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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to . |
Commission file number 1-8789
American Shared Hospital Services
(Exact name of registrant as specified in its charter)
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California |
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94-2918118 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification No.) |
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Four Embarcadero Center, Suite 3700,
San Francisco, California
(Address of Principal Executive Offices) |
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94111-4107
(Zip Code) |
Registrant’s telephone number, including area code:
(415) 788-5300
Securities registered pursuant to Section 12(b) of the
Act:
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| Title of Each Class |
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Name of Each Exchange on Which Registered |
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Common Stock No Par Value |
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American Stock Exchange
Pacific Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
As of June 30, 2004, the aggregate market value of the
common stock held by non-affiliates of the registrant was
approximately $17,390,000.
Number of shares of common stock of the registrant outstanding
as of March 8, 2005: 4,778,840.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for
the 2005 Annual Meeting of Shareholders are incorporated by
reference into Part III of this report.
TABLE OF CONTENTS
2
PART I
GENERAL
American Shared Hospital Services (“ASHS” and,
together with its subsidiaries, the “Company”)
provides Gamma Knife stereotactic radiosurgery services to
nineteen (19) medical centers in seventeen
(17) states. The Company provides these services through
its 81% indirect interest in GK Financing, LLC, a California
limited liability company (“GKF”). The remaining 19%
of GKF is owned by GKV Investments, Inc., a wholly owned
U.S. subsidiary of Elekta AG, a Swedish company
(“Elekta”). Elekta is the manufacturer of the Leksell
Gamma Knife® (the “Gamma Knife”). GKF is a
non-exclusive provider of alternative financing services for
Elekta. Gamma Knife services accounted for 100% of the
Company’s revenue in 2004.
At present, the Company is developing its design and business
model for “The Operating Room for the
21st Century”®
(“OR21”®). OR21 is not expected to generate
significant revenue within the next twelve months.
The Company was incorporated in the state of California in 1983
and its predecessor, Ernest A. Bates, M.D., Ltd. (d/b/a
American Shared Hospital Services), a California limited
partnership, was formed in June 1980.
GAMMA KNIFE OPERATIONS
Gamma Knife stereotactic radiosurgery, a non-invasive procedure,
is an alternative to conventional brain surgery or can be an
adjunct to conventional brain surgery. Compared to conventional
surgery, Gamma Knife surgery usually involves shorter patient
hospitalization, lower risk of complications and can be provided
at a lower cost. Typically, Gamma Knife patients resume their
normal activities one or two days after treatment. The Gamma
Knife treats patients with 201 single doses of gamma rays that
are focused with great precision on small and medium, well
circumscribed and critically located structures in the brain.
The Gamma Knife delivers the concentrated dose of gamma rays
from 201 sources of Cobalt-60 housed in the Gamma Knife. The 201
Cobalt-60 sources converge at the target area and deliver a dose
that is high enough to destroy the diseased tissue without
damaging surrounding healthy tissue.
The Gamma Knife treats selected malignant tumors (i.e., solitary
and multiple metastatic tumors, gliomas, nasopharyngeal
carcinomas and ocular melanoma), benign brain tumors (i.e.,
meningiomas, pituitary and acoustic neuromas,
craniopharyngiomas), arteriovenous malformations and trigeminal
neuralgia (facial pain). Research is being conducted to
determine whether the Gamma Knife can be effective in the
treatment of epilepsy, Parkinson’s Disease and other
functional disorders.
As of December 31, 2004, there were 90 Gamma Knife sites in
the United States and 210 units in operation worldwide. An
estimated percentage breakdown of Gamma Knife procedures
performed in the U.S. by indications treated is as follows:
malignant (44%) and benign (29%) brain tumors, functional
disorders (14%) and vascular disorders (13%).
The Company, as of March 7, 2005, has nineteen
(19) Gamma Knife units operating at nineteen
(19) sites in the United States. In addition, the Company
has two (2) more hospitals that are currently under
development. The Company’s first Gamma Knife commenced
operation in September 1991. The Company’s Gamma Knife
units performed approximately 2,100 procedures in 2004 for a
cumulative total of approximately 11,600 procedures through
December 31, 2004.
3
Gamma Knife revenue for the Company during the five
(5) years ended December 31, and the percentage of
total revenue of the Company represented by the Gamma Knife for
each of the last five years, are set forth below:
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Gamma | |
| Year Ended |
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Total Gamma | |
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Knife/Total | |
| December 31, |
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Knife Revenue | |
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Revenue | |
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(In thousands) | |
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2004
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$ |
16,389 |
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100.0 |
% |
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2003
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$ |
16,178 |
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100.0 |
% |
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2002
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$ |
13,366 |
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100.0 |
% |
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2001
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$ |
11,758 |
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100.0 |
% |
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2000
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$ |
9,336 |
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100.0 |
% |
The Company conducts its Gamma Knife business through its 81%
indirect interest in GKF. The remaining 19% interest is
indirectly owned by Elekta. GKF, formed in October 1995, is
managed by its policy committee. The policy committee is
composed of one representative from the Company, Ernest A.
Bates, M.D., ASHS’s Chairman and CEO, and one
representative from Elekta. The policy committee sets the
operating policy for GKF. The policy committee may act only with
the unanimous approval of both of its members. The policy
committee selects a manager to handle GKF’s daily
operations. Craig K. Tagawa, Chief Executive Officer of GKF and
Chief Operating and Financial Officer of ASHS, serves as
GKF’s manager.
GKF’s profits and/or losses and any cash distributions are
allocated based on membership interests. GKF’s Operating
Agreement requires that it have a cash reserve of at least
$50,000 before cash distributions are made to its members. From
inception to December 31, 2004, GKF distributed $13,122,000
to the Company and $3,078,000 to the minority partner.
RISKS OF GAMMA KNIFE BUSINESS
There are significant risks involved in the Company’s Gamma
Knife business, including the following:
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Each Gamma Knife unit requires a substantial capital investment.
In some cases, we contribute additional funds for capital costs
and/or annual operating and equipment related costs such as
marketing, maintenance, insurance and property taxes. Due to the
structure of our contracts with medical centers, there can be no
assurance that these costs will be fully recovered or that we
will earn a satisfactory return on our investment. |
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There is a limited market for the Gamma Knife. Due to the
substantial costs of acquiring a Gamma Knife unit, we must
identify medical centers that possess neurosurgery and radiation
oncology departments capable of performing a large number of
Gamma Knife procedures. We estimate that there are approximately
200 medical centers in the United States that may be potential
Gamma Knife sites. As of December 31, 2004 there were 90
operating Gamma Knife units in the United States, of which
18 units are owned by us, and 210 units in operation
worldwide. There can be no assurance that we will be successful
in placing additional units at a significant number of sites in
the future. |
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The Company’s business is capital intensive and it has
traditionally financed each Gamma Knife with debt. The long term
debt totals $25,486,000 and is collateralized by the Gamma Knife
units and other assets, including accounts receivable and future
proceeds from any contract between the Company and any end user
of the financed equipment. This high level of debt may adversely
affect the Company’s ability to secure additional credit in
the future, and as a result may affect operations and
profitability. If default on debt occurs in the future, the
Company’s creditors would have the ability to accelerate
the defaulted loan, to seize the Gamma Knife unit with respect
to which default has occurred, and to apply any collateral they
may have at the time to cure the default. |
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There are currently three companies (in addition to our company)
that actively provide alternative, non-conventional Gamma Knife
financing to potential customers. There are no competitor
companies that currently have more than six Gamma Knife units in
operation. The Company’s relationship with |
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Elekta, the manufacturer of the Leksell Gamma Knife unit, is
non-exclusive, and in the past the Company has lost sales to
customers that chose to purchase a Gamma Knife unit directly
from Elekta. In addition, the Company may continue to lose
future sales to such customers and may also lose future sales to
its competitors. There can be no assurance that the Company will
be able to successfully compete against others in placing future
units. |
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There are several methods of radiosurgery (including the
modified linear accelerator) as well as conventional
neurosurgery that compete against the Gamma Knife. Each of the
medical centers targeted by the Company could decide to acquire
another radiosurgery modality instead of a Gamma Knife. In
addition, neurosurgeons who are primarily responsible for
referring patients for Gamma Knife surgery may not be willing to
make such referrals for various reasons, instead opting for
invasive surgery. There can be no assurance that the Company
will be able to secure a sufficient number of future sites or
Gamma Knife procedures to sustain its profitability and growth. |
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The amount reimbursed to medical centers for each Gamma Knife
treatment may decline in the future. The reimbursement decrease
may come from federally mandated programs (i.e., Medicare and
Medicaid) or other third party payor groups. Fourteen of the
Company’s existing contracts are reimbursed by the medical
center to the Company on a fee per use basis. The primary risk
under this type of contract is that the actual volume of
procedures could be less than projected. However, a significant
reimbursement rate reduction may result in the Company
restructuring certain of its existing contracts. There are also
five contracts where the Company receives revenue based directly
on the amount of reimbursement received for procedures
performed. Revenue under those contracts and any future
contracts with revenue based directly on reimbursement amounts
will be impacted by any reimbursement rate change. Some of the
Company’s future contracts for Gamma Knife services may
have revenue based on such reimbursement rates instead of a fee
for service basis. There can be no assurance that future changes
in healthcare regulations and reimbursement rates will not
directly or indirectly adversely affect the Company’s Gamma
Knife revenue. |
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There is constant change and innovation in the market for highly
sophisticated medical equipment. New and improved medical
equipment can be introduced that could make the Gamma Knife
technology obsolete and that would make it uneconomical to
operate. During 2000, Elekta introduced an upgraded Gamma Knife
which costs approximately $3.6 million plus applicable tax
and duties. This upgrade includes an Automatic Positioning
Systemtm
(“APS”), and therefore involves less health care
provider intervention. In early 2005, Elekta introduced a new
upgrade, the model 4C. Eight of our existing Gamma Knife units
include APS and ten of our existing Gamma Knife units are
upgradeable. The cost to upgrade existing units to the new model
4C Gamma Knife with APS is estimated to be approximately
$200,000 to $1,000,000, depending on the current Gamma Knife
configuration. The failure to acquire or use new technology and
products could have a material adverse effect on our business
and results of operations. |
5
CUSTOMERS
The Company’s current business is the outsourcing of Gamma
Knife stereotactic radiosurgery services. The Company typically
provides the Gamma Knife equipment, as well as planning,
installation, reimbursement and marketing support services.
Customers usually pay the Company on a fee per use basis. The
market for these services primarily consists of major urban
medical centers. The Gamma Knife business is capital intensive.
The total cost of a Gamma Knife facility usually ranges from
$3 million to $4 million, including equipment, site
construction and installation. The Company pays for the Gamma
Knife and the medical center generally pays for site and
installation costs. The following is a listing of the
Company’s current sites and sites under development as of
March 8, 2005:
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Existing sites
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UCSF Medical Center
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10 years |
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1991 |
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Fee per use |
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San Francisco, California
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Hoag Memorial Hospital Presbyterian
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10 years |
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1997 |
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Fee per use |
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Newport Beach, California
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Southwest Texas Methodist Hospital
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10 years |
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1998 |
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Fee per use |
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San Antonio, Texas
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Yale New Haven Ambulatory Services Corporation (“Yale”)
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10 years |
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1998 |
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Revenue sharing |
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New Haven, Connecticut
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Kettering Medical Center
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10 years |
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1999 |
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Fee per use |
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Kettering, Ohio
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New England Medical Center
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10 years |
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1999 |
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Fee per use |
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Boston, Massachusetts
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University of Arkansas for Medical Sciences (“UAMS”)
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15 years |
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1999 |
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Revenue sharing |
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Little Rock, Arkansas
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Froedtert Memorial Lutheran Hospital
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10 years |
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1999 |
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Fee per use |
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Milwaukee, Wisconsin
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JFK Medical Center
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10 years |
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2000 |
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Fee per use |
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Edison, New Jersey
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Sunrise Hospital and Medical Center
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10 years |
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2001 |
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Fee per use |
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Las Vegas, Nevada
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Central Mississippi Medical Center
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10 years |
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2001 |
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Fee per use |
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Jackson, Mississippi
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OSF Saint Francis Medical Center
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10 years |
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2001 |
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Fee per use |
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Peoria, Illinois
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Bayfront Medical Center
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10 years |
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2002 |
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Fee per use |
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St. Petersburg, Florida
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Mercy Medical Center
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10 years |
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2002 |
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Fee per use |
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Rockville Center, New York
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The Johns Hopkins Hospital
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10 years |
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2003 |
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Revenue Sharing |
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Baltimore, Maryland
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Baptist Medical Center
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8 years |
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2003 |
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Revenue Sharing |
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Jacksonville, Florida
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Albuquerque Regional Medical Center
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10 years |
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2003 |
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Fee per use |
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Albuquerque, New Mexico
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Lehigh Valley Hospital
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10 years |
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2004 |
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Fee per use |
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Allentown, Pennsylvania
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Baptist Hospital of East Tennessee
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10 years |
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2005 |
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Revenue Sharing |
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Knoxville, Tennessee
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Sites Under Development
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Northern Westchester Hospital
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10 years |
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Fee per use |
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Mt. Kisco, New York
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Mercy Health Center
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10 years |
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Revenue Sharing |
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Oklahoma City, Oklahoma
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6
One of the Company’s sites under development at
December 31, 2004, Baptist Hospital of East Tennessee,
became operational in January 2005. The other two sites
currently under development are scheduled to commence operation
in second and third quarters 2005.
The Company’s fee per use agreement is typically for a
ten-year term. The fixed fee per use reimbursement amount that
the Company receives from the customer is based on the
Company’s cost to provide the service and the anticipated
volume of the customer. The contracts signed by the Company
typically call for a fee ranging from $7,500 to $9,000 per
procedure. There are no minimum volume guarantees required of
the customer. Typically, GKF is responsible for providing the
Gamma Knife and related ongoing Gamma Knife equipment expenses
(i.e., personal property taxes, insurance, equipment
maintenance) and also helps fund the customer’s Gamma Knife
marketing. The customer generally is obligated to pay site and
installation costs and the costs of operating the Gamma Knife.
The customer can either renew the agreement or terminate the
agreement at the end of the contractual term. If the customer
chooses to terminate the agreement, then GKF removes the
equipment from the medical center for possible placement at
another site.
The Company’s revenue sharing agreements
(“retail”) are for a period of eight to fifteen years.
Instead of receiving a fixed fee, the Company receives all or a
percentage of the reimbursement (exclusive of physician fees)
received by the customer less the operating expenses of the
Gamma Knife. The Company is at risk for any reimbursement rate
changes for Gamma Knife services by the government or other
third party payors. The Company is also at risk if it
inefficiently operates the Gamma Knife. There are no minimum
volume guarantees required of the customer.
No individual customers accounted for more than 10% of the
Company’s revenue in 2004 and 2003. Two customers (Yale and
UAMS) each accounted for more than 10% of the Company’s
revenue in 2002.
MARKETING
The Company markets its services through its preferred provider
status with Elekta and a direct sales effort. From April 2003 to
March 2004, the direct sales effort was executed by the
Company’s Chief Executive and Chief Operating Officers. In
March 2004, the Company hired a Director of Sales to lead the
direct sales effort. The major advantages to a health care
provider in contracting with the Company for Gamma Knife
services include:
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The medical center avoids the high cost of owning the equipment.
By not acquiring the Gamma Knife unit, the medical center is
able to allocate the funds required to purchase and/or finance
the Gamma Knife to other projects. |
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The medical center avoids the risk of Gamma Knife
under-utilization. The Company does not have minimum volume
requirements. The medical center pays the Company only for each
Gamma Knife procedure performed on a patient. |
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The medical center transfers the risk of technological
obsolescence to the Company. The medical center and its
physicians are not under any obligation to utilize
technologically obsolete equipment. |
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The Company provides planning, installation, operating and
marketing assistance and support to its Gamma Knife customers. |
FINANCING
The Company’s Gamma Knife business is operated through GKF.
Through 2003 GKF funded its existing Gamma Knife units with
loans from a single lender, DVI Financial Services Inc.
(“DVI”), for 100% of the cost of each Gamma Knife,
plus any sales tax, customs and duties. An alternative lender
was utilized for financing the Company’s Gamma Knife unit
that opened during 2004. The loans are predominantly fully
amortized over an 84-month period. The loans are collateralized
by the Gamma Knife, customer contracts and accounts receivable,
and are without recourse to the Company and Elekta.
DVI filed for Chapter 11 bankruptcy protection during 2003,
and all the Company’s loans with DVI were subsequently
assumed by another lender as successor servicer. The Company
continues to make payments to
7
the successor servicer on these outstanding note balances, and
has secured financing for its projects under development from
other lending sources. Management believes that the financial
condition of DVI has not had a material adverse effect on the
Company’s financial position or results of operations.
COMPETITION
Conventional neurosurgery is the primary competitor of Gamma
Knife radiosurgery. Gamma Knife surgery is gaining acceptance as
an alternative and/or adjunct to conventional surgery due to its
more favorable morbidity outcomes for certain procedures as well
as its non-invasiveness. Utilization of the Company’s Gamma
Knife units is contingent on the acceptance of Gamma Knife
radiosurgery by the customer’s neurosurgeons, radiation
oncologists and referring physicians. In addition, the
utilization of the Company’s Gamma Knife units is impacted
by the proximity of competing Gamma Knife centers and providers
using other radiosurgery modalities.
The Company’s ability to secure additional customers for
Gamma Knife services is dependent on its ability to effectively
compete against (i) Elekta, the manufacturer of the Gamma
Knife, (ii) manufacturers of competing radiosurgery devices
(primarily modified linear accelerators), and (iii) other
companies that outsource Gamma Knife services. The Company does
not have an exclusive relationship with Elekta and has
previously lost sales to customers that chose to purchase a
Gamma Knife directly from Elekta. The Company may continue to
lose future sales to such customers and may also lose sales to
the Company’s competitors.
GOVERNMENT REGULATION
The Company’s Gamma Knife customers receive payments for
patient care from federal government and private insurer
reimbursement programs. Currently in the United States, Gamma
Knife services are performed on an in-patient and on an
out-patient basis. Gamma Knife patients, with Medicare as their
primary insurer and treated on either an in-patient or
out-patient basis, comprise an estimated 20% to 35% of the total
Gamma Knife patients treated.
A Prospective Payment System (“PPS”) is utilized to
reimburse hospitals for care given to hospital in-patients
covered by federally funded reimbursement programs. Patients are
classified into a Diagnosis Related Group (“DRG”) in
accordance with the patient’s diagnosis, necessary medical
procedures and other factors. Patient reimbursement is limited
to a predetermined amount for each DRG. The reimbursement
payment may not necessarily cover the cost of all medical
services actually provided because the payment is predetermined.
Effective October 1, 1997, Gamma Knife services for
Medicare hospital in-patients are predominantly reimbursed under
either DRG 7 or DRG 8.
In 1986 and again in 1990, Congress enacted legislation
requiring the Department of Health and Human Services
(“DHHS”) to develop proposals for a PPS for Medicare
out-patient services. DHHS proposed a new payment system,
Ambulatory Product Classifications (“APC”), which
affects all out-patient services performed in a hospital based
facility. APC implementation took place in the third quarter of
2000.
The APC consists of 346 clinically, homogenous classifications
or groupings of codes that are typically used in out-patient
billing. Out-patient services are bundled with fixed rates of
payment determined according to specific regional and national
factors, similar to that of the in-patient PPS.
The reimbursement for Medicare patients receiving Gamma Knife
services on an out-patient basis is estimated to have decreased
approximately 40% under the APC system. The Gamma Knife APC rate
is modified periodically but the total reimbursement amount has
remained fairly constant. The Company has two contracts from
which its revenue is directly affected by changes in payment
rates under the APC system. During 2002, these two contracted
hospitals primarily treated Medicare Gamma Knife patients on an
in-patient basis and therefore the Company believes that
adoption of APC’s has not had a significant impact on the
revenue of the Company. In 2003, one of the two hospitals
started treating its patients on an outpatient basis and it is
estimated that revenue decreased by approximately $100,000 to
$150,000. Some of the Company’s fee per use customers treat
patients on an out-patient basis and may also have experienced a
8
reduction in Medicare payment. There can be no assurance that
the adoption of APC’s will not have a negative impact
directly or indirectly on the Company’s revenue in the
future.
The payment of remuneration to induce the referral of health
care business has been a subject of increasing governmental and
regulatory focus in recent years. Section 1128B(b) of the
Social Security Act (sometimes referred to as the “federal
anti-kickback statute”) provides criminal penalties for
individuals or entities that knowingly and willfully offer, pay,
solicit or receive remuneration in order to induce referrals for
items or services for which payment may be made under the
Medicare and Medicaid programs and certain other government
funded programs. The Social Security Act provides authority to
the Office of Inspector General through civil proceedings to
exclude an individual or entity from participation in the
Medicare and state health programs if it is determined any such
party has violated Section 1128B(b) of the Social Security
Act. The Company believes that it is in compliance with the
federal anti-kickback statute. Additionally, the Omnibus Budget
Reconciliation Act of 1993, often referred to as
“Stark II”, bans physician self-referrals to
providers of designated health services with which the physician
has a financial relationship. The term “designated health
services” includes, among others, radiation therapy
services and in-patient and out-patient hospital services. On
January 1, 1995, the Physician Ownership and Referral Act
of 1993 became effective in California. This legislation
prohibits physician self-referrals for covered goods and
services, including radiation oncology, if the physician (or the
physician’s immediate family) concurrently has a financial
interest in the entity receiving the referral. The Company
believes that it is in compliance with these rules and
regulations.
A range of federal civil and criminal laws target false claims
and fraudulent billing activities. One of the most significant
is the Federal False Claims Act, which prohibits the submission
of a false claim or the making of a false record or statement in
order to secure a reimbursement from a government-sponsored
program. In recent years, the federal government has launched
several initiatives aimed at uncovering practices which violate
false claims or fraudulent billing laws. Claims under these laws
may be brought either by the government or by private
individuals on behalf of the government, through a
“whistleblower” or “qui tam” action. The
Company believes that it is in compliance with the Federal False
Claims Act; however, because such actions are filed under seal
and may remain secret for years, there can be no assurance that
the Company or one of its affiliates is not named in a material
qui tam action.
Legislation in various jurisdictions requires that health
facilities obtain a Certificate of Need (“CON”) prior
to making expenditures for medical technology in excess of
specified amounts. Four of the Company’s existing customers
were required to obtain a CON or its equivalent. The CON
procedure can be expensive and time consuming and may impact the
length of time before Gamma Knife services commence. CON
requirements vary from state to state in their application to
the operations of both the Company and its customers. In some
jurisdictions the Company is required to comply with CON
procedures to provide its services and in other jurisdictions
customers must comply with CON procedures before using the
Company’s services.
The Company’s Gamma Knife units contain Cobalt 60
radioactive sources. The medical centers that house the
Company’s Gamma Knife units are responsible for obtaining
possession and user’s licenses for the Cobalt 60 source.
The Company believes it is in substantial compliance with the
various rules and regulations that affect its businesses.
INSURANCE AND INDEMNIFICATION
The Company’s contracts with equipment vendors generally do
not contain indemnification provisions. The Company maintains a
comprehensive insurance program covering the value of its
property and equipment, subject to deductibles, which the
Company believes are reasonable.
The Company’s customer contracts generally contain mutual
indemnification provisions. The Company maintains general and
professional liability insurance. The Company is not involved in
the practice of medicine and therefore believes its present
insurance coverage and indemnification agreements are adequate
for its business.
9
EMPLOYEES
At December 31, 2004, the Company employed eight
(8) people on a full-time basis. None of these employees is
subject to a collective bargaining agreement and there is no
union representation within the Company. The Company maintains
various employee benefit plans and believes that its employee
relations are good.
EXECUTIVE OFFICERS OF THE COMPANY
The following table provides current information concerning
those persons who serve as executive officers of the Company.
The executive officers were appointed by the Board of Directors
and serve at the discretion of the Board of Directors.
| |
|
|
|
|
|
|
| Name: |
|
Age: | |
|
Position: |
| |
|
| |
|
|
|
Ernest A. Bates, M.D.
|
|
|
68 |
|
|
Chairman of the Board of Directors, Chief Executive Officer |
|
Craig K. Tagawa
|
|
|
51 |
|
|
Senior Vice President — Chief Operating and Financial
Officer |
Ernest A. Bates, M.D., founder of the Company, has
served in the positions listed above since the incorporation of
the Company. He is currently Vice Chairman of the Board of
Trustees of The Johns Hopkins University, a member of the Board
of Trustees at the University of Rochester, a member of the
Board of Overseers of the University of California at
San Francisco School of Nursing, a member of the Board of
Directors of Copia and the Capital Campaign Chairman and a Board
Member of the Museum of African Diaspora. Dr. Bates is also
a member of the State of California Commission for Jobs and
Economic Growth, a member of the Board of Directors of Salzburg
Seminar, a board member of the Center for Accelerating Medical
Solutions-Milken Institute and a member of the Brookings
Institution. Dr. Bates is a graduate of The Johns Hopkins
University and the University of Rochester School of Medicine.
Craig K. Tagawa has served as Chief Operating Officer
since February 1999 in addition to serving as Chief Financial
Officer since May 1996. Mr. Tagawa also served as Chief
Financial Officer from January 1992 through October 1995.
Previously a Vice President in such capacity, Mr. Tagawa
became a Senior Vice President on February 28, 1993. He is
also the Chief Executive Officer of GKF. From September 1988
through January 1992, Mr. Tagawa served in various
positions with the Company. He is currently a Chair of the
Industrial Policy Advisory Committee of the Engineering Research
Center for Computer-Integrated Surgical Systems and Technology
at The Johns Hopkins University. He received his Undergraduate
degree from the University of California at Berkeley and his
M.B.A from Cornell University.
AVAILABLE INFORMATION
Our Internet address is www.ashs.com. We make available
free of charge through our Internet website our annual report on
Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable
after such material is electronically filed with or furnished to
the SEC. The information contained on our internet web site is
not part of this document.
The Company’s corporate offices are located at Four
Embarcadero Center, Suite 3700, San Francisco,
California, where it subleases approximately 4,100 square
feet for $24,258 per month. This sublease runs through May
2006. A portion of the office space is subleased to two third
parties for approximately $2,000 per month. These
sub-sublease agreements run through May 2006.
For the year ended December 31, 2004 the Company’s
aggregate net rental expenses for all properties and equipment
were approximately $323,000.
10
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
There are no material pending legal proceedings involving the
Company or any of its property. The Company knows of no legal or
administrative proceedings against the Company contemplated by
governmental authorities.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was submitted to a vote of the Company’s security
holders through the solicitation of proxies or otherwise during
the fourth quarter of 2004.
PART II
|
|
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
The Company’s common shares, no par value (the “Common
Shares”), are currently traded on the American Stock
Exchange and the Pacific Exchange. The table below sets forth
the high and low closing sale prices of the Common Shares of the
Company on the American Stock Exchange Consolidated Reporting
System for each full quarter for the last two fiscal years.
Prices for Common Shares
| |
|
|
|
|
|
|
|
|
| Quarter Ending |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
March 31, 2003
|
|
$ |
4.21 |
|
|
$ |
3.55 |
|
|
June 30, 2003
|
|
$ |
5.20 |
|
|
$ |
3.75 |
|
|
September 30, 2003
|
|
$ |
6.15 |
|
|
$ |
4.78 |
|
|
December 31, 2003
|
|
$ |
6.83 |
|
|
$ |
5.33 |
|
|
March 31, 2004
|
|
$ |
7.79 |
|
|
$ |
5.55 |
|
|
June 30, 2004
|
|
$ |
7.24 |
|
|
$ |
5.35 |
|
|
September 30, 2004
|
|
$ |
5.62 |
|
|
$ |
4.25 |
|
|
December 31, 2004
|
|
$ |
6.15 |
|
|
$ |
4.70 |
|
The Company estimates that there were approximately 2,500
beneficial holders of its Common Shares at December 31,
2004.
The Board of Directors authorized in March 1999 the repurchase
of up to 500,000 shares of the Company’s Common Stock
in the open market from time to time at prevailing prices.
Approximately 484,000 shares have been repurchased in the
open market pursuant to that authorization at a cost of
approximately $1,213,000, although no shares have been
repurchased since 2001. The Board of Directors on
February 2, 2001 authorized the repurchase of up to another
500,000 shares of the Company’s common stock in the
open market from time to time at prevailing prices. No shares
have been repurchased under this additional authorization.
During 2004 holders of options to acquire the Company’s
common stock exercised their respective rights pursuant to such
securities, resulting in the Company issuing 858,000 new shares
of common stock for approximately $40,000.
On March 22, 1999 the Company adopted a Shareholder Rights
Plan (“Plan”). Under the Plan, the Company made a
dividend distribution of one Right for each outstanding share of
the Company’s common stock as of the close of business on
April 1, 1999. The Rights become exercisable only if any
person or group, with certain exceptions, becomes an
“acquiring person” (acquires 15 percent or more
of the Company’s outstanding common stock) or announces a
tender or exchange offer to acquire 15 percent or more of
the Company’s outstanding common stock. The Company’s
Board of Directors adopted the Plan to protect
11
shareholders against a coercive or inadequate takeover offer.
The Board of Directors is not aware that any person or group
intends to make a takeover offer for the Company.
At December 31, 2004 the Company had 4,776,173 issued and
outstanding common shares, 755,627 common shares reserved for
options, and 5,208 shares reserved pursuant to the
Company’s Shareholder Rights Plan.
In fourth quarter 2004, the Board of Directors declared a
quarterly dividend of $.045 per common share to
shareholders of record on January 3, 2005, paid on
January 14, 2005. During 2004, shareholders of record as of
January 2, 2004, April 2, 2004, July 2, 2004 and
October 1, 2004 were paid quarterly dividends respectively
as follows: $0.04 on January 15, 2004, $0.04 on
April 16, 2004, $0.0425 on July 15, 2004, and $0.045
on October 15, 2004. The Board of Directors anticipates
declaring and paying quarterly cash dividends in similar amounts
in the future subject to evaluation of the Company’s level
of earnings, balance sheet position and availability of cash.
The Company did not pay cash dividends prior to 2001.
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA SUMMARY OF OPERATIONS |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Summary of Operations Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands except per share data) | |
|
Medical services revenue
|
|
$ |
16,389 |
|
|
$ |
16,178 |
|
|
$ |
13,366 |
|
|
$ |
11,758 |
|
|
$ |
9,336 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of operations
|
|
|
7,887 |
|
|
|
7,400 |
|
|
|
5,399 |
|
|
|
4,285 |
|
|
|
3,435 |
|
|
Selling and administrative expense
|
|
|
2,963 |
|
|
|
3,255 |
|
|
|
3,313 |
|
|
|
3,245 |
|
|
|
2,655 |
|
|
Interest expense
|
|
|
2,261 |
|
|
|
2,547 |
|
|
|
2,437 |
|
|
|
2,456 |
|
|
|
2,118 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
13,111 |
|
|
|
13,202 |
|
|
|
11,149 |
|
|
|
9,986 |
|
|
|
8,208 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,278 |
|
|
|
2,976 |
|
|
|
2,217 |
|
|
|
1,772 |
|
|
|
1,128 |
|
|
Interest and other income
|
|
|
102 |
|
|
|
121 |
|
|
|
171 |
|
|
|
480 |
|
|
|
829 |
|
|
Minority interest
|
|
|
(983 |
) |
|
|
(928 |
) |
|
|
(831 |
) |
|
|
(751 |
) |
|
|
(645 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,397 |
|
|
|
2,169 |
|
|
|
1,557 |
|
|
|
1,501 |
|
|
|
1,312 |
|
|
Income tax benefit (expense)
|
|
|
(412 |
) |
|
|
(787 |
) |
|
|
(455 |
) |
|
|
(433 |
) |
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,985 |
|
|
$ |
1,382 |
|
|
$ |
1,102 |
|
|
$ |
1,068 |
|
|
$ |
1,312 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.46 |
|
|
$ |
0.36 |
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
$ |
0.34 |
|
| |
Diluted
|
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.22 |
|
|
$ |
0.21 |
|
|
$ |
0.24 |
|
|
Cash dividend declared per common share
|
|
$ |
0.1725 |
|
|
$ |
0.2000 |
|
|
$ |
0.1200 |
|
|
$ |
0.1000 |
|
|
$ |
0.0000 |
|
|
Dividend payout ratio (paid and declared)
|
|
|
0.44 |
|
|
|
0.74 |
|
|
|
0.55 |
|
|
|
0.48 |
|
|
|
— |
|
|
See accompanying note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents
|
|
$ |
8,121 |
|
|
$ |
10,312 |
|
|
$ |
9,924 |
|
|
$ |
11,580 |
|
|
$ |
12,421 |
|
|
Securities
|
|
|
957 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Restricted cash
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
|
Working capital
|
|
|
4,717 |
|
|
|
5,268 |
|
|
|
7,175 |
|
|
|
9,351 |
|
|
|
10,155 |
|
|
Total assets
|
|
|
47,106 |
|
|
|
46,304 |
|
|
|
44,830 |
|
|
|
42,385 |
|
|
|
40,209 |
|
|
Current portion of long-term debt
|
|
|
6,562 |
|
|
|
6,803 |
|
|
|
5,490 |
|
|
|
4,305 |
|
|
|
4,126 |
|
|
Long-term debt, less current portion
|
|
|
18,924 |
|
|
|
20,114 |
|
|
|
22,006 |
|
|
|
21,615 |
|
|
|
20,300 |
|
|
Shareholders’ equity
|
|
$ |
17,546 |
|
|
$ |
15,329 |
|
|
$ |
14,540 |
|
|
$ |
13,785 |
|
|
$ |
13,658 |
|
|
See accompanying note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
| (1) |
In October 1995, the Company entered into an operating agreement
granting to American Shared Radiosurgery Services (a California
corporation and a wholly-owned subsidiary of the Company) an 81%
ownership interest in GK Financing, LLC. ASHS incorporated a new
wholly-owned subsidiary, OR21, Inc. (“OR21”) in
November 1999, and a new wholly-owned subsidiary, MedLeader.com,
Inc. (“MedLeader”) in April 2000. Accordingly, the
financial data for the Company presented above include the
results of GKF, OR21 and MedLeader for 2000 through 2004. |
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are
prepared in accordance with generally accepted accounting
principles and follow general practices within the industry in
which it operates. Application of these principles requires
management to make estimates, assumptions and judgments that
affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions and judgments
are based on information available as of the date of the
financial statements; accordingly, as this information changes,
the financial statements could reflect different estimates,
assumptions and judgments. Certain policies inherently have a
greater reliance on the use of estimates, assumptions and
judgments and as such have a greater possibility of producing
results that could be materially different than originally
reported. Estimates, assumptions and judgments are necessary
when assets and liabilities are required to be recorded at fair
value, when a decline in the value of an asset not carried on
the financial statements at fair value warrants an impairment
write-down or valuation reserve to be established, or when an
asset or liability needs to be recorded contingent upon a future
event. Carrying assets and liabilities at fair value inherently
results in more financial statement volatility. The fair values
and the information used to record valuation adjustments for
certain assets and liabilities are based either on quoted market
prices or are provided by other third-party sources when
available. When third-party information is not available,
valuation adjustments are estimated in good faith by management
primarily through the use of internal cash flow modeling
techniques.
The most significant accounting policies followed by the Company
are presented in Note 2 to the consolidated financial
statements. These policies along with the disclosures presented
in the other financial statement notes and in this financial
review, provide information on how significant assets and
liabilities are valued in the financial statements and how those
values are determined. Based on the valuation techniques used
and the sensitivity of financial statement amounts to the
methods, assumptions and estimates underlying those amounts,
management has identified the determination of the allowance for
doubtful accounts and revenue recognition to be two areas that
required the most subjective or complex judgments, and as such
could be most subject to revision as new information becomes
available. The following are our critical accounting policies in
which management’s estimates, assumptions and judgments
most directly and materially affect the financial statements:
The Company has only one revenue-generating activity, which is
the operation of Gamma Knife units by GK Financing, LLC
(“GKF”), an 81% owned subsidiary of the Company.
Revenue is recognized when services have been rendered and
collectibility is reasonably assured, on either a fee per use or
revenue sharing basis. The Company has 14 fee per use hospitals
and five retail hospitals. Under both of these types of
agreements, the hospital is responsible for billing patients and
collection of fees for services performed. Revenue associated
with installation of the Gamma Knife units, if any, is a part of
the negotiated lease amount and not a distinctly identifiable
amount. The costs, if any, associated with installation of the
units are amortized over the period of the related lease to
match revenue recognition of these costs.
For fee per use agreements, revenue is not estimated because
these contracts provide for a fixed fee per procedure, and are
typically for a ten year term. Revenue is recognized at the time
the procedures are
13
performed, based on each hospital’s contracted rate. There
is no guaranteed minimum payment. Costs related to operating the
units are charged to costs of operations as incurred, which
approximates the recognition of the related revenue. Revenues
under fee per use agreements are recorded on a gross basis.
GKF has five leases that are based on revenue sharing. These can
be further classified as either “turn-key”
arrangements or “net revenue sharing” arrangements.
For the three turn-key sites, GKF is solely responsible for the
costs to acquire and install the Gamma Knife. In return, GKF
receives payment from the hospital in the amount of its
reimbursement from third party payors. Revenue is recognized by
the Company during the period in which the procedure is
performed, and is estimated based on what can be reasonably
expected to be paid by the third party payor to the hospital.
The estimate is primarily determined from historical experience
and hospital contracts with third party payors. These estimates
are reviewed on a regular basis and adjusted as necessary to
more accurately reflect the expected payment amount. The Company
also records an estimate of operating costs associated with each
procedure during the period in which the procedure is performed.
Costs are determined primarily based on historical treatment
protocols and cost schedules with the hospital. The
Company’s estimated operating costs are reviewed on a
regular basis and adjusted as necessary to more accurately
reflect the actual operating costs. Revenue for turn-key sites
is recorded on a gross basis, and the operating expenses the
Company reimburses to the hospital are recorded in other
operating costs.
Under net revenue sharing arrangements the hospital shares in
the responsibility and risk with GKF for the capital investment
to acquire and install the Gamma Knife. Unlike our turn-key
arrangement, GKF’s lease payment under a net revenue
sharing arrangement is a percentage of revenue less operating
costs. Payments are made by the hospital, generally on a monthly
basis, to GKF based on an agreed upon percentage allocation of
income remaining after all operating expenses are deducted from
cash collected. Revenue is recognized during the period in which
the procedure is performed, and is determined based on the net
reimbursement amount that GKF expects to receive from the
hospital for each Gamma Knife procedure. Under the net revenue
sharing arrangement, the percent of revenue received by GKF is
recorded net of costs to provide a Gamma Knife treatment. This
estimate is reviewed on a regular basis and adjusted as
necessary to more accurately reflect the expected payment amount.
Revenue from retail arrangements amounted to approximately 25%,
24% and 25% of revenue for the years ended December 31
2004, 2003 and 2002, respectively.
|
|
|
Allowance for Doubtful Accounts |
The allowance for doubtful accounts is estimated based on
possible losses relating to the Company’s revenue sharing
customers. The Company receives reimbursement from the customer
based on the customer’s collections from individuals and
third-party payors such as insurance companies and Medicare.
Receivables are charged against the allowance in the period that
they are deemed uncollectible.
If the Company’s net accounts receivable estimates for
revenue sharing customers as of December 31, 2004 changed
by as much as 10% based on actual collection information, it
would have the effect of increasing or decreasing revenue by
approximately $130,000.
GENERAL
During the years ended December 31, 2004, 2003 and 2002,
100% of the Company’s revenue was derived from its Gamma
Knife business.
14
TOTAL REVENUE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Medical services revenue (in thousands)
|
|
$ |
16,389 |
|
|
|
1.3 |
% |
|
$ |
16,178 |
|
|
|
21.0 |
% |
|
$ |
13,366 |
|
|
Number of Gamma Knife procedures
|
|
|
2,140 |
|
|
|
1.1 |
% |
|
|
2,116 |
|
|
|
24.8 |
% |
|
|
1,696 |
|
|
Average revenue per procedure
|
|
$ |
7,658 |
|
|
|
0.2 |
% |
|
$ |
7,646 |
|
|
|
(3.0 |
)% |
|
$ |
7,881 |
|
Medical services revenue increased 1.3% in 2004 compared to 2003
and increased 21.0% in 2003 compared to 2002. The increase in
2004 is due to an increase in the number of Gamma Knife units in
operation. The increase in 2003 is attributable to an increase
in revenue at locations in operation for more than one year, as
well as an increase in the number of Gamma Knife units in
operation.
Gamma Knife revenue increased $211,000 and $2,812,000 in 2004
and 2003, respectively, compared to the prior years. The 2004
increase was due to one new Gamma Knife unit that began
operation during 2004 and the full year inclusion of three new
Gamma Knife units that began operation during 2003, which offset
a 14% decrease in revenue for Gamma Knife units in operation
more than one year. The 2003 increase was primarily due to three
new Gamma Knife units that began operation during 2003, the full
year inclusion of two Gamma Knife units that began operation
during 2002, and a 5% increase in revenue for Gamma Knife units
in operation more than one year. The Company had eighteen,
seventeen and fourteen Gamma Knife units in operation at
December 31, 2004, 2003 and 2002, respectively.
The increase in the number of Gamma Knife procedures in 2004
compared to 2003 was due to the increase in the number of Gamma
Knife units in operation, which offset a 10% decrease in
procedures for Gamma Knife units in operation more than one
year. The number of Gamma Knife procedures in 2003 increased by
420 compared to 2002 due to the increase in the number of Gamma
Knife units in operation, as well as a 9% increase in procedures
for Gamma Knife units in operation more than one year.
Revenue per procedure increased $12 in 2004 compared to 2003.
The Company’s contracts generally have different procedure
rates because their investment basis varies, so revenue per
procedure can vary year to year depending primarily on the mix
of procedures performed at certain locations. Gamma Knife
revenue per procedure decreased by $235 in 2003 compared to 2002
primarily because there was an increase in the number of
procedures performed at certain Gamma Knife locations that have
a lower per procedure rate, as well as a decrease in the amounts
received from Medicare at one of the Company’s retail sites.
COSTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
Increase | |
|
2003 | |
|
Increase | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Costs of operations
|
|
$ |
7,887 |
|
|
|
6.6 |
% |
|
$ |
7,400 |
|
|
|
37.1 |
% |
|
$ |
5,399 |
|
|
Percentage of revenue
|
|
|
48.1 |
% |
|
|
|
|
|
|
45.7 |
% |
|
|
|
|
|
|
40.4 |
% |
The Company’s costs of operations, consisting of
maintenance and supplies, depreciation and amortization, and
other operating expenses (such as insurance, property taxes,
sales taxes, marketing costs and other fees) increased $487,000
in 2004 compared to 2003, and increased $2,001,000 in 2003
compared to 2002.
The Company’s maintenance and supplies costs were 5%, 5%
and 3% of medical service revenue in 2004, 2003 and 2002,
respectively. Maintenance and supplies costs increased $139,000
in 2004 compared to 2003, and increased $301,000 in 2003
compared to 2002. The increase in 2004 compared to 2003 was
primarily due to the expiration of the warranty period on two
Gamma Knife units and the full year inclusion of three Gamma
Knife units whose warranty period expired during 2003. The
increase in 2003 compared to 2002 was primarily due to the
expiration of the warranty period on three Gamma Knife units and
the full year inclusion of maintenance on two Gamma Knife units
whose warranty period expired during the previous year.
Depreciation and amortization increased $577,000 in 2004
compared to 2003, and increased $753,000 in 2003 compared to
2002. The increase in 2004 was due to the addition of one new
Gamma Knife unit that
15
commenced operation during third quarter 2004 and a full
year’s depreciation on three Gamma Knife units that started
operation in 2003. The increase in 2003 was due to the addition
of three new Gamma Knife units that commenced operation during
first, second and third quarters of 2003 and a full year of
depreciation on two new Gamma Knife units that started operation
during 2002.
Other direct operating costs as a percentage of medical services
revenue were 13%, 15% and 11% in 2004, 2003 and 2002,
respectively. The decrease of $229,000 in 2004 compared to 2003
was primarily due to lower operating costs related to a lower
number of procedures performed at one of the Company’s
retail locations. The increase of $947,000 in 2003 compared to
2002 was primarily due to increased spending for marketing,
increased operating costs related to the Company’s
additional retail units, startup and training costs at the
Company’s three new Gamma Knife centers, and higher
insurance and taxes due to additional Gamma Knife units in
operation.
SELLING AND ADMINISTRATIVE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Selling and administrative costs
|
|
$ |
2,963 |
|
|
|
(9.0 |
)% |
|
$ |
3,255 |
|
|
|
(1.8 |
)% |
|
$ |
3,313 |
|
|
Percentage of revenue
|
|
|
18.1 |
% |
|
|
|
|
|
|
20.1 |
% |
|
|
|
|
|
|
24.8 |
% |
The Company’s selling and administrative costs decreased
$292,000 in 2004 compared to 2003, and decreased $58,000 in 2003
compared to 2002. The decrease in 2004 was primarily due to
lower payroll and business development costs of approximately
$142,000, recruiting fees of $42,000 and insurance of $26,000.
Also, during 2003 there was a non-recurring write-off of
approximately $58,000 in previously deferred costs relating to
the future placement of a Gamma Knife unit in Brazil, and the
Company’s semi-annual Gamma Knife User’s Meeting of
approximately $45,000. The decrease in 2003 from 2002 was
primarily due to reduced business development costs of
approximately $152,000 and legal and accounting fees of
$104,000. These reductions were partially offset by increased
employment recruiting fees of $60,000, the Company’s Gamma
Knife User’s Meeting of approximately $45,000 and a
write-off of approximately $58,000 in previously deferred costs
relating to the future placement of a Gamma Knife unit in
Brazil, which was reallocated to another location.
INTEREST EXPENSE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest expense
|
|
$ |
2,261 |
|
|
|
(11.2 |
)% |
|
$ |
2,547 |
|
|
|
4.5 |
% |
|
$ |
2,437 |
|
|
Percentage of revenue
|
|
|
13.8 |
% |
|
|
|
|
|
|
15.7 |
% |
|
|
|
|
|
|
18.2 |
% |
The Company’s interest expense decreased $286,000 in 2004
compared to 2003, and increased $110,000 in 2003 compared to
2002. The decrease in 2004 was primarily due to lower interest
expense on the Company’s more mature Gamma Knife units and
final payment on the debt for one Gamma Knife unit. This
decrease was partially offset by additional interest expense on
the financing of the Company’s new Gamma Knife unit in
2004. The increase in 2003 was due to additional interest
expense on the financing of the Company’s three new Gamma
Knife units in 2003, which was partially offset by lower
interest expense on the Company’s more mature Gamma Knife
units. Except for one unit that has been paid in full, all of
the Company’s operating Gamma Knife units are financed by
means of interest bearing debt. Twelve of the Company’s
eighteen Gamma Knife units have been in operation for more than
three years, and have lower interest expense than newer units
because interest expense decreases with each principal payment.
16
OTHER INCOME AND EXPENSE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Interest and other income
|
|
$ |
102 |
|
|
|
(15.7 |
)% |
|
$ |
121 |
|
|
|
(29.2 |
)% |
|
$ |
171 |
|
|
Percentage of revenue
|
|
|
0.6 |
% |
|
|
|
|
|
|
0.7 |
% |
|
|
|
|
|
|
1.3 |
% |
|
Minority interest expense
|
|
$ |
(983 |
) |
|
|
5.9 |
% |
|
$ |
(928 |
) |
|
|
11.7 |
% |
|
$ |
(831 |
) |
|
Percentage of revenue
|
|
|
(6.0 |
)% |
|
|
|
|
|
|
(5.7 |
)% |
|
|
|
|
|
|
(6.2 |
)% |
Interest and other income decreased $19,000 in 2004 compared to
2003 and decreased $50,000 in 2003 compared to 2002. The
decrease in 2004 was primarily due to lower invested cash
balances during 2004. The decrease in 2003 was primarily due to
lower invested cash balances during 2003 and lower interest
rates during 2003 compared to 2002.
Minority interest increased $55,000 in 2004 and $97,000 in 2003
compared to the prior year, respectively. Minority interest
represents the pre-tax income earned by the minority
partner’s 19% interest in GKF. The increase in minority
interest reflects the increased profitability of GKF.
INCOME TAXES
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Income tax benefit (expense)
|
|
$ |
(412 |
) |
|
|
(47.6 |
)% |
|
$ |
(787 |
) |
|
|
73.0 |
% |
|
$ |
(455 |
) |
|
Percentage of revenue
|
|
|
2.5 |
% |
|
|
|
|
|
|
4.9 |
% |
|
|
|
|
|
|
3.4 |
% |
Income tax expense decreased $375,000 in 2004 compared to 2003,
and increased $332,000 in 2003 compared to 2002. The
Company’s 40% income tax provision for 2004 was reduced by
a $547,000 income tax benefit from the exercise of options to
purchase 846,000 common shares. The Company’s 40%
income tax provision for 2003 was reduced by an $81,000 income
tax benefit from the exercise of options to
purchase 125,000 common shares. The income tax benefit is a
result of compensation expense that was recognized when these
options for common shares were granted in 1995.
The Company anticipates that it will continue to record income
tax expense if it operates profitably in the future. Currently
there are minimal income tax payments required due to net
operating loss carryforwards and other deferred tax assets
available for tax purposes.
The Company had a net operating loss carryforward for federal
income tax return purposes at December 31, 2004 of
approximately $12,000,000.
NET INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Increase | |
|
|
|
Increase | |
|
|
| |
|
2004 | |
|
(Decrease) | |
|
2003 | |
|
(Decrease) | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share amounts) | |
|
|
|
Net income
|
|
$ |
1,985 |
|
|
|
43.6 |
% |
|
$ |
1,382 |
|
|
|
25.4 |
% |
|
$ |
1,102 |
|
|
Net income per share
|
|
$ |
0.46 |
|
|
|
27.8 |
% |
|
$ |
0.36 |
|
|
|
20.0 |
% |
|
$ |
0.30 |
|
The Company had net income of $1,985,000 in 2004 compared to
$1,382,000 in 2003 and $1,102,000 in 2002. Net income for 2004
included increased income from operations compared to 2003 of
$302,000 which was primarily due to lower selling and
administrative costs and interest expense. In addition, income
tax expense was $375,000 less than 2003 due to an income tax
benefit of $547,000 on the exercise of options to purchase
common stock. Net income for 2003 included increased income from
operations of $759,000 compared to 2002, which was primarily due
to the addition of three new Gamma Knife units and a 5% increase
in revenue from Gamma Knife units in operation more than one
year.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $8,121,000 at
December 31, 2004 compared to $10,312,000 at
December 31, 2003. The Company’s expected primary cash
needs on both a short and long-term basis are for capital
expenditures, business expansion, working capital, payment of
quarterly dividends and other general corporate purposes.
Securities of $957,000 represents a portion of the
Company’s cash that is invested in high-quality short to
intermediate-term fixed income securities in order to maximize
income on its available cash. It is the Company’s intent to
hold these securities until maturity.
Restricted cash of $50,000 at December 31, 2004 reflects
cash that may only be used for the operations of GKF.
Operating activities provided cash of $7,608,000 in 2004. Net
income of $1,985,000, depreciation and amortization of
$4,892,000 and an increase in the minority interest of $983,000
were the primary reasons. The Company’s trade accounts
receivable increased to $2,793,000 at December 31, 2004
from $2,209,000 at December 31, 2003. This increase was
primarily due to the addition of one new Gamma Knife contract
during 2004 and an increase in the number of days revenue
outstanding (“DSO”) in accounts receivable for some of
the Gamma Knife contracts. The DSO was 66 and 54 days as of
December 31, 2004 and December 31, 2003, respectively.
We expect DSO to fluctuate in the future depending on timing of
customer payments received and the mix of fee per use vs. retail
customers. Other receivables decreased by $101,000 primarily due
to application of credits due on certain under-funded loans.
Investing activities used $1,325,000 of cash in 2004 primarily
due to an investment in short to mid-term securities of $957,000
and for the purchase of site improvements at certain Gamma Knife
locations.
Financing activities used $8,474,000 of cash during 2004,
primarily due to principal payments on long-term debt of
$7,371,000, distributions to minority owners of $399,000 and the
payment of dividends of $699,000.
Working capital decreased $551,000 to $4,717,000 at
December 31, 2004 from $5,268,000 at December 31, 2003
primarily due to a decrease in cash and securities of $1,234,000
which was partially offset by an increase in trade accounts
receivable of $584,000.
The Company primarily invests its cash in money market or
similar funds and high quality short to mid-term securities in
order to minimize the potential for principal erosion. Cash is
invested in these short-term funds pending use in the
Company’s operations. The Company believes its cash
position combined with its working capital is adequate to
service the Company’s cash requirements in 2005.
The Company finances all of its Gamma Knife units, and
anticipates that it will continue to do so with future
contracts, but there can be no assurance that financing will
continue to be available on acceptable terms. During 2003 the
Company’s primary lender, DVI, filed for Chapter 11
bankruptcy protection. The Company made claims in DVI’s
bankruptcy case for certain unfunded amounts under credit
agreements in place at the time of the bankruptcy filing. The
principal balance of notes that included the unfunded amounts
were transferred by DVI to a third party lender, and the Company
has subsequently satisfactorily resolved any issues related to
these unfunded amounts with that lender. The Company continues
to make payments on the outstanding note balances serviced by
the third party lender who acts as successor servicer. The
Company has secured financing for its current projects in
progress and anticipates that it will be able to secure
financing on future projects from other lending sources on
comparable terms. The Company meets all debt covenants required
under notes with its lenders, and expects that any covenants
required by future lenders will be acceptable to the Company.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe that inflation has had a
significant impact on operations because a substantial majority
of the costs that it incurs under its customer contracts are
fixed through the term of the contract.
18
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES
AND OFF BALANCE SHEET ARRANGEMENTS
The following table presents, as of December 31, 2004, the
Corporation’s significant fixed and determinable
contractual obligations by payment date. The payment amounts
represent those amounts contractually due to the recipient and
do not include any unamortized premiums or discounts, hedge
basis adjustments, or other similar carrying value adjustments.
Further discussion of the nature of each obligation is included
in the referenced note to the consolidated financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
Total Amounts | |
|
Less Than | |
|
|
|
After | |
| Contractual Obligations |
|
Committed | |
|
1 Year | |
|
1-3 Years | |
|
4-5 Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Long-term debt
|
|
$ |
25,486,000 |
|
|
$ |
6,562,000 |
|
|
$ |
16,024,000 |
|
|
$ |
2,900,000 |
|
|
|
|
|
|
Future Gamma Knife purchases(1)
|
|
|
3,840,000 |
|
|
|
|
|
|
|
3,840,000 |
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
502,000 |
|
|
|
303,000 |
|
|
|
199,000 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$ |
29,828,000 |
|
|
$ |
6,865,000 |
|
|
$ |
20,063,000 |
|
|
$ |
2,900,000 |
|
|
$ |
0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The Company has deposits toward the purchase of future Gamma
Knife units as more fully described in Note 10 of the
consolidated financial statements. It is uncertain when these
units will be placed in service, so it cannot be determined when
the commitment is due. For purposes of this table, these
commitments are listed in the 1-3 year category. |
Further discussion of the long-term debt commitment is included
in Note 4, and operating leases in Note 9 of the
consolidated financial statements.
The Company has no significant off-balance sheet arrangements.
|
|
| ITEM 7a. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
The table below presents information about certain
market-sensitive financial instruments as of December 31,
2004. The fair values were determined based on quoted market
prices for the same or similar instruments.
We do not hold or issue derivative instruments for trading
purposes and are not a party to any instruments with leverage or
prepayment features.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Maturity Date, Year Ending December 31 | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
Thereafter | |
|
Total | |
|
Fair Value | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Amounts in thousands) | |
|
Fixed-rate long-term debt
|
|
$ |
6,562 |
|
|
$ |
9,533 |
|
|
$ |
3,773 |
|
|
$ |
2,718 |
|
|
$ |
2,625 |
|
|
$ |
275 |
|
|
$ |
25,486 |
|
|
$ |
25,637 |
|
| |
Average interest rates
|
|
|
9.1 |
% |
|
|
8.9 |
% |
|
|
8.8 |
% |
|
|
8.5 |
% |
|
|
8.3 |
% |
|
|
8.4 |
% |
|
|
8.9 |
% |
|
|
|
|
At December 31, 2004, we had no significant long-term,
market-sensitive investments. Our cash is invested primarily in
short-term money market or similar funds to minimize potential
for principal erosion.
We have no affiliation with partnerships, trust or other
entities whose purpose is to facilitate off-balance sheet
financial transactions or similar arrangements, and therefore
have no exposure to the financing, liquidity, market or credit
risks associated with such entities.
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the Index to Consolidated Financial Statements and Financial
Statement Schedules included at page A-1 of this report.
19
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
| ITEM 9a. |
CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and our Chief Financial Officer,
after evaluating the effectiveness of the Company’s
“disclosure controls and procedures” (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
December 31, 2004 (the “Evaluation Date”), have
concluded that as of the Evaluation Date, our disclosure
controls and procedures (as required by
paragraph (b) of the Securities and Exchange Act of
1934 Rules 13a-15 or 15d-15) were adequate and designed to
ensure that material information relating to us and our
consolidated subsidiaries would be made known to them by others
within those entities.
(b) Changes in internal controls over financial
reporting.
There were no significant changes in our internal controls over
financial reporting in connection with the evaluation required
by paragraph (d) of the Securities Exchange Act of
1934 Rules 13a-15 or 15d-15 that occurred during the
quarter ended December 31, 2004 that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
|
|
| ITEM 9b. |
OTHER INFORMATION |
None.
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Information regarding directors is incorporated herein by
reference from the Company’s definitive Proxy Statement for
the 2005 Annual Meeting of Shareholders (the “2005 Proxy
Statement”). Information regarding executive officers of
the Company, included herein under the caption “Executive
Officers of the Registrant” in Part I, Item 1
above, is incorporated herein by reference.
Information concerning the identification of our standing audit
committee required by this Item is incorporated by reference
from the 2005 Proxy Statement.
Information concerning our audit committee financial experts
required by this Item is incorporated by reference from the 2005
Proxy Statement.
Information concerning compliance with Section 16(a) of the
Exchange Act required by this Item is incorporated by reference
from the 2005 Proxy Statement.
We have adopted a Code of Ethics that is incorporated by
reference from the 2005 Proxy Statement.
ITEM 11. EXECUTIVE
COMPENSATION
Incorporated herein by reference from the 2005 Proxy Statement.
20
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Incorporated herein by reference from the 2005 Proxy Statement.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Incorporated herein by reference from the 2005 Proxy Statement.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
Incorporated herein by reference from the 2005 Proxy Statement.
PART IV
|
|
| ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K |
(a) Financial Statements and Schedules.
The following Financial Statements and Schedules are filed with
this Report:
|
|
| |
Report of Independent Registered Public Accounting Firm |
| |
| |
Audited Consolidated Financial Statements |
| |
| |
Consolidated Balance Sheets |
| |
| |
Consolidated Statements of Income |
| |
| |
Consolidated Statements of Shareholders’ Equity |
| |
| |
Consolidated Statements of Cash Flows |
| |
| |
Notes to Consolidated Financial Statements |
| |
| |
Financial Statement Schedules |
| |
| |
Valuation and Qualifying Accounts |
| |
| |
(All other schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the financial statements and notes
thereto.) |
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the
fiscal year ended December 31, 2004:
|
|
| |
Form 8-K dated and filed April 27, 2004 relating to a
press release announcing the Company’s preliminary
financial results for its first quarter of fiscal year 2004. |
| |
| |
Form 8-K dated and filed July 28, 2004 relating to a
press release announcing the Company’s preliminary
financial results for its second quarter of fiscal year 2004. |
| |
| |
Form 8-K dated and filed October 26, 2004 relating to
a press release announcing the Company’s preliminary
financial results for its third quarter of fiscal year 2004. |
(c) Exhibits.
The following Exhibits are filed with this Report.
| |
|
|
|
|
| Exhibit | |
|
|
| Number: | |
|
Description: |
| | |
|
|
| |
2 |
.1 |
|
Securities Purchase Agreement, dated as of March 12, 1999,
by and among Alliance Imaging, Inc.; Embarcadero Holding Corp.
I; Embarcadero Holding Corp. II; American Shared Hospital
Services; and MMRI, Inc.(1) |
| |
3 |
.1 |
|
Articles of Incorporation of the Company, as amended.(2) |
21
| |
|
|
|
|
| Exhibit | |
|
|
| Number: | |
|
Description: |
| | |
|
|
| |
| |
3 |
.2 |
|
By-laws of the Company, as amended.(3) |
| |
| |
4 |
.6 |
|
Form of Common Stock Purchase Warrant of American Shared
Hospital Services.(3) |
| |
| |
4 |
.8 |
|
Registration Rights Agreement, dated as of May 17, 1995, by
and among American Shared Hospital Services, the Holders
referred to in the Note Purchase Agreement, dated as of
May 12, 1995 and General Electric Company, acting through
GE Medical Systems.(3) |
| |
| |
10 |
.1 |
|
The Company’s 1984 Stock Option Plan, as amended.(4) |
| |
| |
10 |
.2 |
|
The Company’s 1995 Stock Option Plan, as amended.(5) |
| |
| |
10 |
.3 |
|
Form of Indemnification Agreement between American Shared
Hospital Services and members of its Board of Directors.(4) |
| |
| |
10 |
.4 |
|
Ernest A. Bates Stock Option Agreement dated as of
August 15, 1995.(6) |
| |
| |
10 |
.5 |
|
Operating Agreement for GK Financing, LLC, dated as of
October 17, 1995.(3) |
| |
| |
10 |
.6 |
|
Amendments dated as of October 26, 1995 and as of
December 20, 1995 to the GK Financing, LLC Operating
Agreement, dated as of October 17, 1995.(7) |
| |
| |
10 |
.7 |
|
Amendment dated as of October 16, 1996 to the GK Financing,
LLC Operating Agreement, dated as of October 17, 1995.(1) |
| |
| |
10 |
.8 |
|
Amendment dated as of March 31, 1999 (“Fourth
Amendment”) to the GK Financing, LLC Operating Agreement
dated as of October 17, 1995.(8) |
| |
| |
10 |
.9 |
|
Amendment dated as of March 31, 1999 (“Fifth
Amendment”) to the GK Financing, LLC Operating Agreement
dated as of October 17, 1995.(8) |
| |
| |
10 |
.10 |
|
Amendment dated as of June 5, 1999 to the GK Financing, LLC
Operating Agreement dated as of October 17, 1995.(8) |
| |
| |
10 |
.11a |
|
Assignment and Assumption Agreement, dated as of
December 31, 1995, between American Shared Radiosurgery
Services (assignor) and GK Financing, LLC (assignee).(8) |
| |
| |
10 |
.11b |
|
Assignment and Assumption Agreement, dated as of
November 1, 1995, between American Shared Hospital Services
(assignor) and American Shared Radiosurgery Services
(assignee).(4) |
| |
| |
10 |
.11c |
|
Amendment Number One dated as of August 1, 1995 to the
Lease Agreement for a Gamma Knife Unit between The Regents of
the University of California and American Shared Hospital
Services. (Confidential material appearing in this document has
been omitted and filed separately with the Securities and
Exchange Commission in accordance with Rule 24b-2,
promulgated under the Securities and Exchange Act of 1934, as
amended. Omitted information has been replaced with
asterisks.)(8) |
| |
| |
10 |
.11d |
|
Lease Agreement dated as of July 3, 1990 for a Gamma Knife
Unit between American Shared Hospital Services and The Regents
of the University of California. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.12 |
|
Amendment Number Two dated as of February 6, 1999 to the
Lease Agreement for a Gamma Knife Unit between UCSF-Stanford
Health Care and GK Financing, LLC. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.13 |
|
Assignment and Assumption Agreement, dated as of
February 3, 1996, between American Shared Radiosurgery
Services (assignor) and GK Financing, LLC (assignee).(4) |
| |
| |
10 |
.14 |
|
Lease Agreement for a Gamma Knife Unit dated as of April 6,
1994, between Ernest A. Bates, M.D. and NME Hospitals, Inc.
dba USC University Hospital. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
22
| |
|
|
|
|
| Exhibit | |
|
|
| Number: | |
|
Description: |
| | |
|
|
| |
| |
10 |
.15 |
|
Assignment and Assumption and Agreement dated as of
February 1, 1996 between Ernest A. Bates, M.D. and GK
Financing, LLC with respect to the Lease Agreement for a Gamma
Knife dated as of April 6, 1994 between Ernest A.
Bates, M.D. and NME Hospitals, Inc. dba USC University
Hospital.(8) |
| |
| |
10 |
.16 |
|
Lease Agreement for a Gamma Knife Unit dated as of
October 31, 1996 between Hoag Memorial Hospital
Presbyterian and GK Financing, LLC. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.17 |
|
Addendum to Lease Agreement for a Gamma Knife Unit dated as of
December 1, 1999 between Hoag Memorial Hospital
Presbyterian and GK Financing, LLC. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.18 |
|
Lease Agreement for a Gamma Knife Unit dated as of
October 29, 1996 between Methodist Healthcare Systems of
San Antonio, Ltd., dba Southwest Texas Methodist
Hospital and GK Financing, LLC. (Confidential material appearing
in this document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.19 |
|
Lease agreement for a Gamma Knife Unit dated as of
April 10, 1997 between Yale-New Haven Ambulatory Services
Corporation and GK Financing, LLC. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(8) |
| |
| |
10 |
.20 |
|
Lease Agreement for a Gamma Knife Unit dated as of June 1,
1999 between GK Financing, LLC and Kettering Medical Center.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(9) |
| |
| |
10 |
.21 |
|
Addendum to Contract with GKF and KMC/ WKNI, dated June 1,
1999 between GK Financing, LLC and Kettering Medical Center.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(9) |
| |
| |
10 |
.22 |
|
Lease Agreement for a Gamma Knife Unit dated as of
October 5, 1999 between GK Financing, LLC and New England
Medical Center Hospitals, Inc. (Confidential material appearing
in this document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(9) |
| |
| |
10 |
.23 |
|
Equipment Lease Agreement dated as of October 29, 1999
between GK Financing, LLC and the Board of Trustees of the
University of Arkansas on behalf of The University of Arkansas
for Medical Sciences. (Confidential material appearing in this
document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(9) |
| |
| |
10 |
.24 |
|
First Amendment to Lease Agreement for a Gamma Knife Unit
effective as of August 2, 2000 between GK Financing, LLC
and Tenet HealthSystems Hospitals, Inc. (formerly known as NME
Hospitals, Inc.) dba USC University Hospital. (Confidential
material appearing in this document has been omitted and filed
separately with the Securities and Exchange Rule 24b-2,
promulgated under the Securities and Exchange Act of 1934, as
amended. Omitted information has been replaced with
asterisks.)(9) |
23
| |
|
|
|
|
| Exhibit | |
|
|
| Number: | |
|
Description: |
| | |
|
|
| |
| |
10 |
.25 |
|
Addendum Two, dated as of October 1, 2000, to Lease
Agreement for a Gamma Knife Unit dated as of October 31,
1996 between Hoag Memorial Hospital Presbyterian and GK
Financing, LLC. (Confidential material appearing in this
document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(10) |
| |
| |
10 |
.26 |
|
Lease Agreement for a Gamma Knife Unit dated as of May 28,
2000 between Froedtert Memorial Lutheran Hospital and GK
Financing, LLC. (Confidential material appearing in this
document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(10) |
| |
| |
10 |
.27 |
|
Addendum dated June 24, 2000 to Lease Agreement for a Gamma
Knife Unit dated as of May 28, 2000 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.(10) |
| |
| |
10 |
.28 |
|
Amendment dated July 12, 2000 to Lease Agreement for a
Gamma Knife Unit dated May 28, 2000 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.(10) |
| |
| |
10 |
.29 |
|
Amendment dated August 24, 2000 to Lease Agreement for a
Gamma Knife Unit dated May 28, 2000 between Froedtert
Memorial Lutheran Hospital and GK Financing, LLC.(10) |
| |
| |
10 |
.30 |
|
Lease Agreement for a Gamma Knife Unit dated as of
December 11, 1996 between The Community Hospital Group,
Inc. dba JFK Medical Center and GK Financing, LLC.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(11) |
| |
| |
10 |
.31 |
|
Lease Agreement for a Gamma Knife Unit dated as of June 3,
1999 between GK Financing, LLC and Sunrise Hospital and Medical
Center, LLC dba Sunrise Hospital and Medical Center.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(12) |
| |
| |
10 |
.32 |
|
Addendum to Lease Agreement for a Gamma Knife Unit dated as of
June 3, 1999 between GK Financing, LLC and Sunrise Hospital
and Medical Center, LLC dba Sunrise Hospital and Medical
Center. (Confidential material appearing in this document has
been omitted and filed separately with the Securities and
Exchange Commission in accordance with Rule 24b-2,
promulgated under the Securities and Exchange Act of 1934, as
amended. Omitted information has been replaced with
asterisks.)(12) |
| |
| |
10 |
.33 |
|
Lease Agreement for a Gamma Knife Unit dated as of
November 1, 1999 between GK Financing, LLC and Jackson HMA,
Inc. dba Central Mississippi Medical Center. (Confidential
material appearing in this document has been omitted and filed
separately with the Securities and Exchange Commission in
accordance with Rule 24b-2, promulgated under the
Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(13) |
| |
| |
10 |
.34 |
|
Addendum to Lease Agreement for a Gamma Knife Unit dated as of
November 1, 1999 between GK Financing, LLC and Jackson HMA,
Inc. dba Central Mississippi Medical Center.(13) |
| |
| |
10 |
.35 |
|
Lease Agreement for a Gamma Knife Unit dated as of
February 18, 2000 between GK Financing, LLC and OSF
HealthCare System. (Confidential material appearing in this
document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(13) |
| |
| |
10 |
.36 |
|
American Shared Hospital Services 2001 Stock Option Plan.(14) |
| |
| |
10 |
.37 |
|
Amendment Number Three to Lease Agreement for a Gamma Knife Unit
dated as of June 22, 2001 between GK Financing, LLC and The
Regents of the University of California. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(15) |
24
| |
|
|
|
|
| Exhibit | |
|
|
| Number: | |
|
Description: |
| | |
|
|
| |
| |
10 |
.38 |
|
Addendum Three to Lease Agreement for a Gamma Knife Unit dated
as of October 1, 2000 between GK Financing, LLC and Hoag
Memorial Hospital Presybterian. (Confidential material appearing
in this document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(15) |
| |
| |
10 |
.39 |
|
Lease Agreement for a Gamma Knife Unit dated as of July 18,
2001 between GK Financing, LLC and Bayfront Medical Center,
Inc.. (Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(16) |
| |
| |
10 |
.40 |
|
Lease Agreement for a Gamma Knife Unit dated as of
September 13, 2001 between GK Financing, LLC and Mercy
Medical Center. (Confidential material appearing in this
document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(17) |
| |
| |
10 |
.41 |
|
Addendum Number One to Contract with GKF and Mercy Medical
Center, dated September 13, 2001 between GK Financing, LLC
and Mercy Medical Center. (Confidential material appearing in
this document has been omitted and filed separately with the
Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(17) |
| |
| |
10 |
.42 |
|
Lease Agreement for a Gamma Knife Unit dated as of May 22,
2002 between GK Financing, LLC and The Johns Hopkins Hospital.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(18) |
| |
| |
10 |
.43 |
|
Lease Agreement for a Gamma Knife Unit dated as of July 11,
2002 between GK Financing, LLC and Southern Baptist Hospital of
Florida, Inc. D/ B/ A Baptist Medical Center. (Confidential
material appearing in this document has been omitted and filed
separately with the Securities and Exchange Commission in
accordance with Rule 24b-2, promulgated under the
Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(19) |
| |
| |
10 |
.44 |
|
Lease Agreement for a Gamma Knife Unit dated as of
February 13, 2003 between GK Financing, LLC and AHS
Albuquerque Regional Medical Center LLC. (Confidential material
appearing in this document has been omitted and filed separately
with the Securities and Exchange Commission in accordance with
Rule 24b-2, promulgated under the Securities and Exchange
Act of 1934, as amended. Omitted information has been replaced
with asterisks.)(20) |
| |
| |
10 |
.45 |
|
Lease Agreement for a Gamma Knife Unit dated as of May 28,
2003 between GK Financing, LLC and Lehigh Valley Hospital.
(Confidential material appearing in this document has been
omitted and filed separately with the Securities and Exchange
Commission in accordance with Rule 24b-2, promulgated under
the Securities and Exchange Act of 1934, as amended. Omitted
information has been replaced with asterisks.)(21) |
| |
| |
21 |
. |
|
Subsidiaries of American Shared Hospital Services. |
| |
| |
31 |
. |
|
Rule 13a-14(a)/15d-14(a) Certifications. |
| |
| |
32 |
. |
|
Section 1350 Certifications (furnished and not to be
considered filed as part of the Form 10-K). |
|
|
| (1) |
These documents were filed as Exhibits 2.1 and 10.13b,
respectively, to the registrant’s Annual Report on
Form 10-K for the fiscal year ended December 31, 1997,
which is incorporated herein by this reference. |
| |
| (2) |
This document was filed as Exhibit 3.1 to registrant’s
Registration Statement on Form S-2 (Registration
No. 33-23416), which is incorporated herein by this
reference. |
25
|
|
| (3) |
These documents were filed as Exhibits 3.2, 4.6 and 4.8,
respectively, to registrant’s Registration Statement on
Form S-1 (Registration No. 33-63721) filed on
October 26, 1995, which is incorporated herein by this
reference. |
| |
| (4) |
These documents were filed as Exhibits 10.24 and 10.35
respectively, to registrant’s Registration Statement on
Form S-2 (Registration No. 33-23416), which is
incorporated herein by this reference. |
| |
| (5) |
This document was filed as Exhibit A to registrant’s
Proxy Statement, filed on August 31, 1995, which is
incorporated herein by this reference. |
| |
| (6) |
This document was filed as Exhibit B to registrant’s
Proxy Statement, filed on August 31, 1995, which is
incorporated herein by this reference. |
| |
| (7) |
These documents were filed as Exhibits 4.14 and 10.13,
respectively, to the registrant’s Pre-Effective Amendment
No. 1 to registrant’s Registration Statement on
Form S-1 (Registration No. 33-63721) filed on
March 29, 1996, which is incorporated herein by this
reference. |
| |
| (8) |
These documents were filed as Exhibits 10.8, 10.9, 10.10,
10.11a, 10.11c, 10.11d, 10.12, 10.14, 10.15, 10.16, 10.17, 10.18
and 10.19, respectively, to the registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31,
1999, which is incorporated herein by this reference. |
| |
| (9) |
These documents were filed as Exhibits 10.20, 10.21, 10.22,
10.23, and 10.24, respectively, to the registrant’s
Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2000, which is incorporated herein by
this reference. |
|
|
| (10) |
These documents were filed as Exhibits 10.25, 10.26, 10.27,
10.28 and 10.29, respectively, to the registrant’s Annual
Report on Form 10-K for the fiscal year ended
December 31, 2000, which is incorporated herein by this
reference. |
| |
| (11) |
This document was filed as Exhibit 10.30 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, which is incorporated
herein by this reference. |
| |
| (12) |
These documents were filed as Exhibits 10.31 and 10.32,
respectively, to the registrant’s Quarterly Report on
Form 10-Q for the quarterly period ended March 31,
2001, which is incorporated herein by this reference. |
| |
| (13) |
These documents were filed as Exhibits 10.33, 10.34 and
10.35, respectively, to the registrant’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30,
2001, which is incorporated herein by this reference. |
| |
| (14) |
This document was filed as Exhibit 10.36 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001, which is
incorporated herein by this reference. |
| |
| (15) |
These documents were filed as Exhibits 10.37 and 10.38 to
the registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, which is incorporated
herein by this reference. |
| |
| (16) |
This document was filed as Exhibit 10.39 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002, which is incorporated
herein by this reference. |
| |
| (17) |
These documents were filed as Exhibit 10.40 and 10.41 to
the registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2002, which is
incorporated herein by this reference. |
| |
| (18) |
This document was filed as Exhibit 10.42 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2003, which is
incorporated herein by this reference. |
| |
| (19) |
This document was filed as Exhibit 10.43 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2003, which is incorporated
herein by this reference. |
| |
| (20) |
This document was filed as Exhibit 10.44 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2003, which is
incorporated herein by this reference. |
| |
| (21) |
This document was filed as Exhibit 10.45 to the
registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2004, which is
incorporate herein by this reference. |
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
AMERICAN SHARED HOSPITAL SERVICES |
| |
(Registrant) |
|
|
|
| |
By: |
/s/ Ernest A. Bates, M.D. |
|
|
| |
|
| |
Ernest A. Bates, M.D. |
| |
Chairman of the Board and |
| |
Chief Executive Officer |
March 29, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
| |
|
|
|
|
|
|
|
|
| Signature |
|
Title |
|
Date | |
| |
|
|
|
| |
| |
/s/ Ernest A. Bates
Ernest
A. Bates |
|
Chairman of the Board and Chief Executive Officer |
|
|
March 29, 2005 |
|
| |
/s/ Ernest R. Bates
Ernest
R. Bates |
|
Director |
|
|
March 29, 2005 |
|
| |
/s/ Olin C. Robison
Olin
C. Robison |
|
Director |
|
|
March 29, 2005 |
|
| |
/s/ John F. Ruffle
John
F. Ruffle |
|
Director |
|
|
March 29, 2005 |
|
| |
/s/ Stanley S. Trotman, Jr.
Stanley
S. Trotman, Jr. |
|
Director |
|
|
March 29, 2005 |
|
| |
/s/ Craig K. Tagawa
Craig
K. Tagawa |
|
Chief Operating Officer and Chief Financial Officer (Principal
Accounting Officer) |
|
|
March 29, 2005 |
|
27
AMERICAN SHARED HOSPITAL SERVICES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
and
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002
Contents
| |
|
|
|
|
|
| |
|
PAGE | |
| |
|
| |
|
|
|
|
F-1 |
|
|
Consolidated Financial Statements
|
|
|
|
|
| |
|
|
|
F-2 |
|
| |
|
|
|
F-3 |
|
| |
|
|
|
F-4 |
|
| |
|
|
|
F-5–F-6 |
|
| |
|
|
|
F-7–F-16 |
|
Report of Independent
Registered Public Accounting Firm
To the Board of Directors and Shareholders
American Shared Hospital Services
We have audited the accompanying consolidated balance sheets of
American Shared Hospital Services as of December 31, 2004
and 2003, and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board of the United States
of America. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of American Shared Hospital Services at December 31, 2004
and 2003, and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2004 in conformity with U.S. generally
accepted accounting principles.
San Francisco, California
January 21, 2005
F-1
American Shared
Hospital Services
Consolidated Balance
Sheet
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
8,121,000 |
|
|
$ |
10,312,000 |
|
| |
Securities
|
|
|
957,000 |
|
|
|
— |
|
| |
Restricted cash
|
|
|
50,000 |
|
|
|
50,000 |
|
| |
Trade accounts receivable, net of allowance for doubtful
accounts of $170,000 in 2004 and $170,000 in 2003
|
|
|
2,793,000 |
|
|
|
2,209,000 |
|
| |
Other receivables
|
|
|
157,000 |
|
|
|
258,000 |
|
| |
Prepaid expenses and other current assets
|
|
|
594,000 |
|
|
|
473,000 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current assets
|
|
|
12,672,000 |
|
|
|
13,302,000 |
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
34,272,000 |
|
|
|
32,828,000 |
|
|
OTHER ASSETS
|
|
|
162,000 |
|
|
|
174,000 |
|
| |
|
|
|
|
|
|
| |
|
$ |
47,106,000 |
|
|
$ |
46,304,000 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
282,000 |
|
|
$ |
371,000 |
|
| |
Accrued interest and other liabilities
|
|
|
1,023,000 |
|
|
|
734,000 |
|
| |
Employee compensation and benefits
|
|
|
88,000 |
|
|
|
126,000 |
|
| |
Current portion of long-term debt
|
|
|
6,562,000 |
|
|
|
6,803,000 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current liabilities
|
|
|
7,955,000 |
|
|
|
8,034,000 |
|
|
LONG-TERM DEBT, less current portion
|
|
|
18,924,000 |
|
|
|
20,114,000 |
|
|
DEFERRED INCOME TAXES
|
|
|
366,000 |
|
|
|
1,096,000 |
|
|
MINORITY INTEREST
|
|
|
2,315,000 |
|
|
|
1,731,000 |
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
| |
Common stock, no par value
|
|
|
|
|
|
|
|
|
| |
|
Authorized — 10,000,000 shares
|
|
|
|
|
|
|
|
|
| |
|
Issued and outstanding shares — 4,776,000 in 2004 and
3,918,000 in 2003
|
|
|
9,238,000 |
|
|
|
9,198,000 |
|
| |
Additional paid-in capital
|
|
|
4,410,000 |
|
|
|
3,461,000 |
|
| |
Retained earnings
|
|
|
3,898,000 |
|
|
|
2,670,000 |
|
| |
|
|
|
|
|
|
| |
|
|
Total shareholders’ equity
|
|
|
17,546,000 |
|
|
|
15,329,000 |
|
| |
|
|
|
|
|
|
| |
|
$ |
47,106,000 |
|
|
$ |
46,304,000 |
|
| |
|
|
|
|
|
|
See accompanying notes
F-2
American Shared
Hospital Services
Consolidated Statements
of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
REVENUE:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Medical services
|
|
$ |
16,389,000 |
|
|
$ |
16,178,000 |
|
|
$ |
13,366,000 |
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Maintenance and supplies
|
|
|
885,000 |
|
|
|
746,000 |
|
|
|
445,000 |
|
| |
Depreciation
|
|
|
4,802,000 |
|
|
|
4,225,000 |
|
|
|
3,472,000 |
|
| |
Other direct operating costs
|
|
|
2,200,000 |
|
|
|
2,429,000 |
|
|
|
1,482,000 |
|
| |
Selling and administrative
|
|
|
2,963,000 |
|
|
|
3,255,000 |
|
|
|
3,313,000 |
|
| |
Interest
|
|
|
2,261,000 |
|
|
|
2,547,000 |
|
|
|
2,437,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
13,111,000 |
|
|
|
13,202,000 |
|
|
|
11,149,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
|
3,278,000 |
|
|
|
2,976,000 |
|
|
|
2,217,000 |
|
| |
Interest and other income
|
|
|
102,000 |
|
|
|
121,000 |
|
|
|
171,000 |
|
| |
Minority interest expense
|
|
|
(983,000 |
) |
|
|
(928,000 |
) |
|
|
(831,000 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Income before income taxes
|
|
|
2,397,000 |
|
|
|
2,169,000 |
|
|
|
1,557,000 |
|
| |
Income tax expense
|
|
|
(412,000 |
) |
|
|
(787,000 |
) |
|
|
(455,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
1,985,000 |
|
|
$ |
1,382,000 |
|
|
$ |
1,102,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share — basic
|
|
$ |
0.46 |
|
|
$ |
0.36 |
|
|
$ |
0.30 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share — diluted
|
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.22 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes
F-3
American Shared
Hospital Services
Consolidated Statement
of Shareholders’ Equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Years Ended December 31, 2004 | |
| |
|
| |
| |
|
|
|
Additional | |
|
|
| |
|
Common | |
|
Common | |
|
Paid-In | |
|
Retained | |
|
|
| |
|
Shares | |
|
Stock | |
|
Capital | |
|
Earnings | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balances at January 1, 2002
|
|
|
3,525,000 |
|
|
$ |
9,240,000 |
|
|
$ |
3,154,000 |
|
|
$ |
1,391,000 |
|
|
$ |
13,785,000 |
|
| |
Options exercised
|
|
|
300,000 |
|
|
|
68,000 |
|
|
|
158,000 |
|
|
|
— |
|
|
|
226,000 |
|
| |
Repurchase of common stock and options
|
|
|
(42,000 |
) |
|
|
(135,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(135,000 |
) |
| |
Dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(438,000 |
) |
|
|
(438,000 |
) |
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,102,000 |
|
|
|
1,102,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
3,783,000 |
|
|
|
9,173,000 |
|
|
|
3,312,000 |
|
|
|
2,055,000 |
|
|
|
14,540,000 |
|
| |
Options exercised
|
|
|
135,000 |
|
|
|
25,000 |
|
|
|
163,000 |
|
|
|
— |
|
|
|
188,000 |
|
| |
Repurchase of common stock and options
|
|
|
— |
|
|
|
— |
|
|
|
(14,000 |
) |
|
|
— |
|
|
|
(14,000 |
) |
| |
Dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(767,000 |
) |
|
|
(767,000 |
) |
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,382,000 |
|
|
|
1,382,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
3,918,000 |
|
|
|
9,198,000 |
|
|
|
3,461,000 |
|
|
|
2,670,000 |
|
|
|
15,329,000 |
|
| |
Options exercised
|
|
|
858,000 |
|
|
|
40,000 |
|
|
|
994,000 |
|
|
|
— |
|
|
|
1,034,000 |
|
| |
Repurchase of stock options
|
|
|
— |
|
|
|
— |
|
|
|
(45,000 |
) |
|
|
— |
|
|
|
(45,000 |
) |
| |
Dividends
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(757,000 |
) |
|
|
(757,000 |
) |
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,985,000 |
|
|
|
1,985,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
4,776,000 |
|
|
$ |
9,238,000 |
|
|
$ |
4,410,000 |
|
|
$ |
3,898,000 |
|
|
$ |
17,546,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-4
American Shared
Hospital Services
Consolidated Statements
of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1,985,000 |
|
|
$ |
1,382,000 |
|
|
$ |
1,102,000 |
|
|
Adjustments to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gain on sale of assets, early termination of capital leases
|
|
|
— |
|
|
|
— |
|
|
|
3,000 |
|
| |
|
Depreciation and amortization
|
|
|
4,892,000 |
|
|
|
4,313,000 |
|
|
|
3,529,000 |
|
| |
|
Deferred income tax liability
|
|
|
264,000 |
|
|
|
669,000 |
|
|
|
365,000 |
|
| |
|
Minority interest in consolidated subsidiaries
|
|
|
983,000 |
|
|
|
928,000 |
|
|
|
831,000 |
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Receivables
|
|
|
(483,000 |
) |
|
|
104,000 |
|
|
|
(202,000 |
) |
| |
Prepaid expenses and other assets
|
|
|
(137,000 |
) |
|
|
426,000 |
|
|
|
(75,000 |
) |
| |
Accounts payable and accrued liabilities
|
|
|
104,000 |
|
|
|
318,000 |
|
|
|
(376,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
7,608,000 |
|
|
|
8,140,000 |
|
|
|
5,177,000 |
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for purchase of property and equipment
|
|
|
(368,000 |
) |
|
|
(731,000 |
) |
|
|
(1,346,000 |
) |
|
Investment in securities
|
|
|
(957,000 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(1,325,000 |
) |
|
|
(731,000 |
) |
|
|
(1,346,000 |
) |
F-5
American Shared
Hospital Services
Consolidated Statements
of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt and obligations under
capital leases
|
|
|
(7,371,000 |
) |
|
|
(5,777,000 |
) |
|
|
(4,434,000 |
) |
|
Payment of dividends
|
|
|
(699,000 |
) |
|
|
(610,000 |
) |
|
|
(438,000 |
) |
|
Distributions to minority owners
|
|
|
(399,000 |
) |
|
|
(645,000 |
) |
|
|
(548,000 |
) |
|
Proceeds from exercise of stock warrants and options
|
|
|
40,000 |
|
|
|
25,000 |
|
|
|
68,000 |
|
|
Repurchase of stock options/warrants
|
|
|
(45,000 |
) |
|
|
(14,000 |
) |
|
|
— |
|
|
Repurchase of common stock
|
|
|
— |
|
|
|
— |
|
|
|
(135,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(8,474,000 |
) |
|
|
(7,021,000 |
) |
|
|
(5,487,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,191,000 |
) |
|
|
388,000 |
|
|
|
(1,656,000 |
) |
|
CASH AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
beginning of year
|
|
|
10,312,000 |
|
|
|
9,924,000 |
|
|
|
11,580,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS,
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
end of year
|
|
$ |
8,121,000 |
|
|
$ |
10,312,000 |
|
|
$ |
9,924,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURE
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest paid
|
|
$ |
2,500,000 |
|
|
$ |
2,692,000 |
|
|
$ |
2,428,000 |
|
| |
Income taxes paid
|
|
$ |
129,000 |
|
|
$ |
88,000 |
|
|
$ |
90,000 |
|
|
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of equipment with lease/debt financing
|
|
$ |
5,940,000 |
|
|
$ |
5,198,000 |
|
|
$ |
6,010,000 |
|
|
Accrued dividends
|
|
$ |
215,000 |
|
|
$ |
157,000 |
|
|
$ |
— |
|
|
Income tax benefit from stock option exercise recorded to
Additional paid-in capital
|
|
$ |
994,000 |
|
|
$ |
163,000 |
|
|
$ |
158,000 |
|
See accompanying notes
F-6
American Shared
Hospital Services
Notes to Consolidated
Financial Statements
Note 1 —
Business and Basis of
Presentation
Business — American Shared Hospital Services
(the “Company”), a California corporation, provides
Leksell Gamma Knife® (“Gamma Knife”) units to
eighteen medical centers in Arkansas, California, Connecticut,
Florida, Illinois, Maryland, Massachusetts, Mississippi, Nevada,
New Jersey, New Mexico, New York, Ohio, Pennsylvania, Texas
and Wisconsin.
The Company (through American Shared Radiosurgery Services
(“ASRS”)) and Elekta AB, the manufacturer of the Gamma
Knife (through its wholly owned United States subsidiary GKV
Investments, Inc. (“GKV”)), entered into an operating
agreement and formed GK Financing, LLC (“GKF”). GKF
provides alternative financing of Gamma Knife units and is the
preferred provider for Elekta AB of financing arrangements, such
as fee-for-service lease arrangements with health care
institutions.
OR21, Inc., is a wholly-owned subsidiary of the Company that
will provide the product “The Operating Room for the
21st Centurysm”,
which is currently under development.
MedLeader.com, Inc., is a wholly-owned subsidiary of the Company
that will provide continuing medical education online and
through videos for doctors, nurses and other healthcare workers.
This subsidiary is not operational at this time.
The consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, OR21, Inc.,
MedLeader.com, Inc., ASRS and its majority-owned subsidiary, GK
Financing, LLC.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
Note 2 —
Accounting
Policies
Use of estimates in the preparation of financial
statements — In preparing financial statements in
conformity with generally accepted accounting principles,
management makes estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents — The Company
considers all liquid investments with original maturities of
three months or less at the date of purchase to be cash
equivalents. Restricted cash is not considered a cash equivalent
for purposes of the consolidated statements of cash flows.
Securities — The Company invests excess cash in
short to intermediate term fixed income securities. It is the
Company’s intent and ability to hold these securities until
maturity and they are therefore regarded as
held-to-maturity investments. As of December 31,
2004, the cost of these securities approximated fair market
value, and they ranged in maturity up to six months.
Restricted cash — Restricted cash represents
the minimum cash that, by agreement, must be maintained in GK
Financing LLC (GKF) to fund operations.
Business and credit risk — The Company
maintains its cash balances in financial institutions which
exceed federally insured limits, and the Company’s
securities are invested in short to intermediate term fixed
income securities that are not insured. The Company has not
experienced any losses and believes it is not exposed to any
significant credit risk on cash, cash equivalents and securities.
All of the Company’s revenue is provided by eighteen
customers. These customers constitute accounts receivable at
December 31, 2004. The Company performs credit evaluations
of its customers and generally does not require collateral. The
Company has not experienced significant losses related to
receivables from individual customers or groups of customers in
any particular industry or geographic area.
F-7
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
Accounts receivable and doubtful accounts —
Accounts receivable are recorded at net realizable value. An
allowance for doubtful accounts is estimated based on historical
collections plus an allowance for probable losses. Receivables
are considered past due based on contractual terms and are
charged off in the period that they are deemed uncollectible.
Recoveries of receivables previously charged off are recorded
when received.
Accounting for majority-owned subsidiary — The
Company accounts for GKF as a consolidated entity due to its 81%
majority-equity interest.
Property and equipment — Property and equipment
are stated at cost less accumulated depreciation. Depreciation
is determined using the straight-line method over the estimated
useful lives of the assets, which for medical and office
equipment is generally 3 — 15 years. The Company
capitalized interest of $94,000 and $202,000 in 2004 and 2003,
respectively, as costs of medical equipment.
The Company leases Gamma Knife equipment to its customers under
arrangements accounted for as operating leases. At
December 31, 2004, the Company held equipment under
operating lease contracts with customers with an original cost
of $46,915,000 and accumulated depreciation of $19,010,000. At
December 31, 2003, the Company held equipment under
operating lease contracts with customers with an original cost
of $43,710,000 and accumulated depreciation of $14,455,000.
Revenue recognition — Revenue is recognized
when services have been rendered and collectibility is
reasonably assured. There are no 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 net
revenue sharing. Revenue from fee per use contracts is recorded
on a gross basis as determined by each hospital’s
contracted rate. Under turn-key arrangements, the Company
receives payment from the hospital in the amount of its
reimbursement from third party payors, and is responsible for
paying all the operating costs of the Gamma Knife. Revenue is
recorded on a gross basis and estimated based on historical
experience and hospital contracts with third party payors. For
net revenue sharing arrangements the Company receives a
contracted percentage of the reimbursement received by the
hospital less the operating expenses of the Gamma Knife. Revenue
is recorded on a net basis and estimated based on historical
experience. Any revenue estimates are reviewed periodically and
adjusted as necessary. Revenue recognition is consistent with
guidelines provided under EITF 99-19.
Income taxes — The Company accounts for income
taxes in accordance with SFAS No 109, Accounting for
Income Taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Earnings per share — Basic earnings per share
excludes dilution and is computed by dividing income available
to common shareholders by the weighted average number of common
shares outstanding for the year. Diluted earnings per share
reflect the potential dilution that could occur if common shares
were issued
F-8
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
pursuant to the exercise of options or warrants. The following
table illustrates the computations of basic and diluted earnings
per share for the years ended December 31, 2004, 2003 and
2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Numerator for basic and diluted earnings per share
|
|
$ |
1,985,000 |
|
|
$ |
1,382,000 |
|
|
$ |
1,102,000 |
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Denominator for basic earnings per share —
weighted-average shares
|
|
|
4,351,000 |
|
|
|
3,850,000 |
|
|
|
3,707,000 |
|
| |
Effect of dilutive securities Employee stock options/warrants
|
|
|
750,000 |
|
|
|
1,238,000 |
|
|
|
1,324,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Denominator for diluted earnings per share — adjusted
weighted-average shares
|
|
$ |
5,101,000 |
|
|
$ |
5,088,000 |
|
|
$ |
5,031,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earning per share — basic
|
|
$ |
0.46 |
|
|
$ |
0.36 |
|
|
$ |
0.30 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earning per share — diluted
|
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.22 |
|
| |
|
|
|
|
|
|
|
|
|
In 2004 options outstanding to purchase 16,500 shares
of common stock at an exercise price of $5.50 per share
were not included in the calculation of diluted earnings per
share as the exercise price of the options was greater than the
average market price of common stock during the year.
In 2002, options outstanding to purchase 17,500 shares
of common stock at $4.10 per share were not included in the
computation of diluted earnings per share as the exercise price
of the options was greater than the average market price of the
common stock during the year.
Reclassifications — Certain reclassifications
have been made to the 2003 balances to conform with the 2004
presentation.
Stock-based compensation — The Company has
three stock-based employee compensation plans, which are
described more fully in Note 7. The Company accounts for
those plans under the recognition and measurement principles of
APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price greater
than or equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Company had applied
the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation. For pro forma purposes, the
estimated fair value of the Company’s options is amortized
over the options’ vesting period, which is generally from
one to five years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net income, as reported
|
|
$ |
1,985,000 |
|
|
$ |
1,382,000 |
|
|
$ |
1,102,000 |
|
|
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards
(Note 7),
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
net of related tax effects
|
|
|
(9,000 |
) |
|
|
(3,000 |
) |
|
|
(36,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Proforma net income
|
|
$ |
1,976,000 |
|
|
$ |
1,379,000 |
|
|
$ |
1,066,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
0.46 |
|
|
$ |
0.36 |
|
|
$ |
0.30 |
|
| |
Basic — pro forma
|
|
$ |
0.45 |
|
|
$ |
0.36 |
|
|
$ |
0.29 |
|
| |
Diluted — as reported
|
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.22 |
|
| |
Diluted — pro forma
|
|
$ |
0.39 |
|
|
$ |
0.27 |
|
|
$ |
0.21 |
|
F-9
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
Fair value of financial instruments — The
carrying amounts of financial instruments, including cash and
cash equivalents, securities, restricted cash, accounts
receivable, accounts payable, and other accrued liabilities
approximated their fair value as of December 31, 2004 and
2003,because of the relatively short maturity of these
instruments. The fair value of the Company’s various debt
obligations, discounted at currently available interest rates
was approximately $25,637,000 and $27,366,000 at
December 31, 2004 and 2003, respectively.
Business segment information — The Company,
which engages in the business of leasing equipment to health
care providers, has one reportable segment, the Gamma Knife that
non-invasively treats malignant and benign brain tumors,
vascular malformations and trigeminal neuralgia.
Recent accounting pronouncements — In December
2003, the FASB issued FIN 46®: Consolidation of
Variable Interest Entities, an interpretation of ARB
No. 51, which replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (VIE). This
Interpretation addresses consolidation by business enterprises
of Variable Interest Entities. It defines a VIE as a
corporation, partnership, trust, or any other legal structure
used for the business purpose that either: a) the equity
investment is not sufficient to allow the entity to finance its
activities without additional financial support, b) the
equity investors lack one or more of the following: 1. the
ability to make decisions; 2. the obligation to absorb expected
losses of the entity; or 3. the right to receive any returns of
the entity, and, c) the equity investors have voting rights
disproportionate to their economic interest, and the activities
of the entity are conducted on behalf of an investor with a
disproportionately small voting interest. This interpretation
requires that existing unconsolidated VIE’s be consolidated
by their primary beneficiaries. The Company does not have any
VIE entities and accordingly the implementation of the
Interpretation did not result in an impact on its financial
statements.
In December 2004, the FASB issued Statement No. 123R,
Share-Based Payment. This statement replaces FASB
Statement No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. This statement
amends FASB Statement No. 95, Statement of Cash
Flows. This statement requires that the cost resulting from
all share-based payment transactions be recognized in the
financial statements. This statement requires that excess tax
benefits be reported as a financing cash inflow rather than as a
reduction of taxes paid. This Statement establishes fair value
as the measurement objective in accounting for the cost of
share-based payment arrangements and requires all entities to
apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees. This cost will
be recognized over the period during which an employee is
required to provide service in exchange for the
award — the requisite service period (usually the
vesting period). The Company is required to adopt FASB Statement
No. 123R in third quarter 2005. Based on the Company’s
historical stock option awards, adoption of this statement will
have minimal impact on the Company’s financial statements.
Note 3 —
Property and
Equipment
Property and equipment consists of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Medical equipment and facilities
|
|
$ |
49,336,000 |
|
|
$ |
46,126,000 |
|
|
Office equipment
|
|
|
438,000 |
|
|
|
376,000 |
|
|
Deposits and construction in progress
|
|
|
4,499,000 |
|
|
|
1,463,000 |
|
| |
|
|
|
|
|
|
| |
|
|
54,273,000 |
|
|
|
47,965,000 |
|
|
Accumulated depreciation
|
|
|
(20,001,000 |
) |
|
|
(15,137,000 |
) |
| |
|
|
|
|
|
|
| |
Net property and equipment
|
|
$ |
34,272,000 |
|
|
$ |
32,828,000 |
|
| |
|
|
|
|
|
|
F-10
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
Note 4 —
Long-Term Debt
Long-term debt consists primarily of 23 notes with financing
companies, related to Gamma Knife construction and installation,
totaling $25,486,000. These notes accrue interest at fixed
annual rates between 8.05% and 10.95%, are payable in 60 to
84 monthly installments, mature between April 2005 and
March 2010, and are collateralized by the respective Gamma Knife
units. As of December 31, 2004 and December 31, 2003
the Company was in compliance with all debt covenants required
under notes with its lenders. The following are contractual
maturities of long-term debt by year at December 31, 2004:
| |
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
| |
2005
|
|
$ |
6,562,000 |
|
| |
2006
|
|
|
9,533,000 |
|
| |
2007
|
|
|
3,773,000 |
|
| |
2008
|
|
|
2,718,000 |
|
| |
2009
|
|
|
2,625,000 |
|
| |
Thereafter
|
|
|
275,000 |
|
| |
|
|
|
| |
|
$ |
25,486,000 |
|
| |
|
|
|
The Company’s primary lender, DVI Financial Services, Inc.
(DVI), filed for Chapter 11 bankruptcy protection in August
2003, and all outstanding notes were assumed by another lender
as successor servicer. The Company continues to make payments to
the successor servicer on the outstanding note balances with
DVI. The Company has secured financing for its current projects
in progress and anticipates that it will be able to secure
financing for those and future projects from these or other
potential lending sources under comparable terms. Management
believes that the financial condition of DVI will not have a
material adverse effect on the Company’s financial position
or results of operations.
Note 5 —
Income Taxes
Significant components of the Company’s deferred tax
liabilities and assets as of December 31 are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Fixed assets
|
|
$ |
(5,548,000 |
) |
|
$ |
(5,420,000 |
) |
| |
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(5,548,000 |
) |
|
|
(5,420,000 |
) |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Net operating loss carryforwards
|
|
|
4,418,000 |
|
|
|
3,806,000 |
|
| |
Accrued reserves
|
|
|
263,000 |
|
|
|
90,000 |
|
| |
Other — net
|
|
|
501,000 |
|
|
|
428,000 |
|
| |
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,182,000 |
|
|
|
4,324,000 |
|
| |
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$ |
(366,000 |
) |
|
$ |
(1,096,000 |
) |
| |
|
|
|
|
|
|
The 2004 and 2003 tax provision reflects the deduction for tax
purposes of non-qualified stock options exercised by the
Company’s Chairman and Chief Executive Officer. The benefit
of the tax deduction is reflected as a direct increase to equity
and an increase in the deferred tax asset of $1,540,000 and
$244,000 for 2004 and 2003 respectively, which is described more
fully in Note 7.
F-11
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
The components of the provision for income taxes consist of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
State
|
|
$ |
47,000 |
|
|
$ |
38,000 |
|
|
$ |
90,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
296,000 |
|
|
|
649,000 |
|
|
|
282,000 |
|
| |
State
|
|
|
69,000 |
|
|
|
100,000 |
|
|
|
83,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
412,000 |
|
|
$ |
787,000 |
|
|
$ |
455,000 |
|
| |
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount computed
by applying the U.S. federal statutory tax rate (34% in
2004, 2003 and 2002) to income before taxes as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Computed expected tax
|
|
$ |
815,000 |
|
|
$ |
741,000 |
|
|
$ |
529,000 |
|
|
State income taxes, net of federal benefit
|
|
|
144,000 |
|
|
|
127,000 |
|
|
|
91,000 |
|
|
Stock options
|
|
|
(547,000 |
) |
|
|
(81,000 |
) |
|
|
(167,000 |
) |
|
Other
|
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
412,000 |
|
|
$ |
787,000 |
|
|
$ |
455,000 |
|
| |
|
|
|
|
|
|
|
|
|
At December 31, 2004, the Company had a net operating loss
carryforward for federal income tax return purposes of
approximately $12,000,000 which expire between 2005 and 2024. A
substantial part of this carryforward is subject to separate
return limitations. The Company’s ability to utilize its
net operating loss carryforwards and other deferred tax assets
may be limited in the event of a 50% or more ownership change
within any three-year period. Future federal net operating
losses generated by the Company can be carried forward for
20 years.
Note 6 —
Minority
Interest
The Minority interest liability reflects the 19% interest by the
minority partner in the Company’s GK Financing, LLC
subsidiary. The balance increases (decreases) by the
minority partner’s share of the earnings (losses) in GK
Financing, LLC, and is reduced by any cash distributions made to
the minority partner, per the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Beginning balance
|
|
$ |
1,731,000 |
|
|
$ |
1,448,000 |
|
|
$ |
1,165,000 |
|
|
Minority interest in GKF net income
|
|
|
983,000 |
|
|
|
928,000 |
|
|
|
831,000 |
|
|
Less: cash distributions
|
|
|
(399,000 |
) |
|
|
(645,000 |
) |
|
|
(548,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
$ |
2,315,000 |
|
|
$ |
1,731,000 |
|
|
$ |
1,448,000 |
|
| |
|
|
|
|
|
|
|
|
|
Note 7 —
Shareholders’
Equity
Under the Company’s 1984 Stock Option Plan (the
“Plan”), as amended, a total of 475,000 stock options
were authorized for grant. The Plan terminated according to its
terms on March 1, 1994. Options
F-12
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
granted pursuant to the Plan generally had lives of
10 years from the date of grant, subject to earlier
expiration in certain cases, such as termination of the
grantee’s employment. All outstanding options under this
Plan were exercised in 2002.
The Company’s 1995 Stock Option Plan provides for
nonqualified stock options and “incentive stock
options.” Under the 1995 Plan, 330,000 common shares are
reserved for awards to officers and other key employees,
non-employee directors, and advisors. Provisions of the 1995
Stock Option Plan include an automatic grant to each
non-employee director of options to purchase up to
4,000 shares annually on the date of the Company’s
Annual Shareholder Meeting, at an exercise price equal to the
market price of the Company’s common shares on that date,
until the non-employee director has options for a total of
12,000 shares of the Company’s common stock in all
Company plans. Directors who are appointed or elected to the
Company’s Board of Directors on a date other than that of
the Annual Shareholder Meeting receive a pro-rata grant of such
options, at an exercise price equal to the market price of the
Company’s common shares on the date of grant. At
December 31, 2004, 74,000 options were available for grant
under the 1995 Plan.
2001 Stock Option
Plan
The Company’s 2001 Stock Option Plan, providing for
nonqualified stock options and “incentive stock
options,” was approved by the Company’s Board of
Directors in October 2001. Under the 2001 Plan, 250,000 common
shares are reserved for awards to officers of the Company, other
key employees, non-employee directors, and advisors. Provisions
of the 2001 Stock Option Plan include an automatic grant to each
non-employee director of options to purchase up to
4,000 shares annually on the date of the Company’s
Annual Shareholder Meeting, at an exercise price equal to the
market price of the Company’s common shares on that date,
until the non-employee director has options for a total of
12,000 shares of the Company’s common stock in all
Company plans. Directors who are appointed or elected to the
Company’s Board of Directors on a date other than that of
the Annual Shareholder Meeting receive a pro-rata grant of such
options, at an exercise price equal to the market price of the
Company’s common shares on the date of grant. As of
December 31, 2004, no stock options had been granted under
the 2001 Stock Option Plan, as there are still options available
under the 1995 Plan.
F-13
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
Changes in options outstanding under the Stock Option Plans from
January 1, 2002 to December 31, 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted | |
| |
|
Number | |
|
Average | |
| |
|
of Options | |
|
Exercise Price | |
| |
|
| |
|
| |
|
Balance at January 1, 2002
|
|
|
228,000 |
|
|
$ |
1.943 |
|
| |
Exercised
|
|
|
(40,000 |
) |
|
$ |
1.631 |
|
| |
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
188,000 |
|
|
$ |
2.156 |
|
| |
|
|
|
|
|
|
| |
Granted
|
|
|
11,000 |
|
|
$ |
5.272 |
|
| |
Exercised
|
|
|
(10,000 |
) |
|
$ |
2.400 |
|
| |
Forfeited
|
|
|
(5,000 |
) |
|
$ |
4.100 |
|
| |
Repurchased
|
|
|
(5,000 |
) |
|
$ |
3.000 |
|
| |
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
179,000 |
|
|
$ |
2.269 |
|
| |
|
|
|
|
|
|
| |
Granted
|
|
|
26,000 |
|
|
$ |
5.475 |
|
| |
Exercised
|
|
|
(15,000 |
) |
|
$ |
2.478 |
|
| |
Forfeited
|
|
|
(10,000 |
) |
|
$ |
5.717 |
|
| |
Repurchased
|
|
|
(12,000 |
) |
|
$ |
3.494 |
|
| |
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
168,000 |
|
|
$ |
2.560 |
|
| |
|
|
|
|
|
|
The weighted average fair value of the options granted in 2004
was $1.88.
|
|
|
Shares and Options Issued to Officer |
On August 15, 1995, the Company’s Chairman and Chief
Executive Officer was granted a ten-year, immediately
exercisable option to purchase 1,495,000 common shares for
an exercise price of $.01 per share for which the Company
recorded compensation expense of $2,414,000. These options were
granted to the officer as final consideration for personal
guarantees of credit facilities and for continued employment
with the Company. The officer exercised 846,000, 125,000 and
260,000 options during 2004, 2003 and 2002 respectively. The
exercise in 2004 resulted in a $944,000 increase to additional
paid in capital and a $1,540,000 increase in deferred tax
assets. In 2003 the exercise resulted in a $163,000 increase to
additional paid in capital and a $244,000 increase in deferred
tax assets, and in 2002 the exercise resulted in a $158,000
increase in additional paid capital and a $158,000 increase in
deferred tax assets.
The following table summarizes information about all options
outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
|
|
Average | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Remaining | |
|
Average | |
|
|
|
Average | |
| |
|
Number | |
|
Contractual | |
|
Exercise | |
|
Number | |
|
Exercise | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life (Years) | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.010 - 0.010
|
|
|
264,000 |
|
|
|
0.67 |
|
|
$ |
0.010 |
|
|
|
264,000 |
|
|
$ |
0.010 |
|
|
1.625 - 1.688
|
|
|
100,000 |
|
|
|
0.67 |
|
|
|
1.626 |
|
|
|
100,000 |
|
|
|
1.626 |
|
|
3.000 - 4.100
|
|
|
43,000 |
|
|
|
4.77 |
|
|
|
3.189 |
|
|
|
43,000 |
|
|
|
3.189 |
|
|
4.570 - 6.050
|
|
|
24,000 |
|
|
|
9.03 |
|
|
|
5.284 |
|
|
|
4,000 |
|
|
|
4.570 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.010 - 6.050
|
|
|
431,000 |
|
|
|
1.60 |
|
|
$ |
1.000 |
|
|
|
411,000 |
|
|
$ |
0.782 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
At December 31, 2004 and 2003, 411,000 and 1,280,000
options, respectively, were vested and exercisable. Options
issued to non-employee directors vest one year after their
issuance. The vesting period for all other options issued under
the Company’s plans is determined by the Board of Directors
at the time the options are issued. Options awarded to employees
during 2003 and 2004 vest between one and five years.
|
|
|
Pro Forma Information related to Option
Grants |
Pro forma information regarding net income and earnings per
share is required by SFAS 123 for awards granted after
December 31, 1995, as if the Company had accounted for its
stock-based awards to employees under the fair value method of
SFAS 123. The fair value of the Company’s stock-based
awards to employees was estimated using a Black-Scholes option
pricing model. The Black-Scholes options valuation model was
developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable.
In addition, the Black-Scholes model requires the input of
highly subjective assumptions including the expected stock price
volatility. Because the Company’s stock-based awards to
employees have characteristics significantly different from
those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate,
in management’s opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its stock-based awards to employees. The effects of applying
SFAS No. 123 in the proforma disclosure are not
indicative of future amounts. The fair value of the
Company’s option grants under the 1984 and 1995 Plans was
estimated assuming a dividend yield of 3.0% and the following
weighted-average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002* | |
| |
|
| |
|
| |
|
| |
|
Expected life (years)
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
N/A |
|
|
Expected volatility
|
|
|
37.0 |
% |
|
|
29.0 |
% |
|
|
N/A |
|
|
Risk-free interest rate
|
|
|
4.5 |
% |
|
|
4.3 |
% |
|
|
N/A |
|
|
|
| * |
Weighted-average assumptions are not applicable in 2002 because
there were no options granted during the period ended
December 31, 2002. |
|
|
|
Repurchase of Common Stock, Common Stock Warrants and
Stock Options |
In 1999 and 2001, the Board of Directors approved resolutions
authorizing the Company to repurchase up to a total of
1,000,000 shares of its own stock on the open market. There
were no shares repurchased on the open market during the years
ending December 31, 2002 through December 31, 2004.
The Company repurchased 42,000 common shares from the
Company’s Chairman and Chief Executive Officer during the
year ending December 31, 2002. As the Company’s stock
has no par value, the entire repurchase price of the stock is
recorded as a reduction to common stock.
In 2004 and 2003, the Company repurchased 12,000 and 5,000
options respectively under the 1995 stock option plan from
former employees. The repurchase of the options is recorded as a
reduction in additional paid-in-capital.
In January, April, July and October of 2004 the Company paid
dividends of $0.04, $0.04, $0.0425 and $0.045 per share
respectively. In December 2004 the Company declared dividends of
$0.045 per share, payable in January 2005. The Company paid
dividends of $0.16 per share and $0.12 per share in
the years ended December 31, 2003 and December 31,
2002, respectively.
F-15
American Shared
Hospital Services
Notes to Consolidated
Financial
Statements — (Continued)
Note 8 —
Retirement Plan
In 2002, the Company amended its defined-contribution retirement
plan (the “Plan”) to allow for a matching safe harbor
contribution. For 2004, the Board of Directors elected to match
participant deferred salary contributions up to a maximum of 4%
of the participant’s annual compensation. Matching
contributions must be invested in shares of the Company’s
stock. Discretionary profit sharing contributions are allowed
under the Plan in years that the Board does not elect a safe
harbor match. The Company contributed $33,000 and $38,000 to the
Plan for the safe harbor match for the years ended
December 31, 2003 and December 31, 2002, respectively,
and has accrued $35,000 for the estimated safe harbor matching
contribution for the year ended December 31, 2004.
Note 9 —
Operating Leases
The Company leases office space and equipment under operating
leases expiring at various dates through 2006.
Future minimum payments under noncancelable operating leases
having initial terms of more than one year consisted of the
following at December 31, 2004:
| |
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
| |
2005
|
|
|
303,000 |
|
| |
2006
|
|
|
199,000 |
|
| |
|
|
|
| |
|
$ |
502,000 |
|
| |
|
|
|
Payments for repair and maintenance agreements incorporated in
operating lease agreements are included in the future minimum
operating lease payments shown above.
Rent expense was $323,000, $315,000, and $350,000 for the years
ended December 31, 2004, 2003 and 2002, respectively, and
includes the above operating leases as well as month-to-month
rental and certain executory costs.
The Company subleases a portion of its office space to two third
parties for approximately $2,000 per month under
sub-sublease agreements that expire in May 2006.
In 2001 The Company entered into an agreement to sublease office
space that expired in September 2002. Rental income received
under this agreement was $170,000 for the year ended December
2002.
Note 10 —
Commitments and
Contingencies
Under the terms of existing Gamma Knife quotation agreements,
the Company is committed to purchase Gamma Knife equipment for
$7,630,000 when the equipment is placed in service at each
customer location. At December 31, 2004, the Company had
$3,790,000 in deposits related to these purchase commitments
which are classified as construction in progress.
Note 11 —
Major Customers
Revenues from the Company’s Gamma Knife segment were
provided by eighteen customers in 2004, seventeen customers in
2003, and fourteen customers in 2002.
In 2004 and 2003 no individual customers exceeded 10% of the
Company’s total revenue. In 2002, revenue from two
individual customers of $1,709,000 and $1,614,000, respectively,
exceeded 10% of the Company’s total revenue.
Note 12 —
Subsequent
Events
The Company’s
19th
Gamma Knife unit, a 10 year turn-key retail contract at
Baptist Hospital of East Tennessee, became operational in
January 2005.
F-16