

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. This change in estimate will also impact future periods. Salvage value is based on the estimated fair value of the equipment at the end of its useful life.

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 impairment as of December 31, 2021 was related to the estimate for removal costs of one of the Gamma Knife units that was impaired during the year ended December 31, 2020 and removed in January 2022. The Company reviewed its Gamma Knife equipment, in light of available information as of December 31, 2022 and concluded no additional impairment exists. The Company reviewed it’s PBRT equipment, in light of available information as of December 31, 2022 and 2021 and concluded no impairment exists.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - OTHER ACCRUED LIABILITIES

Other accrued liabilities consists of the following:

December 31,

Equipment maintenance and upgrades, non-related party $ — $ 367,000

NOTE 5 - LONG TERM DEBT

On April 9, 2021 the Company along with certain of its domestic subsidiaries (collectively, the “Loan Parties”) entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A. (“the Credit Agreement”). The Credit Agreement includes three loan facilities. The first loan facility is a $9,500,000 term loan (the “Term Loan”) of which $6,774,000 was used to refinance the domestic Gamma Knife debt and finance leases, and associated closing costs, $1,665,000 was used to finance two Gamma Knife reloads and to pay for the unload costs for two customer contracts in the first quarter of 2021, with the remaining $1,061,000 available for future projects. The second loan facility is a $5,500,000 delayed draw term loan (the “DDTL”) of which $5,026,000 was used to refinance the Company’s PBRT finance leases and associated closing costs as well as to provide additional working capital. The third loan facility provides for a $7,000,000 revolving line of credit (the “Revolving Line”) available for future projects and general corporate purposes. The facilities have a five-year maturity, carry a floating interest of LIBOR plus 3.0% and are secured by a lien on substantially all of the assets of the Loan Parties and guaranteed by ASHS. The Company recorded a loss on extinguishment of debt of $401,000 during the year ended December 31, 2021, related to the prepayment penalties charged by the existing lenders. The Company capitalized debt issuance costs of $310,000 related to legal and transaction fees for the Credit Agreement during the year ended December 31, 2021. The long-term debt on the consolidated balance sheets related to the Term Loan and DDTL was $12,624,000 and $14,437,000 as of December 31, 2022 and 2021, respectively.

The Credit Agreement contains customary covenants and representations, including without limitation, a minimum fixed charge coverage ratio of 1.25 and maximum 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), reporting obligations, limitations on dispositions, changes in ownership, mergers and acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and capital expenditures. The Loan Parties are in compliance with the Credit Agreement covenants as of December 31, 2022.

The loan entered into with DFC in connection with the acquisition of GKCE in June 2020 (the “DFC Loan”) 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 amount outstanding under the DFC Loan is payable in 29 quarterly installments with a fixed interest rate of 3.67%. The Company’s loan with DFC also contains customary covenants and representations, which the Company is in compliance with as of December 31, 2022. The long-term debt on the consolidated balance sheets related to the DFC loan was $1,041,000 and $1,261,000 as of December 31, 2022 and 2021, respectively. The Company capitalized debt issuance costs of $9,000 and $15,000 as of December 31, 2022 and 2021, respectively, related to maintenance and administrative fees on the DFC Loan.

The accretion of debt issuance costs for the years ended December 31, 2022 and 2021, was $84,000 and $59,000, respectively. As of December 31, 2022 and 2021, the unamortized debt issuance costs on the consolidated balances sheets were $198,000 and $294,000.

The following are contractual maturities of long-term debt by year at December 31, 2022, excluding debt issuance costs of $198,000:

Year ending December 31, Principal

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - LEASES

The Company determines if a contract is a lease at inception. Under ASC 842, the Company is a lessor of equipment to various customers. Leases that commenced prior to ASC 842 adoption date were classified as operating leases under historical guidance. As the Company has elected the package of practical expedients allowing it to not reassess lease classification, these leases are classified as operating leases under ASC 842 as well. All of the Company’s lessor arrangements entered into after ASC 842 adoption are also classified as operating leases. Some of these lease terms have an option to extend the lease after the initial term, but do not contain the option to terminate early or purchase the asset at the end of the term. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset.

The Company’s Gamma Knife and PBRT contracts with hospitals are classified as operating leases under ASC 842. The related equipment is included in medical equipment and facilities on the Company’s consolidated balance sheets (see further discussion at Note 2). As all income from the Company’s lessor arrangements is solely based on procedure volume, all income is considered variable payments not dependent on an index or a rate. As such, the Company does not measure future operating lease receivables.

On November 3, 2021, the Company entered into an agreement to sublease (the “Sublease”) its corporate office located at Two Embarcadero Center, Suite 410, San Francisco, California, where it leases approximately 3,253 square feet for $22,011 per month with a lease expiration date in August 2023. The Sublease is for $16,195 per month through the existing contract expiration date. The Company also entered into a lease (the “Lease”) agreement for new corporate office space at 601 Montgomery, Suite 1112, San Francisco, CA for approximately 900 square feet for $4,500 per month with a lease expiration date in November 2024. The Company assessed the Lease under ASC 842 and concluded the Lease should be classified as an operating lease. The Company recorded $151,000 right-of-use (“ROU”) asset, other current liabilities and lease liabilities on the consolidated balance sheets related to the Lease as of December 1, 2021, the effective date of the Lease. The Company assessed the Sublease under ASC 842 and ASC 360 Property and Equipment (“ASC 360”) and concluded the ROU asset for the corporate offices at Two Embarcadero Center was impaired. The Company recorded an impairment loss on the Sublease of $77,000 as of December 1, 2021.

The Company’s lessee operating leases are accounted for as ROU assets, other current liabilities, and lease liabilities on the consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company’s operating lease contracts do not provide an implicit rate for calculating the present value of future lease payments, so the Company determined its incremental borrowing rate to be in the range of approximately 4.0% and 6.0% by using available market rates and expected lease terms. The operating lease ROU assets and liabilities also include any lease payments made and excludes lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company’s lessee operating lease agreements are for administrative office space and related equipment, and the agreement to lease clinic space for its stand-alone facility in Lima, Peru. These leases have remaining lease terms between 1 and 2 years, some of which include options to renew or extend the lease. As of December 31, 2022, operating ROU assets, net of impairment, were $317,000 and lease liabilities were $351,000.

The following table summarizes maturities of lessee operating lease liabilities as of December 31, 2022:

Year ending December 31, Operating Leases

Less imputed interest (9,000 )

Year Ended December 31,

Lease cost

Other information

Weighted-average remaining lease term - Operating leases in years 1.11 1.39

Weighted-average discount rate - Operating leases 5.65 % 5.80 %

The Company’s corporate offices are located at

601 Montgomery Street, Suite

1112, San Francisco, California, where it leases approximately

900 square feet for

$4,500 per month with a lease expiration date in

November 2024. The Company subleased its existing corporate offices located at Two Embarcadero Center, Suite

410, San Francisco, California, where it leases approximately

3,253 square feet for

$22,011 per month with a lease expiration date in

August 2023. The monthly lease expense is offset by sublease income of

$16,195. The sublease term is consistent with the existing lease term. The Company owns and operates a stand-alone Gamma Knife facility in Lima, Peru where it leases approximately

1,600 square feet for approximately

$8,850 per month with a lease expiration date in

January 2024. The Company also owns and operates a stand-alone Gamma Knife facility in Guayaquil, Ecuador where it owns

864 square feet of condominium space in an office building and approximately

10,135 of related land and parking spaces.

Net rent expense was

$290,000 and

$377,000 for the years ended

December 31, 2022 and 2021, respectively, and includes the above operating leases as well as month-to-month rental and certain executory costs. The sublease of the Company’s existing office space through the remainder of its lease term at a rate lower than its lease rate resulted in an impairment loss of

$77,000 for the year ended

December 31, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7– INCOME TAXES

The components of income before income taxes for the years ended December 31, 2022 and 2021 are as follows:

YEARS ENDED December 31,

For the year ended December 31, 2022 and 2021, the Company recorded an income tax expense of $963,000 and $269,000, respectively. The increase in the Company’s provision for income taxes as of December 31, 2022 is due to higher earnings during the current period, return-to-provision adjustments arising from foreign tax returns filed during the current period, as well as permanent domestic tax differences.

The components of the provision for income taxes for the years ended December 31, 2022 and 2021 consists of the following:

YEARS ENDED December 31,

Current:

Deferred:

Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2022 and 2021 are as follows:

December 31,

Deferred tax liabilities:

Deferred tax assets:

Deferred tax assets net of valuation allowance 433,000 577,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7– INCOME TAXES (CONTINUED)

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 2022 and 2021) to income before taxes as follows:

YEARS ENDED December 31,

State income taxes, net of federal benefit 100,000 69,000

AMT tax payable adjustment 208,000 —

Change in valuation allowance — 19,000

As of December 31, 2022, the Company has net operating loss carryforwards for federal and state income tax return purposes of approximately $0 and $2,604,000 that begin to expire in 2029.

Utilization of the net operating loss and credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. Any annual limitation may result in the expiration of net operating losses and credits before utilization.

At December 31, 2022, the Company has a capital loss carryforward for federal income tax return purposes of approximately $2,679,000,which starts to expire in 2024. The Company has capital loss carryforwards for state income tax purposes of approximately $129,000, which starts to expire in 2024.

Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance increased by $0 and $19,000 for the tax years ended December 31, 2022 and 2021, respectively.

The tax return years 2018 through 2021 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years 1999 through 2004,2009,2010,2012,2014,2015,2016,2017 and 2018 remain open to examination by the major domestic taxing jurisdictions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7– INCOME TAXES (CONTINUED)

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has made no reclassifications between current taxes payable and long term taxes payable under this guidance.

As of December 31, 2022, the unrecognized tax benefit was $278,000 which, if recognized, will not affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets, which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

YEARS ENDED December 31,

Additions based on tax positions of prior years (17,000 ) 20,000

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as income taxes. As of December 31, 2022, the Company had $43,000 accrued for the payment of penalties and zero interest related to unrecognized tax benefits. The Company does not expect any material changes to our uncertain tax positions within the next 12 months. The Company believes that it is reasonably possible that a decrease of up to $100,000 in unrecognized tax benefits related to foreign taxes may be necessary within the coming year.

NOTE 8– STOCK-BASED COMPENSATION EXPENSE

Incentive Compensation Plan

In June 2021, the Company’s shareholders approved an amendment and restatement of the Company’s Incentive Compensation Plan (the “Plan”), that among other things, increases the number of shares of the Company’s common stock reserved for issuance under the Plan to 2,580,000 and extends the term of the Plan by five years to February 22, 2027. The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non-employee directors, and advisors. No further grants or share issuances will be made under the previous plans. As of December 31, 2022, approximately 1,219,000 shares remain available for grant under the Plan.

Under the Plan, a total of 752,000 restricted stock units have been granted, consisting of 53,000 of annual automatic grants to non-employee directors, 328,000 of deferred retainer fees to non-employee members of the Board, 31,000 grants issued in lieu of commission or bonus to employees of the Company, and 340,000 restricted stock units issued to the CEO, see further discussion below. Of the total restricted stock units granted under the Plan 123,000 of them are fully vested but not yet deemed issued and outstanding, 624,000 are fully vested and outstanding, and 6,000 are outstanding as of December 31, 2022.

Changes in restricted stock units, consisting primarily of annual automatic grants, deferred compensation to non-employee directors, and restricted stock units awards to the CEO, under the Incentive Compensation Plans during 2022 and 2021 are as follows:

Restricted Stock Units Grant Date Weighted- Average Fair Value

For the year ended December 31, 2022, total compensation expense recorded in the consolidated statements of income for annual restricted stock units awarded was $6,000, with an offsetting tax benefit of $1,500, as this expense is deductible for income tax purposes. As of December 31, 2022, there was $11,000 of total unrecognized compensation cost related to annual restricted stock units which is expected to be recognized over a period of threeyears. For the year ended December 31, 2021, 38,000 of the vested restricted stock units were deferred for issuance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8– STOCK-BASED COMPENSATION EXPENSE (CONTINUED)

Certain Executive Equity Awards

Effective May 4, 2020, the Company appointed Raymond C. Stachowiak as Interim President and Chief Executive Officer. Pursuant to his Offer Letter, Mr. Stachowiak was granted 50,000 restricted stock awards that vested in full on August 3, 2020. He was granted additional restricted stock awards totaling 10,000 common shares per month, which vest in full at the end of each 30-day period following issuance. On October 1, 2020, Mr. Stachowiak was appointed as the CEO. For the year ended December 31, 2021, 120,000 restricted stock awards were issued to the CEO and became fully vested. Total compensation expense recorded for the year ended December 31, 2021 in the consolidated financial statements of income related to executive equity awards was $331,000. For the year ended December 31, 2022, 120,000 restricted stock awards were issued to Mr. Stachowiak and became fully vested. Total compensation expense recorded for the year ended December 31, 2022 in the consolidated financial statements of income related to the executive equity awards was $288,000.

For the year ended December 31, 2022, stock compensation expense recorded in the consolidated financial statements is summarized as follows:

Stock-Based

Awards Issued Compensation

and Vested Expense

Options Exercised 3,000 —

Management Bonus Program - vested and issued 11,000 —

Management Bonus Program — 92,000

Board RSU Awards - other — 3,000

Total stock-based compensation expense before income tax effect for the Company’s options and restricted stock awards in the amount of $399,000 and $420,000 for the years ended December 31, 2022 and 2021, is reflected in selling and administrative expense in the consolidated statements of income, respectively.

Stock Options

Changes in stock options outstanding under the Incentive Compensation Plans during 2022 and 2021 are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8– STOCK-BASED COMPENSATION EXPENSE (CONTINUED)

The weighted average grant-date fair value of the options granted during the years 2022 and 2021 was $1.49 and $1.10, respectively. There were 4,000 options exercised which resulted in 3,000 shares issued, due to cashless exercises, during the year ended December 31, 2022. There were 22,000 options exercised which resulted in 5,000 shares issued, due to cashless exercises, during the year ended December 31, 2021. Total stock-based compensation expense recognized for stock options for the years ended December 2022 and 2021 was $10,000 and $2,000, respectively.

The Company received approximately $5,000 from the exercise of 2,000 options under the share-based arrangements in each of the years ended December 31, 2022 and 2021. The remaining options exercised during 2022 and 2021 were cashless exercises.

At December 31, 2022, there was approximately $80,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately four years.

The Company’s stock-based awards to employees are calculated using the Black-Scholes options valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. The Company’s stock-based awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the present value estimates. For these reasons, management believes that the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards to employees.

The fair value of the Company’s option grants issued during 2022 and 2021 were estimated using assumptions for expected life, volatility, dividend yield, forfeiture rate, and risk-free interest rate which are specific to each award as summarized in the following table. The estimated fair value of the Company’s options is amortized over the period during which the optionee is required to provide service in exchange for the award, usually the vesting period.

The fair value of the Company’s option grants under the Plan in 2022 and 2021 was estimated using the following assumptions:

Expected life (years) 7.0 7.0

Expected forfeiture rate 0.0 % 0.0 %

Expected volatility 50 % 40 %

Dividend yield 0 % 0 %

Risk-free interest rate 3.3 % 1.2 %

The following summarizes the assumption inputs used for the Company’s Black-Scholes calculation:

Expected life (years): The expected term represents the weighted average period that the Company’s stock options are expected to be outstanding.

Expected forfeiture rate: Forfeitures are recognized as they occur.

Expected volatility: The expected volatility was derived from the Company’s historical stock volatility.

Dividend yield: The expected dividend yield was assumed to be zero, as the Company has not previously paid dividends on common stock and has no current plans to do so.

Risk-free interest rate: The risk-free interest rate is based on the interest yield in effect at the date of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.

Repurchase of Common Stock, Common Stock Warrants and Stock Options

In 1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares of the Company repurchased during 2022 or 2021. There are approximately 72,000 shares remaining under this repurchase authorization.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9– RETIREMENT PLAN

The Company has a defined-contribution retirement plan (the “Retirement Plan”) that allows for a matching safe harbor contribution. For 2022, the Board of Directors elected to match participant deferred salary contributions up to a maximum of 4% of the participant’s annual compensation. Discretionary profit sharing contributions are allowed under the Retirement Plan in years that the Board does not elect a safe harbor match. The Company has accrued approximately $36,000 for the estimated safe harbor matching contribution for the year ended December 31, 2022. The Company contributed $41,000 to the Retirement Plan for the safe harbor match for the year ended December 31, 2021.

NOTE 10– COMMITMENTS AND CONTINGENCIES

On December 20, 2018, the Company signed Second Amendments to two System Build Agreements for the Company’s second and third Mevion PBRT units. The Company and Mevion have agreed to upgrade the second and third PBRT units for which the Company has purchase commitments. The Company is actively seeking sites for these units but, to date, has not entered into agreements with any party for either placement of a PBRT unit or the related financing. The Company projects that it will be required to commence delivery of the second and third PBRT units no later than December 2023. In the event the Company is unable to enter into customer agreements within the requisite time frame or receive an extension from Mevion, the Company could forfeit its deposits. During the year-ended December 31, 2020, the Company impaired these deposits and wrote-off the deposits and related capitalized interest. As of December 31, 2022, the Company had commitments, after deposits, to purchase two MEVION S250i PBRT systems for $34,000,000.

As of December 31, 2022, the Company had commitments to install four Leksell Gamma Knife Icon Systems (“Icon”) at existing customer sites, and purchase three Linear Accelerator (“LINAC”) systems. Two LINACS will be placed at future customer sites and one LINAC system will be placed at the Company’s new site in Puebla, Mexico, which is expected to begin operations in the second half of 2023, pending regulatory approval. The Company also has a commitment to upgrade the Gamma Knife unit at its stand-alone facility in Ecuador to an Icon. The remaining Icon upgrades and LINAC purchases are scheduled to occur between 2023 and 2024. The Company expects to upgrade the equipment in Ecuador in mid-2023, pending regulatory approval. The Company has a commitment from DFC to finance this upgrade. Total Gamma Knife and LINAC commitments as of December 31, 2022, were $13,243,000. There may be cash requirements, pending financing, for the Company’s new site in Mexico and the upgrade in Ecuador in the next 12 months. 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, if necessary. The Company has not placed the remaining commitments at this time. There can be no assurance that financing will be available for the Company’s future projects, or at terms that are acceptable to the Company.

On September 4, 2022, the Company entered into a Maintenance and Support Agreement with Mevion (the “Mevion Service Agreement”), which provides for maintenance and support of the Company’s PBRT unit at Orlando Health from September 2022 through April 2026. The agreement requires an annual prepayment of $1,800,000 for the current contractual period (one year). This payment portion was recorded as a prepaid contract and will be amortized over the one-year service period.

As of December 31, 2022, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion, Elekta and Mobius Imaging, LLC. In addition, in April 2019, the Company signed agreements to service the Icon upgrades which will be installed at various dates between 2023 and 2024. The Company’s commitments to purchase two LINAC systems also include a 9-year and 5-year agreement to service the equipment, respectively. Total service commitments as of December 31, 2022 were $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 cash on hand and operations will be sufficient to cover these payments.

The Company’s customer contracts generally contain mutual indemnification provisions. The Company maintains general and professional liability insurance in the United States. The Company is not involved in the practice of medicine and therefore believes its present insurance coverage and indemnification agreements are adequate for its business. The Company’s Peruvian and Ecuadorian Gamma Knife centers are free-standing facilities operated by GKPeru and GKCE, respectively. The treating physicians and clinical staff at these facilities are independent contractors. The Company maintains general and professional liability insurance consistent with the operations of these facilities and believes its present coverage is adequate for its business.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11– RELATED PARTY TRANSACTIONS

The following summarizes related party activity for the years ended December 31, 2022 and 2021:

December 31,

Related party liabilities on the consolidated balance sheets consist of the following as of December 31, 2022 and 2021:

December 31,

Accounts payable and other accrued liabilities $ 497,000 $ 1,992,000

NOTE 12– SUBSEQUENT EVENT

On February 15, 2023, the Company executed an equipment sales agreement with a new customer for the sale of a Gamma Knife upgrade and Cobalt-60 reload. The Company expects to complete the sale during the second or third quarter of 2023. The Company will fulfill this order by exercising its purchase commitments. See Note 10 – Commitments and Contingencies for additional information.

AMS US Equity

AMS · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

AMS US Equity☆

AMS · 10-K · period ended 2022-12-31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

AMS US Equity