AMERICAN SHARED HOSPITAL SERVICES (Form: 10-Q, Received: 05/13/2019 12:24:24)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 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	(IRS Employer
incorporation or organization)	Identification No.)

Two Embarcadero Center, Suite 410, San Francisco, California	94111
(Address of Principal Executive Offices)	(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 x 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 x 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 x Smaller reporting company x

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 x

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 May 6, 2019, there were outstanding 5,714,000 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	March 31, 2019			December 31, 2018
Current assets:
Cash and cash equivalents	$	2,049,000		$	1,442,000
Restricted cash		350,000			350,000
Accounts receivable, net of allowance for doubtful accounts of $100,000 at March 31, 2019 and $100,000 at December 31, 2018		5,918,000			5,502,000

Other receivables insurance proceeds		-			1,137,000
Other receivables		300,000			239,000
Prepaid expenses and other current assets		1,021,000			1,276,000

Total current assets		9,638,000			9,946,000

Property and equipment:
Medical equipment and facilities		90,214,000			94,031,000
Office equipment		573,000			589,000
Deposits and construction in progress		4,276,000			6,082,000
		95,063,000			100,702,000
Accumulated depreciation and amortization		(49,998,000	)		(54,008,000	)
Net property and equipment		45,065,000			46,694,000

Right of use assets		1,300,000			-

Other assets		854,000			862,000

Total assets	$	56,857,000		$	57,502,000

LIABILITIES AND	(unaudited)
SHAREHOLDERS' EQUITY	March 31, 2019		December 31, 2018
Current liabilities:
Accounts payable	$	446,000	$	435,000
Employee compensation and benefits		246,000		207,000
Other accrued liabilities		1,343,000		1,329,000
Other accrued liabilities insurance payable		-		977,000

Current portion of lease liabilities		262,000		-
Current portion of long-term debt		2,044,000		2,119,000
Current portion of obligations under capital leases		4,446,000		4,407,000

Total current liabilities		8,787,000		9,474,000

Long-term lease liabilities, less current portion		1,038,000		-
Long-term debt, less current portion		2,893,000		3,332,000
Long-term capital leases, less current portion		9,223,000		10,308,000
Deferred revenue, less current portion		355,000		382,000

Deferred income taxes		3,082,000		2,958,000

Shareholders' equity:
Common stock, no par value (10,000,000 authorized; 5,714,000 shares issued and outstanding at March 31, 2019 and at December 31, 2018)		10,711,000		10,711,000
Additional paid-in capital		6,550,000		6,495,000
Retained earnings		8,166,000		7,896,000
Total equity-American Shared Hospital Services		25,427,000		25,102,000
Non-controlling interest in subsidiary		6,052,000		5,946,000
Total shareholders' equity		31,479,000		31,048,000

Total liabilities and shareholders' equity	$	56,857,000	$	57,502,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months ended March 31,
	2019			2018

Rental income from medical services	$	5,321,000		$	5,305,000

Costs of revenue:

Maintenance and supplies		668,000			626,000

Depreciation and amortization		1,894,000			1,657,000

Other direct operating costs		822,000			816,000

		3,384,000			3,099,000

Gross Margin		1,937,000			2,206,000

Selling and administrative expense		1,055,000			986,000

Interest expense		367,000			425,000

Operating income		515,000			795,000

Interest and other income		4,000			5,000

Income before income taxes		519,000			800,000

Income tax expense		124,000			150,000

Net income		395,000			650,000
Less: Net income attributable to non-controlling interest		(125,000	)		(260,000	)

Net income attributable to American Shared Hospital Services	$	270,000		$	390,000

Net income per share:

Earnings per common share - basic	$	0.05		$	0.07

Earnings per common share - diluted	$	0.05		$	0.07

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

	FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2019 AND 2018
					Additional						Non-controlling
	Common		Common		Paid-in		Retained		Sub-Total		Interests in
	Shares		Stock		Capital		Earnings		ASHS		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

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		260,000			650,000
Balances at March 31, 2018		5,710,000	$	10,711,000	$	6,327,000	$	7,263,000	$	24,301,000	$	6,289,000		$	30,590,000

See accompanying notes

AMERICAN SHARED HOSPITAL SERVICES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months ended March 31,
	2019			2018
Operating activities:
Net income	$	395,000		$	650,000

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

Depreciation and amortization		1,910,000			1,677,000

Deferred income tax		124,000			118,000

Stock-based compensation expense		55,000			55,000

Net accrued interest on lease financing		2,000			-

Changes in operating assets and liabilities:

Receivables		(477,000	)		(575,000	)

Prepaid expenses and other assets		254,000			143,000

Customer deposits/deferred revenue		(15,000	)		(40,000	)

Accounts payable and accrued liabilities		52,000			589,000

Net cash from operating activities		2,300,000			2,617,000

Investing activities:
Payment for purchase of property and equipment		(272,000	)		(497,000	)

Proceeds from insurance		160,000			-

Net cash used in investing activities		(112,000	)		(497,000	)

Financing activities:
Principal payments on long-term debt		(516,000	)		(484,000	)

Principal payments on capital leases		(1,046,000	)		(1,037,000	)

Distributions to non-controlling interests		(19,000	)		-

Net cash used in financing activities		(1,581,000	)		(1,521,000	)

Net change in cash, cash equivalents, and restricted cash		607,000			599,000

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	$	2,399,000		$	3,101,000

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

Interest	$	367,000		$	425,000

Income taxes	$	67,000		$	12,000

Schedule of non-cash investing and financing activities
Right of use assets and lease liabilities	$	1,300,000		$	-

Interest capitalized to property and equipment	$	27,000		$	28,000

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 to present fairly American Shared Hospital Services’ consolidated financial position as of March 31, 2019 and the results of its operations for the three-month periods ended March 31, 2019 and 2018, which results 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 March 31, 2019, GKF provided 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 Century ^SM 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 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.

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, Medical Services Revenue. 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 March 31, 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 June 2016, the FASB issued ASU No. 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The new guidance is effective for fiscal periods beginning after December 15, 2018. The Company adopted ASU 2016-13 as of January 1, 2019 and there was no significant impact on its consolidated financial statements and related disclosures as a result.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (“ASU 2018-09”). This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company adopted ASU 2018-09 as of January 1, 2019 and there was no significant impact on its consolidated financial statements as a result.

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 March 31, 2019 and December 31, 2018:

	March 31,			December 31,
	2019			2018

Medical equipment and facilities	$	90,214,000		$	94,031,000
Office equipment		573,000			589,000
Deposits and construction in progress		2,026,000			3,832,000
Deposits towards purchase of proton beam systems		2,250,000			2,250,000

		95,063,000			100,702,000
Accumulated depreciation		(49,998,000	)		(54,008,000	)

Net property and equipment	$	45,065,000		$	46,694,000

As of March 31, 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 March 31, 2019. As of March 31, 2019, long-term debt on the Condensed Consolidated Balance Sheets was $4,937,000. 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 March 31, 2019. As of March 31, 2019, obligations under capital leases on the Condensed Consolidated Balance Sheets were $13,669,000. 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 March 31, 2019, operating ROU assets and liabilities were $1,300,000.

The following table summarizes maturities of lessee operating lease ROU assets and liabilities as of March 31, 2019:

Year ending December 31,	Operating Leases

2019 (excluding the three-months ended March 31, 2019)	$	250,000
2020		340,000
2021		347,000
2022		331,000
2023		214,000
Thereafter		6,000

Total lease payments		1,488,000
Less imputed interest		(188,000	)
Total	$	1,300,000

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-month periods ended March 31, 2019 and 2018 excluded approximately 547,000 and 549,000, 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-month periods ended March 31, 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 March 31, 2019.

The following table sets forth the computation of basic and diluted earnings per share for the three-month periods ended March 31, 2019 and 2018:

	Three Months ended March 31,
	2019		2018
Net income attributable to American Shared Hospital Services	$	270,000	$	390,000

Weighted average common shares for basic earnings per share		5,853,000		5,818,000
Diluted effect of stock options and restricted stock		33,000		37,000
Weighted average common shares for diluted earnings per share		5,886,000		5,855,000

Basic earnings per share	$	0.05	$	0.07
Diluted earnings per share	$	0.05	$	0.07

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 27, 2017, 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, 2020.

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 $55,000 and $55,000 is reflected in net income for the three-month periods ended March 31, 2019 and 2018, respectively. At March 31, 2019, there was approximately $114,000 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 March 31, 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 as of March 31, 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 three-month period ended March 31, 2019:

	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		3.14	$	-
Outstanding at March 31, 2019		613,000	$	2.85		2.43	$	34,000
Exercisable at March 31, 2019		489,000	$	2.87		2.31	$	-

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-month period ended March 31, 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 21 ^st Century ^SM 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 to be 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 March 31, 2019 and seventeen Gamma Knife units, one PBRT system and one IGRT machine in operation as of March 31, 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-month period ended March 31, 2019, the Company recognized revenues of approximately $5,107,000 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-month period ended March 31, 2019. For the three-month period ended March 31, 2019, the Company recognized revenues of approximately $214,000 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 will be $520 ($522 in 2018) and $1,079 ($1,053 in 2018) for simple with compensation, intermediate and complex treatments, respectively.

Revenues increased by $16,000 to $5,321,000 for the three-month period ended March 31, 2019 from $5,305,000 for the same period in the prior year.

Revenues generated from the Company’s PBRT system increased $424,000 to $1,642,000 for the three-month period ended March 31, 2019 from $1,218,000 for the same period in the prior year. The increase in PBRT revenue was due to an increase in volumes. The number of PBRT fractions increased by 328 to 1,546 for the three-month period ended March 31, 2019 compared to 1,218 for the same period in the prior year. The increase in PBRT volume was the result of the continuing increased awareness of the benefits of proton therapy treatment.

Gamma Knife revenue decreased $277,000 to $3,411,000 for the three-month period ended March 31, 2019 from $3,688,000 for the same period in the prior year. The decrease in Gamma Knife revenue was primarily due to the expiration of two customer contracts in April 2018 and January 2019. The number of Gamma Knife procedures decreased by 17 to 375 for the three-month period ended March 31, 2019 from 392 for the same period in the prior year. Excluding the two customer sites whose contracts expired April 2018 and January 2019, Gamma Knife procedures were consistent with the same period in the prior year.

Revenue from the Company’s IGRT contract decreased $131,000 to $268,000 for the three-month period ended March 31, 2019, from $399,000 for the same period in the prior year. The decrease in IGRT revenue was due to lower volumes.

Total costs of revenue increased by $285,000 to $3,384,000 for the three-month period ended March 31, 2019 from $3,099,000 for the same period in the prior year.

Maintenance and supplies increased by $42,000 to $668,000 for the three-month period ended March 31, 2019 from $626,000 for the same period in the prior year. The increase in maintenance and supplies was due to the annual increase from the renewal of the Mevion Service Agreement (see further discussion below under the heading “Commitments”) which began September 2017.

Depreciation and amortization increased by $237,000 to $1,894,000 for the three-month period ended March 31, 2019 from $1,657,000 for the same period in the prior year. 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.

Other direct operating costs increased by $6,000 to $822,000 for the three-month period ended March 31, 2019, from $816,000 for the same period in the prior year. The increase was due to operating costs at the Company’s retail sites.

Selling and administrative costs increased by $69,000 to $1,055,000 for the three-month period ended March 31, 2019 from $986,000 for the same period in the prior year. The increase was primarily due to recruiting fees, temporary administrative staffing, and consulting fees.

Interest expense decreased by $58,000 to $367,000 for the three-month period ended March 31, 2019 from $425,000 for the same period in the prior year. The decrease was due to a lower average principal base on the Company’s debt and leases in the first quarter of 2019 compared to the same period in the prior year, effectively reducing interest expense.

Interest and other income decreased by $1,000 to $4,000 for the three-month period ended March 31, 2019 from $5,000 for the same period in the prior year. Interest and other income is comprised of interest expense and interest earned.

Income tax expense decreased by $26,000 to $124,000 for the three-month period ended March 31, 2019 from $150,000 for the same period in the prior year. The decrease in income tax expense is primarily attributable to a decrease in pretax income.

Net income attributable to non-controlling interest decreased by $135,000 to $125,000 for the three-month period ended March 31, 2019 from $260,000 for the same period in the prior year. 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 $120,000 to $270,000, or $0.05 per basic and diluted share, for the three-month period ended March 31, 2019 compared to net income of $390,000, or $0.07 per basic and diluted share for the same period in the prior year. The decrease in net income was due to increased operating costs for the three-month period ended March 31, 2019.

Liquidity and Capital Resources

The Company had cash, cash equivalents and restricted cash of $2,399,000 at March 31, 2019 compared to $1,792,000 at December 31, 2018. The Company’s cash position increased by $607,000 primarily due to cash from operating activities of $2,300,000 and proceeds from insurance of $160,000. These increases were offset by payment for the purchase of property and equipment of $272,000, payments on long-term debt and capital leases of $1,562,000, and distributions to non-controlling interests of $19,000.

The Company has scheduled interest and principal payments under its debt obligations of approximately $2,250,000 and scheduled capital lease payments of approximately $5,164,000 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 March 31, 2019 had shareholders’ equity of $31,479,000, working capital of $851,000 and total assets of $56,857,000.

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 March 31, 2019, the Company had commitments 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 March 31, 2019, the Company had commitments to perform three Cobalt-60 reloads at existing customer sites and purchase one LINAC system, to be placed at a new customer site. The Cobalt-60 reloads are scheduled to occur in the second half of 2019. Total Gamma Knife and LINAC commitments as of March 31, 2019 were $4,235,000. 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 $1,285,000 which was made on August 6, 2018 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, if a second Mevion PBRT unit is not placed at Orlando Health prior to September 2019. The Company has accrued the pro-rata portion of this additional maintenance expense for the three-month period ended March 31, 2019.

As of March 31, 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. The Company’s commitment to purchase a LINAC in 2019 includes a 9-year agreement to service the equipment. Total service commitments as of March 31, 2019 were $7,426,000. 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.

On April 30, 2019, the Company signed agreements for commitments to purchase six Icon upgrades to the Gamma Knife Perfexion, related Icon equipment service, and three Cobalt-60 reloads, all at existing customer sites. One of the Icon upgrades and one Cobalt-60 reload are scheduled to occur during 2019. The remaining Cobalt-60 reloads and Icon upgrades are scheduled to occur during 2020. Total Gamma Knife commitments agreed to as of April 30, 2019 were $7,615,000. 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.

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 March 31, 2019:

	Payments Due by Period

Contractual Obligations	Total amounts committed		2019		2020-2022		2023		After 5 years

Long-term debt (includes interest)	$	5,573,000	$	1,801,000	$	2,686,000	$	334,000	$	752,000
Capital leases (includes interest)		15,981,000		4,171,000		10,978,000		524,000		308,000
Future equipment purchases		38,235,000		2,250,000		35,985,000		-		-
Equipment service contracts		7,426,000		1,567,000		3,414,000		345,000		2,100,000
Operating leases		1,398,000		260,000		962,000		176,000		-

Total contractual obligations	$	68,613,000	$	10,049,000	$	54,025,000	$	1,379,000	$	3,160,000

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 March 31, 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 March 31, 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 months ended March 31, 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	#	Equipment Lease Agreement (for a Gamma Knife Unit) dated as of May 8, 2018 between The Methodist Hospitals, Inc. and GK Financing, LLC
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	ǂ	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.
	ǂ	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:	May 13, 2019	/s/ Ernest A. Bates, M.D.
		Ernest A. Bates, M.D.
		Chairman of the Board and Chief Executive Officer

Date:	May 13, 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.

EQUIPMENT LEASE AGREEMENT

THIS EQUIPMENT LEASE AGREEMENT (“Agreement”) is made and entered into on May 8, 2018, by and between GK FINANCING, LLC, a California limited liability company (“GKF”), at 2 Embarcadero Center, Suite 410, San Francisco, California, 94111 and THE METHODIST HOSPITALS, INC. , an Indiana nonprofit corporation (“Hospital”) at 600 Grant Street, Gary Indiana 46402, with reference to the following facts:

RECITALS

A. GKF intends to purchase a Leksell Stereotactic Gamma Knife Perfexion (the “Equipment”) from Elekta Instruments, Inc., a Georgia corporation (“Elekta”).

B. Hospital wishes to lease the Equipment from GKF, and GKF is willing to lease the Equipment to Hospital, upon the terms, covenants, conditions and agreements set forth in this Agreement.

AGREMENT

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

1. Lease . Subject to and in accordance with the covenants and conditions set forth in this Agreement, GKF hereby leases to Hospital, and Hospital hereby leases from GKF, the Equipment.

2. LGK Agreement . Simultaneously with the execution of this Agreement, Hospital represents that Hospital and Elekta have entered into that certain LGK Agreement (the “LGK Agreement”), and Hospital shall provide GKF with a fully executed copy of the LGK Agreement. Hospital shall perform, satisfy and fulfill all of its obligations arising under the LGK Agreement when and as required thereunder. Hospital acknowledges that GKF is a third party beneficiary of the LGK Agreement and, in that capacity, GKF shall be entitled to enforce Hospital’s performance, satisfaction and fulfillment of its obligations thereunder.

3. Term of the Agreement . The initial term of this Agreement (the “Term”) shall commence as of the date hereof and, unless earlier terminated or extended in accordance with the provisions of this Agreement, shall continue for a period of ten (10) years following the date of the performance of the first clinical Gamma Knife procedure (the “First Procedure Date”) at the Site. Hospital’s obligation to make the payments to GKF for the Equipment described in Section 8 below shall commence as of the First Procedure Date.

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[*****] 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.

4. User License .

4.1 Hospital shall apply for and obtain in a timely manner a User License from the Nuclear Regulatory Commission and, if necessary, from the applicable state agency authorizing it to take possession of and maintain the Cobalt supply required in connection with the use of the Equipment during the term of this Agreement. Hospital also shall apply for and obtain in a timely manner all other licenses, permits, approvals, consents and authorizations which may be required by state or local governmental or other regulatory agencies for the development, construction and preparation of the Site, the charging to the Equipment with its Cobalt supply, the conduct of acceptance tests with respect to the Equipment, and the use of the Equipment during the Term, as more fully set forth in Article 2.1 of the LGK Agreement. Upon request, Hospital shall provide GKF with true and correct copies of any and all such licenses, permits, approvals, consents and authorizations.

5. Delivery of Equipment; Site .

5.1 GKF shall coordinate with Elekta and Hospital to have the Equipment delivered to Hospital at Methodist Merrillville Southlake Campus, 8701 Broadway, Merrillville, Indiana 46410 (the “Site”) on or prior to the delivery date agreed upon by Hospital and Elekta in the LGK Agreement. GKF makes no representations or warranties concerning delivery of the Equipment to the Site or the actual date thereof.

5.2 Subject to Section 6 below, Hospital, at its cost and expense, shall provide a safe, convenient Site for the Equipment. The location of the Site is contemplated to be the previous Gamma Knife suite and shall be subject to the prior approval of GKF (refer to Exhibit A). The Site provided shall be empty of any equipment.

6. Site Preparation and Installation of Equipment .

6.1 GKF, at its cost and expense, shall prepare all plans in accordance with the site planning criteria provided by Elekta, required to prepare, construct and improve the Site for the installation, use and operation of the Equipment during the Term. The plans and specifications (i) shall be approved by Hospital, which approval shall not be unreasonably withheld or delayed; (ii) shall comply in all respects with the Site Planning Criteria; and (iii) to the extent required by applicable law, shall be submitted to all state and federal agencies for their review and approval. GKF, at its cost and expense, shall obtain all permits, certifications, approvals or authorizations required by applicable federal, state or local laws, rules or regulations necessary to prepare, construct and improve the Site as provided above.

6.2 GKF, at its cost and expense, shall prepare, construct and improve the Site as necessary for the installation, use and operation of the Equipment during the Term, including, without limitation, providing all temporary or permanent shielding required for the charging of the Equipment with the Cobalt supply and for its subsequent use, selecting and constructing a proper foundation for the Equipment and the temporary or permanent shielding, aligning the Site for the Equipment, and installing all electrical systems and other wiring required for the Equipment. In connection with the construction of the Site, Hospital, at its cost and expense, shall select, purchase and install all radiation monitoring equipment, devices, safety circuits and radiation warning signs required at the Site in connection with the use and operation of the Equipment.

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[*****] 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.

6.3 In addition to construction and improvement of the Site, GKF, at its cost and expense, shall be responsible for the installation of the Equipment at the Site, including the positioning of the Equipment on its foundation at the Site in compliance with the Site Planning Criteria.

6.4 During the Term, Hospital, at its cost and expense, shall maintain the Site in a good working order, condition and repair, reasonable wear and tear expected.

7. Marketing Support . GKF shall coordinate its Gamma Knife marketing plan with Hospital, which marketing plan shall be subject to the reasonable approval of Hospital. Hospital shall participate in meetings with GKF to jointly develop a marketing plan annually. The Hospital, with the support of GKF, shall implement the Gamma Knife marketing plan based on the approved budget and timeline. GKF shall be solely responsible for any out-of-pocket marketing expenses paid to unrelated third parties that are included in the marketing plan budget. Any marketing efforts conducted independently by Hospital shall be at Hospital's expense, and subject to coordination with GKF. Notwithstanding the foregoing, Hospital will not be obligated to pay for the marketing of or reimbursement to GKF for any marketing related expenses for the Gamma Knife, but is not prohibited from doing so as long as Hospital’s efforts are coordinated with GKF. Hospital shall use its best efforts to market the Gamma Knife and to educate the public and the medical community as to the benefits of the Gamma Knife.

8. Lease Payments .

8.1 In consideration and as compensation to GKF for (i) the lease of the Equipment by GKF to Hospital pursuant to this Agreement; (ii) the preparation by GKF of all plans and specifications required to prepare, construct and improve the Site for the installation, use and operation of the Equipment; (iii) the preparation, construction and improvement of the Site as necessary for the installation, use and operation of the Equipment; (iv) the installation by GKF of the Equipment at the Site; (v) the maintenance by GKF of the Equipment, and (vi) covering the training costs for physician and physics Gamma Knife team members, Hospital shall pay the “Lease Payment” to GKF for each "Procedure" that is performed by Hospital or its representatives or affiliates, irrespective of whether the Procedure is performed on the Equipment or using any other equipment or devices. As used herein:

(1) "Lease Payment" shall be equal to (a) the “Technical Component Collections” for each Procedure during each month, multiplied by (b) the applicable percentage of Technical Component Collections payable to GKF as set forth in Exhibit 8.1(1) (the “GKF Percentage Allocation”), minus (c) Hospital’s “Cost Component” during each such month.

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[*****] 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) “Technical Component Collections” means the total amount actually collected by Hospital or its representatives or affiliates during each month from any and all payor sources, including, without limitation, patients, insurance companies, state or federal government programs or any other third party payors, as reimbursement for the technical component of each Procedure, irrespective of whether the Procedure is performed on the Equipment or using any other equipment or devices, and including the technical component amount collected from any case rate or “global” fee. The technical fees to be billed for Procedures performed utilizing the Equipment during the Term of this Agreement shall be an amount which is economically justifiable based upon GKF's direct operating expenses and its total project costs, together with a return thereon. Hospital shall consult and mutually agree with GKF from time to time regarding the amount of the technical fees to be billed by Hospital for Procedures that are performed utilizing the Equipment and any revisions thereto, including, without limitation, the technical component portion of any case rate or “global” fee. Subject to compliance with the standard described in the preceding sentence, Hospital and GKF shall mutually agree on the setting or revision of the amount of the technical fees and the acceptance of technical fee component amounts with third party payors prior to their implementation.

(3) Hospital’s “Cost Component” means the costs incurred by Hospital during the applicable month for services and personnel associated with the Equipment, which shall be limited to those costs set forth in Exhibit 8.1(3) attached hereto, irrespective of whether the Gamma Knife procedures are performed on an inpatient or outpatient basis.

(4) As used herein, a “Procedure” shall mean any treatment that involves stereotactic, external, single fraction 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, which Procedure is performed by Hospital, its representatives, affiliates, joint ventures and/or partnerships, on an inpatient or outpatient basis, or “under arrangement” (as used in the Medicare billing context), using any of the Equipment and/or any other equipment or devices that are used in lieu of, or as an alternative to, the Equipment, and includes, without limitation, any and all related treatment planning and delivery, imaging and other ancillary services.

If no Procedures are performed utilizing the Equipment or any other equipment or devices during any month, no Lease Payments shall be owing by Hospital to GKF for such month.

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[*****] 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.

8.2 Within fifteen (15) days following the end of each month (or portion thereof) during the term of this Agreement, Hospital shall pay the Lease Payments to GKF (without offset or deduction) and shall concurrently inform GKF in writing as to the number of Procedures performed during that month utilizing the Equipment and any other equipment or devices. To facilitate Hospital’s billing and collection for Procedures performed, within two (2) business days after any Procedure is performed, GKF shall cause the administrative support individual referenced in Section 11.3 below to provide Hospital with written confirmation of the names of the patients treated. Hospital shall use best efforts to submit claims for reimbursement to the appropriate payors for each Procedure within ten (10) days after the patient receiving the treatment is discharged. Such claims shall be submitted under Hospital's provider numbers and license. Hospital shall also diligently follow up any unpaid or denied claims and re-bill and/or contest the same where appropriate so as to maximize Technical Component Collections. All or any portion of any Lease Payment which is not paid in full within thirty (30) days after its due date shall bear interest at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) until the unpaid Lease Payment, together with all accrued interest thereon is paid in full. If GKF shall at any time accept a Lease Payment from Hospital after it shall become due, such acceptance shall not constitute or be construed as a waiver of any or all of GKF’s rights under this Agreement, including the rights of GKF set forth in Section 20 hereof. Notwithstanding the foregoing, in the event that Technical Component Collections relating to the Equipment are less than Hospital’s Cost Component relating to the Equipment in any given month, GKF shall reimburse Hospital for said shortfall, provided that Hospital has complied with its obligations regarding the timely submission of claims as set forth in this Section, and provided, further , that GKF shall have no obligation to reimburse Hospital for any shortfalls relating to any other equipment or devices. No costs comprising Hospital's Cost Component shall be permitted to cumulate. If no Procedures are performed in a given month, the only Hospital Cost Component incurred will be for physical facility space as set forth in Exhibit 8.1(3).

8.3 Within thirty (30) days after the close of each month, Hospital shall provide GKF with a written report indicating the status of billings and collections for each Procedure performed during that month, including, without limitation, the amount of the claim submitted, the amount received or denied for each such procedure. Upon request by GKF, Hospital shall furnish to GKF information regarding reimbursement rates from any or all payor sources for Procedures (applicable to Procedures performed either on an inpatient or outpatient basis). If such reimbursement rates should change at any time or from time to time after the date hereof, in each instance, Hospital shall provide written notice thereof to GKF within thirty (30) days of Hospital receiving notice thereof. Prior to entering into or renewing any third party payor contracts for the provision of Procedures utilizing the Equipment, Hospital shall consult with GKF regarding the terms and provisions thereof, including the technical component reimbursement rates. GKF shall maintain the confidentiality of all information provided to GKF by Hospital with regard Procedure charges, billing and reimbursement rates.

8.4 The parties acknowledge that the Lease Payments payable to GKF and Hospital's Cost Component reflect their respective fair market value, and are not determined in a manner that takes into account the volume or the value of any referral or other business generated between the parties.

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[*****] 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.

8.5 Within ten (10) days after Hospital’s receipt of written request from GKF, GKF shall have the right to audit Hospital’s books and records (including, without limitation, the books and records pertaining to any other radiosurgery equipment and devices) during normal business hours to verify the Technical Component Collections and Hospital's Cost Component, and Hospital shall provide GKF with access to such books and records.

9. Use of the Equipment .

9.1 The Equipment shall be used by Hospital only at the Site and shall not be removed therefrom. Hospital shall use the Equipment only in the regular and ordinary course of Hospital’s business operations and only within the capacity of the Equipment as determined by Elekta’s specifications. Hospital shall not use nor permit the Equipment to be used in any manner nor for any purpose which, Hospital has been informed by Elekta or GKF, the Equipment is not designed or reasonably suitably.

9.2 This is an agreement of lease only. Nothing herein shall be construed as conveying to Hospital any right, title or interest in or to the Equipment, except for the express leasehold interest granted to Hospital for the Term. All Equipment shall remain personal property (even though said Equipment may hereafter become attached or affixed to real property) and the title thereto shall at all times remain exclusively in GKF.

9.3 During the Term, upon the request of GKF, Hospital shall promptly affix to the Equipment in a prominent place, or as otherwise directed by GKF, labels, plates, insignia, lettering or other markings supplied by GKF indicating GKF’s ownership of the Equipment, and shall keep the same affixed for the entire Term. Hospital hereby authorizes GKF to cause this Lease or any statement or other instrument showing the interest of GKF in the Equipment to be filed or recorded, or refiled or re-recorded, with all governmental agencies considered appropriate by GKF, at GKF’s cost and expense. Hospital also shall promptly execute and deliver, or cause to be executed and delivered, to GKF any statement or instrument requested by GKF for the purpose of evidencing GKF’s interest in the Equipment, including financing statements and waivers with respect to rights in the Equipment from any owners or mortgagees of any real estate where the Equipment may be located.

9.4 At Hospital’s cost and expense, Hospital shall (a) protect and defend GKF’s ownership of and title to the Equipment from and against all persons claiming against or through Hospital, (b) at all times keep the Equipment free from any and all liens, encumbrances, attachments, levies, executions, burdens, charges or legal processes imposed against Hospital, and (c) give GKF immediate written notice of any matter described in clause (b).

10. Additional Covenants of Hospital . In addition to the other covenants of Hospital contained in this Agreement, Hospital shall, at its cost and expense:

10.1 Provide properly trained, technical and support personnel and supplies required for the proper performance of Gamma Knife procedures utilizing the Equipment. In this regard, Hospital shall use its best efforts to maintain on staff a minimum of two (2) Gamma Knife trained teams comprised of neurosurgeons, radiation oncologists and physicists. GKF shall be solely responsible for the reasonable costs to train physician and physics Gamma Knife team members.

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[*****] 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.

10.2 Direct, supervise and administer the provision of all hospital services relating to Gamma Knife Procedures in accordance with all applicable laws, rules and regulations.

10.3 Use best efforts to keep and maintain the Equipment and the Site fully protected, secure and free from unauthorized access or use by any person.

10.4 Operate a fully functional radiation therapy department at the Site.

11. Additional Covenants of GKF . In addition to the other covenants of GKF contained in this Agreement, GKF, at its cost and expense, shall:

11.1 Use its best efforts to require Elekta to meet its contractual obligations to GKF and Hospital upon delivery of the Equipment and put the Equipment, as soon as reasonably possible, into good, safe and serviceable condition and fit for its intended use in accordance with the manufacturer’s specifications, guidelines and field modification instructions.

11.2 Ensure Hospital’s quiet enjoyment and use of the Equipment, free of the rights of any other persons except for those rights reserved by GKF or granted to Elekta under the LGK Agreement or to the lender pursuant to Section 14 below.

11.3 GKF and Hospital shall mutually select an individual to provide Gamma Knife administrative and marketing support services. The individual’s duties shall include but not be limited to scheduling Gamma Knife patients and coordinating professional and technical personnel and support services to perform said Gamma Knife treatment. This individual shall also verify patient insurance. The individual shall also assist with marketing activities on an as needed basis. If a dedicated individual is provided by the Hospital, GKF shall reimburse Hospital for [*****] of the cost of the individual. GKF and Hospital shall mutually agree on such individual.

12. Maintenance of Equipment; Damage or Destruction of Equipment .

12.1 During the Term and except as otherwise provided in this Agreement, GKF, at its cost and expense, shall (a) maintain the Equipment in good operating condition and repair, reasonable wear and tear excepted, and (b) subject to Hospital’s compliance with its obligations under the LGK Agreement and under Sections 4, 5, 9, 10, 12, 13 and 16 hereunder, cause the equipment to be in compliance with all applicable state and federal regulations. Hospital shall promptly notify GKF in the event of any damage or destruction to the Equipment or of any required maintenance or repairs to the Equipment. GKF shall pursue all remedies available to it under any warranties made by Elekta with respect to the Equipment so that the Equipment will be free from defects in design, materials and workmanship and will conform to Elekta’s technical specifications concerning the Equipment.

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[*****] 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.

12.2 GKF and Elekta shall have the right to access the Equipment for the purpose of inspection and the performance of repairs at all reasonable times, upon reasonable advance notice and with a minimum of interference or disruptions to Hospital’s regular business operations.

12.3 Hospital shall be liable for any damage to or destruction of the Equipment caused by misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents, and contractors. In the event the Equipment is damaged as a result of the misuse, improper use, or other intentional and wrongful or negligent acts or omissions of Hospital’s officers, employees, agents and contractors (other than GKF and Elekta), to the extent such damage is not covered by any warranties or insurance, GKF may service or repair the Equipment as needed and the cost thereof shall be paid by Hospital to GKF immediately upon written request; provided that, if GKF’s charges and costs for such service or repair are not paid in full by Hospital within sixty (60) days after GKF’s request therefor, in addition to such charges and costs, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and reasonable attorneys' fees and costs incurred by GKF in collecting such amount from Hospital. Any work so performed by GKF shall not deprive GKF of any of its rights, remedies or actions against Hospital for such damages.

12.4 If the Equipment is rendered unusable as a result of any failure of, physical damage to or destruction of the Equipment, Hospital shall give GKF written notice thereof. GKF shall determine, within thirty (30) days after it is given written notice of such damage or destruction, whether the Equipment can be repaired. Subject to Section 12.3 above, in the event GKF determines that the Equipment cannot be repaired, at the election of GKF in GKF’s sole and absolute discretion, (a) GKF, at its cost and expense, may replace the Equipment as soon as reasonably possible taking into account the availability of replacement equipment from Elekta, Elekta’s other then-existing orders for equipment, and the then existing limitations on Elekta’s manufacturing capabilities, and (b) in such event, this Agreement shall continue in full force and effect as though such damage or destruction had not occurred. If GKF elects not to replace the Equipment, GKF shall provide written notice of such election to Hospital, and this Agreement shall terminate on the date that is ninety (90) days following the date of such notice. In the event GKF determines that the Equipment can be repaired, GKF shall cause the Equipment to be repaired as soon as reasonably possible thereafter. Hospital shall fully cooperate with GKF to effect the replacement of the Equipment or the repair of the Equipment (including, without limitation, providing full access to the Site) following the damage or destruction thereof.

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[*****] 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.

13. Alterations and Upgrades to Equipment .

13.1 Hospital shall not make any modifications, alterations or additions to the Equipment (other than normal operating accessories or controls) without the prior written consent of GKF. Hospital shall not, and shall not permit any person other than representatives of Elekta or any other person authorized by GKF to, effect any inspection, adjustment, preventative or remedial maintenance, or repair to the Equipment without the prior written consent of GKF. All modifications, alterations, additions, accessories or operating controls incorporated in or affixed to the Equipment (herein collectively called “additions” and included in the definition of “Equipment”) shall become the property of the GKF upon termination of this Agreement.

13.2 The necessity and financial responsibility for modifications, additions or upgrades to the Equipment, including the reloading of the Cobalt-60 source, shall be mutually agreed upon by GKF and Hospital. If (a) GKF and Hospital agree to reload the Cobalt-60 source (i.e., on or around the 75th month of the Term), then, notwithstanding any provisions to the contrary herein, the Initial Term shall be automatically extended for an additional three (3) years (plus the period of time that the Equipment is unavailable to perform procedures due to the reload). The necessity for modifications, additions or upgrades to the Equipment, including the reloading of the Cobalt-60 source, shall be as mutually agreed upon by GKF and Hospital. The financial responsibility for such modifications, additions and upgrades are GKF’s.

14. Financing of Equipment by GKF . GKF, in its sole discretion, may finance the Equipment. Financing may be in the form of an installment loan, a capitalized lease or other commercially available debt or financing instrument. If GKF finances the Equipment through an installment loan, GKF shall be required to provide the Equipment as collateral for the loan. If GKF finances the Equipment through a capitalized lease, title shall vest with the lessor until such time as GKF exercises its buy-out option under the lease, if any. If required by the lender, lessor or other financing entity (the "Lender"), GKF may assign its interest under this Agreement as security for the financing. Hospital's interest under this Agreement shall be subordinate to the interests of the Lender, which Hospital shall promptly confirm in writing on Lender’s form, if requested by GKF.

15. Equipment Operational Costs . GKF shall be responsible for all costs and expenses for the operation and use of the Equipment. GKF shall reimburse Hospital for Hospital’s Equipment Operational Costs as enumerated in Exhibit 8.1(3). Between Hospital and GKF, Hospital shall be fully liable for all negligent, intentional or wrongful acts or omissions of Hospital, its officers, directors, employees and agents.

16. Taxes . GKF shall pay all sales or use taxes imposed or assessed in connection with the purchase of the Equipment and all personal property taxes imposed, levied or assessed on the ownership and possession of the Equipment during the Term. All other taxes, assessments, licenses or other charges imposed, levied or assessed on the Equipment during the Term shall be paid by Hospital before the same shall become delinquent, whether such taxes are assessed or would ordinarily be assessed against GKF or Hospital; provided, however, Hospital shall not be required to pay any federal, state or local income, franchise, corporation or excise taxes imposed upon GKF’s net income realized from the lease of the Equipment. In case of a failure by Hospital to pay any taxes, assessments, licenses or other charges when and as required under this Section, GKF may (in GKF’s sole and absolute discretion) pay all or any part of such taxes, in which event the amount paid by GKF shall be immediately payable by Hospital to GKF upon written request; provided that, if GKF is not repaid in full by Hospital within sixty (60) days after GKF's request therefor, in addition to the repayment of the amounts paid by GKF, Hospital shall pay interest thereon to GKF until paid in full at the annual rate of five percent (5%) in excess of the Federal Reserve Discount Rate then in effect, as published in the Wall Street Journal or similar publication (or the maximum monthly interest rate permitted to be charged by law between an unrelated, commercial borrower and lender, if less) and reasonable attorneys' fees and costs incurred by GKF in collecting such amount from Hospital.

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[*****] 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.

17. No Warranties by GKF . Hospital warrants that as of the First Procedure Date, it shall have (a) thoroughly inspected the Equipment, (b) determined that the Equipment is consistent with the size, design, capacity and manufacture selected by it, and (c) satisfied itself that to the best of its knowledge the Equipment is suitable for Hospital’s intended purposes and is good working order, condition and repair at the time of acceptance. GKF SUPPLIES THE EQUIPMENT UNDER THIS AGREEMENT IN ITS “AS IS” CONDITION. GKF, NOT BEING THE MANUFACTURER OF THE EQUIPMENT OR THE MANUFACTURER’S AGENT, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESSED OR IMPLIED, AS TO THE EQUIPMENT’S MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, DESIGN, CONDITION, DURABILITY, CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE. As between GKF and Hospital, Hospital shall bear all risks with respect to the foregoing warranties. GKF shall not be liable for any direct, indirect and consequential losses or damages suffered by Hospital or by any other person for, and Hospital expressly waives any right to hold GKF liable hereunder for, any claims, demands and liabilities arising out of or in connection with the design or manufacture, possession or operation of the Equipment, including injury to persons or property resulting from the failure of, defective or faulty design, operation, condition, suitability or use of the Equipment. All warranty or other similar claims with respect to the Equipment shall be made by Hospital solely and exclusively against persons other than GKF, including Elekta or any other manufacturers or suppliers. In this regard and with prior written approval of GKF, Hospital may, in GKF’s name, but at Hospital’s sole cost and expense, enforce all warranties, agreements or representations, if any, which may have been made by Elekta or manufacturers, suppliers or other third parties regarding the Equipment to GKF or Hospital. GKF shall not be responsible for the operation of the Equipment, however it shall be GKF’s responsibility that the equipment be properly maintained. GKF and Hospital shall mutually agree to an acceptable delivery date for the Equipment.

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[*****] 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.

18. Termination for Economic Justification .

18.1 Following the initial twenty-four (24) months after the First Procedure Date and following each subsequent 12 month period thereafter during the Term, GKF shall have the option to terminate this Agreement if, within a reasonable period of time after GKF’s written request, Hospital does not provide GKF with a reasonable economic justification to continue this Agreement and the provision of Gamma Knife services at the Hospital. GKF's determination shall be based upon the utilization of the Equipment and other factors considered relevant by GKF in the exercise of its discretion. If GKF elects to terminate pursuant to this Section, GKF shall give written notice thereof to Hospital not less than ninety (90) days prior to the effective date of the termination designated in GKF’s written notice.

18.2 Notwithstanding the provisions of Section 18.1, if at any time during the Term of this Agreement, Hospital is suspended or terminated from participation in the Medicare program, GKF shall have the option to terminate this Agreement immediately by giving written notice thereof to Hospital.

18.3 As a result of any termination of this Agreement pursuant to this Section, GKF may enter upon the Site under Hospital supervision and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for appropriate removal or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at GKF’s sole cost and expense. If this Agreement is terminated by GKF for economic justification pursuant to Section 18.1 above, then, GKF shall remove the Equipment and such improvements within twelve (12) months following the giving of written notice of termination by GKF, or as soon as practicable pursuant to GKF’s contract with Elekta for such removal, whichever occurs later.

19. Options to Extend Agreement . As of the end of the Term, Hospital shall have the option either to:

19.1 Extend the Term of this Agreement for a specified period of time and upon such other terms and conditions as may be agreed upon in writing by GKF and Hospital; or

19.2 Terminate this Agreement as of the expiration of the Term. GKF shall be responsible to contract with Elekta for removal of the Equipment as soon as practicable.

Hospital shall exercise one (1) of the two (2) options referred to above by giving an irrevocable written notice thereof to GKF at least nine (9) months prior to the expiration of the initial Term. Any such notice shall be sufficient if it states in substance that Hospital elects to exercise its option and states which of the two (2) options referred to above Hospital is exercising. If Hospital fails to exercise the option granted herein at least nine (9) months prior to the expiration of the initial Term, the option shall lapse and this Agreement shall expire as of the end of the initial Term. Further, if Hospital exercises the option to extend the Term and the parties are unable to mutually agree upon the length of the extension of the Term or any other terms or conditions applicable to such extension prior to the expiration of the Term, this Agreement shall expire as of the end of the initial Term.

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[*****] 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.

20. Events of Default by Hospital and Remedies .

20.1 The occurrence of any one of the following shall constitute an event of default under this Agreement (an “Event of Default”):

20.1.1 Hospital fails to pay any Lease Payment when due pursuant to Paragraph 8 above and such failure continues for a period of thirty (30) days after written notice thereof is given by GKF or its assignee to Hospital; however, if Hospital cures the payment default within the applicable thirty (30) day period, such default shall not constitute an Event of Default.

20.1.2 Hospital attempts to remove, sell, transfer, encumber, assign, sublet or part with possession of the Equipment or any items thereof, except as expressly permitted herein.

20.1.3 Hospital fails to observe or perform any of its covenants, duties or obligations arising under this Agreement or the LGK Agreement and such failure continues for a period of thirty (30) days after written notice thereof by GKF to Hospital; however, if Hospital cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, Hospital commences to cure the default during the initial thirty (30) day period and Hospital diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.

20.1.4 Hospital ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation.

20.1.5 Within sixty (60) days after the commencement of any proceedings against Hospital seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Hospital 's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.

20.1.6 Hospital is suspended or terminated from participation in the Medicare program.

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[*****] 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.

20.2 Upon the occurrence of an Event of Default with respect to Hospital, GKF may at its option do any or all of the following:

20.2.1 By written notice to Hospital, immediately terminate this Agreement as to the Equipment, wherever situated. As a result of the termination, GKF may enter upon the Site and remove the Equipment and any improvements made by GKF to the Site without liability of any kind or nature for so doing or GKF may demand that Hospital remove and return the Equipment and such improvements to GKF, all at Hospital's sole cost and expense.

20.2.2 Recover from Hospital as liquidated damages for the loss of the bargain represented by this Agreement and not as a penalty an amount equal to the present value of the unpaid estimated future rent payments to be made by Hospital to GKF through the end of the Term discounted at the rate of six percent (6%), which liquidated damages, together with any past due Lease Payments interest thereon as set forth herein, shall become immediately due and payable. The unpaid estimated future lease payments shall be based on the prior twelve (12) months’ Lease Payments made by Hospital to GKF hereunder with an annual five (5%) percent increase thereof through the end of the Term. Hospital and GKF acknowledge that the liquidated damages formula set forth in this Section constitutes a reasonable method to calculate GKF's damages resulting from an Event of Default under the circumstances existing as of the date of this Agreement.

20.2.3 Sell, dispose of, hold, use or lease the Equipment or any improvements made by GKF to the Site, as GKF in its sole and absolute discretion may determine (and GKF shall not be obligated to give preference to the sale, lease or other disposition of the Equipment or improvements over the sale, lease or other disposition of similar Equipment or improvements owned or leased by GKF).

20.2.4 Exercise any other right or remedy which may be available to GKF under the Uniform Commercial Code or any other applicable law or proceed by appropriate court action, without affecting GKF’s title or right to possession of the Equipment or improvements, to enforce the terms hereof or to recover damages for the breach hereof or to cancel this Agreement as to the Equipment.

In addition to the foregoing remedies, Hospital shall be liable to GKF for all reasonable attorneys’ fees, costs and expenses incurred by GKF as a result of the Event of Default or the exercise of GKF’s remedies.

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20.3 Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or available under applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums then owing under this Agreement without offset or deduction. Hospital shall in any event remain fully liable for all damages as may be provided by law and for all costs and expenses incurred by GKF on account of such default, including but not limited to, all court costs and reasonable attorneys' fees. The rights and remedies afforded GKF under this Agreement shall be deemed cumulative and not exclusive, and shall be in addition to any other rights or remedies to GKF provided by law or in equity.

21. Events of Default by GKF and Remedies .

21.1 The occurrence of any one of the following shall constitute an Event of Default hereunder:

21.1.1 GKF shall fail to observe or perform any of its covenants, duties or obligations arising under this Agreement and such failure shall continue for a period of thirty (30) days after written notice thereof is given by Hospital to GKF; however, if GKF cures the default within the applicable thirty (30) day period or if the default reasonably requires more than thirty (30) days to cure, GKF commences to cure the default during the initial thirty (30) day period and GKF diligently completes the cure as soon as reasonably possible following the end of the thirty (30) day period, such default shall not constitute an Event of Default.

21.1.2 GKF ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or it or its shareholders shall take any action looking to its dissolution or liquidation.

21.1.3 Within sixty (60) days after the commencement of any proceedings against GKF seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within ninety (90) days after the appointment without GKF’s consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.

21.2 Upon the occurrence of an Event of Default involving GKF, Hospital may, by written notice to GKF, immediately terminate this Agreement as to the Equipment and, in such event, GKF shall remove the Equipment, the Cobalt and any improvements made by GKF to the Site, at GKF’s sole cost and expense or, in the absence of removal by GKF within a reasonable period of time after a written request therefor, Hospital may remove the Equipment, the Cobalt and such improvements with all due care and store the same at GKF’s sole cost and expense.

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[*****] 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.

21.3 Notwithstanding the occurrence of an Event of Default with respect to GKF (including any claim which would otherwise be in the nature of a set-off), Hospital shall fully perform and pay its obligations hereunder (including payment of all Lease Payments) without set-off or defense of any kind. Upon termination of this Agreement or the exercise of any other rights or remedies under this Agreement or applicable law following an Event of Default, Hospital shall, without further request or demand, pay to GKF all Lease Payments and other sums and owing under this Agreement when and as due.

22. Removal of Equipment . Upon expiration of the Term, GKF, at its cost and expense, shall remove the Equipment from the Site within a reasonable time period; provided that all of GKF’s right, title and interest in and to the improvements made by GKF to the Site pursuant to Section 6 above shall thereupon transfer to Hospital.

23. Insurance .

23.1 During the Term, GKF shall, at its cost and expense, purchase and maintain in effect an all risk property and casualty insurance policy covering the Equipment. The all risk property and casualty insurance policy shall be for an amount not less than the replacement cost of the Equipment. The all risk property and casualty insurance policy maintained by GKF shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital upon request following the commencement of this Agreement and as of each annual renewal of such policy during the Term.

23.2 During the Term, Hospital shall, at its cost and expense, purchase and maintain in effect general liability and professional liability insurance policies covering the Site (together with all premises where the Site is located) and the use or operation of the Equipment by Hospital or its officers, directors, agents, employees, contractors or physicians. The general liability and professional liability insurance policies shall provide coverage in amounts not less than One Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) annual aggregate. GKF shall be named as additional insured party on the general liability and professional liability insurance policies to be maintained hereunder by Hospital. The policies to be maintained by Hospital hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by Hospital to GKF no later than the First Procedure Date and as of each annual renewal of such policies during the Term. Hospital shall require any physicians using the equipment to show evidence of professional liability insurance consistent with Hospital’s Medical Staff Bylaws.

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[*****] 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.

23.3 During the construction of the Site and prior to the First Procedure Date, GKF, at its cost and expense, shall purchase and maintain a general liability insurance policy which conforms with the coverage amounts and other requirements described in Section 23.2 above and which names Hospital as an additional insured party. The policy to be maintained by GKF hereunder shall be evidenced by a certificate of insurance or other reasonable documentation which shall be delivered by GKF to Hospital prior to the commencement of any construction at the Site.

23.4 During the Term, Hospital shall purchase and maintain all workers compensation insurance to the extent required by applicable law.

24. Indemnification .

24.1 Hospital and GKF each hereby covenants and agrees that it will defend, indemnify and hold the other party and the other party's officers, directors, members, employees and agents at all times harmless from and against any loss, damage and expense (including reasonable attorneys’ fees and other costs of defense) caused by or arising out of: (i) any liability or obligation related to the business of the indemnifying party prior to the date hereof; (ii) any obligation or liability arising from services provided under this Agreement by the indemnifying party to the extent any such liability or obligation directly results from the negligence or intentional misconduct of the indemnifying party, it’s employees or agents ; or (iii) any obligation or liability resulting from a breach of any provision of this Agreement by the indemnifying party, it’s employees or agents. The obligations of the parties under this Section shall survive the expiration or earlier termination of this Agreement.

24.2 Any party that intends to enforce an indemnity obligation shall give the indemnifying party notice of any claim as soon as possible, but the failure to give such notice shall not constitute a waiver or release of the indemnifying party and shall not affect the rights of the indemnified party to recover under this indemnity, except to the extent the indemnifying party is materially prejudiced thereby. In connection with any claim giving rise to indemnity under this Section resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the indemnifying party, at its sole cost and expense, may, upon written notice to the indemnified party, assume control of the defense of such claim or legal proceeding, to the extent that the indemnifying party admits in writing its indemnification liability to the indemnified party with respect to all material elements thereof If the indemnifying party assumes the defense of any such claim or legal proceeding, the obligations of the indemnifying party hereunder as to such claim or legal proceeding shall be to take all steps necessary in the defense or settlement thereof and to hold the indemnified party harmless from and against any losses, damages, expenses or liability caused by or arising out of any settlement approved by the indemnifying party and the indemnified party or any judgment in connection with such claim or legal proceeding. Each indemnified party shall cooperate with the indemnifying party in the defense of any such action, the defense of which is assumed by the indemnifying party. Except with the consent of the indemnified party, which consent may be withheld at the indemnified party's sole discretion, the indemnifying party shall not consent to any settlement or the entry of any judgment arising from any such claim or legal proceeding which, in each case, does not include as an unconditional term thereof the delivery by the claimant or the plaintiff to the indemnified party of a release from all liability in respect thereof. If the indemnifying party does not assume the defense of any claim or litigation, any indemnified party may defend against such claim or litigation in such manner as it may deem appropriate, including but not limited to settling such claim or litigation, after giving notice of the same to the indemnifying party, on such terms as the indemnified party may deem appropriate. The indemnifying party will, promptly after any of the same is incurred, reimburse the indemnified party in accordance with the provisions hereof for all damages, losses, liabilities , costs and expenses incurred by the indemnified party.

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[*****] 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.

25. Miscellaneous .

25.1 Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as provided under Section 14, neither party shall assign this Agreement nor any of its respective rights hereunder and Hospital shall not sublease the Equipment without the prior written consent of the other party, which consent shall not be unreasonably withheld. An assignment or sublease shall not relieve the assigning party or sublessor of any liability for performance of this Agreement during the remainder of the Term. Any purported assignment or sublease made without the other party's prior written consent shall be null, void and of no force or effect.

25.2 Agreement to Perform Necessary Acts . Each party agrees to perform any further acts and execute and deliver any further documents which may be reasonably necessary or otherwise reasonably required to carry out the provisions of this Agreement.

25.3 Validity . If for any reason any clause or provision of this Agreement, or the application of any such clause or provision in a particular context or to a particular situation, circumstance or person, should be held unenforceable, invalid or in violation of law by any court or other tribunal of competent jurisdiction, then the application of such clause or provision in contexts or to situations, circumstances or persons other than that in or to which it is held unenforceable, invalid or in violation of law shall not be affected thereby, and the remaining clauses and provisions hereof shall nevertheless remain in full force and effect.

25.4 Attorney’s Fees and Costs . In the event of any action, arbitration or other proceedings between or among the parties hereto with respect to this Agreement, the non-prevailing party or parties to such action, arbitration or proceedings shall pay to the prevailing party or parties all costs and expenses, including reasonable attorneys' fees, incurred in the defense or prosecution thereof by the prevailing party or parties. The party which is a "prevailing party" shall be determined by the arbitrator(s) or judge(s) hearing the matter and shall be the party who is entitled to recover his, her or its costs of suit, whether or not the matter proceeds to a final judgment, decree or determination. A party not entitled to recover his, her or its costs of suit shall not recover attorneys' fees. If a prevailing party or parties shall recover a decision, decree or judgment in any action, arbitration or proceeding, the costs and expenses awarded to such party may be included in and as part of such decision, decree or judgment.

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[*****] 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.

25.5 Entire Agreement; Amendment . This Agreement together with the Exhibits attached hereto constitutes the full and complete agreement and understanding between the parties hereto concerning the subject matter hereof and shall supersede any and all prior written and oral agreements with regard to such subject matter. This Agreement may be modified or amended only by a written instrument executed by all of the parties hereto.

25.6 Number and Gender . Words in the singular shall include the plural, and words in a particular gender shall include either or both additional genders, when the context in which such words are used indicates that such is the intent.

25.7 Effect of Headings . The titles or headings of the various paragraphs hereof are intended solely for convenience or reference and are not intended and shall not be deemed to modify, explain or place any construction upon any of the provisions of this Agreement.

25.8 Counterparts . This Agreement may be executed in one or more counterparts by the parties hereto. All counterparts shall be construed together and shall constitute one agreement.

25.9 Governing Law . This Agreement shall be interpreted and enforced in accordance with the internal laws, and not the law of conflicts, of the State of Indiana applicable to agreements made and to be performed in that State.

25.10 Exhibits . All exhibits attached hereto and referred to in this Agreement are hereby incorporated by reference herein as though fully set forth at length.

25.11 Ambiguities . The general rule that ambiguities are to be construed against the drafter shall not apply to this Agreement. In the event that any provision of this Agreement is found to be ambiguous, each party shall have an opportunity to present evidence as to the actual intent of the parties with respect to such ambiguous provision.

25.12 Representations . Each of the parties hereto represents (a) that no representation or promise not expressly contained in this Agreement has been made by any other party hereto or by any of its agents, employees, representatives or attorneys; (b) that this Agreement is not being entered into on the basis of, or in reliance on, any promise or representation by such party or individual, expressed or implied, other than such as are set forth expressly in this Agreement; (c) that it has been represented by counsel of its own choice in this matter or has affirmatively elected not to be represented by counsel; (d) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (e) it has full power and authority to execute, deliver and perform this Agreement, and (f) the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or other similar action.

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[*****] 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.

25.13 Non-Waiver . No failure or delay by a party to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, or to exercise any right, power or remedy hereunder or under law or consequent upon a breach hereof or thereof shall constitute a waiver of any such term, condition, covenant, agreement, right, power or remedy or of any such breach or preclude such party from exercising any such right, power or remedy at any later time or times.

25.14 Notices . All notices, requests, demands or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered to the party to whom notice is to be given either (a) by personal delivery (in which case such notice shall be deemed to have been duly given on the date of delivery), (b) by next business day air courier service (e.g., Federal Express or other similar service) (in which case such notice shall be deemed given on the business day following deposit with the air courier service), or (c) by United States mail, first class, postage prepaid, registered or certified, return receipt requested (in which case such notice shall be deemed given on the third (3rd) day following the date of mailing), and properly addressed as follows:

To GKF:

Craig K. Tagawa

Chief Executive Officer

GK Financing, LLC

Two Embarcadero Center, Suite 410

San Francisco, CA 94111

To Hospital:

The Methodist Hospitals, Inc.

600 Grant Street

Gary, Indiana 46402

Attn: _______________

A party to this Agreement may change his, her or its address for purposes of this Section by giving written notice to the other parties in the manner specified herein.

25.15 Special Provisions Respecting Medicare and Medicaid Patients .

25.15.1 Hospital and GKF shall generate such records and make such disclosures as may be required , from time to time, by the Medicare, Medicaid and other third party payment programs with respect to this Agreement in order to meet all requirements for participation and payment associated with such programs, including but not limited to the matters covered by Section 1861(v) (l) (I) of the Social Security Act.

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[*****] 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.

25.15.2 For the purpose of compliance with Section 1861(v)(l)(I) of the Social Security Act, as amended, and any regulations promulgated pursuant thereto, both parties agree to comply with the following statutory requirements (a) Until the expiration of four (4) years after the termination of this Agreement, both parties shall make available, upon written request to the Secretary of Health and Human Services or, upon request, to the Comptroller General of the United States, or any of their duly authorized representatives, the contract, and books, documents and records of such party that are necessary to certify the nature and extent of such costs, and (b) if either party carries out any of the duties of the contract through a subcontract with a value or cost of $10,000 or more over a twelve month period, with a related organization, such subcontract shall contain a clause to the effect that until the expiration of four (4) years after the furnishing of such services pursuant to such subcontract, the related organization shall make available, upon written request to the Secretary, or upon request to the Comptroller General, or any of their duly authorized representatives the subcontract, and books, documents and records of such organization that are necessary to verify the nature and extent of such costs.

25.16 Force Majeure . Failure to perform by either party will be excused in the event of any delay or inability to perform its duties under this Agreement directly or indirectly caused by conditions beyond its reasonable control, including, without limitation, fires , floods, earthquakes, snow, ice, disasters, acts of God, accidents, riots, wars, operation of law, strikes, governmental action or regulations, shortages of labor, fuel, power, materials, manufacturer delays or transportation problems. Notwithstanding the foregoing, all parties shall make good faith efforts to perform under this Agreement in the event of any such circumstance. Further, once such an event is resolved, the parties shall again perform their respective obligations under this Agreement.

25.17 Article 2A Notice .

25.17.1 The parties hereto agree that, notwithstanding anything to the contrary set forth in this Agreement, this Agreement is and shall be treated and interpreted as a statutory "finance lease," as such term is defined in Article 2A of the Uniform Commercial Code (“UCC”) and the Indiana Uniform Commercial Code – Leases (IC 26-1-2.1), and that GKF shall be treated as a finance lessor who is entitled to the benefits and releases from liability accorded to a finance lessor thereunder. In furtherance of the foregoing, Hospital acknowledges that, prior to signing this Agreement, GKF has informed Hospital in writing (a) that Elekta is the entity supplying the Equipment to GKF, (b) that Hospital is entitled (under Section 2A of the Uniform Commercial Code and the Indiana Uniform Commercial Code – Leases (IC 26-1-2.1)) to the promises and warranties, including those of any third party, provided to GKF by Elekta which is the entity supplying the goods in connection with or as part of the contract by which GKF acquired the Equipment or the right to possession and use of the Equipment, and (c) that Hospital may communicate with Elekta and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. Hospital acknowledges and agrees that Hospital has selected both: (1) the Equipment; and (2) the supplier from whom GKF is to purchase the Equipment. Hospital acknowledges that GKF has not participated in any way in Hospital’s selection of the Equipment or of the supplier, and GKF has not selected, manufactured or supplied the Equipment. HOSPITAL IS ADVISED THAT IT MAY HAVE RIGHTS UNDER THE CONTRACT EVIDENCING GKF’S PURCHASE OF THE EQUIPMENT FROM THE SUPPLIER CHOSEN BY HOSPITAL AND THAT HOSPITAL SHOULD CONTACT THE SUPPLIER OF THE EQUIPMENT FOR A DESCRIPTION OF ANY SUCH RIGHTS.

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[*****] 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.

25.17.2 In the event Article 2A of the UCC is deemed to be applicable to this Agreement, Hospital hereby agrees to waive any and all rights and remedies given by Sections 2A-508 through 2A-522 of the UCC, including but not limited to the right to reject the Lease and Equipment; cancel the Lease; revoke acceptance of the Equipment, “cover” by making any purchase or lease of Equipment in its possession and control for any reason; recover damages under such UCC-2A sections for any breach of warranty and/or seek remedies of specific performance, replevin or the like for any Equipment. In addition, to the extent permitted by applicable law, Hospital also hereby waives any rights now or hereafter conferred by statute or otherwise which may require GKF to sell, lease or otherwise use any Equipment in mitigation of GKF’s damages or which may otherwise limit or modify any of GKF’s rights or remedies.

25.18 Independent Contractor Status . With respect to the performance of the duties and obligations arising under this Agreement, nothing in this Agreement is intended nor shall be construed to create a partnership, an employer/employee relationship , a joint venture relationship, or a lease or landlord/tenant relationship between GKF and Hospital. GKF acknowledges that physicians practicing at Hospital are not employees or agents of Hospital , but independent community practitioners.

[Signatures continued on next page]

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[*****] 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.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above.

GKF :		Hospital :

GK FINANCING, LLC,		The Methodist Hospitals, Inc,
a California limited liability company		an Indiana non-profit corporation

By:	/s/ Ernest A. Bates, M.D.	By:	/s/ Raymond Grady
	Ernest A. Bates, M.D.	Name:	Raymond Grady
	Policy Committee Member	Title:	President & CEO

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[*****] 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 A

PHYSICAL SPACE

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[*****] 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 8.1(1)

LEASE PAYMENTS

Annual Technical
Component
Collections

Percentage of Technical Component Collections
Payable To GKF

(“GKF Percentage Allocation”)

0 - $1,000,000

[*****]

$1,000,00 +

[*****]

Notwithstanding anything to the contrary set forth herein, for purposes of determining the Lease Payments, (a) the Technical Component Collections shall be reset to zero (0) at the commencement of each anniversary of the First Procedure Date; and (b) there shall be no retroactive adjustment of the GKF Percentage Allocation irrespective of whether the Technical Component Collections reaches a lower GKF Percentage Allocation. For example, if during an annual measuring period, the Technical Component Collections totals $1,200,000, then, (i) the GKF Percentage Allocation would remain at [*****]for the first $1,000,000 of Technical Component Collections (i.e., [*****]), and (ii) the GKF Percentage Allocation would be [*****] for the remaining $200,000 of Technical Component Collections (i.e., [*****]). There are no minimum volume requirements.

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[*****] 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 8.1(3)

HOSPITAL’S COST COMPONENT

Rental for Physical Facility Space	[*****]

Hospital’s Equipment Operational Cost	[*****]

On each anniversary of the First Procedure Date, Hospital may adjust Hospital’s Equipment Operational Cost component up or down, which increases or decreases shall directly correlate to increases or decreases in Hospital’s direct costs related thereto (excluding administrative or overhead expenses) supported by documentation reasonably satisfactory to GKF.

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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 .

May 13, 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 .

May 13, 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 March 31, 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.

May 13, 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