Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1.    Basis of Presentation

In the opinion of the management of American Shared Hospital Services (“ASHS”), the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for the fair presentation of ASHS consolidated financial position as of September 30, 2023, the results of its operations for the three and nine-month periods ended September 30, 2023 and 2022, and the cash flows for the nine-month periods ended September 30, 2023 and 2022. The results of operations for the three and nine-month periods ended September 30, 2023 are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December 31, 2022 have been derived from the 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, 2022 included in the ASHS Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023.

These condensed consolidated financial statements include the accounts of ASHS and its subsidiaries (the “Company”) including as follows: ASHS wholly owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), ASHS-Mexico, S.A. de C.V. (“ASHS-Mexico”), OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); ASHS is the majority owner of Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”), which wholly owns the subsidiary Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and HoldCo GKC S.A. (“HoldCo”). HoldCo wholly owns the subsidiary Gamma Knife Center Ecuador S.A. (“GKCE”). 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 (“Elekta”), the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. As of September 30, 2023, GKF provides Gamma Knife units to eleven medical centers in the United States in the states of Florida, Illinois, Indiana, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, and Texas. GKF also owns and operates two single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. The Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment to a customer in the United States.

The Company formed the subsidiaries GKPeru and acquired GKCE for the purposes of expanding its business internationally; Orlando and LBE to provide PBRT equipment and services in Orlando, Florida and Long Beach, California, respectively; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. LBE is not expected to generate revenue within the next two years.

On  April 27, 2022, the Company signed a Joint Venture Agreement with the principal owners of Guadalupe Amor Y Bien S.A. de C.V. (“Guadalupe”) to establish AB Radiocirugia Y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients and provide radiation therapy and radiosurgery services locally in Mexico. The Company and Guadalupe hold 85% and 15% ownership interests, respectively, in Puebla. Under the Agreement, the Company is responsible for providing a linear accelerator upgrade to an Elekta Versa HD, and Guadalupe is accountable for all site modification costs.  The Company formed ASHS-Mexico on  October 3, 2022 to establish Puebla.  Puebla was formed on  December 15, 2022 and the Company expects Puebla to begin treating patients in January 2024. Operating costs incurred during the three-month period ended  September 30, 2023 by Puebla, are included in the condensed consolidated statement of operations.

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

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

Accounting pronouncements issued and not yet adopted - In  March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”; together with ASU-2020-04 and ASU 2021-01, the “Topic 848 ASUs”), which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Topic 848 ASUs are effective any date from the beginning of an interim period that includes or is subsequent to  March 12, 2020, or on a prospective basis to new modifications through December 31, 2024, provided that the expedients and exceptions provided by the Topic 848 ASUs do not apply to contract modifications or new hedging relationships made after December 31, 2024 or to existing hedging relationships evaluated for effectiveness in periods after December 31, 2024, except for hedging relationships existing as of December 31, 2024 that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2024). The Company is currently evaluating the impact that the Topic 848 ASUs may have on the Company’s consolidated financial statements. See Note 3 - Long-term Debt Financing for additional discussion on transitioning from LIBOR.

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

Rental income from medical equipment 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 Company’s contracts are typically for a ten-year term and are priced as either fee per use or revenue sharing. Fee per use 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 after considering certain operating costs of the center. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience and patient mix. Revenue estimates are reviewed periodically and adjusted as necessary.  The operating costs are recorded as other direct operating costs in the condensed consolidated statements of operations. For the three and nine-month periods ended September 30, 2023, the Company recognized revenues of approximately $3,946,000 and $12,987,000, respectively, compared to $4,101,000 and $12,382,000 for the same periods in the prior year, respectively, under ASC 842. Of the ASC 842 revenue, for the three and nine-month periods ended September 30, 2023 approximately $2,219,000 and $7,078,000 were for PBRT services, respectively, compared to $2,358,000 and $6,705,000 for the same periods in the prior year, respectively.

Patient income – The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where contracts exist between the Company’s facilities and the individual patients treated at the facility. Under ASC 606, the Company acts as the principal in these transactions and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment. Revenue related to a Gamma Knife treatment is recognized on a gross basis at the time when the patient receives treatment. There is no variable consideration present in the Company’s performance obligation and the transaction price is agreed upon per the stated contractual rate. GKPeru’s payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net 30 days. GKCE’s patient population is primarily covered by a government payor and payments are paid between three and six months. The Company did not capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable balances under ASC 606 at   September 30, 2023, July 1, 2023 and January 1, 2023 were $1,416,000, $980,000 and $1,119,000, respectively. Accounts receivable balances under ASC 606 at  September 30, 2022, July 1, 2022, and January 1, 2022 were $1,248,000, $1,145,000 and $668,000, respectively. For the three and nine-month periods ended September 30, 2023, the Company recognized revenues of approximately $988,000 and $2,440,000, respectively, under ASC 606 compared to $727,000 and $2,327,000 for the same periods in the prior year, respectively.

During the three-month period ended  September 30, 2023, the Company completed a sale of equipment to a new customer.  The Company assessed this transaction under ASC 606 and concluded the Company acted as the agent in this transaction and provided, at a point in time, two performance obligations, in the form of an equipment sale of an Icon system (“Icon”) and Cobalt-60 reload.  The performance obligation to sell, assign, transfer and deliver the equipment to the customer was carried out via Elekta.  Revenue related to the equipment sale is recognized on a net basis when the sale is complete.  The Company recognized net revenue of $200,000 on the sale of equipment for the three and nine-month periods ended September 30, 2023.

Business segment information - Based on the guidance provided in accordance with ASC 280 Segment Reporting (“ASC 280”), the Company analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation therapy equipment to healthcare providers, and concluded there are fourteen locations that meet the definition of an operating segment and these fourteen locations are aggregated into two reportable segments, domestic and international. Equipment in the domestic segment is leased by the Company to healthcare providers. The Company owns and operates the facilities in the international segment. The Company provides Gamma Knife and PBRT equipment to twelve hospitals in the United States and owns and operates two single-unit facilities in Lima, Peru and Guayaquil, Ecuador as of September 30, 2023.  The Company also sold an Icon and Cobalt-60 reload to a new customer during the three-month period ended  September 30, 2023 and concluded this transaction met the definition of an operating segment. The revenue from this sale is included in the Company’s domestic segment below. An operating segment is defined by ASC 280 as a component of a reporting entity that has the following three characteristics: (1) it engages in business activities from which it  may recognize revenues and incur expense, (2) its operating results are regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”), and (3) its discrete financial information is available. The Company determined two reportable segments existed due to similarities in economics of business operations and geographic location. The operating results of the two reportable segments are reviewed by the Company’s Executive Chairman of the Board, who is also the CODM.

For the three and nine-month periods ended September 30, 2023, the Company’s PBRT operations represented a significant majority of the domestic profit, disclosed below. The revenues and profit or loss allocations for the Company’s two reportable segments as of  September 30, 2023 and 2022 consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023			2022
Revenues
Domestic	$	4,146,000	$	4,101,000	$	13,187,000		$	12,382,000
International		988,000		727,000		2,440,000			2,327,000
Total	$	5,134,000	$	4,828,000	$	15,627,000		$	14,709,000
Net income (loss) attributable to American Shared Hospital Services
Domestic	$	67,000	$	287,000	$	296,000		$	992,000
International		51,000		29,000		(101,000	)		90,000
Total	$	118,000	$	316,000	$	195,000		$	1,082,000

Reclassification - Certain comparative balances as of and for the three and nine-month periods ended September 30, 2022 have been reclassified to make them consistent with the current year presentation.