NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly American Shared Hospital Services’ consolidated financial
position as of June 30, 2017 and the results of its operations for the three and six month periods ended June 30, 2017 and 2016,
which results are not necessarily indicative of results on an annualized basis. Consolidated balance sheet amounts as of December
31, 2016 have been derived from audited consolidated financial statements.
These
unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2016 included in the Company’s 10-K filed with the Securities and Exchange Commission.
These
consolidated financial statements include the accounts of American Shared Hospital Services and its subsidiaries (the “Company”)
as follows: the Company wholly-owns the subsidiaries American Shared Radiosurgery Services (“ASRS”), PBRT Orlando,
LLC (“Orlando”), OR21, Inc. (“OR21”), and MedLeader.com, Inc. (“MedLeader”); the Company is
the majority owner of Long Beach Equipment, LLC (“LBE”); ASRS is the majority-owner of GK Financing, LLC (“GKF”)
which wholly-owns the subsidiaries Instituto de Gamma Knife del Pacifico S.A.C. (“GKPeru”) and GK Financing U.K., Limited
(“GKUK”); GKF is the majority owner of the subsidiaries Albuquerque GK Equipment, LLC (“AGKE”) and Jacksonville
GK Equipment, LLC (“JGKE”).
The
Company (through ASRS) and Elekta AB, the manufacturer of the Gamma Knife (through its wholly-owned United States subsidiary,
GKV Investments, Inc.), entered into an operating agreement and formed GK Financing, LLC. As of June 30, 2017, GKF provided Gamma
Knife units to sixteen medical centers in the United States in the states of Arkansas, California, Florida, Illinois, Massachusetts,
Mississippi, Nevada, New Jersey, New Mexico, New York, Tennessee, Oklahoma, Ohio, Oregon, and Texas.
The
Company through its wholly-owned subsidiary, Orlando, provided proton beam radiation therapy (“PBRT”) and related equipment
to a customer in the United States. The Company also directly provides radiation therapy and related equipment, including Intensity
Modulated Radiation Therapy (“IMRT”), Image Guided Radiation Therapy (“IGRT”) and a CT Simulator to the
radiation therapy department at an existing Gamma Knife site in Massachusetts.
The Company formed
the subsidiaries GKPeru and GKUK for the purposes of expanding its business internationally into Peru and the United Kingdom, respectively;
Orlando and LBE to provide proton beam therapy services in Orlando, Florida and Long Beach, California; and AGKE and JGKE to provide
Gamma Knife services in Albuquerque, New Mexico and Jacksonville, Florida, respectively. AGKE began operations in the second quarter
of 2011 and JGKE began operations in the fourth quarter of 2011. Orlando treated its first patient in April 2016. GKPeru treated
its first patient in July 2017. GKUK is inactive and LBE is not expected to generate revenue within the next two years.
The Company continues
to develop its design and business model for “The Operating Room for the 21st Century”
SM
(“OR21”
SM
), through its 50% owned OR21, LLC (“OR21 LLC”). The remaining 50% is owned by an architectural design
company. OR21 is not expected to generate significant revenue within the next two years.
MedLeader was formed
to provide continuing medical education online and through videos for doctors, nurses, and other healthcare workers. This subsidiary
is not operational at this time.
All
significant intercompany accounts and transactions have been eliminated in consolidation.
Based
on the guidance provided in accordance with Accounting Standards Codification (“ASC”) 280
Segment Reporting
(“ASC 280”), the Company has analyzed its subsidiaries which are all in the business of leasing radiosurgery and radiation
therapy equipment to healthcare providers, and concluded there is one reportable segment, Medical Services Revenue. The Company
provides Gamma Knife, PBRT, and IGRT equipment to seventeen hospitals in the United States as of June 30, 2017. These seventeen
locations operate under different subsidiaries of the Company, but offer the same radiosurgery and radiation therapy service.
The operating results of the subsidiaries are reviewed by the Company’s Chief Executive Officer and Chief Financial Officer,
who are also deemed the Company’s Chief Operating Decision Makers (“CODMs”) and this is done in conjunction
with all of the subsidiaries and locations.
In
February 2016, the Company used proceeds from the lease financing of its MEVION S250 at Orlando Health – UF Health Cancer
Center (“Orlando Health”) to pay down $1,000,000 in Promissory Notes (the “Notes”) with four members of
the Company’s Board of Directors. Based on the guidance provided in accordance with ASC 405
Extinguishment of Liabilities
(“ASC 405”) and ASC 470
Debt Modifications and Extinguishments
(“ASC 470”), the pay-down of
the Notes is considered an extinguishment of debt and, as such, the difference between the net carrying amount of the Notes and
the costs of extinguishment was recognized as a loss on the Company’s condensed consolidated statements of operations. During
the year ended December 31, 2016, the Company recorded a loss on early extinguishment of debt of $108,000. The Notes were issued
with common stock warrants with an estimated fair value of $145,000. The unamortized balance of the discount on the Notes, of
$80,000, and deferred fees incurred from the issuance of the Note of approximately $28,000, were recorded as a loss on early extinguishment.
As of December
31, 2016, the Company had warrants outstanding representing the right to purchase 100,000 shares of the Company’s
common stock at $2.20 per share. These warrants were issued with the Notes to four members of the Company’s Board of
Directors in a prior year. During the six month period ended June 30, 2017, 100,000 of the warrants were exercised. 50,000 of
the 100,000 warrants were exercised via a cashless exercise resulting in the net issuance of approximately 25,000 shares.
There are no warrants outstanding as of June 30, 2017.
In
April 2017, an existing customer exercised their option to purchase the Gamma Knife unit at its hospital at the end of the lease
term for a predetermined purchase price, pursuant to the lease agreement. The lease terminated in April 2017, at which time, the
unit was depreciated to the purchase price of the sale. Based on the guidance provided in ASC 360
Property, Plant and Equipment
(“ASC 360”), the Company did not classify or measure the asset as held for sale prior to the lease termination, because
the Gamma Knife unit was not available for immediate sale.
On July 21, 2017, the
Company entered into a Maintenance and Support Agreement (the “Mevion Service Agreement”) with Mevion Medical Systems,
Inc. (“Mevion”), formerly Still River Systems, which provides for maintenance and support of the Company’s PBRT
unit at Orlando Health. The Mevion Service Agreement begins September 5, 2017 and required an upfront payment of $1,000,000 which
was made on August 4, 2017, and further requires payments over the next 11 months. This payment portion will be recorded as a prepaid
contract and amortized over the one year service period. The Mevion Service Agreement is for a five (5) year period.
In
May 2014, the Financial Accounting Standards Board “(FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09,
Revenue from Contracts with Customers
(Topic 606), ("ASU 2014-09"), which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
The ASU will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles (“GAAP”)
when it becomes effective. In December 2016, FASB issued ASU 2016-20
Technical Corrections and Improvements to Topic 606,
(“ASU
2016-20”), which affects some narrow aspects of ASU 2014-09. The new standard is effective for the Company for annual reporting
periods beginning after December 15, 2017 and interim reporting periods therein. Early application is permitted for reporting
periods beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition
method. The Company has a project team in place to analyze the impact of ASU 2014-09 to its revenue stream. This includes performing
a review of current policies to identify potential differences that would result from applying ASU 2014-09. The Company believes
it is following an appropriate timeline to allow for proper recognition, presentation, and disclosure upon adoption. The Company
intends to adopt the standard at the date required for public companies, but has not yet selected a transition method.
In January
2016, the FASB issued ASU No. 2016-01
Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU
2016-01”), which requires equity investments, except those accounted for under the equity method of accounting or those
that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income.
The new guidance is effective for the Company on January 1, 2018. Early adoption is permitted. The standard permits the use of
cumulative-effect transition method. The Company is evaluating the effect that ASU 2016-01 will have on its consolidated financial
statements and related disclosures.
In February
2016, the FASB issued ASU No. 2016-02
Leases
(“ASU 2016-02”), which requires lessees to recognize, for all
leases, at the commencement date, a lease liability, and a right-of-use asset. Under the new guidance, lessor accounting is largely
unchanged. The new guidance is effective for the Company on January 1, 2019. Early adoption is permitted. The Company is evaluating
the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
In March
2016, the FASB issued ASU No. 2016-09
Compensation – Stock Compensation
(Topic 718) (“ASU 2016-09”),
which changes five aspects of accounting for share-based payment award transactions including 1) accounting for income taxes;
2) classification of excess tax benefits on the statement of cash flows; 3) forfeitures; 4) minimum statutory tax withholding
requirements; and 5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for
tax-withholding purposes. The new guidance is effective for the Company for interim and annual periods beginning after December
15, 2016. The Company adopted ASU 2016-09 on January 1, 2017. The Company elected to estimate the impact of forfeitures. There
was no material impact on the consolidated financial statements and related disclosures.
In
June 2016, the FASB issued ASU No. 2016-13
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments
(“ASU 2016-13”), which requires measurement and recognition of expected credit losses
for financial assets held. The new guidance is effective for fiscal periods beginning after December 15, 2019. Early adoption
is permitted for fiscal periods beginning after December 15, 2018. The Company is evaluating the effect that ASU 2016-13 will
have on its consolidated financial statements and related disclosures.
In
August 2016, the FASB issued ASU No. 2016-15
Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts
and Cash Payments
(“ASU 2016-15”), which provides guidance on eight specific cash flow issues: debt prepayment
or extinguishment costs; settlement of zero-coupon or other debt instruments with coupon interest rates that are insignificant
in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination;
proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions
received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows
and application of the Predominance Principle. The new guidance is effective for fiscal periods beginning after December 15, 2017
and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company
is evaluating the effect that ASU 2016-15 will have on its consolidated financial statements and related disclosures.
In
November 2016, the FASB issued ASU No. 2016-18
Statement of Cash Flows (Topic 230) – Restricted Cash
(“ASU
2016-18”), which requires that a statement of cash flows explain the change during the period in total cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim
period. The Company is evaluating the effect that ASU 2016-18 will have on its consolidated financial statements and related disclosures.
In
May 2017, the FASB issued ASU No. 2017-09
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”), which provides guidance on determining which changes to the terms and conditions of share-based
payment awards require an entity to apply modification accounting under Topic 718. The new guidance is effective for fiscal years
beginning after December 31, 2017. Early adoption is permitted, including adoption in an interim period. The Company is evaluating
the effect that ASU 2017-09 will have on its consolidated financial statements and related disclosures.
Note 2. Per Share Amounts
Per
share information has been computed based on the weighted average number of common shares and dilutive common share equivalents
outstanding. The computation for the three and six month periods ended June 30, 2017 included all of the Company’s outstanding
stock options because the exercise price of the options was lower than the average market price during those periods. The computation
for the three and six month periods ended June 30, 2016 excluded approximately 605,000 and 627,000 of the Company’s stock
options, respectively, because the exercise price of the options was higher than the average market price during those periods.
Based
on the guidance provided in accordance with ASC 260
Earnings Per Share
(“ASC 260”), the weighted average common
shares for basic earnings per share, for the three and six month periods ended June 30, 2017, excluded the weighted average impact
of the performance share awards, discussed below. These awards are legally outstanding but are not deemed participating securities
and therefore are excluded from the calculation of basic earnings per share. These shares are also excluded from the denominator
for diluted earnings per share because they are considered contingent shares not deemed probable as of June 30, 2017.
The
following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended June
30, 2017 and 2016:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income attributable to American Shared Hospital Services
|
|
$
|
113,000
|
|
|
$
|
93,000
|
|
|
$
|
406,000
|
|
|
$
|
144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares for basic earnings per share
|
|
|
5,935,000
|
|
|
|
5,552,000
|
|
|
|
5,725,000
|
|
|
|
5,548,000
|
|
Diluted effect of stock options and restricted stock
|
|
|
208,000
|
|
|
|
16,000
|
|
|
|
196,000
|
|
|
|
16,000
|
|
Weighted average common shares for diluted earnings per share
|
|
|
6,143,000
|
|
|
|
5,568,000
|
|
|
|
5,921,000
|
|
|
|
5,564,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
Diluted earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
Note 3. Stock-based Compensation
In June 2010, the
Company’s shareholders approved an amendment and restatement of the Company’s stock incentive plan, renaming it the
Incentive Compensation Plan (the “Plan”), and among other things, increasing the number of shares of the Company’s
common stock reserved for issuance under the Plan to 1,630,000. The Plan provides that the shares reserved under the Plan are
available for issuance to officers of the Company, other key employees, non-employee directors, and advisors. The Plan is a successor
to the Company’s previous plans, and any shares awarded and outstanding under those plans were transferred to the Plan.
No further grants or share issuances will be made under the previous plans. On June 27, 2017, the Company’s shareholders
approved an amendment and restatement of the Plan in order to extend the term of the Plan by two years.
Stock-based
compensation expense associated with the Company’s stock-based options to employees is calculated using the Black-Scholes
valuation model. The Company’s stock-based awards have characteristics significantly different from those of traded options,
and changes in the subjective input assumptions can materially affect the fair value estimates. The estimated fair value of the
Company’s option grants is estimated using assumptions for expected life, volatility, dividend yield, and risk-free interest
rate which are specific to each award. The estimated fair value of the Company’s options is amortized over the period during
which an employee is required to provide service in exchange for the award (requisite service period), usually the vesting period.
Accordingly, stock-based compensation cost before income tax effect for the Company’s options and restricted stock awards,
in the amount of $50,000 and $100,000 is reflected in net income for the three and six month periods ended June 30, 2017 compared
to $60,000 and $119,000 in the same periods prior year, respectively. At June 30, 2017, there was approximately $358,000 of unrecognized
compensation cost related to non-vested share-based compensation arrangements granted under the Plan, excluding the unrecognized
compensation cost associated with the Award Agreements, discussed below. This cost is expected to be recognized over a period of
approximately three years.
On January
4, 2017, the Company entered into a Performance Share Award Agreement with three executive officers of the Company (the “Award
Agreements”) for 161,766 restricted stock awards which vest upon the achievement of certain performance metrics. The Award
Agreements expire on March 31, 2020. Based on the guidance in ASC 718
Stock Compensation
(“ASC 718”), the Company
concluded these were performance based awards with vesting criteria tied to performance metrics and that as of June 30, 2017 it
is not probable that any of the required metrics for vesting will be achieved. As a result, the Company has not recognized any
stock-based compensation expense associated with these awards for the three and six month periods ended June 30, 2017. The unrecognized
stock-based compensation expense for these awards was approximately $542,000 as of June 30, 2017. If and when the Company determines
that the performance metrics’ achievement becomes probable, the Company will record a cumulative catch-up stock-based compensation
amount and the remaining unrecognized amount will be recorded over the remaining requisite service period of the awards.
The
following table summarizes the outstanding restricted stock awards, consisting primarily of annual automatic grants and deferred
compensation to non-employee directors, for the six month period ended June 30, 2017:
|
|
Restricted
Stock
Awards/Units
|
|
|
Grant Date
Weighted-
Average Fair
Value
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2017
|
|
|
4,000
|
|
|
$
|
2.25
|
|
|
$
|
-
|
|
Granted
|
|
|
21,000
|
|
|
$
|
3.48
|
|
|
$
|
-
|
|
Vested
|
|
|
(13,000
|
)
|
|
$
|
3.07
|
|
|
$
|
-
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2017
|
|
|
12,000
|
|
|
$
|
3.54
|
|
|
$
|
4,000
|
|
The
following table summarizes stock option activity for the six month period ended June 30, 2017:
|
|
Stock
Options
|
|
|
Grant Date
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (in
Years)
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2017
|
|
|
625,000
|
|
|
$
|
2.85
|
|
|
|
4.25
|
|
|
$
|
-
|
|
Granted
|
|
|
14,000
|
|
|
$
|
3.90
|
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
(4,000
|
)
|
|
$
|
2.81
|
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(23,000
|
)
|
|
$
|
2.82
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at June 30, 2017
|
|
|
612,000
|
|
|
$
|
2.87
|
|
|
|
3.85
|
|
|
$
|
630,000
|
|
Exercisable at June 30, 2017
|
|
|
295,000
|
|
|
$
|
2.82
|
|
|
|
3.63
|
|
|
$
|
318,000
|
|
Note 4. Investment in Equity Securities
As
of June 30, 2017 and December 31, 2016, the Company had a $579,000 investment in the common stock of Mevion, representing an approximate
0.46% interest in Mevion. The Company accounts for this investment under the cost method. The Company carries its investment in
Mevion at cost and reviews it for impairment on a quarterly basis, or as events or circumstances might indicate that the carrying
value of the investment may not be recoverable.
The
Company reviewed this investment at June 30, 2017 in light of both current market conditions and the current operations of Mevion
as they continue to grow their PBRT business. Based on its analysis, the Company determined no additional impairment needed to
be recognized as of June 30, 2017.
Note 5. Fair Value of Financial
Instruments
The Company’s
disclosures of the fair value of financial instruments is based on a fair value hierarchy that prioritizes the inputs to the valuation
techniques used to measure fair value into three levels. Level 1 inputs are unadjusted quoted market prices in active markets for
identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs
other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3
inputs are unobservable inputs for assets or liabilities, and reflect the Company’s own assumptions about the assumptions
that market participants would use in pricing the asset or liability.
The
estimated fair value of the Company’s assets and liabilities as of June 30, 2017 and December 31, 2016 were as follows (in
thousands):
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Carrying Value
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash
|
|
$
|
2,851
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,851
|
|
|
$
|
2,851
|
|
|
Investment in equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
579
|
|
|
|
579
|
|
|
|
579
|
|
|
Total
|
|
$
|
2,851
|
|
|
$
|
-
|
|
|
$
|
579
|
|
|
$
|
3,430
|
|
|
$
|
3,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,236
|
|
|
$
|
7,236
|
|
|
$
|
7,149
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,236
|
|
|
$
|
7,236
|
|
|
$
|
7,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash
|
|
$
|
3,121
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,121
|
|
|
$
|
3,121
|
|
|
Investment in equity securities
|
|
|
-
|
|
|
|
-
|
|
|
|
579
|
|
|
|
579
|
|
|
|
579
|
|
|
Total
|
|
$
|
3,121
|
|
|
$
|
-
|
|
|
$
|
579
|
|
|
$
|
3,700
|
|
|
$
|
3,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,354
|
|
|
$
|
7,354
|
|
|
$
|
7,311
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,354
|
|
|
$
|
7,354
|
|
|
$
|
7,311
|
Note 6. Repurchase of Common Stock
In
1999 and 2001, the Board of Directors approved resolutions authorizing the Company to repurchase up to a total of 1,000,000 shares
of its own stock on the open market, which the Board reaffirmed in 2008. There were no shares repurchased during the three and
six month periods ended June 30, 2017 or 2016, respectively. There are approximately 72,000 shares remaining under this repurchase
authorization as of June 30, 2017.
Note 7. Income Taxes
The
Company generally calculates its effective income tax rate at the end of an interim period using an estimate of the annualized
effective income tax rate expected to be applicable for the full fiscal year. However, when a reliable estimate of the annualized
effective income tax rate cannot be made, the Company computes its provision for income taxes using the actual effective income
tax rate for the results of operations reported within the year-to-date periods. The Company’s effective income tax rate
is highly influenced by relative income or losses reported and the amount of the nondeductible stock-based compensation associated
with grants of its common stock options and historically from the results of foreign operations. A small change in estimated annual
pretax income (loss) can produce a significant variance in the annualized effective income tax rate given the expected amount of
these items. As a result, the Company has computed its provision for income taxes for the three and six month periods ended June
30, 2017 and 2016 by applying the actual effective tax rates to income or (loss) reported within the condensed consolidated financial
statements through those periods.