American Shared Hospital Services (AMS) 2011 Q3 法說會逐字稿

Good morning, everyone. Welcome to the 2011 third quarter 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'd now like to turn the call over to Dr. Ernest Bates, Chairman and Chief Executive Officer, and Craig Tagawa, Chief Operating and Financial Officer, and Norm Houck, Controller of American Shared Hospital Services. Mr. Tagawa, you may begin.

Thank you, operator, and thank you all for joining us for AMS's 2011 third quarter earnings 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 the Safe Harbor provision 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 10K for the year ended December 31, 2010; the quarterly report on Form 10-Q for the quarter ended March 31, 2011; Form 10-Q and 10-Qa for the quarter ended June 30, 2011; and the definitive proxy statement for the annual meeting of shareholders held on June 9, 2011. The Company assumes no obligation to update the information contained in this conference call.

Let me begin by noting that our third quarter financial results included proceeds from the sale of a Gamma Knife Perfexion system. Last March, we announced a contract to upgrade a Gamma Knife to Perfexion specifications at Lehigh Valley Hospital in Allentown, Pennsylvania. As part of the upgrade, AMS agreed to the early termination of the existing 10-year lease on the Gamma Knife system we supplied to Lehigh Valley Hospital in 2004, and Lehigh agreed to purchase the Perfexion system. We recognized pre-tax income of $844,000 from this transaction in the third quarter.

Total radiotherapy procedure volume in the third quarter was affected by the sale of the Lehigh unit. The expiration of our Jacksonville Gamma Knife contract at the end of July also affected procedure volume in the quarter. As announced last week, we have installed a new Perfexion system at a different Jacksonville hospital, which has now begun treating patients. These factors contributed to a decrease in medical services revenue for the quarter. Nevertheless, we are confident that our strategy to upgrade many of our existing Gamma Knife sites to Gamma Knife Perfexion specifications will deliver the growth we anticipated. The higher throughput of the Perfexion units compared to the Gamma Knife units they replace is allowing us to realize significant incremental revenue within just a few months of installation.

We continue to move our Perfexion upgrade program forward with additional contracts in the pipeline. Last month, we announced that the Elekta Axesse Radiosurgery System AMS supplied to Baskent University in Adana, Turkey under a contract announced in March 2011 treated its first patient. The Kisla Campus of Baskent University houses the largest and most modern oncology center in the Adana region. AMS has now provided Kisla both a Gamma Knife and a linear accelerator device used for radiation therapy, all of which are treating patients. In addition, the Gamma Knife unit AMS is providing to Hospital Central FAP in Lima, Peru is expected to begin treating patients early next year, and the linear accelerator site in Sao Paulo, Brazil is scheduled to go online in 2012.

I also am pleased to report important developments that affect our proton therapy initiatives. The Centers for Medicare and Medicaid services, CMS, recently announced a 15% increase in its payment rate for proton therapy for hospital-based centers beginning in 2012. This is the third increase in CMS's payment rate for hospital-based proton therapy in the last three years. Obviously, this latest increase further strengthens the economic proposition behind the development of proton centers, a proposition that was compelling even before this latest change.

As we have stated before, after the ramp-up period, we estimate that each of our proton treatment rooms will generate about $6 million to $7 million in EBITDA annually, assuming 2011 reimbursement rates and anticipated volume. Our first four projects alone comprise a total of five treatment rooms, so obviously our success in the proton business can have a dramatic impact on AMS's performance in the years to come.

We also are pleased to learn recently that Mevion Medical Systems, formerly Still River Systems, has delivered the world's first superconducting synchrocyclotron to Barnes Jewish Hospital in St. Louis. Mevion now expects to complete the installation of the compact MEVION S250 proton therapy system early next year. Mevion will use data developed at the site in support of the 510K application for marketing clearance it plans to file with the FDA. AMS is developing proton therapy centers in Boston, Massachusetts, Orlando, Florida, and Long Beach, California, that are expected to use the MEVION S250 once it receives FDA clearance.

We continue to negotiate financing for our proton projects. With our many years of experience in radiation therapy equipment selection, and innovative financing, American Shared is ideally positioned to take advantage of this growth opportunity. We are positioning AMS to be the go-to solution for hospitals and radiation oncology groups seeking to develop single-treatment room or multi-treatment room proton treatment facilities depending on patient volume.

Now, I'm going to turn the call over to Norm to review our financial results. Norm?

Thanks, Craig. For the three months ended September 30, 2011, revenue increased to $9.148 million. This consisted of medical services revenue of $4.164 million, and revenue from equipment sales of $4.984 million. In comparison, medical services revenue was $4.280 million for the third quarter of 2010. Net income for the third quarter of 2011 rose to $220,000 or $0.05 per share. This compares to net income of $6,000 or $0 per share for the third quarter of 2010.

The number of procedures performed on Gamma Knife Perfexion systems supplied by AMS decreased 6% for the third quarter of 2011, and increased 7.8% for the first nine months of 2011, compared to the third quarter and first nine months of 2010, respectively. The total number of procedures performed in AMS Gamma Knife business were the same for this year's third quarter as last year, and increased 2.6% for the first nine months compared to the first nine months of 2010. Gross margin for medical services for this year's third quarter decreased to 38.8% compared to 43.1% for the third quarter of 2010, reflecting lower procedure volume. Selling and administrative expenses for the third quarter of 2011 decreased 4.9% to $1.038 million compared to $1.091 million for the third quarter of 2010.

Reflecting the addition of new Perfexion systems to AMS Gamma Knife portfolio, interest expense increased to $608,000 for this year's third quarter, compared to $558,000 for the third quarter last year. For the nine months ended September 30, 2011, revenue increased to $17.721 million, consisting of medical services revenue of $12.737 million and revenue from equipment sales of $4.984 million. This compares to medical services revenue of $12.523 million for the first nine months of 2010.

Net income for the first nine months of 2011 increased to $262,000 or $0.06 per diluted share, compared to net income for the first nine months of 2010 of $17,000 or $0 per diluted share. Cash flow as measured by earnings before interest, taxes, depreciation, and amortization, or EBITDA, was $2.691 million for the third quarter and $6.772 million for the first nine months of 2011, compared to $2.067 million for the third quarter and $6.052 million for the first nine months of 2010.

At September 30, 2011, AMS reported cash and cash equivalents, and Certificates of Deposit of $9.666 million, compared to $10.438 million at December 31, 2010. Shareholders' equity at September 30, 2011, was $24.362 million or $5.28 per outstanding share. This compares to shareholders' equity at December 31, 2010, of $23.044 million or $5.01 per outstanding share.

Craig?

Thanks, Norm. Now I'd like to open the call to questions. Operator, we are ready for the first question.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Tony Kamin, Eastwood Partners.

First question is, can you talk a little bit about the revenues from Turkey and how soon we can expect to see those impact us. And, how does that revenue come back into the US, or how do we see cash flow in? I'd extend that question to ask about the future units going into Peru and Brazil. And, finally on the foreign stuff, I know in the past you've talked about doing some stuff in the UK. Is that still potentially going to happen?

Tony, thank you for that question. This is Dr. Bates. We're going to have Mert Ozyurek, who is running our division in Turkey respond to that, and Ernie R. Bates who will talk about the operations in Peru and Brazil. Mert, do you want to start off?

Yes. Good morning, everyone. This is Mert Ozyurek, from Turkey. As far as the operations of American Shared as how to have the American Shared subsidiary called EWRS, and EWRS is a company founded in the US so all the profits, all the revenues from Turkey, Turkey operations are going to the US EWRS company and then going to the American Shared Company.

Ernie?

Straightforward.

Oh, go ahead, Mert, I'm sorry.

That's pretty straightforward. That's it from my side.

And are the reimbursement rates similar to what we would see here in terms of are the economics similar to US Gamma Knives?

No, actually, they are much lower in Turkey, but the patient numbers are much higher than in the US. In Turkey, we have currently three other Gamma Knife sites, some of them are run by the state hospitals and, although they are run by the state hospitals, their typical numbers are around 1,000 patients each, annually, so these numbers are pretty much higher than the numbers that we are seeing in the US sites.

Tony, what we are expecting at Adana, at least at an annual contribution of EBITDA, about $1.9 million, and Florence Nightingale about $1.3 million. The total annual EBITDA that we are projecting, and of course these are only projections, would be roughly $5 million for all of our international operations and, over the life of that contract, results in about $41 million of EBITDA. Ernie, do you want to say a word about Peru and Brazil?

Sure. Hi Tony. In Peru, we are currently constructing a Gamma Knife facility at the Air Force Hospital in Lima, Peru. The contract that we have with the Air Force Hospital is a six-year contract whereby we will treat members of the armed forces -- and they represent roughly 1.5 million people -- and, in addition to that, keeping in line with our philosophy as a whole, this will be an open Gamma Knife center, so we will also be treating private patients at this facility as well. Our Medical Director is Dr. Aldo Berti, who currently is a neurosurgeon that splits his time between Miami and Lima, Peru -- he has practices in both locations. Dr. Berti is going to be one of the partners on our project.

In Peru, we are going to be sending a Gamma Knife, which we currently have in our inventory, to Lima to treat patients. We expect to be up and running, hopefully, by March of 2012. The reimbursement rates in Peru are comparable to many of the countries in Europe -- I should say that the developed markets of Europe, so we think reimbursement is quite good, there is established reimbursement among insurance companies. So, we'll be primarily contracting with private patients and their insurers, and in addition to that, we are working to negotiate a contract with the Postal Security Department of Peru as well.

In answer to your question about the UK, Tony, we were selected as the preferred provider to place a Gamma Knife at a very prominent hospital, called Queens Square, in London in the UK. However, due to a disagreement between the original company which was contracted to place the Gamma Knife and other services at that hospital, that contract never came to fruition. And so, as a result, we have not been asked to provide the Gamma Knife to this facility, but we will see if there are opportunities to potentially move forward with this hospital directly. We think that the UK market is a market that represents strong potential for American Shared. Reimbursement rates are the same if not higher than in the US and, at present, there are only a handful of Gamma Knives in the UK, so there really is a dearth of equipment serving each patient population in the UK. So, we've already opened a company in the UK and are positioned to start any services that might be required there.

Okay. And, on the traditional business -- the traditional Gamma Knife business, can you just talk briefly in terms of what you see, potential pipeline for new business either domestically or internationally? You just sort of covered it for London, but I'm curious about where else you might see opportunities in traditional business.

In terms of the US, we're seeing opportunities for upgrades to the Perfexion, both, as you've seen, from our own fleet, but also, we are getting inquiries -- more and more inquiries -- from hospitals we currently do not supply Gamma Knives to, asking to potentially partner with us to upgrade their systems to a Perfexion. As you know, the Perfexion is quite expensive -- it has a list price of about $4.5 million. So, many hospitals would like to get the technology, but don't want to invest all of the capital at one time, or do not have that capability. So, we're pursuing some opportunities in that regard. And, we're also pursuing some opportunities in the radiation therapy domain as well. So, we see that we will continue to upgrade our fleet, and we're also seeing some more activity in terms of completely new hospitals that we can add to our partner lists.

Tony, I might add to that to further this discussion on the international market. Craig and I just returned from Munich -- and we just got back last night -- and we were in discussions with an organization, a company that is planning to put several Mevion-type units into Germany and wanted to know if we were interested partnering with them. What is interesting about this is that they do have financing available -- and a lot of it from local banks as well as government enhancement -- and the reimbursement for a proton treatment over there is roughly EUR17,000 which is comparable to what we're doing here.

Well, turning to the proton business, it's -- obviously, Mevion has made tremendous progress and it really feels to me like we're really on the cusp of approval here, hopefully in the next few months; but, can you talk in terms of financing? There hasn't been much out of -- much news out of the Company in terms of how you're going to go forward. And, just your thoughts now on financing and, given a lot of investors are probably interested in the Company because of proton, just to set expectations of when, realistically, people should start to look for progress on finance.

I think, as we've said in the past, once Mevion receives FDA approval, we believe we can obtain financing. We're actually starting to pursue that aspects now with some of the lenders that we're very familiar with, and that are very familiar with us and the model that we use; so, we would hope to have some word on that in the not-too-distant future. But, again, everything still rests on when the FDA approval is received by Mevion.

And, we're hopeful that Mevion will have FDA approval by the end of the first quarter, or the beginning of the second quarter of next year. But, they may have, even prior to that, approval in Europe for that technology. So, we finally, after all these years, I think we're seeing light at the end of the tunnel And, it's clear to us that our model, which is the one room or two room, is going to be the most successful. The larger rooms are not doing as well as had been anticipated, and we're quite certain now that we're on the right track and we picked the right model and the right company.

Great. Thank you very much.

(Operator Instructions)

Lenny Dunn, Freedom Investors.

Good morning, or actually probably noon for you guys. Okay, I have a few questions. One, I noticed that Craig commented in the Dayton Daily News over the weekend, there was an article that was explaining that Kettering was having trouble with the financing because of the large capital expenditure with that Varian system, which then swings us back of course to certainly the Mevion system is much easier to get financed, but Craig's comments do indicate that you feel you could still get that done. Could you expand on that a little bit?

Yes, I think we're confident that, based on -- as I said in the article, that, based on the merits of the project, we feel very good about it. I think what the people at Kettering had intimated is that they would like to get some philanthropic funding for their portion of the project. So, as was mentioned in the article, we are looking at all vendors as some of the costs components, both from a construction standpoint and an equipment side, might be lower now than they were a year ago due to some technological changes that have occurred -- which mainly, even for some of the more established vendors, means they've decreased the footprint required for some of the equipment. So, it could have a significant impact on both what we will have to invest as well as what our hospital partners will have to invest, even in these two-room non-Mevion systems.

Lenny, I might add to that -- this is Dr. Bates again -- is that the hospital was adamant that they did not want a machine that was not FDA approved. So, that's why, in the past, we were not able to present any machine that was not FDA approved, and that's why we are going forward with Varian. But, in the meantime, we are seeing approvals coming about for, particularly, some of the Japanese machines. And, there's one in particular that's very interested in being at Kettering and is offering some credit enhancement from the Japanese Government. So, we're looking at all these opportunities. I believe we'll be able to announce, within the foreseeable future, that we do have financing in place for an FDA-approved machine.

You're very encouraging because, clearly, what you're going to get per procedure transforms the Company; but, it's just taking a long time, as you know and I know, too.

Well we've waited a long time. I think we started this what was it about--

2006.

2006, and it's taken some time to get this FDA approval; but, I think we're pretty close to it. The machine is pretty much in place at Barnes, and I think they are going to start treating patients by the end of the year -- and that's going to be very exciting.

I would think that, that Mevion machine, originally called Still River -- I was always excited about that because I thought that the initial capital cost fit more hospitals, where the initial cost on the Varian system, at $125 million and up, is really, gives you a very small select group of hospitals that you can put it at.

That's true and you realize that we've done some projections -- so, I think I've gone over these numbers before based on the Mevion machine -- one-room machine. In the four institutions that we -- the three that we have contracts, and the EBITDA for us, once those machines are mature and up and running, could be close to $7 million. Remember, now, last year, the EBITDA for the entire Company was only $8 million.

I'm aware of that, and looking forward to it, and it seems like the Mevion thing is probably a better way to go in general, although there may be specific places for the $125 million and up machines, it's a very, very limited market.

No, that really wasn't for us. But, at Kettering, we were convinced, as was Kettering, was that a one-room could not handle their volume. And, that probably is still true.

Okay. And then, the next question I have has to do with going forward. Do we have enough of these Perfexion upgrades, now that we have all these start-up costs behind us and these things are up and running, so that we could start churning out some money from the legacy business, which I still like and think that there's a long-term place for it and a terrific cash cow?

Yes, we expect the revenues from the Perfexions to continue increasing. We think -- and the centers are delighted in the performance of the Perfexion, so we expect that the revenues will continue to increase for our Perfexion units. Our goal now is to get more of the fleet upgraded to the Perfexion in the coming months.

I understand that, but I guess, to put it in a different term, we're halfway through the current quarter. Are we starting to see more procedures than we saw in the quarter we just reported?

I think it's a little early to tell and, as you know, because of the holidays, it's always difficult to project the fourth quarter, so--

Craig, you might also point out to Lenny that we were down one machine last quarter, which will not be the case this quarter.

Yes, we were down one machine, and we've just started up our newest machine at St. Vincent's Medical Center in Jacksonville, Florida. We started that one up last week.

So, those two events we can look forward, likely look forward to a better quarter than the third quarter?

We would expect that it should be better than the third quarter. Again, the seasonality sometimes is hard to predict -- in the end of November with Thanksgiving and, more importantly with the Christmas holidays -- as to how many procedures we will do. But, in general, I think we're very bullish on the Perfexion and the long-term performance that these Perfexions are going to give us.

And, one other thing, just sorting out the numbers on the legacy business, there was a huge increase in book value from the sale of the one machine, which, the way I would think, is saying that you're understating your true book value and it may be substantially more than the 550, if you use the real value rather than the appreciated value of the machines. Now, I'm not telling you to change your bookkeeping, I appreciate the conservative bookkeeping, but am I misjudging this?

Craig? Norm?

I didn't quite understand the question, but we keep the -- our records in conformance with GAAP, so--

No, no, I understand that. You're depreciating these machines; but here you turn around and sell a machine, and now our book value is up by $0.50 as a result. That would indicate that the other machines that we're carrying are probably understated on the books, as they should be, according to GAAP. And I'm not, again, I'm clearly not trying to tell you to change your accounting. What I'm stating is, am I taking a leap of faith here that, conservatively, the book value is a little more than what you're stating.

This is Norm. I think you might be misunderstanding the transaction a little bit. This particular unit that we sold was not a depreciated unit. It was a unit that we bought specifically for that site and then sold it to them in connection with the termination of that contract. Now, there was some remaining book value on the unit that we traded in as also part of that cost, but we didn't sell them a depreciated unit, if I follow your question correctly.

Well, you write these things down very substantially and they appear to have more residual value at the end, at least so far, than you had wrote them down to, so is that a true or false statement?

Well, our method of depreciation is just basically straight line over a period of years and it's just what we've chosen to do. Some people could call it conservative or not. I don't know, that's what we felt is most appropriate for our business.

I understand what you're doing and I appreciate that you do it in that manner, because, if we're going to get a surprise, I'd rather it was the right way than the wrong way. I understand that, but I just think there's a little more embedded value than what we're reading, but okay. And, you're accumulating cash and it would appear you're doing that so that you're in a better position to get these things financed when the time comes. Is that accurate?

For the protons you're correct.

That's correct.

Okay. Well, that's all, and I look forward to a better quarter. And, more importantly, I look forward to getting the approval at Barnes so that we can start making some money with this.

Thank you for your questions, Lenny.

Thank you.

Edward Cochran.

Hi, good afternoon, Craig and Dr. Bates.

Good afternoon.

I have a few questions. First one, I'd like to understand a little bit more about the international expenses. I've sent a few requests for you to relay information to the shareholders about how much money is being spent on the international development, because I know it can't be capitalized under the International Accounting Standards and wanted to -- because those details aren't shown at all in any of the releases, so I'd like to know how much has been spent in 2011, and what your plans are for that.

I think, Ed -- this is Craig. We haven't broken out in the past what we spend for each of our projects and I think that's not something we'd want to disclose at this point. I think we have, as we mentioned before, invested in the Turkey projects and we're waiting for those to all become up and running. We have one more of the three that will become up and running in 2012 and that's the Florence Nightingale Perfexion project.

What's the rationale for not detailing out your plans, your CapEx and your expenses for your international business?

I think from our standpoint, we have not broken it out by region before and I don't think that we want our competitors to know exactly what we're paying for our equipment and giving them a potential to compete against us in a better fashion.

Also, Ed, we do get preferential pricing from our partner-elect and I don't think they would like us to let our competitors know what our pricing is.

Well, I'm sure there's a way to do that without just giving headline numbers so at least the shareholders have an idea about where the cash flow is going. I mean, I think I also made it clear in my letters and communication that I don't agree with the international business expansion, and think it should be halted until we get a much more progress on our domestic operation and the proton beam. But, I would suggest that you should reconsider this point so that some transparency and where the cash flow is going in the Company.

I can tell you this, that, without getting too specific, the financing was all done in Turkey by an international bank, Danska Bank. And, I'm comfortable with giving you that number; but maybe we should talk with our attorney before we get more specific about what that is, but I mean, I have no problem telling you that, if they have no problem.

It doesn't have to be exactly what you do on each project, because in general in the Company, you have -- you're investing, but you have to expense all this money.

(multiple speakers) The loan with Danska Bank is roughly, and Mert, correct me if I'm wrong, it's roughly $9 million.

That's correct.

But, that doesn't explain what's being expensed. That only says the loan amount. So, basically, the CapEx, as well as the expenses that are on each of these development projects come off of the earnings per share number. And, we're continuing to have flat earnings per share numbers and that certainly has a negative impact on getting domestic financing when the parent company is having that. So, my suggestion has been to discontinue any further international operations until such time that there's a better run rate on our earnings per share number and cash flow so we can finance these bigger projects in North America.

Yes, we don't intend to bring on a lot of new international business until it's clear to us that the present contracts that we have in Brazil and Turkey and Peru are profitable.

Would you be able to say how much money you spent on overhead in the last 12 or 18 months on the international business?

Norm, do you have that number?

That number is not readily available.

Most of it would be travel for our sales team and legal fees and (multiple speakers)

Enormous for these small deals.

We don't have that number readily available, but we can get you that number.

Okay. I notice on your -- switching questions, I notice on the equipment sales detail where you have pre-tax income for the transaction of $844,000, which is about $0.18 a share in pre-tax earnings, and then for the quarter, we're basically almost zero in terms of earnings per share, so that means with our continuing operations, there was basically negative $0.18 per share?

No.

Because you've got pre-tax income from this transaction being that $844,000 on the positive side, but then the earnings per share for the quarter being basically neutral or zero.

Because you have to take into account the minority interest of our partner and that GK financing is at 19%.

But, still then that, still that's the same question, how negative were the ongoing operations in terms of earnings per share?

If you consider factoring out our contribution for the non-controlling interest, the net effect to us was about $684,000, so it was not $800,000, and that roughly equates to maybe $100,000 loss pre-tax for the quarter to us.

I don't understand that. So, you have a net loss of -- you have a net negative earnings per share on that transaction of the Perfexion?

No, no. If you factor out that transaction entirely, I'm saying the operation itself for the quarter was probably about $100,000 to $150,000 on a pre-tax basis.

Negative?

Yes.

So, then the equipment sales only netted out the other $150,000?

I'm sorry?

Because you said there's two components on the business line. There's a component for equipment sales and a component for the medical services revenue.

Yes, that's correct.

So, if the one side of it was negative $150,000, then the equipment side would have only been positive $150,000?

No, that's not correct.

Perhaps we could look at that because it doesn't seem to jive. This is another point that I've been talking to Dr. Bates and Mr. Tagawa back and forth about, and it's rather uncomfortable point, but I think it's one that I should continue to bring up. I've written some letters and points about the salary level for Dr. Bates, and that salary level costs about $0.11 per share annualized in earnings and, since Dr. Bates owns such a large percentage of the shares, it seems to me that the performance, his compensation would be in the appreciation of the shares and/or dividends versus such a large salary. And, it seems to me that taking a salary cut, given that there's been such a flat performance and poor return to shareholders, would be an appropriate thing to be doing by the Board of Directors and by Dr. Bates himself, because he can make an enormous amount of money on dividends and share appreciation if we're able to show positive growth going forward.

Ed, your suggestion was taken to the Board and the Board at this point feels that, that is not the appropriate thing to do. I do recall that what you wanted me to do was take a reduction in salary and use that for dividends. And the Board thought at this point that is not the appropriate thing to do, to pay dividends when we are, right now, undertaking an expansion in the proton area.

That's not what I said.

Oh, I'm sorry, then I misunderstood.

I said that if you make the equivalent amount in dividends, you would certainly see a different type of shareholder being attracted to the Company and you could make up whatever income that you're losing on that by future dividends and share appreciation, so that's really the point. Not that there's a one-to-one immediate impact on that, and that to the size of the Company, the SG&A element is quite high, given the after-tax profit and growth. So, I think the Board should continue to look at that and reconsider it, because I think there's a tremendous upside for you with share appreciation, especially if all we do is get to book value, because it's upward of $5 a share, so that's 100% appreciation from the point at which we're standing right now. So, I wanted to just go on record to say that I believe the Board should reconsider that point, because I think, overall, your returns as an individual would be enormous if you were to take a cut in salary.

I will certainly reiterate that to the Board, again, your concerns. But, I do want to point out and let Craig comment on this, we've done some comparative metrics on what our SG&A is compared with our competitors and, Craig, do you want to -- ?

Yes, I think for the first nine months we're at about 18%, and then, competitors are running in the about the 15% range. But, I think looking at it in a more -- in a different light, we don't have a lot of employees. The revenues per employees is very high, and one of the things that we're doing is we're trying to develop businesses, and I think you're not going to be able to do that without spending SG&A up front. And, we have the luxury of having a very good ongoing business, while we're trying to develop the proton business and, whether you agree or not with the international business and some other endeavors that we're undertaking that we believe will increase shareholder value in the long term. So, we are doing those initiatives; yes, they do cost money, but we think it's the prudent thing to do at this point.

I don't think the salary issues are the only issue on cost control as I mentioned, I think moving the office to a much more humble location, the travel, the accounting and legal fees that get -- have to be expensed on the international business and business development just, I think too many moving parts. I really think there's a huge amount of value to be unleashed in AMS if we were to simplify things and put some of the things on the back burner and just watch and control the costs and narrow the scope.

Yes, Ed, we certainly heard you, we're attempting do that. I think we've reduced payroll by roughly $160,000 this year and we've reduced some expenses in the apartment by about $50,000 a year. We are certainly looking at possibly doing something with the office and it's not that simple to do. We've certainly engaged people to look at finding -- to subleasing some of this space here, possibly taking it over. So, we've heard you, and we are looking at these things.

Great. Well, I think not one of those things that I mentioned or we discussed is easy, so I applaud you for taking those steps and I think it would be good if you could actually at some point in time release some of this good work in terms of cost control and cost cutting and then show how it's dropped down to the bottom line. Because that would be -- certainly get the eyes of people that are looking at potentially investing and are sitting on the sidelines waiting for some EPS growth. I have one other question in terms of the free cash flow and CapEx budget going into 2012. I would hope that we could see a little bit more transparency in terms of the CapEx budget. I know you can't do exactly that, because you don't know about the proton beam; but, in general, as all companies do, you have to have a budget and a forecast, and it would be nice to see a CapEx budget -- not detailed where you're giving away pricing, but where you're giving away general information that shareholders would value, as well as what are the uses of the cash that will be in the Company as we try to build up cash for the proton beam.

We'll take that under advisement.

Okay, thank you. I don't have any other questions right now, thanks.

Mason Matschke, Raymond James.

Hi, Dr. Bates, and Craig how are you doing?

Fine, how are you?

Good. I also agree too, I had a couple questions, but I think it's really important -- I've been a shareholder for 2.5 years and I'd like to see better earnings per share growth. When we first invested the stock was at a very low price due to the stock market crash and ill-liquidity in the stock. So, the share price has improved, but the earnings per share have pretty much stayed the same, so I'd love to see some growth in that area also. I did have a couple questions, I also read that article in the Dayton Newspaper, and I see that there was a quote in there from Walter Sackett, Kettering's Vice President of Clinical services, and he talked about the financing, how that has been much harder at this point, and he's sounding more cautious about that and they may be looking at other devices or machines to use, possibly. Is there a chance that the Mevion S250 system could be used in their facility? That was my first question.

I think that, that could be one of the choices. Again, as Dr. Bates mentioned previously, the Mevion system, when we first looked at it, was not FDA approved, and that was one of the things they wanted to get comfortable with.

Okay.

Mason, one of the things I do want to point out to you is that the Mevion unit, if you were to purchase one now, and purchase one with two rooms, is very comparable to the pricing for the [Siemen tumor] unit.

Okay. My other question was, I know that you have spent some time in trying to look at some of the larger products -- projects for the Varian machine, but what I've noticed -- and it also mentioned in this article -- there was a competitor that is trying to build a facility in the same area as the Kettering facility. Octevis, if I remember right?

Optivus.

Okay, and it looks like they're really struggling to find financing. So, what I'd like to know is, how many projects around the country are looking for financing, and how many have been financed? I think that would be important to understand. I'm just looking, because, as you mentioned, you are a smaller company and you only have the ability to work on so many projects at a time, and I would think that this Mevion project may be a better project to work on, and that's just what I'm trying to understand, how the financing is going for other projects.

I think what we're doing, it is obviously not an easy task, otherwise you'd be seeing more of these coming online. The latest one to come online is the one at Scripps in San Diego. We're pretty much concentrating on getting the ones done that we haven't already announced and all our energy is going towards financing those. So, that's why we hope to be able to make some announcements in the not-too-distant future about the progress that we've been making on the projects that we already have on hand.

Okay. My last question was the Mevion S250 system. If I remember right, you've put down two deposits, right?

Actually three.

Okay. And so, you talked about earlier in the call that you have three projects that you are developing for that right now; is that right?

Correct.

Orlando, Boston. So, what number machines would you have?

Four, six, and I think, it's 11 -- but, they're all -- depending on what stage each project is and where some of the others are is where we'll ultimately end up, but we're four, six, and, I believe, 11 right now.

Okay. Those are the last questions I had. Thank you very much.

Thank you.

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

Just want to thank everyone for joining us this afternoon and we look forward to speaking with you on our 2011 fiscal year end conference call in about four months. Thank you, everybody.

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