Good morning, everyone, and welcome to the 2012 First Quarter Financial Results Conference Call for American Shared Hospital Services. [Operator Instructions] I would now like to turn the call over to Dr. Ernest Bates, Chairman and Chief Executive Officer; Craig Tagawa, Chief Operating and Financial Officer; Norm Houck, Controller of American Shared Hospital Services; and Ernest R. Bates, Vice President, Sales and Business Development. Mr. Tagawa, you may begin.

Thank you, John, and thank you, all, for joining us for AMS's first quarter 2012 financial results conference call and webcast. Please note that various remarks that we may make on this conference call about future expectations, plans and prospects for the company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2011, and the definitive proxy statement for the Annual Meeting of Shareholders to be held on June 7, 2012. The company assumes no obligation to update the information contained in this conference call. In the first quarter, AMS showed a modest gain in revenue and a slight profit. Our growth strategy in our Gamma Knife business is to provide as many of our existing sites to Gamma Knife Perfexion specifications as possible and to expand our base of Perfexion clients. We are delivering on both counts, and revenue is trending higher but at a more modest pace than we expected. We think this is mainly due to the continued slow economic recovery and its effect on the health care industry overall. Nevertheless, with the higher throughput and increased clinical utility of the Perfexion units compared to the Gamma Knife units they replace, we expect the trend of increasing revenue to continue and we hope accelerate as the economy recovers. This will allow us to take advantage of the operating leverage inherent in our Gamma Knife business model, assuming as we do, that gross margin will remain in the 40% to 45% range,…

Thanks, Craig. For the 3 months ended March 31, 2012, revenue increased 0.8% to $4,403,000 compared to $4,367,000 for the first quarter of 2011. In addition to the impact on our revenue growth of the weak economy that Craig mentioned, this year's first quarter revenue also was affected by the shutdown of one of our Gamma Knife units for a month for a cobalt reload. The closure in last year's third quarter of our Gamma Knife center at Lehigh Valley Hospital in Allentown, Pennsylvania, that we have discussed on prior calls also affected the revenue comparison. As you know, we have added new Gamma Knife centers since then, but they are still ramping up and haven't yet reached their maturity. This affects both our revenue line and our gross margin percentage. Net income for the first quarter of 2012 was $9,000 or $0.00 per diluted share. This compares to net income of $21,000, $0.00 per diluted share for the first quarter of 2011. The number of procedures performed on Gamma Knife Perfexion systems supplied by AMS increased 2.8% for the first quarter of 2012 compared to the first quarter of 2011. The total number of procedures performed in AMS Gamma Knife business increased 5.1% for this year's first quarter compared to first quarter of 2011. Revenue increased more slowly than procedure volume primarily because of quarter-to-quarter variations in the procedure mix between sites. Gross margin for this year's first quarter decreased to 41.7% compared to 41 -- excuse me, 44.1% for the first quarter of 2011 but increased sequentially compared to gross margin of 39.5% for the first -- fourth quarter of 2011, also reflecting quarter-to-quarter variations in the mix of procedures between sites. Selling and administrative expenses for the first quarter of 2012 decreased 8.7% to $1,024,000 compared to $1,122,000 for the first quarter of 2011, primarily the result of reduced payroll costs. Operating income increased to $239,000 for the first quarter of 2012 compared to $226,000 for the first quarter of 2011. Cash flow as measured by earnings before interest, taxes, depreciation and amortization or EBITDA increased to $2,139,000 for the first quarter of 2012 compared to $2,047,000 for the first quarter of 2011. On the balance sheet at March 31, 2012, cash, cash equivalents and certificates of deposit were $10,788,000 compared to $11,580,000 at December 31, 2011. Borrowing on our line of credit was reduced by $350,000 to $7,500,000 at March 31, 2012. Shareholders' equity at March 31, 2012 was $25,115,000 or $5.45 per outstanding share. This compares to shareholders' equity at December 31, 2011, of $25,171,000 or $5.46 per outstanding share. Craig?

Thank you, Norm. Now we'd like to open the call to questions. John, we are ready for the first question.

[Operator Instructions] Our first question comes from Lenny Dunn from Freedom Investors.

It was kind of what I would characterize as a mediocre quarter. I understand that the future looks bright, but unlike Amazon, people don't buy the future here. They like to see the present. And I'm glad to see that SG&A came down a little because of payroll. I don't know what you can do further, but I think some of that has to be addressed so that we're profitable even at a low run rate. So that's more of a comment than a question. Now as far as the questions, we're getting closer to the 90 days for FDA approval for MEVION, assuming of course they don't come back with some questions, which can happen. So we're looking forward to that. The OR21 situation is certainly at best a late 2013 story. And the Gamma Knife business is a good solid business, particularly with the Perfexion Gamma Knifes. And we at one time were earning $0.10, $0.12, $0.15 a share on a quarterly basis with that business, and I think it could be rebuilt to that. And I didn't want you to lose focus on it. The other question I have, we're well enough into the second quarter that Turkey should be starting to contribute very shortly. Has any treatments come from the Florence Nightingale Hospital Group yet? I mean, that's a question.

Lenny, this is Ernie Bates. I can answer your question about Turkey. At Florence Nightingale Hospital, we expect to begin treating patients tomorrow, actually, and we have a number of international patients in addition to domestic patients scheduled for treatments this week.

All right. That's very good news, because I think that'll be a real profit center, and that's certainly a good country to be in, and certainly there are surrounding countries there that would use the facility. So it's probably the only place in that area where you could put a unit in and not worry about the government, so I'm very glad to see that. And is there anything that can be done to move SG&A down a little bit more? Because we have this great operating leverage that clearly when we get more procedures done will be highly profitable. But in the interim, can we adjust the SG&A down a little bit more so that we can see at least some profitability like we did in the first quarter, on an ongoing basis, even in a worst-case situation?

Lenny, this is Craig. We continue to look at SG&A. I think we have initiatives going forward that we're investing in. I think we're going to continue to invest in, namely proton beams, as well as the OR21. So we are going to have some expenses that -- they'll be cyclical to some extent based on the needs of those programs, but we think those will add significant shareholder value. We understand what you're saying about SG&A. It was down close to 9% this quarter, and as a group, we do look at that, and we are looking at what other things that we can do to reduce SG&A in the interim without sacrificing what we think is a very bright and promising future for American Shared and its shareholders.

I completely understand that, and -- but the huge discount that we're trading at to book value reflects the fact that in many quarters, we're just barely treading water on a profitability basis, and we really need to show profitability even while we're waiting.

Lenny, this is Dr. Bates. We don't believe that our G&A costs are out of line. They've been essentially plus or minus less than $100,000 for many quarters in a row. The real issue for us is revenue growth, which has been held down by everything what's going on in the economy and what's going on with health care in United States, but I think you're right that we do have these Perfexions. We now have about 19 of these in the United States. We've got one outside the United States. There are only 125 Gamma Knifes in the United States now, and so we own about, is that 14% of them?

We own about 14% in the United States.

And to my mind, they are the best and the perfect treatment for metastatic brain tumors, and we're seeing that number go up every year. There are over 250,000 of these new cases every year, and I think everybody agrees that the Perfexion is the ideal treatment for metastatic tumors. And I think you're going to see those numbers go up. I do think that once we get all these Perfexions up and running and they become mature, we'll go back to very close to where we were before.

That will be a very good news. I'm looking forward to seeing a report that reflects some of that, but in the interim, we bought a bunch more this past quarter, but it's hard to go out and buy even more without seeing a little bit better earnings. So -- and we're not interested in taking over the company so there's a limit to how many we'll buy. Okay, well, I'll defer to anyone else that would have questions, but...

Our next question comes from Tony Kamin from Eastwood Partners.

Several questions. I really just want to kind of use this quarter, which hopefully is kind of the precursor to MEVION shortly getting its approval, to really trying to understand the proton beam opportunity that's ahead of us. And I know that your primary emphasis is going to be likely in the U.S., but I just thought first, with European approval and the things that you're doing with partners in Europe, has there been any interest at all in terms of proton beam in Europe that's coming towards AMS?

Yes, Tony. There's an interest, and we've had some preliminary discussions through one of our board members, Mert Ozyurek, about putting one in Turkey but at the present time, there's no reimbursement in Turkey but there is an opportunity to possibly do one of these in collaboration with the Turkish government. They're very anxious to have a proton beam machine over there, and the MEVION is the perfect machine to place in Turkey. I'm quite convinced it'd be very busy.

I think that's probably right. Having said that, I know that the prime area of focus for AMS is going to be the U.S. with proton beams. And can you comment -- first of all, I'd like to kind of go through the different opportunities you've got, but maybe first of all, I know that at least in the past, Aubrey McClendon from Chesapeake had been a big backer of ProCure, I believe, one of your main competitors. I assume that -- I mean, can you sort of comment on the competitive situation that's out there now? It seems like with MEVION, if they get the approval and with AMS's relationships that you really will be in a very good position from a competitive standpoint to really go out there and compete for market share. Is that correct?

Yes, we believe we're going to be very competitive within the market share. Our model, though, differs quite a bit from ProCure's model, which you mentioned is our competitor. They are looking at primarily the 4-treatment room proton centers, and we're looking at the 1- and 2-room centers. We believe that is the major market that will be going forward. And mainly because it's very much the same as what people do when they buy standard linear accelerators, they buy one unit first and then maybe put in a second one later. So we're following that model. We think that's there -- there's a very high profit potential and yet minimizes our risk going forward. So our model does differ from that of ProCure, but we look at not only MEVION but also some other manufacturers that are now really starting to push the 1- and the 2-room market. So we think we will be very competitive within the proton space.

Yes, I think what's interesting is the sort of the -- that while you've been doing this, your competitive position seems to have improved because of some of the other developments. But maybe for shareholders who are newer to this and for myself as well, if you could talk about the contracts you currently have with M.D. Anderson and Tufts and Long Beach and then also with MEVION and then Kettering on a 2-room system. And how should we think about -- what should we look for, assuming there's approval, how do you see the order of those playing out? And are you starting to have financing discussions around each of those? And how will people see that those are moving forward?

I think we're really looking to move the M.D. Anderson one first. They are getting ready. They would like to start the project very soon, and we're in talks with MEVION as how to coordinate the timing of that, as well as with M.D. Anderson. While obviously we're also talking to lenders at this point and as they get closer to FDA approval, that brings the interest level of potential financing opportunities closer to reality. So we're very comfortable that we're going to get this one financed and we're going to be able to move this one forward, and we think you'll hear about this one probably first. The second one is that we're working on is really with Kettering Medical Center at this point. And we're in talks with them, obviously, and with several manufacturers as to what proton system to put there. I would say that those will be the first 2, followed by the other 2 MEVION systems.

Tony, this is Dr. Bates. I want to add to that, that we're taking a different approach at Kettering. We're talking to a manufacturer who is not MEVION but is producing a 1- and 2-room, and our idea there is that we'll start off with one room and then add a second room on as volume grows. And I think this account, Kettering, clearly will have enough volume for 2 rooms. But we're going to minimize our risk by starting off with 1 room. And I think that's going to be the approach we take in all these projects. If it's clearly a 1-room machine, we'll do 1 room. If we think it's 2 rooms, we'll start off with 1 and add the second one. I think you need to take a hard look at those machines that are now 3 and 4 rooms and look and see how busy they are. We don't think this model is as successful as our model, which is 1 and 2 rooms, and I think we will probably be able to get the Kettering unit to finance 2 mainly because we're starting off with 1 room.

I think that makes sense. And I think that one of the things that you don't get a lot of credit for -- I mean, obviously it's been a long process to get to FDA approval for MEVION, but once you get one of those units up and if Kettering used another manufacturer I think people are going to start to give some value to your earlier efforts, maybe in other cities where you can -- or to give some credence to the fact that you'll be able to replicate this model and so that the shares will get an actual growth multiple. I think that's something that we might have to look forward to.

I agree.

And finally Dr. Bates, if you could comment just on -- I just wanted to get your impression in terms of the clinical -- if there's anything going on in the research area around proton that we might want to hear about.

Well, you probably read the articles in the New York Times and other national newspapers suggesting that there is no significant advantage of protons over photons and particularly in prostates. We don't agree with that. I think the evidence is clear that there is an advantage. There's more -- better local firmer [ph] control and longer life expectancy. The real issue is the cost, and clearly, it does cost more. But we think the clinical results are clearly better with the protons. And if you look at other tumors, tumors like head and neck tumors and now non-small cell lung cancer, the results coming from other countries are quite spectacular. We were in Japan 2 months ago looking at protons and carbon machines there and seeing results that -- particularly the carbon machine were curative of non-small cell lung cancer. I think this is clearly the direction where cancer treatment is going. It will be a combination of radiation therapy and probably drugs. We even saw such horrendous diseases as pancreatic cancer now being treated with protons and with carbon and with surgery and radiation getting some pretty good results. And I think everybody agrees that eventually we'll see protons in every major cancer center in the United States. If you're going to be calling yourself a designated cancer treatment center, you're really going to have to have this in your armamentarium. So we're very excited, and the science is very clear. There's just no question about the science.

So given all that, maybe you could just comment on -- it's been a lot of quarters we've been waiting for this, and sometimes you sort of forget the big picture. Can you maybe talk about your vision here for AMS? I mean, as CEO, as the largest shareholder, as the person who really foresaw this opportunity coming a long time ago, it's almost here. I mean, do shareholders -- do you feel that -- and maybe just talk about your vision for AMS going forward.

Well, my vision going forward is that AMS will primarily be a proton company, and it will probably have more of these single rooms than anybody else in the country. That's our vision. On and off we've been talking to 15 to 20 hospitals across the country, and there is tremendous interest. Everybody is just waiting for FDA approval for the MEVION, but I might add the other vendors are going in that direction. If you look at what IBA and Sumitomo are doing, they are making cheaper and cheaper machines, not as cheap as the MEVION, but trying to match those prices, because that is the direction that this market is going. And I think that the ProCure model, it's good for ProCure. It's not good for us, but I don't think there'll be any company that will own a lot of multiple room machines. I think it will be single rooms. If there's a large company that does that -- and I hope that will be us, and that's our goal. Our other goal is to continue to convert our machines, our Gamma Knifes to Perfexions because that still will be the treatment of choice for metastatic brain tumors. So that's the direction I hope we're taking this company, that 5 years from now, we will be primarily a proton company and maybe one of the largest proton companies in the country. That's my vision, and I think we're finding now that the banking institutions who have financed us in the past, and they financed us to the tune of over [ph] $250 million over the last 20 years, are now taking interest. And even though they were somewhat timid looking at the large numbers for financing this equipment, are less timid now. They're not frightened by financing a piece of equipment that's $10 million. So that's my vision for this company.

Mr. Tagawa, there are no further questions. Would you like to make your closing remarks?

No, I would just like to say thank you for joining us this afternoon. We look forward to speaking with you on our 2012 second quarter results conference call in about 3 months.

I just might want to add, hopefully on our next call, we'll know whether or not we have FDA approval. I think the 90-day cycle is going to end for MEVION -- it's at the beginning of June or the end of June. And if the FDA does -- has no questions, it could be approved then. If the FDA sends some questions, then the 90-day cycle starts again. And we talked with MEVION earlier, late last week, and they're reasonably certain that they're going to get approval by September or November. And Barnes Jewish will be treating a patient before the end of the year, and that operation is going well. So MEVION has made some real strides in the last 2 months, 3 months. Very exciting, and I think they placed 3 orders in the last 2 weeks in Europe and in the United States. Anyway, thank you.

This call will be available in digital replay immediately following today's conference. To access the system, dial (888) 843-7419 and enter the passcode 32423640 followed by the # sign to access the replay. The webcast of this call will be available at www.ashs.com and www.earnings.com. This concludes today's teleconference. Thank you for participating. You may now disconnect.