Good morning, everyone. And welcome to the 2014 Fourth Quarter and Fiscal 2014 Financial Results Conference Call for American Shared Hospital Services. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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; and Alexis Wallace, Controller of American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you, Vanessa. And thank you all for joining us for AMS' fourth quarter and 2014 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 and 10-K(a) for the year ended December 31, 2013, a quarterly report on Form 10-Q for the quarter ended on March 31, 2014, the 10-Q and Form 10-Q(a) for the quarter ended June 30, 2014; the quarterly report on Form 10-Q for the quarter ended September 30, 2014 and the definitive proxy statement for the Annual Meeting of Shareholders held on June 10, 2014. The company assumes no obligation to update the information contained in this conference call. Following the strong third quarter, procedure volume in our domestic Gamma Knife business remained strong in the fourth quarter of 2014. AMS' financial results reflected this gain with gross margin, operating income and net income all up versus the fourth quarter of 2013. Combined with the increase in Medicare reimbursements for both Gamma Knife and linear accelerator radiosurgery that went into effect on January 1, 2015, the solid procedure volume we have enjoyed in the past couple of quarters reinforces our optimism for our Gamma Knife business in 2015. The Centers for Medicare and Medicaid Services or CMS has established a comprehensive ambulatory payment classification for Gamma Knife and LINAC one session cranial radiosurgery, one of the most common…

Thank you, Craig. For the three months ended December 31, 2014, our medical services revenue increased 1.4% to $3,992,000 compared to medical services revenue of $3,937,000 for the fourth quarter of 2013. Recall that revenue for the fourth quarter of 2013 included the company's operations in Turkey, which were sold effective May 31, 2014. Excluding prior year's revenue in Turkey, medical services revenue increased 12% for the fourth quarter of 2014 compared to the fourth quarter of 2013. Net income for the fourth quarter of 2014 was $58,000 or $0.01 per share. This compares to a net loss for the fourth quarter of 2013 of $82,000 or $0.02 per share, which included a pretax loss from foreign currency transaction of $334,000 due the weakening of the Turkish Lira against the U.S. dollar. The number of procedures performed on Gamma Knife Perfexion system supplied by AMS in the United States increased 5.8% for the fourth quarter and decreased 7.7% for all of 2014 compared to the same period of 2013 excluding procedures performed in Turkey. The total number of procedures performed in AMS' U.S. Gamma Knife business including Gamma Knife and Gamma Knife Perfexion procedures increased 13.8% for the fourth quarter and decreased 4.9% for all of 2014 compared to the same period of 2013 excluding procedures performed in Turkey. Medical services gross margins for the fourth quarter of 2014 increased to 38.6% compared to medical services gross margin of 34.3% for the fourth quarter of 2013 primarily the result of lower costs due to the sale of the Turkish subsidiary. Operating income increased 45.4% to $381,000 for the fourth quarter of 2014 compared to $262,000 for the same period a year earlier. Pretax income increased to $154,000 for the fourth quarter of 2014 compared to a pretax loss of $38,000…

Thank you, Alexis. Vanessa, we are ready for the first question.

And thank you. [Operator Instructions] And we have our first question from Tony Kamin with Eastwood Partners. Please go ahead.

Hi, everyone.

Hello.

First question I think – I have got a number of questions, but I think this is really the most important in terms of the hopeful re-rating of the company's valuation at some point this year. It seems like the most important announcement you could make would be the completion of financing for the proton beam at Orlando. Can you give us any enlightment on how that process is going and what your expectations might be?

Yes. We are moving along on that as we mentioned before we have a commitment letter from a very large international finance company and we are just finishing up the documentation on that project.

Okay. And then I think the corollary or follow-on to that would be – would your expectations be that either with that finance source or having secured that finance source maybe – it increases your ability to get other finance sources. Can you comment on your thoughts on – we have two other prepayments for Mevion Systems, do you expect to be able to announce agreements on where those will be placed during this year?

Yes. We are working on finishing up the next two. We are working with some hospitals we can't announce [who are they yet] [ph], but we are in serious discussions with several hospital groups to put a Mevion system in there. I think now that the technology as really proven to be very robust at Barnes-Jewish with the first system, I think that goes a long way to making finance companies comfortable about the – what the Mevion system can't really do as it was announced by both Barnes and Mevion, Barnes did a 118 patients in its first year and achieved 97% uptime by the fifth month of operation, which I think are very good when you consider this was the first system that was operational that Mevion put forth. So we are very excited about the results, and from what I understand they are treating more than 20 patients a day now. So I think all those metrics are very much inline with of what we thought we can do conservatively on an ongoing basis. So I think as more of these units become operational, it will give finance companies even more comfort about the success of this very unique product.

Okay.

Tony, this is Dr. Bates. We don't know what the expenses are for that unit at Barnes. But, we know with our first machine, if we had those kind of numbers I really believe that we would be profitable in the first year, which would be unusual for proton beam operation.

And Craig, you mentioned the finance companies getting more comfortable, but on the other side of the – just the time when it's up and working being so good. Have you seen any changes in the hospital, when you are talking about hospitals, are they now more willing to just go ahead and move forward and kind of stop waiting for further approve?

I think hospitals are still being conscious. But, I think the operations of the first Mevion system have answered a lot of questions. And I feel very comfortable that we can make some announcements in the not too distant future.

Okay. And switching gears, on the SG&A, I know it was up a little this quarter in extra accounting and legal. I'm just curious is that any of that sort of related to Turkey, or other things that might be one-time and might we see SG&A fall back a little hopefully this year?

I think that was more of – a lot of it was a one-time for extra work that needed to be done on some of our projects. So we don't look that number to be quite that high the rest of the year. But again, it's going to depend on what the company is involved in that particular time as to what that SG&A is going to be in terms of legal expenses and accounting and tax.

Okay. I know at one-point you were – I'm just – I don't remember the resolution, but you were looking at trying to refinance some of the Gamma Knife and with interest rates still so low and with you getting a big bump hopefully from the higher reimbursement here. Is it still possible to make any further progress on that area of trying to improve your margin there?

We haven't quit looking at some refinancing avenues for the company as a whole. And the goal of American Shared is to increase its cash flow. So that we can really push these proton projects further. So we continue to look at all the avenues to how to do that.

Okay. And two more quick questions. The first one, we haven't heard anything on the lighting technology for a while, I just wondered if there was any update on that at all?

There really is no update at this time. We are still looking to see how we can move that thing forward. I think as we mentioned on the prior releases, we believe that it's a very unique concept that we have patented. We are just trying to see how we can't do that thing at a faster pace than it has been going.

Okay. And then, final question for Dr. Bates. Can you talk – you are seeing here the clinical data from the first year of treating patients at the site is remarkable. Can you just comment in general on sort of the research and clinical results that are being seen by proton beams and is there any – we all know that for the rear guard it's been sort of more concerned about cost than to me than patient safety and efficacy. And I just wonder, is the industry itself making any progress in terms of having stuff to report that starts to deprecate that argument?

Unfortunately, recently there have not been any clinical papers that have come out indicating that protons are far superior to the other pre-existing technologies. But, I do think that after these other units been up and running a bit, we will begin to see that. We know that historically that is the case, but nothing recent.

Okay, great. Thank you and congratulations. It's a nice – that was a nice report.

Thank you.

And thank you. Our next question comes from [Robert Becky] [ph] who is a Private Investor.

Yes. So proud of you, you have turned the company around, it looks much better. There is a light at the end of the tunnel. And I think you are doing very well. The only question I have is, do you still have the strong relationship with Mevion and is Mevion still planning to come out with IPO this year?

We are in discussions with the CFO – this is Dr. Bates speaking, the CFO and the CEO of Mevion last week. We asked them, what was the status of the IPO? And they informed us that they were not able to discuss it at this point. It was like best described as a quite period. And they really couldn't go into any detail.

I understand that. And I know you can't say anything about it. But, I'm very proud of the changes that you have made. You are doing a strong increase in business. So just keep going. Thank you. Very kind of you. Thank you.

Thank you.

And thank you. Our next question is from Lenny Dunn with Freedom Investors Corporation.

Yes. Hi.

Good afternoon, Lenny.

Good afternoon. The call – the quarter was as expected, but it would look to me going forward and I certainly hope that I'm not misreading it. That we are going to have clean quarters going forward, but that extraordinaries and we could actually have some very positive quarters this year based on the better reimbursement. And more machines up and running and we able to actually seeing some consistent quarters with earnings because this is a public company and we want to see some earnings. And you used to make a great deal of money each quarter and looks to me like you are going to able to do that again. Am I reading it, correctly?

I think you are. We are encouraged by the business that we are seeing with the Gamma Knife particularly with metastatic tumors. There is a large number of these tumors out there. And I think we are seeing a resurgence of its use for metastatic brain tumors. So we are encouraged. It's still is the gold standard for treatment of brain tumors.

Yes. But you should have both the increased procedures – increased reimbursement per procedure and more units running all year. So it should give you three reasons to have better earnings.

You want to say something about that Craig?

Yes. I think we will have one-unit coming offline at the end of the first quarter. It's a model we will see. And they have elected to go in-house with the Perfexion. So we will be down one-unit. So we will be essentially the same number of units as we have for most of last year going forward. But, we will enjoy the benefit of the increased reimbursement rate especially for our retail customers.

Okay. And is a unit that is going offline, are they going to buy it from you, or they going to issue five different one?

They will buy directly from Elekta in this case.

So there the units that you have taken offline, you would end up trying to resell with somebody else is that --?

Correct.

Okay. But, we will at least have the same number and better reimbursement.

Yes.

And is the unit coming offline, a major contributor or just one of the average ones?

It's been a contributor. But, it's not our highest volume customer.

Okay. And getting back to the SG&A, which went up and you had it under very good control and you did answer the question before. But, can we keep that under control so that we have a better bottom-line.

It's always our goal. The one thing that we can't manage are obviously the personnel costs. But depending on what we are trying to accomplish in – both the Gamma Knife business and the proton business, there maybe some volatility to that number. I wouldn't expect it to be a large number of deviations unless there is some unusual transaction that we are trying to accomplish.

Okay. And balance sheet looks fine, the cash flow looks fine and hopefully Mevion is able to go public some time in the current quarter and we want to start to see it by first. But, that's up to them I guess as to – and their investment bankers as to the timing? So – okay, appreciate hard work you have done and things are getting much better. But, this company is still showing a substantial discount, book value it shouldn't, and I think you start showing some real earnings. You may even get premium to book value, but you certainly go back to book value.

Thank you.

And thank you. [Operator Instructions] And our next question comes from Richard Greulich with REG Capital Advisors.

Thank you and good afternoon. I have a few questions. The first is the Oregon system, the ramp-up status of that. At what point would during the course of the year, would you expected to be operating sort of at the level where you will be profitable?

I would say probably after five to six months. It should start really kicking into gear.

And at this point have you seen anything particularly positive or negative from what your expectations were?

No, nothing. They are performing to our expectations at this point. We have done a lot of marketing of the program with the hospital and we think those are all going to bear fruit. And I think this will be a very good type for us.

Are you still planning on opening up a system in Peru?

Yes. We are.

What is the timing of that?

Probably the latter part of this year is when we will have all the regulatory issues done in coordination with Elekta.

Won't you say a word about the cobalt, why we have delayed there?

Yes. For a significant period of time there was an issue of shortage of cobalt, and it really threw us off both domestically and in Peru as to when we could reload some of these systems with cobalt. It's my understanding that issue is a non-issue now. And we are just trying to coordinate everything and that's why we have had some – we are trying to catch up with our reloads at some of our domestic sites as well now.

Okay. So I know the situation in Turkey, one could argue was maybe a one-off really difficult situation. But just kind of curious as to whether that has dampened your interest in establishing foreign operations.

No. It hasn't dampened our interest. But we will do with more caution and we certainly won't do it when we have a currency exchange problem. We have had discussions with the organization that we did sell that unit – those two units to Euromedic and have suggested that we might be advisors to them because they intend to purchase proton beam machines in Europe in about 15 countries.

And has anything solidified in terms of that relationship or arrangement then?

Not yet. But I'm encouraged that something will happen at some point in the future. But we will be much more careful than what we were in Turkey.

Yes. What is the status now of the second and third Mevion system, is there anything new to report?

There isn't anything new to officially report other than we are continuing to work on placing these with potential customers. We are moving right along. So I think as mentioned earlier in the question-and-answer period, we hope to be able to announce some new developments in the not too distant future.

I was going to ask about your comment on that, was that regarding the second and third system beyond those?

Yes. The second and third system.

Okay. Let's see the – what opportunity you see available with the Extend system for Perfexion for you?

The Extend system to be quite honest hasn't really taken off. It didn't get embraced by the clinicians. I think Elekta is working on what is called a Perfexion Plus, which has better imaging capabilities to do fractionations. So I think we are closely monitoring what the benefits and the concepts of adding that system would be to do fractionations. So that's not a commercially available product at this point. So there is no price on it, so we will have to watch like everybody else and see what our clinicians tell us about that system.

Maybe I was confusing; I thought the Extend system would allow for fractionation as well.

It does. The Extend system does allow for fractionation. It uses a bite block system. And some clinicians are comfortable with that and doing fractionation and others weren't quite as comfortable. So for us it didn't take-off. That's not to say it was a bad system. It just didn't get rapidly adopted by our clinicians.

And so that's pretty much a done issue at this point and –

Well, I think, we are all looking to see at the new modification that Elekta has been working on and seeing whether if that's something we want to adopt or not for our existing sites and future sites. It's unclear to me at this point what we would do.

Sure. The first system – Mevion system in Orlando, what is the length of time period for that agreement, looks like five years, six years, seven years?

It's a 10-year agreement.

Okay. Jumping over a little bit here, but what is your capital expenditure plans for this year x-ing outing the Mevion systems anything?

They are not tremendously large, I should say probably 5 million or thereabouts, or maybe a little less.

The unit comes offline, what is the carrying value of that at this point?

Yes. We really don't get into that much detail with our individual units.

Let me rephrase that then. Do you expect to have a write-off regarding that system?

No. We do not.

And okay. I want to tie in the pretax income versus the non-controlling interest. So for example in the quarter, the non-controlling income, non-controlling interest income was $233,000. If I understand that correctly that represents 19% of the GKF pretax earnings?

It does plus some of the other partnerships that we have on individual Gamma Knife projects.

Okay. But those are relatively minor, right, compared to the GKF?

Yes. Probably in terms of total dollar amount that's probably true.

So let's just use the 19% and say so that would say that the GKF pretax is about 1.2 million and the overall company had if I x out the non-controlling interest really only have pretax income about 100,000. So there is about 1 million difference where does money go? What are those expenses?

The difference is that not all expenses are allocated to the GK Financing subsidiary by agreement. Some of the costs that American Shared has incurred are obviously not directly related to the Gamma Knife business. So those expenses by our operating agreement are not put into that subsidiary.

What would those expenses be, a corporate overhead or?

Yes, primarily corporate overhead.

If I look at the return on capital from the basic business and understanding that you could have a pretty nice move up once the Mevion systems are up and running and et cetera, et cetera. But, the return on capital is quite low. And so, curious as to what your plans are from the current business, how are you going to improve that? Can it be done?

Of course, it can be done. I think that's one of the reasons why we are moving into the proton business. We see that the proton business could add significantly to the bottom-line of American Shared. So it's our goal to get these units up and running as fast as possible and to do additional ones on top of this.

I would agree that the proton business looks exciting, but going just the current Gamma Knife business, how do you improve the returns there because that's where they are low?

Yes. I think we have clearly been hurt with the – during the last couple of years with the reimbursement rate cut. I think we are trying to grow the business organically. We will look at the – some of these modifications that might occur on the Gamma Knife business going forward to allow for fractionation to increase the number of treatments we might be able to do. That is against the cost benefit analysis. So I think when you look at the overhead for American Shared, obviously, some of that are drive deep proton business as opposed to trying to drive the Gamma Knife business. So and that's why we don't allocate all our expenses to the Gamma Knife business.

Is there likelihood of needing additional capital raises at this point now for this year?

I don't think for this year. I think in terms of equity raises and – we are looking at that. I wouldn't categorically exclude it, if that's the best avenue for us to take to accomplish our proton aspirations. I think for us it's very important that we make that happen this year.

Yes. I would agree and I'm not criticizing it. I'm just thinking as a shareholder though, I think when you sell stock at a less than half a book value that's a real dilution for the other existing shareholders.

It is.

It may have – needed to be done. But, you can avoid that in the future that would be useful.

Yes. We really don't take that lightly. I think everybody – you look at what's your most expensive cost of capital and it would be equity. But I think at some point you have to blend the two and you – we did what we thought was appropriate at that time to make sure that we kept our proton projects moving forward.

Yes. I appreciate your help and your comments. Thank you very much. Good luck.

Thank you.

And thank you. Our next question is from Chuck Blatz with Benjamin Edwards & Company.

Hi, Dr. Bates. Hi, Craig. How are you?

Fine. How are you?

Hi, Chuck.

Pretty good. Most of all the questions and things that I would have liked to have seen touched on, were touched on by you and the other questioners. So I will just overview something. In terms of the Mevion, it seemed like for a while there maybe it was – there were glitches, they had to make sure, they were going to get up and running. They would also maybe slowdown their IPO et cetera. But, with the results on what's going on in St. Louis sounds like anything that might have materialized there seems to be handled. So I guess, I will ask you about the guts of the unit that's come to you down there in Orlando, is that all running in smoothly, or I don't even know how the process goes as to finally putting all full assembly and getting it ready towards the end of the year in order to handle patients in the first quarter. But, is everything in that picture and the unit they have sent you looking like its going as planned?

Yes. The machine was actually passed preliminary test at the factory before they shipped it.

Okay.

So they are installing it now. The last phase is making sure the beams are directed to the positions they are supposed to in layman terms. So we haven't begun that process. That's towards the end of the installation process more towards the latter part of this year. So there is going to be any significant delays, we will know obviously if there is any delays we will know during the installation process. But, that is one of the most critical parts and very time consuming part is to do what is called the making sure that the machine meets its specifications.

Okay. So then given everything that we have just talked about and listened to, it sounds like a lot of the issues that used to be – lack of a better expression people winding over a last couple of years, they seem to be dissipating, disappearing et cetera from cutting across some expenses and the surroundings that you operate in et cetera and then a lovely sort of gift you will that the reimbursements weren't going to remain at that low level for [our burn] [ph] everybody came to their senses at least from all the parties to reimburse a little further. It would seem as one of the other questioners answer said was that, yes, we should be able to start to generate some more bottom-line. And in doing so, can you kind of give an overview to that as to okay, if that starts to occur then yes, other parties might start to look at this and realize how undervalued it is and kind of buy us more [system] [ph], the price of our stock starts to at least reflect more fair value. So you are going to touch on there, Dr. Bates?

Well, I'm encouraged by the proton business. As I have said in the past and I will say again. There is a demand out there for the Mevion unit. To my mind, the Mevion single room unit is the only unit that's economically feasible. It's the only one for people like ourselves would buy because it's the only one that would be profitable. And there is a demand. Clearly, the signs have said that protons give you better results in terms of local tumor control and life expectancy. If we are going to find a cure for cancer in our life time protons are going to be part of it. And so I'm encouraged. We are talking again with probably 15 hospitals. And the big challenge for us going forward will be finding the financing for these projects. I do believe we will find it. We have been in discussions with organizations that say once we are certain that Mevion has got its problems all resolved. Its IPO accomplished. We want to come in and finance you. It's clear that these multiple room systems do not make economic sense. They just don't. They are not economically feasible. They don't work.

Okay. Well, that sounds like I think finally all of us are on the same page. And I think it's time for us to read through our words at least in terms of the stock price rather than patients that everybody had for ironing outlets et cetera. And it sounds like also that Mevion worked for whatever reason in the last quarter or the quarter before was postponing and/or having to iron out some of their problems with their units et cetera. It sounds like maybe they are ready to go so to speak. And I think you are right. If that happens then once they go public and they are certainly going to get a fair amount of publicity out of that. And also warm-up many of the hospitals who are sitting on the fence or little ante or whatever of saying, yes, let's do this not to mention the amount of capital they will be able to raise to finance and produce their units on a faster phase.

You are right. You are right.

Well, good. Let's have this be a really good quarter going forward. That would be pleasant. Thank you, again.

Thank you.

Thank you.

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

None. Go ahead, Craig.

I would just like to thank everyone for joining us this afternoon. And we look forward to speaking with you in May on our first quarter 2015 results conference call.

And 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 3931-0536 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.