AMERICAN SHARED HOSPITAL SERVICES

NOTE1 – BUSINESS AND BASIS OF PRESENTATION**

Business – These consolidated financial statements include the accounts of American Shared Hospital Services (“ASHS”) and its subsidiaries (the “Company”) as follows: ASHS wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando, LLC (“Orlando”), ASHS-Mexico, S.A. de C.V. (“ASHS-Mexico”), ASHS-Rhode Island Proton Beam Radiation Therapy, LLC, ASHS-Bristol Radiation Therapy, LLC,OR21, Inc., and MedLeader.com, Inc. (“MedLeader”); ASHS is the majority owner of Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”) which wholly-owns the subsidiary Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and HoldCo GKC S.A. (“HoldCo”). HoldCo wholly owns the subsidiary Gamma Knife Center Ecuador S.A. (“GKCE”). GKF is the majority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville GK Equipment, LLC (“JGKE”).

The Company (through ASRS) and Elekta AG (“Elekta”), the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary, GKV Investments, Inc.), entered into an operating agreement and formed GKF. During2023, GKF leased Gamma Knife units totwelve medical centers in the United States in the states of California, Florida, Illinois, Indiana, Mississippi, Nebraska, New Mexico, New York, Ohio, Oregon, and Texas. GKF also owns and operatestwo single-unit Gamma Knife facilities in Lima, Peru and Guayaquil, Ecuador. The Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment to a customer in the United States.

The Company formed the subsidiary GKPeru and acquired GKCE for the purposes of expanding its business internationally; Orlando and LBE to provide PBRT equipment and services in Orlando, Florida and Long Beach, California, respectively; and AGKE and JGKE to provide Gamma Knife equipment and services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. AGKE began operations in thesecond quarter of2011 and JGKE began operations in thefourth quarter of2011. Orlando treated itsfirst patient in* April 2016.GKPeru treated itsfirst* patient in* July 2017.LBE isnot* expected to generate revenue within the nexttwo years.

On* April 27, 2022**,* the Company signed a Joint Venture Agreement (the “Agreement”) with the principal owners of Radioterapia Guadalupe Amor y Bien S.A. de C.V. (“Guadalupe”) to establish ABRadiocirugia y Radioterapia de Puebla, S.A.P.I. de C.V. of Puebla (“Puebla”) to treat public- and private-paying cancer patients and provide radiation therapy and radiosurgery services locally in Mexico. The Company and Guadalupe hold 85% and 15% ownership interests, respectively, in Puebla. Under the Agreement, the Company is responsible for providing a linear accelerator and Guadalupe will be accountable for all site modification costs. The Company formed ASHS-Mexicoon* October 3, 2022to establish Puebla. Puebla was formed on December 15, 2022and the Company expects Puebla to begin treating patients in June**2024.* Operating costs incurred during the year ended* December 31, 2023* by Puebla, are included in the consolidated statement of operations.

The Company continues to develop its design and business model for The Operating Room for the21st CenturySM through its 50% ownedOR21, LLC (“OR21”). The remaining 50% ofOR21 is owned by an architectural design company.OR21 isnot expected to generate significant revenue within the nexttwo years.

MedLeader was formed to provide continuing medical education online and through videos for doctors, nurses, and other healthcare workers. This subsidiary isnot operational at this time.

On* November 10, 2023,the Company entered into an Investment Purchase Agreement (the “IPA”) with GenesisCare USA, Inc. (the “GenesisCare”) and GenesisCare USA Holdings, Inc. (“GC Holdings”), pursuant to which GenesisCare agreed to sell to the Company its entire equity interest in each of Southern New England Regional Cancer Center, LLC and Roger Williams Radiation Therapy, LLC, (collectively, the “RI Target Companies”) together with the assignment of certain payor contacts for a purchase price of $2,850,000 (such transaction, the “RI Acquisition”). The equity interests to be acquired by the Company under the IPA equates to a 60% interest in each RI Target Company. The RI Target Companies operatethree* functional radiation therapy cancer centers in Rhode Island. The RI Acquisition is contingent upon certain closing conditions, including GenesisCare and the Company entering into a consent agreement with the Rhode Island Department of Health and approval of all equity holders and managers of each RI Target Company. On* March 1, 2024,the Company, GenesisCare and GC Holding entered into a First Amendment to the Investment Agreement pursuant to which the parties agreed to extend the date on which a party could terminate the IPA if the closing conditions hadnot* been met from* March 10, 2024to April 30, 2024.The Company anticipates that these conditions will be met in April 2024.*

The transaction will be accounted for as a business combination under ASC805 Business Combinations, which requires, among other things, that purchase consideration, assets acquired, and liabilities assumed be measured at their fair values as of the acquisition date. The initial purchase allocation for the business combination is incomplete at this time, subject to finalizing the IPA. After closing, disclosures regarding amounts recognized for major classes of assets acquired and liabilities assumed will be provided once the initial accounting is completed.

Costs related to legal, financial and due diligence services performed in connection with this transaction recorded in the consolidated statement of operations were $432,000 for the year ended* December 31, 2023*.

All intercompany accounts and transactions have been eliminated in consolidation.

NOTE2 – ACCOUNTING POLICIES

Use of estimates in the preparation of financial statements – In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, 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 consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the estimated useful lives of property and equipment and its salvage values, revenues and costs of sales for revenue sharing customers. Actual results could differ from those estimates.

Advertising and marketing – The Company expenses advertising and marketing costs as incurred (collectively,“marketing costs”). Marketing costs were$165,000 and $233,000 during the years ended* December 31, 2023and2022*, respectively. Marketing costs include joint marketing with customers and corporate advertising costs. Marketing costs are recorded in other direct operating costs and sales and administrative costs in the consolidated statements of income.

Sales and Service – The Company markets its financial and turn-key solutions directly to cancer treatment centers, hospitals, and large cancer networks worldwide through its sales staff. Sales expense includes payroll and travel costs for the Company’s sales staff. The Company also typically provides the equipment, as well as planning, installation, reimbursement and marketing support services to its customers.

Cash and cash equivalents – The Company considers all liquid investments with original maturities ofthree months or less at the date of purchase to be cash equivalents. Restricted cash isnot considered a cash equivalent for purposes of the consolidated statements of cash flows.

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Restricted cash – Restricted cash represents the minimum cash that must be maintained in GKF to fund operations, per the subsidiary’s operating agreement and the minimum cash that must be maintainedby GKF per it’s financing agreement with the United States International Development Finance Corporation (“DFC”). See further discussion at Note5 - Long Term Debt.

Business and credit risk – The Company maintains its cash balances, which exceed federally insured limits, in financial institutions. The Company believes it isnot exposed to any significant credit risk on cash and cash equivalents. The Company monitors the financial condition of the financial institutions it uses on a regular basis.

All of the Company’s revenue was provided by 15 locations or1 PBRT unit and14 Gamma Knife units in each of2023 and2022. One location accounted for approximately 48% and 45% of the Company’s total revenue in2023 and2022, respectively. At* December 31, 2023*, two locations each individually accounted for 30% and 31% of total accounts receivable, respectively. At* December 31, 2022*, four locations each individually accounted for 12%,14%,16% and 22% of total accounts receivable, respectively. The Company performs credit evaluations of its customers and generally doesnot require collateral. The Company hasnot experienced significant losses related to receivables from individual customers or groups of customers in any particular geographic area.

All of the Company’s radiosurgery devices have been purchased through Elekta, to date. However, there are other manufacturers that also make radiosurgery devices.

Accounts receivable and allowance for credit losses – Accounts receivable are recorded at net realizable value. An allowance for doubtful accounts is estimated based on historical collections plus an allowance for expected 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 offset against bad debt expense when received.

Non-controlling interests - The Company reports its non-controlling interests as a separate component of shareholders’ equity. Non-controlling interest is determined by the income (loss) multiplied by the non-controlling interest in subsidiaries, and the income or losses of the non-controlling interests in various subsidiaries controlled by GKF. The Company also presents the consolidated net income and the portion of the consolidated net income (loss) allocable to the non-controlling interests and to the shareholders of the Company separately in its consolidated statements of operations.

Property and equipment – Property and equipment are stated at cost less accumulated depreciation. Depreciation for Gamma Knife and other equipment is determined using the straight-line method over the estimated useful lives of the assets, which for medical and office equipment is generally 3 –10 years, and after accounting for salvage value on the equipment where applicable. The Company acquired a building as part of the acquisition of GKCE in* June 2020.Depreciation for buildings is determined using the straight-line method over 20 years. The Company determines salvage value based on the estimated fair value of the equipment at the end of its useful life. As of October 1, 2022,the Company reduced its estimate for salvage value forone* of its domestic Gamma Knife Perfexion units. As of* December 31, 2023and2022*, the Company hadseven domestic Gamma Knife units with salvage value ranging from $140,000 to $300,000.

As of* January 1, 2023,the Company reduced its estimated useful life forone* of its direct patient services Gamma Knife units. The net effect of the change in estimate made* January 1, 2023,for the year ended December 31, 2023*, was a decrease in net income of approximately $207,000 or $0.03 per diluted share. This change in estimate also impacts future periods.

Depreciation for PBRT and related equipment is determined using the modified units of production method, which is a function of both time and usage of the equipment. This depreciation method allocates costs considering the projected volume of usage through the useful life of the PBRT unit, which has been estimated at 20 years. The estimated useful life of the PBRT unit is consistent with the estimated economic life of 20 years.

The Company leases Gamma Knife and radiation therapy equipment to its customers under arrangements accounted for as operating leases. At* December 31, 2023*, the Company held equipment under operating lease contracts with customers with an original cost of $70,635,000 and accumulated depreciation of $52,302,000. At* December 31, 2022*, the Company held equipment under operating lease contracts with customers with an original cost of $69,306,000 and accumulated depreciation of $47,992,000.

As of* December 31, 2023and2022*, the Company recognized a loss on the write down of impaired assets of $940,000 and $0, respectively. During the year ended* December 31, 2023*, the Company recorded an asset removal obligation (“ARO”) forone of the customer contracts that expired during2023. An ARO for thesecond contract that expired during2023 was recorded and impaired in a prior period. For the ARO recorded during2023, the Company concluded the related increase to the underlying assets couldnot be supported by the cash flows of the equipment and therefore the Company recorded a loss on the write-down of the ARO in* June 2023.The Company’s estimate for the ARO liability was subsequently adjusted during thefourth* quarter of2023 based on new information. Total ARO impairment for the year ended* December 31, 2023* was $290,000. The Company also reviewed its long-lived assets during thefourth quarter of2023 and concluded events and circumstances existed that indicated additional impairment existed at athird Gamma Knife site related to the existing equipment. Total equipment impairment for the year ended* December 31, 2023* was $650,000. See further discussion under Note2 - Long-lived asset impairment and Note3 - Property and Equipment.

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Revenue recognition - The Company recognizes revenues under ASC842 Leases (“ASC842”) and ASC606 Revenue from Contracts with Customers (“ASC606”).

Rental income from medical equipment leasing (“leasing”) – The Company recognizes leasing revenue under ASC842 when services have been rendered and collectability is reasonably assured, on either a fee per use or revenue sharing basis. The terms of the contracts donot contain any guaranteed minimum payments. The Company’s lease contracts are typically for aten-year term and are classified as either fee per use or revenue sharing. Revenue from fee per use contracts is determined by each hospital’s lease agreement with the Company. Revenues are recognized at the time the procedures are performed, based on each hospital’s contracted rate and the number of procedures performed. Under revenue sharing arrangements, the Company receives a contracted percentage of the reimbursement received by the hospital. The amount the Company expects to receive is recorded as revenue and estimated based on historical experience. Revenue estimates are reviewed periodically and adjusted as necessary. Some of the Company’s revenue sharing arrangements also have a cost sharing component and net profit share for the operating costs of the center. The Company receives payment from the hospital at an agreed upon percentage share of the hospital’s reimbursement fromthird party payors, and the Company is responsible for paying operating costs of the equipment determined primarily based on historical treatment protocols and cost schedules with the hospital. The Company records an estimate of operating costs which are reviewed on a regular basis and adjusted as necessary to more accurately reflect the actual operating costs and profit. The operating costs and estimated net operating profit are recorded as other direct operating costs in the consolidated statement of operations. For the years ended,* December 31, 2023and2022*, the Company recognized leasing revenue of approximately $17,772,000 and $16,655,000 under ASC842, respectively, of which approximately $10,133,000 and $8,952,000 were for PBRT services, respectively.

Revenue sharing arrangements amounted to approximately 70 % and 67% of total revenue for the years ended* December 31, 2023and2022*, respectively. Because the revenue estimates are reviewed on a quarterly basis, any adjustments required for past revenue estimates would result in an increase or reduction in revenue during the current quarterly period. Payor mix is a significant variable in the Company’s estimate for revenue sharing revenues.

Direct patient services income (“retail”) – The Company has stand-alone facilities in Lima, Peru and Guayaquil, Ecuador, where a contract exists between the Company’s facilities and the individual patient treated at the facility. Under ASC606, the Company acts as the principal in this transaction and provides, at a point in time, a single performance obligation, in the form of a Gamma Knife treatment. Revenue related to a Gamma Knife treatment is recognized on a gross basis at the time when the patient receives treatment. There isno variable consideration present in the Company’s performance obligation and the transaction price is agreed upon per the stated contractual rate. GKPeru's payment terms are typically prepaid for self-pay patients and insurance provider payments are paid net30 days. GKCE’s patient population is primarily covered by a government payor and payments are paid betweenthree andsix months, following issuance of invoice. The Company didnot capitalize any incremental costs related to the fulfillment of its customer contracts. Accounts receivable under ASC606 at* December 31, 2023was $1,626,000. Accounts receivable under ASC606* at* January 1, 2022and December 31, 2022was $668,000 and $1,119,000. For the years ended December 31, 2023and2022*, the Company recognized retail revenues of approximately $3,553,000 and $3,091,000 under ASC606, respectively.

Equipment sales – During the year-ended* December 31, 2023*, the Company completed a sale of equipment to a new customer. The Company assessed this transaction under ASC606 and concluded the Company acted as the agent in this transaction and provided, at a point in time,two performance obligations, in the form of an equipment sale of an Icon and Cobalt-60 reload. The performance obligation to sell, assign, transfer and deliver the equipment to the customer was carried out via Elekta. Revenue related to the equipment sale is recognized on a net basis when the sale is complete. The Company recognized net revenue of $200,000 on the sale of equipment for the year-ended* December 31, 2023*.

Stock-based compensation – The Company measures all stock-based compensation awards at fair value and records such expense in its consolidated financial statements over the requisite service period of the related award. See Note8 - Stock-Based Compensation Expense for additional information on the Company’s stock-based compensation programs.

Costs of revenue– The Company’s costs of revenue consist primarily of maintenance and supplies, depreciation and amortization, and other operating expenses (such as insurance, property taxes, sales taxes, marketing costs and operating costs from the Company’s revenue sharing and retail sites). Costs of revenue are recognized as incurred.

Income taxes – The Company accounts for income taxes using the asset and liability method. 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.

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The Company accounts for uncertainty in income taxes as required by the provisions of ASC740 Income taxes (“ASC740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. Thefirst step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely thannot that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. Thesecond step is to estimate and measure the tax benefit as the largest amount that is more than50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which* mayrequire periodic adjustments and may**not* accurately anticipate actual outcomes.

See Note7 - Income Taxes for further discussion on income taxes.

Functional currency – Based on guidance provided in accordance with ASC830, Foreign Currency Matters (“ASC830”), the Company analyzes its operations outside the United States to determine the functional currency of each operation. Management has determined that these operations are accounted for in U.S. dollars since the primary transactions incurred are in U.S. dollars and the Company provides significant funding towards the startup of the operation. When Management determines that an operation has become predominantly self-sufficient, the Company will reassess its accounting for the operation to the local currency from the U.S. dollar. The Company analyzed it’s Gamma Knife site in Peru and its startup operations in Mexico for Puebla under ASC830 as of* December 31, 2023and2022* and concluded the functional currency was the U.S. dollar. As facts and circumstances change, the Company will revisit this conclusion. The functional currency of the Company’s Gamma Knife site in Ecuador is the U.S. dollar because that is the local currency of Ecuador.

Asset Retirement Obligations– Based on the guidance provided in ASC410, Asset Retirement Obligations (“ASC410”), the Company analyzed its existing lease agreements and determined whether an ARO exists to remove the respective units at the end of the lease terms. As of* December 31, 2023*, the Company hastwo AROs recorded for thetwo customer sites that expired during the year, totaling $650,000. One ARO was recorded and impaired in a prior period. The Company recorded and impaired an ARO for thesecond customer site during2023. No liability has been recorded as of* December 31, 2023* for the remaining Gamma Knife or PBRT locations, because it is uncertain these units will be removed and the Company historically hasnot removed the equipment at the end of the lease term. The Company will re-evaluate the need to record additional ARO liabilities on a periodic basis when facts and circumstances change that could affect this conclusion.

Earnings per share – The Company calculates diluted shares using the treasury stock method. 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. The fully vested restricted stock unitsnot issued and outstanding and unvested restricted stock units, are also included therein. Diluted earnings per share reflect the potential dilution that could occur if common shares were issued pursuant to the exercise of options and from unvested restricted stock units. The computation for the years ended* December 31, 2023and2022* excluded approximately 144*,000* and 20,000, respectively, of the Company’s stock options because the exercise price of the options was higher than the average market price during the period. The weighted average common shares outstanding for the years ended* December 31, 2023and2022*, included approximately 123,000 and 123,000, respectively, of the Company's restricted stock awards that are fully vested but are deferred for issuance.

The following table illustrates the computations of basic and diluted earnings per share for the years ended* December 31, 2023and2022*.

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Business segment information - Based on the guidance provided in accordance with ASC280 Segment Reporting (“ASC280”), the Company analyzed its subsidiaries which are all in the business of providing radiosurgery and radiation therapy services, either through leasing to healthcare providers or directly to patients, and concluded there aretwo reportable segments, leasing and retail. During2023, the Company provided Gamma Knife and PBRT equipment tothirteen hospitals in the United States and owns and operatestwo single-unit facilities in Lima, Peru and Guayaquil, Ecuador as of* December 31, 2023*. An operating segment is defined by ASC280 as it engages in business activities in which it* mayrecognize revenues and incur expenses, its operating results are regularly reviewed by the Company’s Chief Operating Decision Maker (“CODM”), and its discrete financial information is available. The Company determinedtwo* reportable segments existed due to similarities in economics of business operations and how the Company recognizes revenue for the patient treatment. The operating results of thetwo reportable segments are reviewed by the Company’s Executive Chairman of the Board, who is also the CODM.

For the years ended* December 31, 2023and2022*, the Company’s PBRT operations represented a significant majority of the net income attributable to American Shared Hospital Services from the leasing segment, disclosed below. The revenues, depreciation, interest expense, interest income, tax expense, and net income attributable to American Shared Hospital Services, and total asset allocations for the Company’stwo reportable segments as of* December 31, 2023* and2022 consists of the following:

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Long lived asset impairment – The Company assesses the recoverability of its long-lived assets when events or changes in circumstances indicate their carrying value* may**not* be recoverable. Such events or changes in circumstances* mayinclude: a significant adverse change in the extent or manner in which a long-lived asset is being used, significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset, or a current expectation that, more likely thannot,* a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company performs impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses recoverability of a long-lived asset by determining whether the carrying value of the asset group can be recovered through projected undiscounted cash flows over their remaining lives. If the carrying value of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized, measured as the amount by which the carrying amount exceeds estimated fair value. An impairment loss is charged to the consolidated statement of operations in the period in which management determines such impairment. As of* December 31, 2023*, impairment of $650,000 was recorded related to cash flow losses ofone of the Company’s Gamma Knife units.No impairment was recorded as of* December 31, 2022.See Note3* - Property and Equipment for further discussion.

Goodwill and intangible assets -The Company recorded goodwill of $1,265,000 and an intangible asset with a fair value of $78,000 as part of the acquisition of GKCE in June 2020.The intangible asset identified was GKCE’s trade name and the Company assigned an indefinite useful life to the asset. Based on the guidance provided in accordance with ASC350 Intangibles-Goodwill and Other (“ASC350”), the Company doesnot amortize the intangible asset because it has an indefinite life. The Company assesses goodwill at the reporting unit level, which has been determined to be GKCE. Each reporting period, the Company assesses whether events or circumstances continue to support an indefinite useful life for the intangible asset. Per ASC350, the Company tests goodwill and intangibles for impairment annually or as events or circumstances change that indicate the fair value maybe below the carrying amount. As of December 31, 2023 and2022, there has beenno change to the Company's assessment of the value of intangible assets or goodwill.

Accounting pronouncements issued and not yet adopted - In* November 2023,the FASB issued ASU2023*-07 Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*(“ASU2023-07”) which enhances the disclosure requirements for segment reporting, primarily disclosures around significant segment expenses. The key provisions of the amendments require disclosure of significant segment expense reviewed by the CODM, require disclosure of an “other” segment category, require disclosure of segment profit or loss and assets for interim periods, clarify and require disclosure of other measurements used by the CODM in assessing segment performance and allocating resources, and require disclosure of the CODM's title and position and explanation of how the CODM assesses segment performance. ASU2023-07 is effective for annual periods beginning after* December 15, 2023and interim periods within fiscal years beginning after December 15, 2024.The Company is currently evaluating ASU2023*-07 to determine the impact it* may*have on its consolidated financial statements.

In* December 2023,the FASB issued ASU2023*-09 Income Taxes (Topic740*) Improvements to Income Tax Disclosures* (“ASU2023-09”) which requires entities, on an annual basis, to disclose: specific categories in the rate reconciliation, additional information for reconciling items that meet a quantitative threshold, the amount of income taxes paid, net of refunds, disaggregated by jurisdiction, income or loss from continuing operations before income tax, income tax expense from continuing operations disaggregated between foreign and domestic, and income tax expense from continuing operations disaggregated by federal, state and foreign. ASU2023-09 is effective for annual periods beginning after* December 31, 2024.The Company is currently evaluating ASU2023*-09 to determine the impact it* may*have on its consolidated financial statements.

****Reclassifications - Certain comparative balances as of and for the year ended have been reclassified to make them consistent with the current year presentation.

NOTE3 – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

As of* December 31, 2023* and2022, approximately $3,966,000 and $2,201,000, respectively, of the net property and equipment balance is outside of the United States. Depreciation expense recorded in costs of revenue and selling and administrative expense in the consolidated statements of income for the years ended* December 31, 2023and2022*, was $5,165,000 and $4,783,000, respectively.

As of* October 1, 2022,the Company reduced its estimate for salvage value forone* of its domestic Gamma Knife Perfexion units. As of* January 1, 2023,the Company reduced its estimated useful life forone* of its direct patient services Gamma Knife units. The net effect of the change in estimate made* January 1, 2023,for the year ended December 31, 2023*, was a decrease in net income of approximately $207,000 or $0.03 per diluted share. This change in estimate also impacts future periods.

As of* December 31, 2023and2022*, the Company recognized a loss on the write down of impaired assets of $940,000 and $0, respectively. The impairment as of* December 31, 2023* wasrelated to cash flow impairment forone of the Company’s Gamma Knife units and estimated removal costs of thetwo Gamma Knife contracts that expired during the year. The Company reviewed its Gamma Knife equipment, in light of available information as of* December 31, 2022and concludedno* impairment existed. The Company reviewed it’s PBRT equipment, in light of available information as of* December 31, 2023* and2022 and concludedno impairment exists.

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NOTE4 - OTHER ACCRUED LIABILITIES

Other accrued liabilities consists of the following:

NOTE5 - LONG TERM DEBT

On* April 9, 2021the Company along with certain of its domestic subsidiaries (collectively, the “Loan Parties”) entered into afive year $22,000,000 credit agreement with Fifth Third Bank, N.A. (“the Credit Agreement”). The Credit Agreement includes three loan facilities. Thefirst* loan facility is a $9,500,000 term loan (the “Term Loan”) which was used to refinance the domestic Gamma Knife debt and finance leases, and associated closing costs. Thesecond loan facility is a $5,500,000 delayed draw term loan (the “DDTL”) which was used to refinance the Company’s PBRT finance leases and associated closing costs, as well as to provide additional working capital. Thethird loan facility provides for a $7,000,000 revolving line of credit (the “Revolving Line”) available for future projects and general corporate purposes. The Company borrowed $2,500,000 on the Revolving Line as of* December 31, 2023*, which was paid off in* January 2024.The facilities have afive-year maturity, carry a floating interest of LIBOR plus 3.0% and are secured by a lien on substantially all of the assets of the Loan Parties and guaranteed by ASHS. The long-term debt on the consolidated balance sheets related to the Term Loan and DDTL was $10,825,000 and $12,624,000 as of December 31, 2023and2022*, respectively.

The Revolving Line is charged an unused line fee of 0.25% per annum. The Term Loan and DDTL have interest and principal payments due quarterly. Principal amortization on an annual basis for the Term Loan and DDTL equates to 48% of the original principal loan commitments in yearsone throughfive and an end of term payment of the remaining principal balance.

The Credit Agreement contains customary covenants and representations, including without limitation, a minimum fixed charge coverage ratio of 1.25 and maximum funded debt to EBITDA ratio of 3.0 to1.0 (tested on a trailingtwelve-month basis at the end of each fiscal quarter), reporting obligations, limitations on dispositions, changes in ownership, mergers and acquisitions, indebtedness, encumbrances, distributions, investments, transactions with affiliates and capital expenditures. The Loan Parties are in compliance with the Credit Agreement covenants as of* December 31, 2023*. On* January 25, 2024,the Company amended its Credit Agreement to include financing for the equipment in Puebla, see Note12* - Subsequent Event for further information.

The loan entered into with DFC in connection with the acquisition of GKCE in* June 2020**(the “DFC Loan”) was obtained through the Company’s wholly-owned subsidiary, HoldCo, and is guaranteed by GKF. The DFC Loan is secured by a lien on GKCE’s assets. Thefirst* tranche of the DFC Loan was funded in* June 2020.During thefourth* quarter of2023, thesecond tranche of the DFC loan was funded to finance the equipment upgrade in Ecuador. The amount outstanding under thefirst tranche of the DFC Loan is payable in29 quarterly installments with a fixed interest rate of 3.67%. The amount outstanding under thesecond tranche of the DFC Loan is payable in16 quarterly installments with a fixed interest rate of 7.49%. The long-term debt on the consolidated balance sheets related to the DFC loan was $2,464,000 and $1,041,000 as of* December 31, 2023and2022*, respectively. The Company capitalized debt issuance costs of $9,000 and $9,000 as of* December 31, 2023and2022*, respectively, related to maintenance and administrative fees on the DFC Loan.

The DFC Loan contains customary covenants among other covenants and obligations, requirements that the Company maintain certain financial ratios related to liquidity and cash flow as well as depository requirements. On* March 28, 2024the Company received a waiver and amendment from DFC for certain covenants as of December 31, 2023and through December 31, 2024and amended other covenants and definitions permanently. The Company expects to be in compliance with all debt covenants pursuant to the DFC Loan as amended and waived at March 31, 2024.*

The accretion of debt issuance costs for the years ended* December 31, 2023and2022*, was $46,000 and $84,000, respectively. As of* December 31, 2023and2022*, the unamortized debt issuance costs on the consolidated balances sheets were $164,000 and $198,000.

The following are contractual maturities of long-term debt by year at* December 31, 2023*, excluding debt issuance costs of $164,000:

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NOTE6 - LEASES

The Company determines if a contract is a lease at inception. Under ASC842, the Company is a lessor of equipment to various customers. Leases that commenced prior to ASC842 adoption date were classified as operating leases under historical guidance. As the Company has elected the package of practical expedients allowing it tonot reassess lease classification, these leases are classified as operating leases under ASC842 as well. All of the Company’s lessor arrangements entered into after ASC842 adoption are also classified as operating leases. Some of these lease terms have an option to extend the lease after the initial term, but donot contain the option to terminate early or purchase the asset at the end of the term. The Company has electednot to recognize right-of-use (“ROU”) assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset.

The Company’s Gamma Knife and PBRT contracts with hospitals are classified as operating leases under ASC842. The related equipment is included in medical equipment and facilities on the Company’s consolidated balance sheets (see further discussion at Note2). As all income from the Company’s lessor arrangements is solely based on procedure volume, all income is considered variable paymentsnot dependent on an index or a rate. As such, the Company doesnot measure future operating lease receivables.

On* November 3, 2021,the Company entered into an agreement to sublease (the “Sublease”) its corporate office located at Two Embarcadero Center, Suite410,* San Francisco, California, where it leased approximately 3,253 square feet for $22,011 per month. The lease expired in* August 2023.The Sublease was for $16,195 per month through the existing contract expiration date. The Company also entered into a lease (the “Lease”) agreement for new corporate office space at601* Montgomery, Suite1112, San Francisco, CA for approximately 900 square feet for $4,500 per month with a lease expiration date in* November 2024.The Company assessed the Lease under ASC842* and concluded the Lease should be classified as an operating lease.

The Company’s lessee operating leases are accounted for as ROU assets, current portion of lease liabilities, and lease liabilities on the consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company’s operating lease contracts donot provide an implicit rate for calculating the present value of future lease payments, so the Company determined its incremental borrowing rate to be in the range of approximately 4.0% and 6.0% by using available market rates and expected lease terms. The operating lease ROU assets and liabilities also include any lease payments made and excludes lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company’s lessee operating lease agreements are for administrative office space and related equipment, and the agreement to lease clinic space for its stand-alone facility in Lima, Peru. These leases have remaining lease terms of approximately 1 year, some of which include options to renew or extend the lease. As of* December 31, 2023*, operating ROU assets and lease liabilities were $57,000.

The following table summarizes maturities of lessee operating lease liabilities as of* December 31, 2023*:

The Company’s corporate offices are located at601 Montgomery Street, Suite1112, San Francisco, California, where it leases approximately 900 square feet for $4,500 per month with a lease expiration date in* November 2024.The Company subleased its existing corporate offices located at Two Embarcadero Center, Suite410,* San Francisco, California, where it leased approximately 3,253 square feet for$22,011 per month. This lease expired in* August 2023.The monthly lease expense was offset by sublease income of $16,195. The sublease term was consistent with the existing lease term. The Company owns and operates a stand-alone Gamma Knife facility in Lima, Peru where it leases approximately 1,600 square feet for approximately$8,850 per month with a lease expiration date in January 2024.*The lease in Peru is currently on a month-to-month basis. The Company also owns and operates a stand-alone Gamma Knife facility in Guayaquil, Ecuador where it owns 864 square feet of condominium space in an office building and approximately 10,135 of related land and parking spaces.

Net rent expense was $234,000 and $290,000 for the years ended* December 31, 2023and2022*, respectively, and includes the above operating leases as well as month-to-month rental and certain executory costs.

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NOTE7 – INCOME TAXES

The components of income before income taxes for the years ended* December 31, 2023and2022* are as follows:

For the year ended* December 31, 2023and2022*, the Company recorded an income tax expense of $431,000 and $963,000, respectively.

The components of the provision for income taxes for the years ended* December 31, 2023and2022* consists of the following:

Significant components of the Company’s deferred tax liabilities and assets as of* December 31, 2023and2022* are as follows:

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NOTE7 – INCOME TAXES (CONTINUED)

The provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in2023 and2022) to income before taxes as follows:

As of* December 31, 2023*, the Company has net operating loss carryforwards for federal and state income tax return purposes of appr oximately$0 and $2,586,000 that begin to expire in2029.

Utilization of the net operating loss and credit carryforwards* maybe subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of1986,* as amended (the “Code”), and similar state provisions. Any annual limitation* may*result in the expiration of net operating losses and credits before utilization.

At* December 31, 2023*, the Company has a capital loss carryforward for federal income tax return purposes of approximately $2,679,000,which start to expire in2024. The Company has capital loss carryforwards for state income tax purposes of approximately $129,000, which starts to expire in2024.

Due to uncertainty surrounding the realization of impairment losses, capital losses and foreign operating losses in future years, the Company has placed a valuation allowance against a portion of its net domestic and foreign deferred tax assets. The net valuation allowance increased by $17,000 and $0 for the years ended* December 31, 2023and2022*, respectively.

The tax return years2019 through2022 remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. Net operating losses generated on a tax return basis by the Company for calendar years1999 through2004, 2009, 2010, 2012, 2014, 2015, 2016, 2017 and2018 remain open to examination by the major domestic taxing jurisdictions.

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NOTE7 – INCOME TAXES (CONTINUED)

The Company has adopted accounting standards which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally, these accounting standards specify that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities. The Company has madeno reclassifications between current taxes payable and long term taxes payable under this guidance.

As of* December 31, 2023*, the unrecognized tax benefit was $287,000 which, if recognized, willnot affect the annual effective tax rate as these unrecognized tax benefits would increase deferred tax assets, which would be subject to a full valuation allowance. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:

The Company’s policy for deducting interest and penalties is to treat interest as interest expense and penalties as income taxes. As of* December 31, 2023*, the Company had $58,000 accrued for the payment of penalties andzero interest related to unrecognized tax benefits. The Company doesnot expect any material changes to our uncertain tax positions within the next12 months. The Company believes that it is reasonably possible that a decrease of up to $100,000 in unrecognized tax benefits related to foreign taxes* may*be necessary within the coming year.

NOTE8 – STOCK-BASED COMPENSATION EXPENSE

Incentive Compensation Plan

In* June 2021,the Company’s shareholders approved an amendment and restatement of the Company’s Incentive Compensation Plan (the “Plan”), that among other things, increases the number of shares of the Company’s common stock reserved for issuance under the Plan to 2,580,000 and extends the term of the Plan byfive* years to* February 22, 2027.The Plan provides that the shares reserved under the Plan are available for issuance to officers of the Company, other key employees, non-employee directors, and advisors.No further grants or share issuances will be made under the previous plans. As of December 31, 2023*, approximately 935,000 shares remain available for grant under the Plan.

Under the Plan, a total of 898,000 restricted stock units have been granted, consisting of 53,000 of annual automatic grants to non-employee directors,328,000 of deferred retainer fees to non-employee members of the Board,57,000 grants issued in lieu of commission or bonus to employees of the Company, and 460,000 restricted stock units issued to the Executive Chairman of the Board, see further discussion below. Of the total restricted stock units granted under the Plan,123,000 of them are fully vested butnot yet deemed issued and outstanding,742*,000* are fully vested and outstanding, and 33,000 are outstanding as of* December 31, 2023*.

Changes in restricted stock units, consisting primarily of annual automatic grants, deferred compensation to non-employee directors, shares issued to employees as part of the Company’s bonus plan, and restricted stock units awards to the Executive Chairman of the Board, under the Incentive Compensation Plans during2023 and2022 are as follows:

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NOTE8 – STOCK-BASED COMPENSATION EXPENSE (CONTINUED)

Certain Executive Equity Awards

Effective* May 4, 2020,the Company appointed Raymond C. Stachowiak as Interim President and Chief Executive Officer (“CEO”). Pursuant to his Offer Letter, Mr. Stachowiak was granted 50,000 restricted stock awards that vested in full on August 3, 2020.He was granted additional restricted stock awards totaling 10,000 common shares per month, which vested in full at the end of each 30-day period following issuance. Mr. Stachowiak became CEO of the Company on October 1, 2020and served in such position until he was appointed Executive Chairman of the Board on March 7, 2023.For the year ended December 31, 2022*,120,000 restricted stock awards were issued to Mr. Stachowiak and became fully vested. Total compensation expense recorded for the year ended* December 31, 2022* in the consolidated financial statements of income related to executive equity awards was $288,000. For the year ended* December 31, 2023*,120,000 restricted stock awards were issued to Mr. Stachowiak and 90,000 became fully vested. Total compensation expense recorded for the year ended* December 31, 2023* in the consolidated financial statements of income related to the executive equity awards was $351,000.

For the year ended* December 31, 2023*, stock compensation expense recorded in the consolidated financial statements is summarized as follows:

Total stock-based compensation expense before income tax effect for the Company’s options and restricted stock awards in the amount of $389,000 and $399,000 for the years ended* December 31, 2023and2022*, is reflected in selling and administrative expense in the consolidated statements of income, respectively.

Stock Options

Changes in stock options outstanding under the Incentive Compensation Plans during2023 and2022 are as follows:

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NOTE8 – STOCK-BASED COMPENSATION EXPENSE (CONTINUED)

The weighted average grant-date fair value of the options granted during the years2023 and2022 was$2.89 and$1.49, respectively. There wereno options exercised during the year ended* December 31, 2023*. There were 4,000 options exercised which resulted in 3,000 shares issued, due to cashless exercises, during the year ended* December 31, 2022*. Total stock-based compensation expense recognized for stock options for the years ended* December**2023* and2022 was $34,000 and$10,000, respectively.

The Company received approximately $5,000 from the exercise of 2,000 options under the share-based arrangements during the year ended* December 31, 2022*. The remaining options exercised during2022 were cashless exercises.

At* December 31, 2023*, there was approximately $156,000 of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. This cost is expected to be recognized over a period of approximately four years.

The Company’s stock option awards to employees are calculated using the Black-Scholes options valuation model. The Black-Scholes model was developed for use in estimating the fair value of traded options which haveno 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. The Company’s stock-based awards have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the present value estimates. For these reasons, management believes that the existing models donot necessarily provide a reliable single measure of the fair value of its stock-based awards to employees.

The fair value of the Company’s option grants issued during2023 and2022 were estimated using assumptions for expected life, volatility, dividend yield, forfeiture rate, and risk-free interest rate which are specific to each award as summarized in the following table. The estimated fair value of the Company’s options is amortized over the period during which the optionee is required to provide service in exchange for the award, usually the vesting period.

The fair value of the Company’s option grants under the Plan in2023 and2022 was estimated using the following assumptions:

The following summarizes the assumption inputs used for the Company’s Black-Scholes calculation:

Expected life (years): The expected term represents the weighted average period that the Company’s stock options are expected to be outstanding.

Expected forfeiture rate: Forfeitures are recognized as they occur.

Expected volatility: The expected volatility was derived from the Company’s historical stock volatility.

Dividend yield: The expected dividend yield was assumed to be zero, as the Company hasnot previously paid dividends on common stock and hasno current plans to do so.

Risk-free interest rate: The risk-free interest rate is based on the interest yield in effect at the date of grant forzero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.

Repurchase of Common Stock, Common Stock Warrants and Stock Options

In1999 and2001, 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, which the Board reaffirmed in2008. There wereno shares of the Company repurchased during2023 or2022. There are approximately 72,000 shares remaining under this repurchase authorization.

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NOTE9 – RETIREMENT PLAN

The Company has a defined-contribution retirement plan (the “Retirement Plan”) that allows for a matching safe harbor contribution. For2023, the Board of Directors elected to match participant deferred salary contributions up to a maximum of 4% of the participant’s annual compensation. Discretionary profit sharing contributions are allowed under the Retirement Plan in years that the Board doesnot elect a safe harbor match. During2023, the Company contributed $43,000 to the Retirement Plan for the safe harbor match for the year ended* December 31, 2023*. The Company has accrued approximately $17,000 for additional safe harbor matching contribution for the year ended* December 31, 2023*. Also during2023, the Company contributed $47,000 to the Retirement Plan for the safe harbor match for the year ended* December 31, 2022*.

NOTE10 – COMMITMENTS AND CONTINGENCIES

On* December 20, 2018,the Company signed Second Amendments totwo* System Build Agreements for the Company’ssecond andthird Mevion PBRT units. These commitments expired in* January 2024and the Company wasnot* able to utilize this equipment. During the year-ended* December 31, 2020,*the Company impaired these deposits and wrote-off the deposits and related capitalized interest.

As of* December 31, 2023*, the Company had commitments to installthree Leksell Gamma Knife Esprit Systems (“Esprit”), installone Cobalt-60 reload with software, purchaseone Gamma Plan workstation, purchaseone Linear Accelerator (“LINAC”) system, and purchaseone Magnetic Resonance imaging guided LINAC (“MR LINAC”). The LINAC, MR LINAC andone Esprit will be placed at future customer sites. The remaining Esprit upgrades and Cobalt-60 reload are scheduled to occur during2024 at existing customer sites. The Company also hasone commitment to de-install a Gamma Knife unit at an existing customer site. The Company’s LINAC installation in Puebla was in process at* December 31, 2023* and the Company made substantial payments towards the project during2023. In* January 2024,the Company amended the Credit Agreement to include financing for this project. At December 31, 2023*, the Company had commitments remaining for some of the ancillary equipment in Puebla. Total Gamma Knife and LINAC commitments as of* December 31, 2023*, were $15,925,000. There areno deposits on the consolidated balance sheets related to these commitments as of* December 31, 2023*. It is the Company's intent to finance substantially all of these commitments. There can beno assurance that financing will be available for the Company’s current or future projects, or at terms that are acceptable to the Company. However, the Company currently has cash on hand of$13,808,000 and a line of credit of $7,000,000 to fund these projects, if necessary. The Company borrowed $2,500,000 on the Revolving Line as of* December 31, 2023*, which was paid off in* January 2024.*

On* September 4, 2022,the Company entered into a Maintenance and Support Agreement with Mevion (the “Mevion Service Agreement”), which provides for maintenance and support of the Company’s PBRT unit at Orlando Health from September 2022through April 2026.*The agreement requires an annual prepayment of $1,865,000 for the current contractual period (one year). This payment portion was recorded as a prepaid contract and will be amortized over theone-year service period.

As of* December 31, 2023*, the Company had commitments to service and maintain its Gamma Knife and PBRT equipment. The service commitments are carried out via contracts with Mevion, Elekta and Mobius Imaging, LLC. The Company’s commitments to purchase two LINAC systems also include a 9-year and 5-year agreement to service the equipment, respectively. Total service commitments as of* December 31, 2023* were $14,805,000. The Gamma Knife and certain other service contracts are paid monthly, as service is performed. The Company believes that cash flow from cash on hand and operations will be sufficient to cover these payments.

The Company’s customer contracts generally contain mutual indemnification provisions. The Company maintains general and professional liability insurance in the United States. The Company isnot involved in the practice of medicine and therefore believes its present insurance coverage and indemnification agreements are adequate for its business. The Company’s Peruvian and Ecuadorian Gamma Knife centers are free-standing facilities operated by GKPeru and GKCE, respectively. The treating physicians and clinical staff at these facilities are independent contractors. The Company maintains general and professional liability insurance consistent with the operations of these facilities and believes its present coverage is adequate for its business.

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NOTE11 – RELATED PARTY TRANSACTIONS

The Company’s Gamma Knife business is operated through its 81% indirect interest in its GKF subsidiary. The remaining 19% of GKF is owned by a wholly owned U.S. subsidiary of Elekta, which is the manufacturer of the Gamma Knife and other radiation therapy equipment. Since the Company purchases the majority of its equipment from Elekta, there are significant related party transactions with Elekta such asequipment purchases, commitments to purchase and service equipment, and costs to maintain the equipment.

The following summarizes related party activity for the years ended* December 31, 2023* and2022:

The Company had related party commitments to installthree Esprit upgrades,one Cobalt-60 reload, purchaseone MR LINAC, purchaseone Gamma Plan workstation, and service the related equipment. The Company also hastwo commitments to de-install Gamma Knife units at existing customer sites. Total related party commitments were $18,968,000 as of* December 31, 2023*.

Related party liabilities on the consolidated balance sheets consist of the following as of* December 31, 2023* and2022:

NOTE12 – SUBSEQUENT EVENT

On* January 25, 2024 (the “First Amendment Effective Date”), the Company entered into a First Amendment to Credit Agreement (the “First Amendment”) with Fifth Third which amended the Credit Agreement to add a new term loan in the aggregate principal amount of $2,700,000 (the “Supplemental Term Loan”). The proceeds of the Supplemental Term Loan were advanced in a single borrowing on January 25, 2024,and will be used for capital expenditures related to the Company’s operations in Puebla, Mexico and other related transaction costs. The Supplemental Term Loan will mature on January 25, 2030 (the “Maturity Date’). Interest on the Supplemental Term Loan is payable monthly during the initialtwelve* month period following the First Amendment Effective Date. Following suchtwelve month period, the Company is required to make equal monthly payments of principal and interest to fully amortize the amount outstanding under the Supplemental Term Loan by the Maturity Date. The Supplemental Term Loan is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries. The First Amendment also replaces the LIBOR-based rates in the Credit Agreement with SOFR-based rates. Pursuant to the First Amendment, advances under the Credit Agreement bear interest at a floating rate per annum equal to SOFR plus 3.00%, subject to a SOFR floor of 0.00%.

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