AMS

Business Context and Reporting Period

Company: American Shared Hospital Services (ASHS)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: ASHS provides Gamma Knife radiosurgery units and radiation therapy equipment to medical centers. As of June 30, 2009, the Company operated 19 Gamma Knife units across the United States. The Company also holds a significant investment in Still River Systems, Inc., a developer of proton beam radiation therapy systems.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased by approximately 11% ($1.077 million) for the six months ended June 30, 2009, compared to the prior year. This was primarily driven by low volume at one Gamma Knife site and extended downtime at another site for a Perfexion unit upgrade.
• Profitability Shift: The Company reported a net loss of $68,000 attributable to shareholders for the six-month period, compared to net income of $369,000 in the prior year. This reversal was due to reduced revenue, transaction costs related to a failed sale of a subsidiary interest, and lower interest income.
• Transaction Costs: The Company incurred $320,000 in transaction costs for the six-month period due to the termination of negotiations regarding the sale of its 81% interest in GK Financing, LLC.
• Cost Management: Despite revenue declines, total costs of revenue decreased by $180,000, and selling and administrative expenses decreased by $241,000, largely due to reduced business development and marketing costs.

Outlook, Risks, and Management Commentary

• Liquidity and Capital Resources: The Company reported a working capital deficit of $1.326 million. However, management believes cash flow from operations is sufficient to meet short-term obligations. The Company recently extended its $8 million line of credit (subsequently increased to $9 million in August 2009) for two years.
• Financing Challenges: Management noted that obtaining financing for new projects has become more difficult due to economic conditions. Lenders are increasingly requiring corporate guarantees for subsidiary projects, which was not previously required.
• Investment in Still River Systems: The Company holds a $2.617 million investment in Still River Systems, Inc. While an unrealized loss of approximately $1.2 million exists based on recent financing rounds, management does not consider the impairment "other-than-temporary" due to Still River's recent milestones and ability to raise capital.
• Future Commitments: The Company has approximately $43 million in remaining commitments to purchase equipment, including three Monarch250 proton beam systems and Gamma Knife upgrades. Financing for these commitments is not guaranteed until FDA approval is received for the proton beam systems.
• Stock Repurchases: The Company repurchased 22,505 shares in the second quarter of 2009 at an average price of $2.13 per share. Approximately 156,000 shares remain available under the current repurchase authorization.

Key Facts for Investor Verification

• Revenue Drivers: Verify the operational status of the Gamma Knife sites that experienced downtime and low volume, as these significantly impacted Q2 2009 results.
• Debt Structure: Confirm the terms of the recently amended line of credit and the extent of corporate guarantees required for subsidiary debt.
• Still River Investment: Monitor the progress of Still River Systems' FDA approval process for the Monarch250 system, as this is critical for the Company's ability to finance its $43 million in equipment commitments.
• Working Capital: Assess the sustainability of the working capital deficit given the Company's reliance on operating cash flow and the line of credit to fund capital expenditures.