Craig Tagawa - COO and CFO Alexis Wallace - Controller Ernest Bates - Chairman and CEO Ernest R. Bates - VP, Sales and Business Development

Tony Kamin - Eastwood Partners Lenny Dunn - Freedom Investors

Good morning, everyone. And welcome to the 2014 Third Quarter 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; Ernest R. Bates, Vice President, Sales and Business Development and Alexis Wallace Controller of American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you, Ellen. And thank you all for joining us for AMS’ third quarter 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 of 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 reports on Form 10-Q for the quarter ended on March 31, 2014, the Form 10-Q and Form 10-Q(a) for the quarter ended June 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. I’ll begin with a summary of the good news. Our Gamma Knife business returned to profitability in the third quarter and the outlook for this business brightened further as we look into 2015, that’s because of the centers for Medicare and Medicaid Services finalize a significant increase in Medicare’s Gamma Knife reimbursement rates for next year. In our Proton Therapy business our Board of Directors step-up to help us raise approximately 2.8 million, we used some of these funds for the down payment on the MEVION S250 proton device for our proton center under development at UF Health Cancer Center at Orlando Health. We also lined up the rest of financing required to complete the project. To top it off the crucial component of the MEVION S250 the superconducting synchrocyclotron proton accelerator was delivered to UF Health Cancer Center at Orlando Health last week. All of this has waited a long time for this to happen. Now here is more detail on all of this news. First, regarding our Gamma Knife business, as we anticipated our domestic Gamma Knife business rebounded in the third quarter. On a same-center basis excluding Turkey which we sold effective May 31, 2014 revenue was up slightly versus last year’s third quarter despite a decrease in treatment volume. This reflects a favorable mix of business across our domestic sites. Gross margin, operating income and net income all increased significantly in the third quarter compared to this year’s second quarter and to the third quarter of last year. Treatment volume is continuing to meet our expectations so far in the fourth quarter. Our Perfexion portfolio continues to grow. Our newest Perfexion system located PeaceHealth Sacred Heart Medical Center at RiverBend in Springfield Oregon is scheduled to begin treating patients next month. This is the 14th Perfexion system in AMS’s portfolio and our 28th Gamma Knife site. The Gamma Knife Perfexion remains a gold standard for cranial radiosurgery. It also is an excellent device for treating metastatic brain tumors. This is a significant market as an estimated 180,000 patients are diagnosed with metastatic brain tumors every year. Regarding reimbursement on October 31, 2014 the Centers for Medicare and Medicaid Services posted its final Medicare hospital outpatient prospective payment rates for calendar year 2015. Effective January 1, 2015, CMS has established a comprehensive Ambulatory Payment Classification for both Gamma Knife and linear accelerator based one session cranial radiosurgery. The comprehensive reimbursement rate of approximately $9,768 will be inclusive of the delivery and ancillary codes, but exclusive of co-insurance payments or other adjustments. The average current CMS reimbursement rate for delivery and ancillary codes exclusive of co-insurance and other adjustments is approximately $5,600. This represents an estimated increase of $4,168 or nearly 75% per Medicare Gamma Knife treatment exclusive of co-insurance and other adjustments effective January 1, 2015. Regarding the financing you will recall that on June 13, 2014, AMS realized proceeds of approximately $1.6 million from the private placement of common stock to several AMS Directors. Additionally, on October 24, 2014, AMS closed the private sale of $1.2 million aggregate principal amount of unsecured notes, warrants to purchase 200 shares of common stock at 220 per share and 100,000 newly issued common shares at a purchase price of $2.20 per share again to a group of the Company’s Directors. These investments are tangible statements that support for a growth strategy from individuals who are in the best position to understand what we’re trying to accomplish. Clearly our board supports our business plan, the funds we have raised allowed us to make significant forward progress in our proton therapy business. We use a portion of proceeds of the private offerings to make progress statements of $2 million to Mevion Medical Systems for MEVION S250 proton therapy system to be installed at UF Health Cancer Center at Orlando Health. Also we entered into a commitment letter with a major international financial institution to provide lease financing for the completion and installation of our proton device. Then earlier this month we were pleased to announce the delivery of the superconducting synchrocyclotron proton accelerator the key element of the MEVION S250 system to the dedicated proton center now under construction at UF Cancer Center at Orlando Health. As Central Florida’s most advanced Cancer Center the UF Health Cancer Center at Orlando Health will be the first hospital in the Central Florida region to install a proton therapy system. We expect the installation process to be completed in about 14 months and patient treatments to begin shortly thereafter. Now, I will turn the call over to Alexis Wallace to go over the results in detail. Alexis?

Thank you, Craig. For the three months ended September 30, 2014 medical services revenue decreased to $3,982,000 compared to $4,396,000 for the third quarter of 2013. This decrease primarily reflected the sales of Company’s operations in Turkey effective May 31, 2014. Net of last year’s revenue in Turkey Gamma Knife revenues increased marginally for this year’s third quarter compared to the third quarter of 2013. Net income for the third quarter of 2014 was 13,000 or $0.00 per share, this included income tax expense of 29,000 which represents income tax expense for the third quarter and adjustments to prior period estimates. This compares to a net loss for the third quarter of 2013 of 134,000, or $0.03 per share, which included a pre-tax loss from foreign currency transactions of 306,000 due to the weakening of the Turkish lira against the U.S. dollar. The number of procedures performed on Gamma Knife Perfexion systems supplied by AMS in the United States decreased 6.2% for the third quarter and 11.5% for the first nine months of 2014 compared to the same period of 2013. The number of procedures performed in AMS’s U.S. Gamma Knife business, including Gamma Knife and Gamma Knife Perfexion procedures, decreased 2.4% for the third quarter and 10.1% for the first nine months of 2014 compared to the same periods of 2013. But in comparison to this year’s second quarter Gamma Knife Perfexion in total Gamma Knife procedures increased 19% and 22.2% respectively in the third quarter. Medical services gross margin for the third quarter of 2014 increased to 40.3% compared to medical services gross margin of 36% for the third quarter of 2013, primarily as a result of lower cost due to the sales of Turkish subsidiary. Operating income increased 69.1% to 274,000 for this year’s third quarter compared to 162,000 for the same period a year earlier. Selling and administrative expenses for the third quarter of 2014 were 933,000 compared to 887,000 for the third quarter of 2013. This increase was mainly the result of increased accounting and tax services. For the nine months ended September 30, 2014, medical services revenue decreased to 11,425,000, compared to medical services revenue of 13,647,000 for the first nine months of 2013. Net of revenue in Turkey Gamma Knife revenues decreased 10.1% for this year's first nine months compared to the first nine months of 2013. Net loss for the first nine months of 2014 of 1,010,000, or $0.21 per share, included a pre-tax loss from the sale of the Turkish subsidiary of 572,000, a pre-tax gain from foreign currency transactions of 161,000, and an income tax charge of 165,000 which offset an income tax benefit of 132,000 from the Company's operating loss. In comparison, the net loss for the first nine months of 2013 of 230,000, or $0.05 per share, included a pre-tax loss from foreign currency transactions of 840,000. On the balance sheet at September 30, 2014, cash, cash equivalents and certificates of deposit were 10,415,000 compared to 10,909,000 at December 31, 2013. Shareholders' equity at September 30, 2014 was 24,966,000, or $4.75 per outstanding share. This compares to shareholders' equity at December 31, 2013 of 24,055,000, or $5.22 per outstanding share. Craig?

Thank you, Alexis. Ellen we’re now ready for the first question.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) We have a question it comes from Tony Kamin with Eastwood Partners. Please go ahead.

Question is in the earnings release you said that Dr. Bates you said that procedures in the fourth quarter for Gamma Knife were meeting your expectations. Can you comment on that a little bit? Do you expect growth to return here at some point or they’re just sort of staying where they were at the third quarter? Eastwood Partners: Question is in the earnings release you said that Dr. Bates you said that procedures in the fourth quarter for Gamma Knife were meeting your expectations. Can you comment on that a little bit? Do you expect growth to return here at some point or they’re just sort of staying where they were at the third quarter?

Yes we do, we do anticipate growth I think for the last month has been one of our best months that we’ve had in a long time, and I’ll let Craig comment on that, the last month, don’t lack for evidence.

The last month was an extremely good month for us. I think some of the efforts that we put in from prior periods are starting to take route. I think there is still areas that we’re still correcting in terms of one of the sites that mentioned was having personnel issues in the previous two quarters. They just started now treating patients, so I don’t think we’ve seen the full effect of the startup of that yet and we’ll see a little more growth in there from that unit in the fourth quarter. So the fourth quarter has generally got holidays in there but we’re very pleased with the progress that we are making and we’re going to continue to work to make further progress in terms of organic growth.

And it sort of touched on a question I had, do you have much of an ability to work with these centers to -- I realize this isn’t micro store where you just put something on sale and drive volume, but are there other ways you can work with your docs and your hospitals to help them get more -- to help them drive revenue to whatever level they can. Eastwood Partners: And it sort of touched on a question I had, do you have much of an ability to work with these centers to -- I realize this isn’t micro store where you just put something on sale and drive volume, but are there other ways you can work with your docs and your hospitals to help them get more -- to help them drive revenue to whatever level they can.

I think in terms of making sure that referring physicians know what the Gamma Knife can do and there are always new indications that come up through clinical papers and we do provide those as they need them but I think we support them in terms of their, getting out there and doing CME credits to get the word out as to what the Gamma Knife can do and what the most current types of treatments that it can do.

Tony, there is also evidence that there has been improvements made in the Gamma Knife that may get to probably the treatment of choice for metastatic brain tumor. So I think we’re going to see those kinds of volumes go up.

Turning to the CMS reimbursement which was terrific, can you tell me that what, -- I remember when the reverse happened this was really affecting I think it was 25% or 30% of your machines. Can you give me a percentage that this really will sort of immediately change pricing for on January 1st? Eastwood Partners: Turning to the CMS reimbursement which was terrific, can you tell me that what, -- I remember when the reverse happened this was really affecting I think it was 25% or 30% of your machines. Can you give me a percentage that this really will sort of immediately change pricing for on January 1st?

I think there are about six or seven centers that it will affect to varying degrees and these are primarily the revenue sharing arrangements that we have with the hospitals. And they have varying degrees mainly because we get varying percentages of the revenue share.

And then just as when rates were cut I know there were some concern that that would cause the private pay to push for cuts, do you think this is going to allow any ability through the rest of your centers that aren’t directly affected to may be indirectly be able to adjust pricing or? Eastwood Partners: And then just as when rates were cut I know there were some concern that that would cause the private pay to push for cuts, do you think this is going to allow any ability through the rest of your centers that aren’t directly affected to may be indirectly be able to adjust pricing or?

Well I don’t know the pricing for the managed care or the commercial payor has really changed I don’t know that they were impacted. So I think we’re going to see the increase that our hospital partners will get through the Medicare rate adjustment.

Turning to proton beams, it’s exciting to see Florida moving along, the other -- I thought it would be helpful if you could -- the other two machines you have from Mevion which I think originally were intended for Long Beach and Tufts, can you talk in terms of what visibility you have now and what you’re going to do with those and then beyond those to what the pipeline for hopefully even machines for an up -- what kind of pipeline you have going? Eastwood Partners: Turning to proton beams, it’s exciting to see Florida moving along, the other -- I thought it would be helpful if you could -- the other two machines you have from Mevion which I think originally were intended for Long Beach and Tufts, can you talk in terms of what visibility you have now and what you’re going to do with those and then beyond those to what the pipeline for hopefully even machines for an up -- what kind of pipeline you have going?

Well I can speak for Long Beach, Long Beach looks quite exciting. We have a partnership there with the doctors and to probably ask Ernie to comment on that. We do have an offer to finance that machine. We think that would be one of the busiest machines on the West Coast. Ernie, you want to say a word about that?

Well just briefly on Long Beach project we do have an operating agreement signed with the radiation oncology group which practices at Long Beach, a large physician group and we’re in the final stages of negotiating the least contract with the hospital. The third machine that was scheduled to go to Tufts at this point we have not made a decision whether that machine will go to Tufts. We have an opportunity to possibly place that machine in San Francisco where one of our, two of our accounts in the Mid West. We’ve just not made a final decision. Craig, you want to comment on that?

No, I think we’re trying to decide, what is the ideal location to put that unit out at this point.

And now with Barnes having been up longer, so the pipeline beyond that, do you see people moving a little more towards being able to make a decision here say over the next year in terms of further potential contracts? Eastwood Partners: And now with Barnes having been up longer, so the pipeline beyond that, do you see people moving a little more towards being able to make a decision here say over the next year in terms of further potential contracts?

Well, I think there's a tremendous amount of interest in the Mevion single-room concept, I think that's growing every month. And as I've said in the past we have been in discussions with probably about 26 or 27 hospitals over the last 4 or 5 years for the one-room Mevion machine. And that list seems to be growing.

And the key -- I mean, what do you see as the key inflection for people, is it just seeing MEVION being more visible with more machines, is it finance or what is it in these cases? Eastwood Partners: And the key -- I mean, what do you see as the key inflection for people, is it just seeing MEVION being more visible with more machines, is it finance or what is it in these cases?

Clearly people want to see more machines up and running and I think and I’ll ask Craig to comment on that. We do expect to see at least two more machines start treating patients in the first quarter of next year. And I think that's going to be exciting, because that will mean that there are three machines that are up and running and hopefully all doing well.

Two more quick questions and I’ll let someone else take the floor. On your SG&A, I wondered if there's any in this quarter whether there was any legacy costs from Turkey say in more legal or more accounting and whether you think SG&A might have some one-time things in there? Eastwood Partners: Two more quick questions and I’ll let someone else take the floor. On your SG&A, I wondered if there's any in this quarter whether there was any legacy costs from Turkey say in more legal or more accounting and whether you think SG&A might have some one-time things in there?

I think there were a few but not a lot of lag, but we are budgeting more expense for the year mainly because the accounting and the complexity of the sale transaction and the accounting and tax services that'll be needed to properly from a tax perspective and to take care of that transaction.

And the final question on Mevion, and I respect that you may not be able to answer this, but I noticed in their S-1 filing that, they comment on a relationship with the company they'd sold three machines to at that time, that they were going to essentially take a loss on those machines I guess because they were priced pretty far below where they currently are. That would indicate to me that that there's because you bought these machines such a long time ago that there's a significant discount embedded to current market which as you place these machines, it seems to me is quite a value to AMS, any comments on where you bought those machines versus where their current market is? Eastwood Partners: And the final question on Mevion, and I respect that you may not be able to answer this, but I noticed in their S-1 filing that, they comment on a relationship with the company they'd sold three machines to at that time, that they were going to essentially take a loss on those machines I guess because they were priced pretty far below where they currently are. That would indicate to me that that there's because you bought these machines such a long time ago that there's a significant discount embedded to current market which as you place these machines, it seems to me is quite a value to AMS, any comments on where you bought those machines versus where their current market is?

We can't speak to what we paid for those, I think you could probably calculate it from the S-1 but we're not allowed to speak as to what our pricing was, but you're right it was a discount to what you'd buy them at today.

And the S-1 registration suggested that the cost for these machines to the company was about $14 million and of course we paid less than that for these machines.

(Operator Instructions) The next question is from Edward Kirkorian, Private Investor. Please go ahead. Mr. Kirkorian your line is open. Okay we'll move onto the next question, it comes from Lenny Dunn with Freedom Investors. Please go ahead.

And generally pleased with the quarter and I understand you had some one-time things in there or maybe would've made $0.02 or $0.03, but the exit from Turkey is complicated and I understand the extra cost. And I'm very much looking forward to both the earnings that we are going to get next year and the progress on the Mevion, but I expected to see Mevion go public this week and they still haven't, do you have any ballpark on when you expect to see them go public? Freedom Investors: And generally pleased with the quarter and I understand you had some one-time things in there or maybe would've made $0.02 or $0.03, but the exit from Turkey is complicated and I understand the extra cost. And I'm very much looking forward to both the earnings that we are going to get next year and the progress on the Mevion, but I expected to see Mevion go public this week and they still haven't, do you have any ballpark on when you expect to see them go public?

No we don’t they did publically file I think on 9/11/2014 they did an amendment on 10/10/2014. As we can determine there has been no withdrawal so it’s still our belief that they intend to go public, when, we don’t know.

I certainly understand that but I would have expect it by now and I know that the reason you were forced to get the financing quickly for the Orlando is that Mevion would have preferred to sell the machine to somebody at probably close to twice what you paid for it. So I understand the need for a quick financing there, but I would think that we’re doing that in anticipation to going public shortly. So, but you don’t have any, they’ve given you no indication and the underwriters are… Freedom Investors: I certainly understand that but I would have expect it by now and I know that the reason you were forced to get the financing quickly for the Orlando is that Mevion would have preferred to sell the machine to somebody at probably close to twice what you paid for it. So I understand the need for a quick financing there, but I would think that we’re doing that in anticipation to going public shortly. So, but you don’t have any, they’ve given you no indication and the underwriters are…

No because, Lenny you might recall during that time there was a quiet period and we assume that there is still is a quiet period where they cannot discuss the status of the registration and nor what the valuation is going to be.

Sure. I’m looking forward to them doing that because for two reasons one it gives them a clear visibility as to their ability to manufacture a lot of these machines and also it gives AMS a clear sense of what your investment is worth while Mevion is trading I understand you’ll be locked up for at least six months but at the same time people will be able to see a real value in the Mevion stock so anyhow sooner than better than later but I fully understand you have no control over it. Freedom Investors: Sure. I’m looking forward to them doing that because for two reasons one it gives them a clear visibility as to their ability to manufacture a lot of these machines and also it gives AMS a clear sense of what your investment is worth while Mevion is trading I understand you’ll be locked up for at least six months but at the same time people will be able to see a real value in the Mevion stock so anyhow sooner than better than later but I fully understand you have no control over it.

No, and we still believe that there is real value there I think we’ve invested Craig is it 2.4 million or 2.7 million.

2.7 million.

2.7 million.

Yes, no I understand that I don’t think it’s reflected even close to anything like that in your share price I think that probably it is not reflected at anything looking at what your earnings power is next year just with the Gamma Knife’s but anyhow I’m looking forward to it and thanks for the hard work in getting this turned around and I’m certainly glad about the Medicare reimbursement which I was sweating out the way you actually announced it so just good luck and keep going. Freedom Investors: Yes, no I understand that I don’t think it’s reflected even close to anything like that in your share price I think that probably it is not reflected at anything looking at what your earnings power is next year just with the Gamma Knife’s but anyhow I’m looking forward to it and thanks for the hard work in getting this turned around and I’m certainly glad about the Medicare reimbursement which I was sweating out the way you actually announced it so just good luck and keep going.

The next question is from Edward Kirkorian, Private Investor. Please go ahead.

Guys I had a quick question on the reimbursement, have you in terms of a range for next year’s budget do you have a lower range and higher range on the impact on EBITDA for the increase in reimbursements because you obviously have good historical information on this, on the quantity so wanted to figure out what is the estimated EBITDA impact of that increase?

What we did Ed was, we looked at the third quarter and tried to pro forma the increase in, I don’t know if you know but there are slight variations by hospital as to what that rate is due to individual labor indexes that have an effect on the rate as well, but we took an estimate and I caution everybody that this is, we’re just giving you a guidelines as to what it could be, what it was, what it could have been about in the third quarter but again the payor mix could change going forward but we looked at the revenue range between an increase of about 250,000 to 300,000 and an increase in pre-tax of about 175,000 to 200,000 for the quarter based on the impact that we see on our retail accounts.

Okay, so that’s the direct contribution and you would see to AMS possibly as part of the 1 million in EBITDA and maybe 700,000 or something, or and right now you are 175 times for would be?

Correct, we took into account the minority interest in all that in coming up to the pre-tax.

Secondly, do you have any kind of forecast if any for additional capital infusion into the company in terms of equity and/or say for the balance sheet debt for next year?

We continue to look at what we can do to improve the balance sheet. In terms of our Gamma Knife business we’re very comfortable that we can finance the needs going forward, as we mentioned in the release we have signed a commitment letter for our first proton center and we’re going to start working on financing for the additional proton centers at very shortly as we finish up with some of our negotiations with the next two sites.

All of those would require additional debt and equity, isn’t that the assured statement or no?

They could possibly, so we’re looking at various avenues that we could do in terms of restructuring our Gamma Knife debt to get the debt service down in the coming years, so we’re looking at all avenues as you could imagine so that we can internally finance as much as possible without diluting our existing shareholders.

And no matter what if we have new equity we’ll give a little bit to the shareholders. It would be interesting if the shareholders would have a shot at the new equity at the same time as directors in the future that’s just a general comment you don’t have to respond to it but just one that I would like to make.

One last item would be with Mevion, the opportunity obviously to have those shares that we own liquid and having a significant impact on our cash on-hand and the balance sheet. Do you anticipate having any kind of special meeting to decide what you would do is that with that valuation when it does happen?

I think the Board the management will discuss it with the Board and then we’ll take guidance from the Board as to what is the best way to use those funds if we decide to sell the shares at a point in time, whether be to use to grow the proton business or any other corporate decision.

And yes I would expect that to be the answer, again my only input on that would be is if you have that decision it would be great for the shareholders and for transparency for us, you to actually have a special meeting potentially shareholders could be on the, listen and/or lay in on that because it’s a pretty, could be a potentially a very significant portion of the valuation. And the last portion of that would be, and so my last portion question would be that we’re very much -- even though the shares are up a little bit today we’re trading at about 60% of book value. And so do you have any initiatives to try to get that closer to book value, any specific initiatives?

I think there are two significant things, I think we’re still very bullish on the Gamma Knife business so we can grow that business and especially with the recent announcement to CMS and you can see what impact that will have on us going forward in terms of the EBITDA and the revenue line even without an increase in treatment. So we think that will help and I think we’re very excited about the progress that we’re making with our Mevion system, our first system that is going into Orlando, was just installed in about a week or so ago and as we said the installation process is going to be about 14 months and then shortly thereafter we’ll start treating patients. So it’s been a long haul, we started in 2006 but I think we see the light at the end of the tunnel now.

So that’s another say 14 as much as 18 months, a 1.5 years from now, I mean we do see the light at the end of the tunnel but it’s still significant amount of time between now and then right so?

It is I think hopefully we can provide more news in terms of the next two sites during this process. So I think you’ll see more activity on the proton front going forward.

Alright, well good luck. We need something better than breakeven right going forward otherwise we’re going to stay at this full valuation even though our assets are much more valuable than what the market is seeing, anything we can do to portrait that would be meaningful. So thanks for your efforts and also your cost control efforts last time and so we have 18 months, before we have stuff going -- anything significant in terms of big revenue increase in that and we have got to keep I’d like to say, a continuation of how the control of our overhead takes up I saw the overhead pop up this quarter as well. So thank you.

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

I have nothing further and we will look forward to our year-end call with our various shareholders.

Thank you. This call will be available in digital reply immediately following today’s conference. To access the system, dial 888-843-7419 and enter the passcode 38458426, followed by the pound 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.