AMERICAN SHARED HOSPITAL SERVICES (Form: 10-Q, Received: 11/07/2019 15:43:14)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_______________________

FORM 10-Q

(Mark One)


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019 or


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number 001-08789

________________________

American Shared Hospital Services

(Exact name of registrant as specified in its charter)


California			94-2918118
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)


Two Embarcadero Center, Suite 410, San Francisco, California (Address of Principal Executive Offices)			94111 (Zip Code)

Registrant’s telephone number, including area code: (415) 788-5300

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act.:

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ý Smaller reporting company ý

Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by a check mark whether the registrant is a shell company ( as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Title of each class

Trading Symbol(s)

Name of each exchange on which
registered

American Shared Hospital Services Common Stock, No Par Value

AMS

NYSE AMERICAN

As of November 1, 2019, there were outstanding 5,816,000 shares of the registrant’s common stock.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


ASSETS	September 30, 2019		December 31, 2018
Current assets:
Cash and cash equivalents	$	1,297,000	$	1,442,000
Restricted cash	350,000		350,000
Accounts receivable, net of allowance for doubtful accounts of $100,000 at September 30, 2019 and $100,000 at December 31, 2018	6,511,000		5,502,000

Other receivables insurance proceeds	—		1,137,000
Other receivables	261,000		239,000
Prepaid expenses and other current assets	1,825,000		1,276,000

Total current assets	10,244,000		9,946,000

Property and equipment:
Medical equipment and facilities	90,672,000		94,031,000
Office equipment	578,000		589,000
Deposits and construction in progress	5,589,000		6,082,000
	96,839,000		100,702,000
Accumulated depreciation and amortization	(53,836,000)		(54,008,000)
Net property and equipment	43,003,000		46,694,000

Right of use assets	1,173,000		—

Other assets	838,000		862,000

Total assets	$	55,258,000	$	57,502,000

LIABILITIES AND SHAREHOLDERS' EQUITY	September 30, 2019		December 31, 2018
Current liabilities:
Accounts payable	$	1,097,000	$	435,000
Employee compensation and benefits	289,000		207,000
Other accrued liabilities	1,482,000		1,329,000
Other accrued liabilities insurance payable	—		977,000

Current portion of lease liabilities	272,000		—
Current portion of long-term debt	1,666,000		2,119,000
Current portion of obligations under capital leases	3,972,000		4,407,000

Total current liabilities	8,778,000		9,474,000

Long-term lease liabilities, less current portion	901,000		—
Long-term debt, less current portion	2,230,000		3,332,000
Long-term capital leases, less current portion	8,881,000		10,308,000
Deferred revenue, less current portion	302,000		382,000

Deferred income taxes	2,744,000		2,958,000

Shareholders' equity:
Common stock, no par value (10,000,000 authorized; 5,816,000 and 5,714,000 shares issued and outstanding at September 30, 2019 and at December 31, 2018)	10,752,000		10,711,000

Additional paid-in capital	6,665,000		6,495,000
Retained earnings	8,362,000		7,896,000
Total equity-American Shared Hospital Services	25,779,000		25,102,000
Non-controlling interest in subsidiary	5,643,000		5,946,000
Total shareholders' equity	31,422,000		31,048,000

Total liabilities and shareholders' equity	$	55,258,000	$	57,502,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months ended September 30,						Nine Months ended September 30,
	2019		2018		2019		2018

Revenues	$	5,301,000	$	4,470,000	$	15,819,000	$	14,944,000

Costs of revenue:

Maintenance and supplies	648,000		470,000		1,968,000		1,723,000

Depreciation and amortization	1,817,000		1,761,000		5,719,000		5,082,000

Other direct operating costs	1,023,000		605,000		2,653,000		2,218,000

	3,488,000		2,836,000		10,340,000		9,023,000

Gross Margin	1,813,000		1,634,000		5,479,000		5,921,000

Selling and administrative expense	1,065,000		1,050,000		3,201,000		3,067,000

Interest expense	302,000		399,000		1,015,000		1,230,000

Operating income	446,000		185,000		1,263,000		1,624,000

Proceeds received from investment in equity securities	—		—		—		22,000

Interest and other income	7,000		185,000		15,000		194,000

Income before income taxes	453,000		370,000		1,278,000		1,840,000

Income tax expense	99,000		82,000		250,000		401,000

Net income	354,000		288,000		1,028,000		1,439,000
Less: Net income attributable to non-controlling interest	(189,000)		(120,000)		(562,000)		(594,000)

Net income attributable to American Shared Hospital Services	$	165,000	$	168,000	$	466,000	$	845,000

Net income per share:

Earnings per common share - basic	$	0.03	$	0.03	$	0.08	$	0.14

Earnings per common share - diluted	$	0.03	$	0.03	$	0.08	$	0.14

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited)


	FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2019
	Common Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Sub-Total ASHS		Non-controlling Interests in Subsidiaries		Total

Balances at January 1, 2019	5,714,000	$	10,711,000	$	6,495,000	$	7,896,000	$	25,102,000	$	5,946,000	$	31,048,000

Stock-based compensation expense	—	—		55,000		—		55,000		—		55,000

Cash distributions to non-controlling interests	—	—		—		—		—		(19,000)		(19,000)

Net income	—	—		—		270,000		270,000		125,000		395,000

Balances at March 31, 2019	5,714,000	10,711,000		6,550,000		8,166,000		25,427,000		6,052,000		31,479,000

Stock-based compensation expense	86,000	—		53,000		—		53,000		—		53,000

Cash distributions to non-controlling interests	—	—		—		—		—		(57,000)		(57,000)

Net income	—	—		—		31,000		31,000		248,000		279,000

Balances at June 30, 2019	5,800,000	10,711,000		6,603,000		8,197,000		25,511,000		6,243,000		31,754,000

Stock-based compensation expense	—	—		62,000		—		62,000		—		62,000

Options exercised	16000	41000		—		—		41000		$	—	41000

Cash distributions to non-controlling interests	—	—		—		—		—		(789,000)		(789,000)

Net income	—	—		—		165,000		165,000		189,000		354,000

Balances at September 30, 2019	5,816,000	$	10,752,000	$	6,665,000	$	8,362,000	$	25,779,000	$	5,643,000	$	31,422,000


	FOR THE THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018
	Common Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Sub-Total ASHS		Non-controlling Interests in Subsidiaries		Total
Balances at January 1, 2018	5,710,000	$	10,711,000	$	6,272,000	$	6,873,000	$	23,856,000	$	6,029,000	$	29,885,000

Stock-based compensation expense	—	—		55,000		—		55,000		—		55,000

Net income	—	—		—		390,000		390,000		261,000		651,000

Balances at March 31, 2018	5,710,000	10,711,000		6,327,000		7,263,000		24,301,000		6,290,000		30,591,000

Stock-based compensation expense	4,000	—		57,000		—		57,000		—		57,000

Cash distributions to non-controlling interests	—	—		—		—		—		(77,000)		(77,000)

Net income	—	—		—		287,000		287,000		213,000		500,000

Balances at June 30, 2018	5,714,000	10,711,000		6,384,000		7,550,000		24,645,000		6,426,000		31,071,000

Stock-based compensation expense	—	—		57,000		—		57,000		—		57,000

Cash distributions to non-controlling interests	—	—		—		—		—		(393,000)		(393,000)

Net income	—	—		—		168,000		168,000		120,000		288,000

Balances at September 30, 2018	5,714,000	$	10,711,000	$	6,441,000	$	7,718,000	$	24,870,000	$	6,153,000	$	31,023,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months ended September 30,
	2019		2018
Operating activities:
Net income	$	1,028,000	$	1,439,000

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

Depreciation and amortization	5,772,000		5,138,000

Non cash lease expense	189,000		—

Deferred income tax	(214,000)		45,000

Stock-based compensation expense	170,000		169,000

Net accrued interest on lease financing	9,000		39,000

Interest expense associated with lease liabilities	59,000		—

Changes in operating assets and liabilities:

Receivables	(896,000)		(398,000)

Prepaid expenses and other assets	(559,000)		(473,000)

Customer deposits/deferred revenue	(60,000)		(93,000)

Lease liability	(248,000)		—

Accounts payable and accrued liabilities	877,000		359,000

Net cash provided by operating activities	6,127,000		6,225,000

Investing activities:
Payment for purchase of property and equipment	(889,000)		(1,187,000)

Proceeds from insurance	160,000		—

Net cash used in investing activities	(729,000)		(1,187,000)

Financing activities:
Principal payments on long-term debt	(1,564,000)		(1,875,000)

Principal payments on capital leases	(3,155,000)		(3,006,000)

Distributions to non-controlling interests	(865,000)		(470,000)

Proceeds from options exercised	41,000		—

Net cash used in financing activities	(5,543,000)		(5,351,000)

Net change in cash, cash equivalents, and restricted cash	(145,000)		(313,000)

Cash, cash equivalents, and restricted cash at beginning of period	1,792,000		2,502,000

Cash, cash equivalents, and restricted cash at end of period	$	1,647,000	$	2,189,000

Supplemental cash flow disclosure:
Cash paid during the period for:

Interest	$	1,015,000	$	1,307,000

Income taxes paid	$	418,000	$	277,000

Schedule of non-cash investing and financing activities
Right of use assets and lease liabilities	$	1,362,000	$	—

Interest capitalized to property and equipment	$	82,000	$	77,000

Acquisition of equipment with capital lease financing	$	1,293,000	$	1,679,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for the fair presentation of American Shared Hospital Services’ consolidated financial position as of September 30, 2019, the results of its operations for the three and nine-month periods ended September 30, 2019 and 2018, and the cash flows for the three and nine-month periods ended September 30, 2019 and 2018. The results of operations for the three and nine-months ended September 30, 2019 are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2018 have been derived from audited consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in American Shared Hospital Services’ Annual Report on Form 10-K filed with the Securities and Exchange Commission.

These consolidated financial statements include the accounts of American Shared Hospital Services and its subsidiaries (the “Company”) as follows: the Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); the Company 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”).

The Company (through ASRS) and Elekta AB, the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. As of September 30, 2019, GKF provides Gamma Knife units to fifteen medical centers in the United States in the states of Arkansas, California, Florida, Illinois, Indiana, Massachusetts, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, Tennessee, and Texas. GKF also owns and operates a single-unit Gamma Knife facility in Lima, Peru.

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 also directly provides radiation therapy and related equipment, including Intensity Modulated Radiation Therapy, Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the radiation therapy department at an existing Gamma Knife site in Massachusetts.

The Company formed the subsidiaries GKPeru for the purposes of expanding its business internationally; Orlando and LBE to provide proton beam therapy 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.

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 LLC”). The remaining 50% is owned by an architectural design company. OR21 LLC is not expected to generate significant revenue for at least 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.

Accounting Pronouncements Issued and Adopted

Based on the guidance provided in accordance with Accounting Standards Codification (“ASC”) 280 Segment Reporting (“ASC 280”), the Company has analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there is one reportable segment, Revenues. The Company provides Gamma Knife, PBRT, and IGRT equipment to sixteen hospitals in the United States and owns and operates a single-unit facility in Lima, Peru as of September 30, 2019. These seventeen locations operate under different subsidiaries of the Company but offer the same services: radiosurgery and radiation therapy. The operating results of the subsidiaries are reviewed by the Company’s Chief Executive Officer and Chief Financial Officer, who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”) and this is done in conjunction with all of the subsidiaries and locations.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 Leases (“ASU 2016-02”) which requires lessees to recognize, for all leases, at the commencement date, a lease liability, and a right-of-use asset. Under the new guidance, lessor classification criteria for direct financing and sales-type leases is modified. In July 2018, the FASB issued ASU No. 2018-10 Leases (Topic 842) Codification Improvements to Topic 842, and ASU No. 2018-11 Leases (Topic 842) Targeted Improvements (“ASU 2018-11”), in December 2018 the FASB issued ASU No. 2018-20 Leases (Topic 842) Narrow-Scope Improvements, and in February 2019 the FASB issued ASU No. 2019-01 Leases (Topic 842) Codification Improvements. ASU 2018-11 provides a new transition method in which an entity can initially apply the new lease standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This standard is effective for annual periods beginning after December 15, 2018. The Company performed an analysis to determine if its revenue agreements with customers fall under the scope of ASU 2016-02 or ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and concluded that, other than with respect to the Company’s stand-alone facility in Lima, Peru, ASU 2016-02 applied. The Company adopted ASU 2016-02 and related ASUs as of January 1, 2019 using the modified retrospective transition method. The Company elected to initially apply ASU 2016-02 and related ASUs beginning January 1, 2019 and elected to use the package of practical expedients upon adoption. The provisions of the package of practical expedients allowed the Company to not reassess whether any expired or existing contracts are or contain leases, the lease classification for expired or existing contracts, and the Company need not reassess the initial direct costs for any existing leases. The Company also used the hindsight expedient upon adoption which allowed the Company to examine its history when assessing lease term and whether it will exercise renewal options for certain contracts. The Company recognized lease liabilities and right-of-use assets of approximately $1,362,000 for its operating leases at January 1, 2019, with no initial material impact to its consolidated statements of operations.

In July 2019, the FASB issued ASU 2019-07 Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates ("ASU 2019-07") which clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning with the SEC's regulations, thereby eliminating redundancies and making the codification easier to apply. The new guidance was effective immediately upon issuance and did not have a material impact on the Company's financial statements and related disclosures.

Accounting Pronouncements Issued and Not Yet Adopted

In February 2018, the FASB issued ASU No. 2018-03 Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2018-03”), which clarifies certain aspects of ASU 2016-01. These are: equity securities without a readily determinable fair value – discontinuation, equity securities without a readily determinable fair value – adjustments, forward contracts and purchased options, presentation requirements for certain fair value option liabilities, fair value option liabilities denominated in a foreign currency, and transition guidance for equity securities without a readily determinable fair value. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements to Fair Value Measurement (“ASU 2018-13”), which amended the effective date and other certain measurement aspects of ASU 2018-03. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019. The Company does not expect ASU 2018-03 or ASU 2018-13 to have a significant impact on its consolidated financial statements and related disclosures.

Note 2. Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife, IGRT, 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 indicated. Salvage value is based on the estimated fair value of the equipment at the end of its useful life.

Depreciation for PBRT 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 following table summarizes property and equipment as of September 30, 2019 and December 31, 2018:


	September 30,		December 31,
	2019		2018

Medical equipment and facilities	$	90,672,000	$	94,031,000
Office equipment	578,000		589,000
Deposits and construction in progress	3,339,000		3,832,000
Deposits towards purchase of proton beam systems	2,250,000		2,250,000

	96,839,000		100,702,000
Accumulated depreciation	(53,836,000)		(54,008,000)

Net property and equipment	$	43,003,000	$	46,694,000

As of September 30, 2019, approximately $2,961,000 of the net property and equipment balance is outside of the United States. As of September 30, 2019, the Company has one idle Gamma Knife unit with a cumulative net book value of $729,000. There are currently no commitments to place into service or trade in this unit during 2019.

Note 3. Long-Term Debt Financing

Long-term debt consists of seven notes with three financing companies collateralized by the Gamma Knife equipment, the individual customer contracts, and related accounts receivable at September 30, 2019. As of September 30, 2019, long-term debt on the Condensed Consolidated Balance Sheets was $3,896,000. See disclosure of future payments below under the heading “Commitments”.

Note 4. Capital Lease Financing

Capital lease financing consists of ten leases with three financing companies, collateralized by Gamma Knife and PBRT equipment, the individual customer contracts, and related accounts receivable at September 30, 2019. As of September 30, 2019, obligations under capital leases on the Condensed Consolidated Balance Sheets were $12,853,000. See disclosure of future payments below under the heading “Commitments”.

Note 5. Leases

The Company determines if a contract is a lease at inception. Under ASC 842 Leases (“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 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’s Gamma Knife, PBRT, and IGRT 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 condensed 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 receivable.

The Company’s lessee operating leases are accounted for as right-of-use (“ROU”) assets, other current liabilities, and lease liabilities on the condensed 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 of approximately 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 3 and 5 years, some of which include options to renew or extend the lease. As of September 30, 2019, operating ROU assets and liabilities were $1,173,000.

The following table summarizes maturities of lessee operating lease ROU assets and liabilities as of September 30, 2019:


Year ending December 31,	Operating Leases

2019 (excluding the nine-months ended September 30, 2019)	$	84,000
2020	340,000
2021	347,000
2022	331,000
2023	214,000
Thereafter	6,000

Total lease payments	1,322,000
Less imputed interest	(149,000)
Total	$	1,173,000

Note 6. Per Share Amounts

Per share information has been computed based on the weighted average number of common shares and dilutive common share equivalents outstanding. The computation for the three and nine-month periods ended September 30, 2019 excluded approximately 513,000 of the Company’s stock options because the exercise price of the options was higher than the average market price during those periods. The computation for the three and nine-month periods ended September 30, 2018 excluded approximately 176,000 and 519,000, respectively, of the Company's stock options because the exercise price of the options was higher than the average market price during those periods.

Based on the guidance provided in accordance with ASC 260 Earnings Per Share (“ASC 260”), the weighted average common shares for basic earnings per share, for the three and nine-month periods ended September 30, 2019 and 2018, excluded the weighted average impact of the unvested performance share awards, discussed below. These awards are legally outstanding but are not deemed participating securities and therefore are excluded from the calculation of basic earnings per share. The unvested shares are also excluded from the denominator for diluted earnings per share because they are considered contingent shares not deemed probable as of September 30, 2019.

The following table sets forth the computation of basic and diluted earnings per share for the three and nine-month periods ended September 30, 2019 and 2018:


	Three Months ended September 30,						Nine Months ended September 30,
	2019		2018		2019		2018
Net income attributable to American Shared Hospital Services	$	165,000	$	168,000	$	466,000	$	845,000

Weighted average common shares for basic earnings per share	5,889,000		5,841,000		5,899,000		5,831,000
Diluted effect of stock options and restricted stock	19,000		50,000		18,000		24,000
Weighted average common shares for diluted earnings per share	5,908,000		5,891,000		5,917,000		5,855,000

Basic earnings per share	$	0.03	$	0.03	$	0.08	$	0.14
Diluted earnings per share	$	0.03	$	0.03	$	0.08	$	0.14

Note 7. Stock-based Compensation

In June 2010, the Company’s shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s common stock reserved for issuance under the Plan to 1,630,000. 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. The Plan is a successor to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan. No further grants or share issuances will be made under the previous plans. On June 21, 2019, the Company’s shareholders approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years to February 22, 2022.

Stock-based compensation expense associated with the Company’s stock options to employees is calculated using the Black-Scholes valuation model. The Company’s stock awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimates. The estimated fair value of the Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during which an employee is required to provide service in exchange for the award (requisite service period), usually the vesting period. Accordingly, stock-based compensation cost before income tax effect for the Company’s options and restricted stock units in the amount of $62,000 and $170,000 is reflected in net income for the three and nine-month periods ended September 30, 2019 compared to $57,000 and $169,000 in the same periods of the prior year, respectively. At September 30, 2019, there was approximately $94,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, excluding unrecognized compensation cost associated with the performance share awards, discussed below. This cost is expected to be recognized over a period of approximately five years.

On January 4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award Agreements expire on March 31, 2020. Based on the guidance in ASC 718 Stock Compensation (“ASC 718”), the Company concluded these were performance-based awards with vesting criteria tied to performance metrics. As of December 31, 2017, the Company achieved one of those certain performance metrics under the Award Agreements and recognized stock compensation expense of approximately $108,000 related to these awards. As of September 30, 2019, it is not probable that any of the remaining required metrics for vesting will be achieved. The unrecognized stock-based compensation expense for these awards was approximately $434,000 and unvested awards were approximately 129,000 shares as of September 30, 2019. If and when the Company determines that the remaining performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.

The following table summarizes stock option activity for the nine-month periods ended September 30, 2019 and 2018:


	Stock Options	Grant Date Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)	Intrinsic Value
Outstanding at January 1, 2019	613,000	$	2.85	3.18	$	—
Granted	18,000	$	2.91	7.00	$	—
Exercised	(16,000)	$	2.59	—	$	—
Forfeited	(12,000)	$	3.05	—	$	—
Outstanding at September 30, 2019	603,000	$	2.86	2.09	$	42,000
Exercisable at September 30, 2019	478,000	$	2.86	1.97	$	—

Outstanding at January 1, 2018	615,000	$	2.87	3.48	$	—
Granted	16,000	$	2.68	6.96	$	—
Forfeited	(18,000)	$	3.15	—	$	—
Outstanding at September 30, 2018	613,000	$	2.85	2.93	$	337,000
Exercisable at September 30, 2018	389,000	$	2.86	2.83	$	—

Note 8. Income Taxes

The Company generally calculates its effective income tax rate at the end of an interim period using an estimate of the annualized effective income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annualized effective income tax rate cannot be made, the Company computes its provision for income taxes using the actual effective income tax rate for the results of operations reported within the year-to-date periods. The Company’s effective income tax rate is highly influenced by relative income or losses reported and the amount of the nondeductible stock-based compensation associated with grants of its common stock options and from the results of foreign operations. A small change in estimated annual pretax income (loss) can produce a significant variance in the annualized effective income tax rate given the expected amount of these items. As a result, the Company has computed its provision for income taxes for the three and nine-month periods ended September 30, 2019 by applying the actual effective tax rates to income or (loss) reported within the condensed consolidated financial statements through those periods.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report to the Securities and Exchange Commission may be deemed to contain certain forward-looking statements with respect to the financial condition, results of operations and future plans of American Shared Hospital Services (including statements regarding the expected continued expansion of the MEVION S250 systems, the expansion of the Company’s proton therapy business, and the timing of treatments by new Gamma Knife systems), which involve risks and uncertainties including, but not limited to, the risk of variability of financial results between quarters, the risk of the Gamma Knife and radiation therapy businesses, and the risks of developing The Operating Room for the 21st CenturySM program. Further information on potential factors that could affect the financial condition, results of operations and future plans of American Shared Hospital Services is included in the filings of the Company with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the definitive Proxy Statement for the Annual Meeting of Shareholders held on June 21, 2019.

The Company recognizes revenues under ASC 842 and ASC 606 Revenue from Contracts with Customers (“ASC 606”). The Company had sixteen Gamma Knife units, one PBRT system and one IGRT machine in operation as of September 30, 2019 and 2018. Three of the Company’s customer contracts are through subsidiaries where GKF or its subsidiary is the majority owner and managing partner. Seven of the Company’s sixteen current Gamma Knife customers are under fee-per-use contracts, and eight customers are under retail arrangements. The Company, through GKF, also owns and operates a single-unit Gamma Knife facility in Lima, Peru. This unit economically functions similarly to the Company’s turn-key retail arrangements. The Company’s contracts to provide radiation therapy and related equipment services to an existing Gamma Knife customer and the Company’s PBRT system at Orlando Health – UF Health Cancer Center (“Orlando Health”), are also considered retail arrangements.

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 in the amount of the hospital’s reimbursement from third party payors, and the Company is responsible for paying all the operating costs of the equipment. Operating costs are determined primarily based on historical treatment protocols and cost schedules with the hospital. 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 condensed consolidated statement of operations. For the three and nine-month periods ended September 30, 2019, the Company recognized revenues of approximately $5,013,000 and $15,024,000, respectively, under ASC 842.

Patient income – The Company has a stand-alone facility in Lima, Peru, where a contract exists between GKPeru 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. Payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net 30 days. 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 three and nine-month periods ended September 30, 2019. For the three and nine-month periods ended September 30, 2019, the Company recognized revenues of approximately $288,000 and $795,000, respectively, under ASC 606.

Effective January 1, 2015, the Centers for Medicare and Medicaid (“CMS”) established a Comprehensive Ambulatory Payment Classification for single session radiosurgery treatments. CMS has established a 2019 total reimbursement rate of approximately $9,300 ($9,100 in 2018) for a Medicare Gamma Knife treatment. The approximate CMS reimbursement rates for delivery of proton therapy for a simple treatment without compensation for 2019 is $520 ($522 in 2018) and $1,079 ($1,053 in 2018) for simple with compensation, intermediate and complex treatments, respectively.

On July 10, 2019, CMS issued a proposed rule that would implement a new mandatory payment model for radiation oncology services: the Radiation Oncology Alternative Payment Model (“RO APM”). The proposed RO APM would treat prospective episode payments to hospital outpatient departments and freestanding radiation therapy centers for radiation therapy as episodes of care. The RO APM would significantly alter CMS’ payment methodology for radiation oncology services. Under the RO APM, payment would be determined by the patient’s cancer type, as opposed to a traditional volume-based fee-for-service model, and would include select radiation therapy services provided within a 90-day episode. If the RO APM is finalized as proposed, radiation therapy providers and suppliers may be mandatorily required to participate in the model based on whether the radiation therapy is provided within selected geographic areas. CMS projects that approximately 40% of the radiation oncology providers within randomly selected Core Based Statistical Areas (CBSAs) will be included in the model and approximately 60% will continue to receive reimbursement based on fee-for-service methodology. The Company, along with other interested parties, submitted comments to CMS on the proposed rule as part of the notice-and-comment rulemaking process. The comment period concluded on September 16, 2019. It is uncertain whether CMS will finalize the rule as proposed. As a result, the Company cannot estimate the potential impact of adoption of the proposed rule. However, reductions in the reimbursement rates or changes in reimbursement methodology or administration for radiosurgery and radiation therapy could adversely affect the Company’s revenues and financial results.

Revenues increased by $831,000 and $875,000 to $5,301,000 and $15,819,000 for the three and nine-month periods ended September 30, 2019 compared to $4,470,000 and $14,944,000 for the same periods in the prior year, respectively.

Revenues generated from the Company’s PBRT system increased by $636,000 and $1,106,000 to $1,677,000 and $4,728,000 for the three and nine-month periods ended September 30, 2019 compared to $1,041,000 and $3,622,000 for the same periods in the prior year, respectively. The increase in PBRT revenues was due to higher volumes for the three-month period ended September 30, 2019. For the nine-month period ended September 30, 2019, the increase in PBRT revenues was due to higher volumes and a higher average reimbursement compared to the Company's historical average. The increase in PBRT revenues for the three and nine-month periods ended September 30, 2019 was also due to the two weeks of down time the PBRT system incurred during the three and nine-month periods ended September 30, 2018.

The number of PBRT fractions increased by 371 and 810 to 1,452 and 4,407 for the three and nine-month periods ended September 30, 2019 compared to 1,081 and 3,597 for the same periods in the prior year, respectively. Excluding the loss on procedures from the down-time experienced in the prior year, PBRT fractions for the three and nine-month periods ended September 30, 2019 were consistent with the same periods in the prior year and increased by 440 fractions compared to the same periods in the prior year, respectively. The increase in PBRT volume for the nine-month period ended September 30, 2019 was the result of the continuing increased awareness of the benefits of proton therapy treatment.

Gamma Knife revenue increased $116,000 and decreased $156,000 to $3,310,000 and $10,320,000 for the three and nine-month periods ended September 30, 2019 compared to $3,194,000 and $10,476,000 for the same periods in the prior year, respectively. Revenue for the three-month period ended September 30, 2019, increased due to increased volumes at existing sites. Excluding a contractual adjustment related to Medicare reimbursement at one of the Company's existing sites, Gamma Knife revenue decreased $556,000 for the nine-month period ended September 30, 2019 compared to the same periods in the prior year. The decrease in Gamma Knife revenue for the nine-month period ended September 30, 2019 was due to lower volumes and a decrease in average reimbursement rate at the Company's retail sites compared to the historical average.

The number of Gamma Knife procedures increased by 11 and decreased 22 to 348 and 1,084 for the three and nine-month periods ended September 30, 2019 compared to 337 and 1,106 for the same periods in the prior year, respectively. The increase for the three-month period ended September 30, 2019 was driven by the Company's stand-alone facility in Lima, Peru. The decrease for the nine-month period ended September 30, 2019 was due to a contract labor dispute at one of the Company's existing sites resulting in no procedures performed during the second quarter of 2019. This issue was resolved and the site began treating patients in July 2019. One of the Company's sites was down during the third quarter for a Cobalt-60 reload and Icon upgrade. The expiration of two customer contracts in April 2018 and January 2019 also contributed to the decline in volumes for the nine-month period ended September 30, 2019.

Revenue generated from the Company’s IGRT contract increased $79,000 and decreased $75,000 to $314,000 and $771,000 for the three and nine-month periods ended September 30, 2019 compared to $235,000 and $846,000 for the same periods in the prior year, respectively. The increase or decrease in IGRT revenues was driven by changes in volumes.

Total costs of revenue increased by $652,000 and $1,317,000 to $3,488,000 and $10,340,000 for the three and nine-month periods ended September 30, 2019 compared to $2,836,000 and $9,023,000 for the same periods in the prior year, respectively.

Maintenance and supplies increased by $178,000 and $245,000 to $648,000 and $1,968,000 for the three and nine-month periods ended September 30, 2019 compared to $470,000 and $1,723,000 for the same periods in the prior year, respectively. The increase in maintenance and supplies was due to the annual increase from the renewal of the September 2017 Mevion Service Agreement. The Company's annual service payment increased by $250,000, effective for the second service year, and for each year thereafter (see further discussion below under the heading “Commitments”).

Depreciation and amortization increased by $56,000 and $637,000 to $1,817,000 and $5,719,000 for the three and nine-month periods ended September 30, 2019 compared to $1,761,000 and $5,082,000 for the same periods in the prior year, respectively. For the three-month period ended September 30, 2019, the increase was due to depreciation incurred on the Company's IGRT equipment. For the nine-month period ended September 30, 2019, the increase was due to depreciation incurred on the Company’s new Gamma Knife site in Merrillville, Indiana, the PBRT system, and the Company’s IGRT equipment, offset partially by the two Gamma Knife contracts which expired in April 2018 and January 2019. The Company also recognized additional fixed asset value in connection to the contractual adjustment related to Medicare reimbursement at an existing customer site, causing an increase in depreciation expense.

Other direct operating costs increased by $418,000 and $435,000 to $1,023,000 and $2,653,000 for the three and nine-month periods ended September 30, 2019 compared to $605,000 and $2,218,000 for the same periods in the prior year, respectively. The increase was due to increased operating costs at the Company's retail sites and operating costs incurred at the Company’s new site in Merrillville, Indiana and the Company's stand-alone facility in Lima, Peru.

Selling and administrative costs increased by $15,000 and $134,000 to $1,065,000 and $3,201,000 for the three and nine-month periods ended September 30, 2019 compared to $1,050,000 and $3,067,000 for the same periods in the prior year, respectively. The increase for the three and nine-month periods ended September 30, 2019, was primarily due to legal and other consulting fees.

Interest expense decreased by $97,000 and $215,000 to $302,000 and $1,015,000 for the three and nine-month periods ended September 30, 2019 compared to $399,000 and $1,230,000 for the same periods in the prior year, respectively. The decrease was due to a lower average principal base on the Company’s debt and leases in the first half of 2019 compared to the same period in the prior year, effectively reducing interest expense.

Interest and other income decreased by $178,000 and $179,000 to $7,000 and $15,000 for the three and nine-month periods ended September 30, 2019 compared to $185,000 and $194,000 for the same periods in the prior year, respectively. During the three and nine-month periods ended September 30, 2018, the PBRT unit at Orlando Health sustained water damage resulting from the facility’s water evacuation system. The PBRT system was down for two weeks as a result. In the first quarter of 2019, the Company received approximately $185,000 of reimbursement from its business interruption insurance, following a five-day waiting period. The reimbursement from business interruption insurance is included in other income (or loss) for the three and nine-month periods ended September 30, 2018.

Income tax expense increased by $17,000 and decreased by $151,000 to $99,000 and $250,000 for the three and nine-month periods ended September 30, 2019 compared to $82,000 and $401,000 for the same periods in the prior year, respectively.

The increase for the three-month period ended September 30, 2019 was due to state taxes. The decrease in income tax expense for the nine-month period ended September 30, 2019 is due to lower taxable income attributable to the Company.

Net income attributable to non-controlling interest increased by $69,000 and decreased by $32,000 to $189,000 and $562,000 for the three and nine-month periods ended September 30, 2019 compared to $120,000 and $594,000 for the same periods in the prior year, respectively. Net income attributable to non-controlling interests represents net income earned by the 19% non-controlling interest in GKF, and net income 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.

Net income decreased $3,000 and $379,000 to $165,000, or $0.03 per diluted share and $466,000, or $0.08 per diluted share, for the three and nine-month periods ended September 30, 2019 compared to net income of $168,000, or $0.03 per diluted share, and $845,000 or $0.14 per diluted share, for the same periods in the prior year, respectively. The decrease in net income for the three and nine-month periods ended September 30, 2019 was due to increased operating expense and selling and administrative costs.

Liquidity and Capital Resources

The Company had cash, cash equivalents and restricted cash of $1,647,000 at September 30, 2019 compared to $1,792,000 at December 31, 2018. The Company’s cash position decreased by $145,000 primarily due to payment for the purchase of property and equipment of $889,000, payments on long-term debt and capital leases of $4,719,000, and distributions to non-controlling interests of $865,000. These decreases were offset by cash from operating activities of $6,127,000, proceeds from insurance of $160,000 and proceeds from options exercised of $41,000.

The Company has scheduled interest and principal payments under its debt obligations of approximately $1,853,000 and scheduled capital lease payments of approximately $5,033,000 during the next 12 months. The Company believes that its cash flow from cash on hand, operations, and other cash resources are adequate to meet its scheduled debt and capital lease obligations during the next 12 months. See additional discussion below related to commitments.

The Company as of September 30, 2019 had shareholders’ equity of $31,422,000, working capital of $1,466,000 and total assets of $55,258,000.

Commitments

On December 20, 2018, the Company signed Second Amendments to two System Build Agreements (the “Amendments”) for the Company’s second and third PBRT units from Mevion Medical Systems, Inc. (“Mevion”). 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 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.

As of September 30, 2019, the Company had commitments, after deposits, to purchase two MEVION S250i PBRT systems for $34,000,000 and the Company had $2,250,000 in non-refundable deposits toward the purchase of these two PBRT systems from Mevion. The non-refundable deposits are recorded in the Consolidated Balance Sheets as deposits and construction in progress.

As of September 30, 2019, the Company had commitments to perform five Cobalt-60 reloads and install five Leksell Gamma Knife Icon Systems ("Icon") at existing customer sites, and purchase one LINAC system, to be placed at a new customer site. The Cobalt-60 reloads, Icon upgrades, and LINAC system purchase are scheduled to occur between 2020 and 2022. Total Gamma Knife and LINAC commitments as of September 30, 2019 were $6,960,000. It is the Company’s intent to finance these commitments. 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.

On July 21, 2017, the Company entered into a Maintenance and Support Agreement (the “Mevion Service Agreement”) with Mevion, which provides for maintenance and support of the Company’s PBRT unit at Orlando Health. The Mevion Service Agreement began September 5, 2017 and renews annually. The agreement requires an annual prepayment of $1,562,000 which was made on September 6, 2019 for the current contractual period. This payment portion was recorded as a prepaid contract and will be amortized over the one-year service period. The Mevion Service Agreement is for a five (5) year period. On December 20, 2018, the Company signed a Second Amendment to the Mevion Service Agreement, where the Company agreed to increase the annual service payment by $250,000, effective for the second service year, and for each year thereafter. The Company paid the additional $250,000 of the annual service payment owed for the second service year on September 6, 2019.

As of September 30, 2019, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion and Elekta AB. In addition, in April 2019, the Company signed agreements to service the Icon upgrades which will be installed at various dates between 2020 and 2022. The Company’s commitment to purchase a LINAC system also includes a 9-year agreement to service the equipment. Total service commitments as of September 30, 2019 were $10,182,000. 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 estimates the following for each of the equipment commitments, service contracts, long-term debt and capital lease financing, and operating leases with expected timing of payments as follows as of September 30, 2019:


	Payments Due by Period
Contractual Obligations	Total amounts committed		as of 9/30/2019		2020-2022		2023		After 5 years

Long-term debt (includes interest)	$	4,383,000	$	611,000	$	2,686,000	$	334,000	$	752,000
Capital leases (includes interest)	14,509,000		1,195,000		11,947,000		846,000		521,000
Future equipment purchases	40,960,000		—		40,960,000		—		—
Equipment service contracts	10,182,000		86,000		7,651,000		345,000		2,100,000
Operating leases	1,224,000		86,000		962,000		176,000		—

Total contractual obligations	$	71,258,000	$	1,978,000	$	64,206,000	$	1,701,000	$	3,373,000

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company does not hold or issue derivative instruments for trading purposes and is not a party to any instruments with leverage or prepayment features. The Company does not have affiliation with partnerships, trusts or other entities whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements, and therefore has no exposure to the financing, liquidity, market or credit risks associated with such entities. At September 30, 2019, the Company had no significant long-term, market-sensitive investments.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934. These controls and procedures are designed to ensure that material information relating to the company and its subsidiaries is communicated to the chief executive officer and the chief financial officer. Based on that evaluation, our chief executive officer and our chief financial officer concluded that, as of September 30, 2019, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to the chief executive officer and the chief financial officer, and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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

There were no changes in our internal control over financial reporting during the three and nine-months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors

There are no changes from those listed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibit Index

Incorporated by reference herein

Exhibit Number

Description

Form

Exhibit

Date

10.1

Third Amendment to Purchased Services Agreement (for a Gamma Knife Unit) dated as of March 28, 2019 between GK Financing, LLC and Kettering Medical Center

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14a/15d-14a, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

Furnished herewith.

Portions of this exhibit (indicated therein by asterisks) have been omitted for confidential treatment.

SIGNATURES

Pursuant to the requirements 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


Date:	November 7, 2019	/s/ Ernest A. Bates, M.D.
		Ernest A. Bates, M.D.
		Chairman of the Board and Chief Executive Officer

Date:	November 7, 2019	/s/ Craig K. Tagawa
		Craig K. Tagawa
		Senior Vice President
		Chief Operating and Financial Officer

Exhibit 10.1

[*****] Text Omitted for Confidential Treatment. The redacted information has been excluded because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

THIRD AMENDMENT TO PURCHASED SERVICES AGREEMENT

This THIRD AMENDMENT TO PURCHASED SERVICES AGREEMENT (this “Amendment”) is dated as of the 28^th day of March, 2019, and is entered into between GK FINANCING, LLC, a California limited liability company (“GKF”), or its wholly owned subsidiary whose obligations hereunder shall be guaranteed by GKF, and KETTERING MEDICAL CENTER, an Ohio non-profit corporation, (“Medical Center”).

Recitals:

WHEREAS, GKF and Medical Center are parties to a certain Purchased Services Agreement dated as of November 19, 2008 (but dated December 9, 2008 by Medical Center), as amended by (i) a First Amendment to Purchased Services Agreement dated June 11, 2009, and (ii) a Second Amendment to Purchased Services Agreement dated February 27, 2014 (the “Second Amendment) (as amended, the “Agreement”); and

WHEREAS, GKF and Medical Center desire to further amend the Agreement to provide for the upgrade and reload of the Leksell Gamma Knife Perfexion unit (“Perfexion”) currently being provided by GKF to Medical Center pursuant to the Agreement, with a Leksell Gamma Knife Icon upgrade package (“Icon”), which will be installed on the existing Perfexion at the existing Site.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree as follows:

Agreement:

1.Defined Terms. Unless otherwise defined herein, the capitalized terms used herein shall have the same meanings set forth in the Agreement.

Exhibit 10.1

[*****] Text Omitted for Confidential Treatment. The redacted information has been excluded because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

2.Icon Upgrade and Reload.

a.Scheduling and Process for the Icon Upgrade and Reload. Subject to the terms and conditions set forth herein, GKF shall acquire and hold title to the Icon, and install the Icon at the Site, and reload the existing Perfexion with new Cobalt-60 that meets the manufacturer’s radioactivity level specifications (the “Icon Upgrade and Reload”). GKF shall use its commercially reasonable best efforts to perform the Icon Upgrade and Reload in the third quarter of 2019, or such other time as mutually agreed to in writing by Medical Center and GKF, subject to availability of the Icon and Cobalt-60 from the equipment manufacturer, issuance of all regulatory approvals, permits and/or waivers in a timely manner, and completion of construction of the Site. The parties acknowledge that Medical Center may not be able to perform Procedures for approximately one (1) month during the Icon Upgrade and Reload. Until such time as the Perfexion is no longer able to perform Procedures due to the Icon Upgrade and Reload, Medical Center shall continue to perform Procedures using the Perfexion. Upon completion of the Icon Upgrade and Reload, all references in the Agreement to the Equipment shall be deemed to refer to the Icon. Notwithstanding anything to the contrary contained in this Amendment, GKF makes no representation or warranty to Medical Center concerning the Icon Upgrade and Reload, and GKF shall have no obligation or liability to pay any damages to Medical Center resulting from the Medical Center’s inability to perform Procedures during the time required for the Icon Upgrade and Reload, including, without limitation, any lost revenues or profits during the period of time that the Equipment is unavailable to perform Procedures during the Icon Upgrade and Reload.

b.Medical Center Personnel and Services. Upon request and as required by GKF, Medical Center, at Medical Center’s cost and expense, shall provide GKF with Medical Center personnel (including Medical Center’s physicists) and services, including security, in connection with the Icon Upgrade and Reload, among other things, to oversee, supervise and assist with construction and compliance with local, state and federal regulatory requirements and with nuclear regulatory compliance issues and the calibration of the Icon. Medical Center shall not be entitled to reimbursement for its personnel costs, internal costs or overhead in connection with the Icon Upgrade and Reload. Notwithstanding anything to the contrary set forth herein, the Icon Upgrade and Reload shall be performed by GKF only after all necessary and appropriate licenses, permits, approvals, waivers, consents and authorizations, and the proper handling of the Cobalt-60 (collectively, the “Permits”), have been obtained by Medical Center at Medical Center’s sole cost and expense. Subject to Sections 2.a and 2.b above, the actual costs of the Icon Upgrade and Reload paid or payable to third parties shall be the responsibility of GKF.

c.Lender Documentation. Upon request by GKF and at GKF’s reasonable expense, Medical Center shall execute and deliver a commercially reasonable form of subordination, attornment and non-disturbance or other documentation if such a document is reasonably requested by the third party financing company which holds a security interest in the Icon.

Exhibit 10.1

[*****] Text Omitted for Confidential Treatment. The redacted information has been excluded because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

d.Training. GKF, at its cost and expense, shall cover the Icon training tuition costs for those physicians and physicists who will be using the Icon. At a mutually agreeable date to the proctor supplied by Elekta, GFK and the Medical Center, GFK will coordinate with Elekta to send a proctor on site to the Medical Center to train all physicians and physicists.

(i)Acceptance Tests. Upon receipt of Elekta’s report on the results of the Acceptance Tests (as defined in the Leksell Gamma Knife End User Agreement (“LGK Agreement”), Medical Center shall have five (5) business days to review and validate the results of the Acceptance Tests to confirm that the Icon meets the manufacturer’s specifications and documentation. If Medical Center fails to respond within such five (5) business day period, Medical Center shall be deemed to have validated and confirmed the results of the Acceptance Tests.

3.No Ownership Interests. Notwithstanding anything to the contrary set forth in the Agreement or this Amendment, GKF shall retain all ownership rights and title to the Perfexion and the Icon, and Medical Center shall have no ownership interest therein.

4.Extension of Term of the Agreement. The Term of the Agreement is hereby further extended for a period of fifty-nine (59) months following the date of the performance of the first clinical Procedure performed on the Icon at the Site. All references in the Agreement to the “Term” shall be deemed to refer to the Term, as extended hereby.

5.Purchased Service Payments. Effective upon completion of the Icon Upgrade and Reload, Exhibit 8 of the Agreement shall be deleted in its entirety and replaced by Exhibit 8 attached hereto.

6.Definition of Procedure. Effective as of the date the Icon Upgrade and Reload have been completed and the results of the Acceptance Tests have been validated, but in all events prior to the date of performance of the first clinical Procedure performed on the Icon at Site, Section 8(b)(i) of the Agreement shall be deleted in its entirety and replaced by the following:

(i) "Procedure" means any treatment that involves stereotactic, external, single or up to and including five (5) fraction(s), conformal radiation, commonly called radiosurgery, that may include one or more isocenters during the patient treatment session, delivered to any site(s) superior to the foramen magnum. “Procedure” shall expressly exclude (1) any procedures which the Equipment is unable to perform or which, in the opinion of Elekta, the Equipment is not designed or reasonably suitable to perform.

7.Captions. The captions and paragraph headings used herein are for convenience only and shall not be used in construing or interpreting this Amendment.

Exhibit 10.1

[*****] Text Omitted for Confidential Treatment. The redacted information has been excluded because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

8.Full Force and Effect. Except as amended by this Amendment, all of the terms and provisions of the Agreement shall remain in full force and effect. In the event of any conflict or inconsistency between the terms and provisions of this Amendment and that of the Agreement, the terms and provisions of this Amendment shall prevail and control.

IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the date first written above.

GKF:

Medical Center:

GK FINANCING, LLC

KETTERING MEDICAL CENTER

By:

/s/ Ernest A. Bates, M.D.

By:

/s/ Steven Chavez

Ernest A. Bates, M.D.

Name:

Steven Chavez

Policy Committee Member

Title:

VP Finance

Exhibit 10.1

[*****] Text Omitted for Confidential Treatment. The redacted information has been excluded because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

Exhibit 8

PURCHASED SERVICES PAYMENTS


Annual Paid Procedures Performed			Percentage of Technical Component Collections Payable To GKF For Each Procedure
[*****]			[*****]
[*****]			[*****]

Notwithstanding anything to the contrary set forth herein, for purposes of determining the Purchased Services Payments, the number of annual Procedures performed shall be reset to zero (0) at the commencement of each anniversary of the First Procedure Date after the Icon Upgrade and Reload has been completed.

For Procedure count purposes, any patient treatment provided on a fractionated basis shall count as one (1) Procedure. Charity cases shall not be included in the annual Procedures performed count.

Charity Cases

As a means to support Medical Center’s mission of providing charity care for persons who require Gamma Knife procedures who are not covered by Medicare, Medicaid, TriCare, Ohio’s Hospital Care Assurance Program, or private insurance programs (whether indemnity, preferred provider, health maintenance organization, etc.) and who do not have the means to pay for such procedures based on Medical Centers adopted standards of indigency, GKF agrees that Medical Center may perform Procedures on a charity or unreimbursed basis so long as no such charity or unreimbursed Procedures are counted towards the number of annual paid Procedures performed for purposes of determining the Purchased Services Payments due hereunder. Medical Center shall be solely responsible (and GKF shall not in any manner be or become responsible) for determining whether any person meets the standards of indigency. Medical Center shall provide reasonable written documentation evidencing satisfaction of the conditions set forth herein to GKF at or prior to the expected time of treatment.

Exhibit 31.1

CERTIFICATION

I, Ernest A. Bates, M.D., as chief executive officer of American Shared Hospital Services, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


November 7, 2019

/s/ Ernest A. Bates, M.D.
Ernest A. Bates, M.D.

Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Craig K. Tagawa., as chief financial officer of American Shared Hospital Services, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Shared Hospital Services;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


November 7, 2019

/s/ Craig K. Tagawa
Craig K. Tagawa

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of American Shared Hospital Services for the quarterly period ended September 30, 2019 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Ernest A. Bates, M.D., the Chief Executive Officer and Craig K. Tagawa, the Chief Financial Officer of American Shared Hospital Services, each certifies that, to the best of his knowledge:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of American Shared Hospital Services.

November 7, 2019


			/s/ Ernest A. Bates, M.D.
			Ernest A. Bates, M.D.
			Chief Executive Officer

			/s/ Craig K. Tagawa
			Craig K. Tagawa
			Chief Financial Officer