UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the Quarterly Period Ended | ||
OR | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class |
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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ASSURE HOLDINGS CORP.
FORM 10Q
FOR THE QUARTER ENDED MARCH 31, 2022
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSURE HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par amounts)
(unaudited)
| March 31, |
| December 31, | |||
2022 | 2021 | |||||
ASSETS | ||||||
Current assets |
|
|
|
| ||
Cash | $ | | $ | | ||
Accounts receivable, net |
| |
| | ||
Income tax receivable | | | ||||
Other current assets |
| |
| | ||
Due from MSAs | | | ||||
Total current assets |
| |
| | ||
Equity method investments |
| |
| | ||
Fixed assets |
| |
| | ||
Operating lease right of use asset | | | ||||
Finance lease right of use asset | | | ||||
Intangibles, net |
| |
| | ||
Goodwill |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
LIABILITIES | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | | $ | | ||
Current portion of debt |
| — |
| | ||
Current portion of lease liability |
| |
| | ||
Current portion of acquisition liability |
| |
| | ||
Total current liabilities |
| |
| | ||
Lease liability, net of current portion |
| |
| | ||
Debt, net of current portion |
| |
| | ||
Acquisition liability | | | ||||
Fair value of stock option liability |
| |
| | ||
Deferred tax liability, net |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 8) | ||||||
SHAREHOLDERS’ EQUITY | ||||||
Common stock: $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
2
ASSURE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended March 31, | |||||
2022 |
| 2021 | |||
Revenue |
|
|
| ||
Technical services | $ | | $ | | |
Professional services | | | |||
Other |
| |
| | |
Total revenue |
| |
| | |
Cost of revenues, excluding depreciation and amortization |
| |
| | |
Gross margin |
| |
| | |
Operating expenses | |||||
General and administrative |
| |
| | |
Sales and marketing |
| |
| | |
Depreciation and amortization |
| |
| | |
Total operating expenses |
| |
| | |
Loss from operations |
| ( |
| ( | |
Other income (expenses) | |||||
Income (loss) from equity method investments |
| |
| ( | |
Gain on Paycheck Protection Program loan forgiveness | | — | |||
Other income (expense), net |
| |
| ( | |
Accretion expense | ( | ( | |||
Interest expense, net |
| ( |
| ( | |
Total other expense |
| |
| ( | |
Loss before income taxes |
| ( |
| ( | |
Income tax benefit |
| |
| | |
Net loss | $ | ( | $ | ( | |
Loss per share | |||||
Basic | $ | ( | $ | ( | |
Diluted | $ | ( | $ | ( | |
Weighted average number of shares used in per share calculation – basic |
| |
| | |
Weighted average number of shares used in per share calculation – diluted |
| |
| |
See accompanying notes to condensed consolidated financial statements.
3
ASSURE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||
2022 |
| 2021 | ||||
Cash flows from operating activities | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||
(Income) loss from equity method investments |
| ( |
| | ||
Stock-based compensation |
| |
| | ||
Depreciation and amortization |
| |
| | ||
Amortization of debt issuance costs |
| |
| — | ||
Provision for stock option fair value |
| ( |
| | ||
Gain on Paycheck Protection Program loan | ( | — | ||||
Accretion expense | | | ||||
Change in operating assets and liabilities | ||||||
Accounts receivable, net |
| |
| ( | ||
Prepaid expenses | ( | ( | ||||
Right of use assets | | ( | ||||
Accounts payable and accrued liabilities |
| |
| | ||
Due from MSAs |
| ( |
| ( | ||
Lease liability | ( | | ||||
Income taxes |
| ( |
| ( | ||
Other assets and liabilities |
| ( |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities | ||||||
Purchase of fixed assets |
| ( |
| — | ||
Net cash paid for acquisitions |
| ( |
| — | ||
Distributions received from equity method investments |
| |
| | ||
Net cash provided by (used in) investing activities |
| ( |
| | ||
Cash flows from financing activities | ||||||
Proceeds from exercise of stock options |
| |
| — | ||
Proceeds from Paycheck Protection Program loan |
| — |
| | ||
Net cash provided by financing activities |
| |
| | ||
Decrease in cash |
| ( |
| ( | ||
Cash at beginning of period |
| |
| | ||
Cash at end of period | $ | | $ | | ||
Supplemental cash flow information | ||||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | — | $ | — | ||
Supplemental non-cash flow information | ||||||
Purchase of equipment with finance leases | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
ASSURE HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
|
| Additional |
|
| Total | |||||||||
Common Stock | paid-in | Accumulated | shareholders' | |||||||||||
| Shares |
| Amount |
| Capital |
| (deficit) |
| equity | |||||
Balances, December 31, 2020 |
| | $ | | $ | | $ | ( | $ | | ||||
Stock-based compensation |
| — |
| — |
| |
| — |
| | ||||
Settlement of performance share liability | | — | | — | | |||||||||
Net loss |
| — |
| — |
| — |
| ( |
| ( | ||||
Balances, March 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Balances, December 31, 2021 |
| | $ | | $ | | $ | ( | $ | | ||||
Exercise of stock options |
| |
| — |
| |
| — |
| | ||||
Stock-based compensation |
| — |
| — |
| |
| — |
| | ||||
Net loss |
| — |
| — |
| — |
| ( |
| ( | ||||
Balances, March 31, 2022 |
| | $ | | $ | | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
5
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.NATURE OF OPERATIONS
Assure Holdings Corp. (the “Company” or “Assure”), through its
Assure Networks performs similar support services as Assure Neuromonitoring except that these services are provided by employed or third party contracted neurologists or certified readers. The support service provided by the neurologist occurs at an offsite location at the same time and for the same surgery as the support services provided by the interoperative neurophysiologist.
The Company was originally incorporated in Colorado on November 7, 2016. In conjunction with a reverse merger, the Company was redomiciled in Nevada on May 16, 2017.
Neuromonitoring was formed on August 25, 2015 in Colorado and currently has multiple wholly-owned subsidiaries. The Company’s services are sold in the United States, directly through the Company.
Networks was formed on November 7, 2016 in Colorado and holds varying ownerships interests in numerous Provider Network Entities (“PEs”), which are professional IONM entities. These entities are accounted for under the equity method of accounting. Additionally, Networks manages other PEs that Networks does not have an ownership interest and charges those PEs a management fee.
COVID-19
Our business and results of operations have been, and continues to be, affected by the global COVID-19 pandemic and related events and we expect its impact to continue. The impact to date has included periods of significant volatility in various markets and industries, including the healthcare industry. The volatility has had, and we anticipate it will continue to have, an adverse effect on our customers and on our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies. In particular, the healthcare industry, hospitals and providers of elective procedures have been and may continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business. In addition, the COVID-19 pandemic and, to a lesser extent, the impact on other industries, including automotive, electronics and real estate, increased fuel costs, U.S. restrictions on trade, and transitory inflation have impacted and may continue to impact the financial conditions of our customers and the patients they serve.
In addition, actions by United States federal, state and foreign governments to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had and may continue to have a significant adverse effect on the markets in which we conduct our businesses. COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an extended period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities. We have implemented policies to allow our employees to work remotely as a result of the pandemic as we reviewed processes related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention (CDC). The COVID-19 pandemic could also cause
6
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
delays in acquiring new customers and executing renewals and could also impact our business as consumer behavior changes in response to the pandemic.
Since the start of the second quarter of 2021, there has been increased availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, including healthcare and elective surgeries, and we have experienced a gradual resumption of economic activities in our industries. On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus, including the Delta variant, remain a risk, which may give rise to implementation of restrictions in the geographic areas that we serve. In addition, there are ongoing global impacts resulting from the pandemic, including disruption of the supply chains, product shortages, increased delivery costs, increased governmental regulation, strains on healthcare systems, and delays in shipments, product development, technology launches and facility access.
We have been closely monitoring the COVID-19 pandemic and its impact on our business, including legislation to mitigate the impact of COVID-19 such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was enacted in March 2020, and the American Rescue Plan Act of 2021 which was enacted in March 2021. Although a significant portion of our anticipated revenue for 2022 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, supply chain disruptions, microchip shortages and potential market downturns induced by the COVID-19 pandemic.
The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the spread of new variants of COVID-19; the continued and renewed imposition of protective public safety measures; the impact of COVID-19 on integration of acquisitions, expansion plans, implementation of telemedicine, restrictions on elective procedures, delays in payor remittance and increased regulations; and the impact of the pandemic on the global economy and demand for consumer products. Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our financial expenditures in response to continued uncertainty. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided under Part I, Item 1A – Risk Factors of the Form 10-K.
2.BASIS OF PRESENTATION
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and majority-owned entities. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which contemplates continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. All significant intercompany balances and transactions have been eliminated in consolidation.
For entities in which management has determined the Company does not have a controlling financial interest but has varying degrees of influence regarding operating policies of that entity, the Company’s investment is accounted for using the equity method of accounting.
Accounting Policies
There have been no changes to the Company’s significant accounting policies or recent accounting pronouncements during the three months ended March 31, 2022 as compared to the significant accounting policies disclosed in the 10-K for the year ended December 31, 2021 as filed on March 14, 2022.
7
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Common Stock Reverse Split
Reclassifications
Certain amounts for the three months ended March 31, 2021 have been reclassified to conform to the 2022 presentation.
3. REVENUE
The Company disaggregates revenue from contracts with customers by revenue stream as this depicts the nature, amount, timing and uncertainty of its revenue and cash flows as affected by economic factors. Commercial insurance consists of neuromonitoring cases whereby a patient has healthcare insurance. Facility billing consists of neuromonitoring cases whereby the company has an agreement with the facility for services. In these cases, the hospital’s patient may be uninsured or have government insurance.
The Company’s revenue disaggregated by payor is as follows (stated in thousands):
Three Months Ended March 31, | |||||
2022 |
| 2021 | |||
|
|
| |||
Commercial insurance | $ | | $ | | |
Facility billing | | | |||
Managed service agreements | | | |||
Other |
| |
| | |
Total | $ | | $ | |
Accounts Receivable
A summary of the accounts receivable by revenue stream is as follows (stated in thousands):
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Accounts receivable, net: | ||||||
Technical service | $ | |
| $ | | |
Professional service | | | ||||
Other |
| |
| | ||
Total accounts receivable, net | $ | | $ | |
The concentration of accounts receivable by payor as a percentage of total accounts receivable is as follows:
As of March 31, | As of December 31, | ||||
| |||||
Accounts receivable |
|
| |||
Commercial insurance | | % | | % | |
Facility billing | | % | | % | |
Managed service arrangements | | % | | % | |
Other | | % | | % | |
Total | | % | | % |
8
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. LEASES
Under ASC 842, Leases, a contract is a lease, or contains a lease, if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, an entity shall assess whether, throughout the period of use, the entity has both of the following: (a) the right to obtain substantially all of the economic benefits from the use of the identified asset; and (b) the right to direct the use of the identified asset. The Company does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Lease agreements generally do not contain material residual value guarantees or material restrictive covenants
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. As a practical expedient, the Company elected not to separate non-lease components for the corporate office facility (e.g., common-area maintenance costs) from lease components (e.g., fixed payments including rent) and instead to account for each separate lease component and its associated non-lease components as a single lease component
Operating leases
The Company leases corporate office facilities under an operating lease which expires October 31, 2025. The incremental borrowing rate for this lease was 10%.
Finance leases
The Company leases medical equipment under various financing leases with stated interest rates ranging from
The condensed consolidated balance sheets include the following amounts for right of use (“ROU”) assets as of March 31, 2022 and December 31, 2021 (stated in thousands):
| March 31, | December 31, | ||||
2022 |
| 2021 | ||||
Operating |
| $ | |
| $ | |
Finance |
| |
| | ||
Total |
| $ | |
| $ | |
Finance lease assets are reported net of accumulated amortization of $
9
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following are the components of lease cost for operating and finance leases (stated in thousands):
Three Months Ended March 31, | ||||||
2022 |
| 2021 | ||||
Lease cost: | ||||||
Operating leases: | ||||||
Amortization of ROU assets | $ | | $ | | ||
Interest on lease liabilities | | — | ||||
Total operating lease cost | | | ||||
Finance leases: | ||||||
Amortization of ROU assets | | | ||||
Interest on lease liabilities | | | ||||
Total finance lease cost | | | ||||
Total lease cost | $ | | $ | |
The following are the weighted average lease terms and discount rates for operating and finance leases:
As of | As of | ||||
| March 31, 2022 | March 31, 2021 | |||
Weighted average remaining lease term (years): | |||||
Operating leases |
| ||||
Finance leases |
| ||||
Weighted average discount rate (%): | |||||
Operating leases |
| | | ||
Finance leases |
| | |
The Company acquired ROU assets in exchange for lease liabilities of $
Future minimum lease payments and related lease liabilities as of March 31, 2022 were as follows (stated in thousands):
|
|
| Total | ||||||
Operating | Finance | Lease | |||||||
Leases | Leases | Liabilities | |||||||
Remainder of 2022 | $ | | $ | | $ | | |||
2023 |
| |
| |
| | |||
2024 |
| |
| |
| | |||
2025 | | | | ||||||
2026 | — | | | ||||||
Total lease payments |
| |
| |
| | |||
Less: imputed interest |
| ( |
| ( |
| ( | |||
Present value of lease liabilities | | | | ||||||
Less: current portion of lease liabilities |
| |
| |
| | |||
Noncurrent lease liabilities | $ | | $ | | $ | |
Note: Future minimum lease payments exclude short-term leases as well as payments to landlords for variable common area maintenance, insurance and real estate taxes.
10
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. DEBT
The Company’s debt obligations are summarized as follows:
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Paycheck Protection Program loan | $ | — | $ | | ||
Total | — |
| | |||
Face value of convertible debenture |
| |
| | ||
Less: principal converted to common shares | ( | ( | ||||
Less: deemed fair value ascribed to conversion feature and warrants |
| ( |
| ( | ||
Plus: accretion of implied interest |
| | | |||
Total convertible debt |
| |
| | ||
Face value of Centurion debenture | | | ||||
Less: deemed fair value ascribed to warrants | ( | ( | ||||
Plus: accretion of implied interest | | | ||||
Less: net debt issuance costs | ( | ( | ||||
Total Centurion debt |
| |
| | ||
Total debt |
| |
| | ||
Less: current portion of debt |
| — |
| ( | ||
Long-term debt | $ | | $ | |
During the quarter ended March 31, 2022, the Company recognized a gain of $
As of March 31, 2022, future minimum principal payments are summarized as follows (stated in thousands):
| Convertible |
| Bank | |||
| Debt |
| Indebtedness | |||
Remainder of 2022 | $ | — | $ | — | ||
2023 |
| |
| — | ||
2024 |
| |
| — | ||
2025 |
| — |
| | ||
Total | | | ||||
Less: fair value ascribed to conversion feature and warrants |
| ( |
| ( | ||
Plus: accretion and implied interest |
| |
| | ||
Less: net debt issuance costs | — | ( | ||||
$ | | $ | |
Paycheck Protection Program
During March 2021, the Company received an unsecured loan under the United States Small Business Administration Paycheck Protection Program (“PPP”) in the amount of $
11
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
following the grant of the Loan. Under the terms of the PPP Loan, all or a portion of the PPP Loan may be forgiven if the Company maintains its employment and compensation within certain parameters during the 24-week period following the loan origination date and the proceeds of the PPP Loan are spent on payroll costs, rent or lease agreements dated before February 15, 2020 and utility payments arising under service agreements dated before February 15, 2020. The Company submitted its application for forgiveness of the PPP Loan during the fourth quarter of 2021 and during January 2022, the Company received forgiveness of the $
Convertible Debt
From November 2019 through May 2020, the Company closed multiple non-brokered private placements of convertible debenture units (“CD Unit”) for gross proceeds of $
The fair value of the convertible debt was determined to be $
For the three months ended March 31, 2022 and 2021, interest expense of $
Centurion Debt
On June 10, 2021, the Company entered into definitive agreements to secure a credit facility under the terms of a commitment letter dated March 8, 2021 (the “Commitment Letter”) with Centurion Financial Trust, an investment trust formed by Centurion Asset Management Inc. (“Centurion”). Under the terms of the Commitment Letter, Assure issued a debenture to Centurion, dated June 9, 2021 (the “Debenture”), with a maturity date of June 9, 2025 (the “Maturity Date”), in the principal amount of $
The Credit Facility matures in June 2025 and bears interest at the rate of the greater of
The fair value of the Debenture was determined to be $
For the three months ended March 31, 2022, interest expense was $
12
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. SHARE CAPITAL
Common stock
Common stock:
Reverse Share Split
During September 2021, the total number of shares of common stock authorized by the Company was reduced from
Additionally, all options, warrants and other convertible securities of the Company outstanding immediately prior to the reverse split were adjusted by dividing the number of shares of common stock into which the options, warrants and other convertible securities are exercisable or convertible by
(5) and multiplying the exercise or conversion price thereof by (5), all in accordance with the terms of the plans, agreements or arrangements governing such options, warrants and other convertible securities and subject to rounding to the nearest whole share.All shares of common stock, options, warrants and other convertible securities and the corresponding price per share amounts have been presented to reflect the reverse split in all periods presented within this Form 10-Q.
Stock options
During November 2021, the Company has adopted and approved the 2021 Stock Incentive Plan and the 2021 Employee Stock Purchase Plan. The intent of the Company and the Board is that while the Amended 2020 Stock Option Plan and the 2020 Equity Incentive Plan will continue in existence in relation to the options and awards previously granted thereunder, the Board will not grant future options or awards thereunder. Instead, only the 2021 Stock Incentive Plan will be used for the grant of options and awards to eligible participants thereunder.
As of March 31, 2022, an aggregate of
Options under the Plan are granted from time to time at the discretion of the Board of Directors, with vesting periods and other terms as determined by the Board of Directors.
13
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of the stock option activity is presented below:
Options Outstanding | ||||||||||
|
| Weighted |
| Weighted |
| |||||
Average | Average | |||||||||
Number of | Exercise | Remaining | Aggregate | |||||||
Shares Subject | Price Per | Contractual | Intrinsic Value | |||||||
to Options | Share | Life (in years) | (in thousands) | |||||||
Balance at December 31, 2021 |
| | $ | | ||||||
Options granted |
| | $ | | ||||||
Options exercised |
| ( | $ | | ||||||
Options canceled / expired |
| ( | $ | | ||||||
Balance at March 31, 2022 |
| | $ | |
|
| $ | | ||
Vested and exercisable at March 31, 2022 |
| | $ | |
|
| $ | |
The following table summarizes information about stock options outstanding and exercisable under the Company’s Stock Option Plan at March 31, 2022:
Options Outstanding | Options Exercisable | |||||||||
| Weighted |
|
|
| ||||||
Average | Weighted | Weighted | ||||||||
Remaining | Average | Average | ||||||||
Number of | Contractual | Exercise Price | Number | Exercise Price | ||||||
Outstanding | Life (in years) | Per Share | Exercisable | Per Share | ||||||
| $ | |
| | $ | | ||||
| $ | |
| | $ | | ||||
| $ | |
| | $ | | ||||
| $ | |
| | $ | | ||||
| $ | |
| | $ | | ||||
| $ | |
| | $ | | ||||
$ | | | $ | | ||||||
| $ | |
| | $ | | ||||
$ | | | $ | | ||||||
$ | | | $ | | ||||||
$ | | | $ | | ||||||
$ | | | $ | | ||||||
| $ | |
| | $ | |
The Company uses the Black-Scholes option pricing model to determine the estimated fair value of options. The fair value of each option grant is determined on the date of grant and the expense is recorded on a straight-line basis and is included as a component of general and administrative expense in the consolidated statements of operations. The assumptions used in the model include expected life, volatility, risk-free interest rate, dividend yield and forfeiture rate. The Company’s determination of these assumptions are outlined below.
Expected life — The expected life assumption is based on an analysis of the Company’s historical employee exercise patterns.
Volatility — Volatility is calculated using the historical volatility of the Company’s common stock for a term consistent with the expected life.
Risk-free interest rate — The risk-free interest rate assumption is based on the U.S. Treasury rate for issues with remaining terms similar to the expected life of the options.
14
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Dividend yield — Expected dividend yield is calculated based on cash dividends declared by the Board for the previous four quarters and dividing that result by the average closing price of the Company’s common stock for the quarter. The Company has not declared a dividend to date.
Forfeiture rate — The Company does not estimate a forfeiture rate at the time of the grant due to the limited number of historical forfeitures. As a result, the forfeitures are recorded at the time the grant is forfeited.
The following assumptions were used to value the awards granted during the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, |
| |||
2022 |
| 2021 | |||
Expected life (in years) |
|
| |||
Risk-free interest rate |
| | % | | % |
Dividend yield |
| — | % | — | % |
Expected volatility |
| | % | | % |
Stock-based compensation expense for the three months ended March 31, 2022 and 2021 was $
Derivative Liability
Stock options granted to consultants that have an exercise price this is stated in a different currency than the Company’s functional currency are treated as a liability and are revalued at the end of each reporting period for the term of the vesting period. Any change in the fair value of the stock option after the initial recognition is recorded as a component of other income, net in the consolidated statements of operations.
Changes in the Company’s stock option liability for the three months ended March 31, 2022 were as follows (stated in thousands):
Balance at December 31, 2021 | $ | | |
Gain on revaluation |
| | |
Balance at March 31, 2022 | $ | |
The assumptions used for the Black-Scholes Option Pricing Model to revalue the stock options granted to consultants as of March 31, 2022 and December 31, 2021 were as follows:
| Three months ended March 31, | |||||
2022 |
| 2021 | ||||
Risk free rate of return | | % | | % | ||
Expected life | years | years | ||||
Expected volatility | | % | | % | ||
Expected dividend per share |
There were
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ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Warrants
As of March 31, 2022 and December 31, 2021, there were
The following table summarizes warrants issued by transaction type:
| Number of Warrants outstanding | |
Convertible debt, warrants issued (Note 5) |
| |
Debenture, warrants issued (Note 5) | | |
July 2020 private placement, warrants issued | | |
December 2021 equity financing warrants issued | | |
Total warrant outstanding |
| |
7. LOSS PER SHARE
The following table sets forth the computation of basic and fully diluted loss per share for the three months ended March 31, 2022 and 2021 (stated in thousands, except per share amounts):
| Three Months Ended March 31, | |||||
2022 |
| 2021 | ||||
Net loss | $ | ( | $ | ( | ||
Basic weighted average common stock outstanding |
| |
| | ||
Basic loss per share | $ | ( | $ | ( | ||
Net loss | $ | ( | $ | ( | ||
Dilutive weighted average common stock outstanding |
| |
| | ||
Diluted loss per share | $ | ( | $ | ( |
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the treasury stock method to calculate the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential dilutive common shares include incremental common shares issuable upon the exercise of stock options, less shares from assumed proceeds. The assumed proceeds calculation includes actual proceeds to be received from the employee upon exercise and the average unrecognized stock compensation cost during the period
Stock options to purchase
8. COMMITMENTS AND CONTINGENCIES
Indemnifications
The Company is a party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify third parties with respect to certain matters. These obligations include, but are not limited to, contracts entered into with physicians where the Company agrees, under certain circumstances, to indemnify a third party, against losses arising from matters including but not limited to medical malpractice and other liability. The impact of any such future claims, if made, on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to final outcome of these potential claims.
16
ASSURE HOLDINGS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As permitted under Nevada law, the Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company believes, given the absence of any such payments in the Company’s history, and the estimated low probability of such payments in the future, that the estimated fair value of these indemnification agreements is immaterial. In addition, the Company has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable the Company to recover any payments, should they occur.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the year ended December 31, 2021 found in the Form 10-K filed by Assure Holdings Corporation on March 14, 2022 (the “Form 10-K”).
This Quarterly Report contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, growth rate, competitiveness, gross margins, expenditures, tax expenses, cash flows, our management's plans and objectives for our current and future operations, general economic conditions, the impact of the COVID-19 pandemic and related events, the impact of acquisitions on our financial condition and results of operations, and the sufficiency of financial resources to support future operations and capital expenditures.
Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value, and effect, including those discussed under the heading “Risk Factors” in our annual report on Form 10-K and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value, and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Quarterly Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
OVERVIEW
Assure is a best-in-class provider of outsourced intraoperative neurophysiological monitoring (“IONM”) and an emerging provider of remote neurology services that help make surgeries safer. The Company delivers a turnkey suite of clinical and operational services to support surgeons and medical facilities during invasive procedures. IONM has been well established as a standard of care and risk mitigation tool for various surgical verticals such as neurosurgery, spine, cardiovascular, orthopedic, ear, nose, and throat (“ENT”), and other surgical procures that place the nervous system at risk. Accredited by The Joint Commission, Assure’s mission is to provide exceptional surgical care and help make invasive surgeries safer. Our strategy focuses on utilizing best of class personnel and partners to deliver outcomes that are beneficial to all stakeholders including patients, surgeons, hospitals, insurers, and shareholders.
During each procedure, Assure provides two types of services, the Technical Component and Professional Component of IONM. Our in-house Interoperative Neurophysiologists (“INP”) provide Technical Component IONM services from the operating room throughout the procedure, while the telehealth-oriented supervising practitioners provide a level of redundancy and risk mitigation, the Professional Component, in support of the onsite INPs and surgical team. In addition, Assure offers a comprehensive suite of IONM services, including scheduling the INP and supervising practitioner, real time monitoring, patient advocacy and subsequent billing and collecting for services provided.
Historically, the foundation of Assure’s business has been providing the Technical Component of IONM via our INP staff. We employ highly trained INPs, which provide a direct point of contact in the operating room during the surgeries to relay critical information to the surgical team. In our one-to-one model, Assure pairs a surgeon with a team of INPs to promote a level of familiarity, comfort and efficiency between the surgeon and the INP. Each INP has the ability to handle approximately 200 cases annually. Our INPs monitor the surgical procedure using state of the art, commercially available, diagnostic medical equipment. Assure INP’s are certified by a
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third-party accreditation agency. The success of our service depends upon the timely and successful interpretation of the data signals by our INPs and thereafter to quickly determine if there is a deficiency and the surgical intervention required to positively impact the patient and surgery. Employing this model, Assure has rapidly expanded its operational footprint from a home base in Colorado and increased its number of managed cases from approximately 1,600 in 2017 to approximately 17,400 in 2021.
Beginning in the second quarter of 2021, Assure began executing on its long-term vertical integration plan by expanding into remote neurology services. As a result, Assure began delivering remote neurology services in support of the surgical team and INPs rather than exclusively relying on third- party supervising practitioners as it had previously. We currently have supervising practitioners employed and working with surgical teams and our INPs. They are utilizing equipment and training to monitor electroencephalographic (“EEG”) and electromyography (“EMG”) and several complex modalities during surgical procedures to pre-emptively notify the underlying surgeon of any nerve related issues that are identified.
Remote neurology services is a one-to-many model, as one supervising practitioner is able to monitor multiple patients simultaneously. As a result, the Professional Component has a different financial profile than the Technical Component. Supervising practitioners provide remote neurology services from an off-site location and maintain the ability to manage multiple cases simultaneously. As a result, each supervising practitioner has the ability to handle approximately 2,500 or more cases annually. In 2021, Assure performed approximately 17,400 total managed cases including managing approximately 2,100 remote neurology cases with employed supervising practitioners. The number of remote neurology managed cases is expected to expand significantly as our supervising practitioners increase the volume of cases supervised and additional neurologists are added to the team.
Bringing the Professional Component of IONM in-house generates a number of positives for Assure. First, we will be able to oversee quality of service for providing remote neurology services. This commitment to quality supports our efforts to sign new in-network agreements with insurance payors and facility-wide agreements with hospitals. Second, by bringing the remote neurology function in-house, we are able to significantly reduce cost of delivery, allowing the Company to improve our profitability on every case we perform. Our objective is to significantly reduce the cost of delivery for remote neurology services going forward. Additional scale will serve as a catalyst for margin expansion in the future. Third, for most of the cases we perform, remote neurology services represent the creation of a new revenue stream. Fourth, providing remote neurology services for IONM creates opportunities in adjacent markets where similar remote neurology services are utilized. The shift to providing remote neurology services ourselves was a natural progression of the business. We already built the platform and maintained patient volume, insourcing remote neurology was simply a matter of replacing contractors with Assure supervising practitioners to service this volume. The long-term result will be increased margins, a new revenue stream and improved cash receipts from commercial payors.
Collectively, support from Assure’s high quality Technical and Professional IONM services results in decreased hospital and surgeon liability, abbreviated patient stays, fewer readmissions, reduced hospital costs, enhanced overall patient satisfaction and the efficient achievement of better clinical outcomes.
As we transition to becoming a provider of remote neurology services, we believe our expertise in IONM will assist us in entering adjacent markets including EEG, epilepsy, sleep study and stroke in which Assure supervising practitioners can also provide patient services.
In 2022, Assure provided IONM services for approximately 160 surgeons in approximately 100 hospitals and surgery centers. The Company operates in: Arizona, Colorado, Kansas, Louisiana, Michigan, Missouri, Nebraska, Nevada, Pennsylvania, South Carolina, Texas, Minnesota and Utah. Our continued geographic expansion initiatives, including facility-wide outsourcing agreements with medical facilities and hospital networks, coupled with the surgical vertical expansion efforts, extending the Company’s reach into remote neurology services and selective acquisitions are expected to generate substantial growth opportunities going forward. In the future, it may be necessary for us to raise additional funds for the continuing development of our business plan.
Clinical leadership, surgeon support and patient care are Assure’s cornerstones. We make substantial ongoing investments in our training and development of clinical staff and have created a fellowship program to rigorously train new INPs to cost-effectively join the Assure team. In addition, we have partnered with the internationally renowned Texas Back Institute on clinical research relating to IONM safety and efficacy. Isador Lieberman, M.D., the president and director of the scoliosis and spine tumor program at the Texas Back Institute, is a member of Assure’s Medical Advisory Committee.
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Our strategy is to build a telehealth remote neurology services company with exceptional capabilities in IONM and numerous adjacent markets while utilizing the same platform and employees. This will extend our reach and redefine our position in the industry. We are thoughtfully deploying capital and focusing our investment in high potential growth initiatives including: organically expanding into new states, growing our remote neurology platform, signing new IONM outsourcing agreements with hospitals and medical facilities, as well as opportunistic M&A. In addition, we are investing to make our revenue cycle management function more automated, improving the velocity of our cash collections. The data and analytics-driven Company we are building will play a bigger role in the success of our key stakeholder groups: surgeons, hospitals, insurance companies and patients, and in turn deliver attractive returns to our stockholders.
The Company has financed its cash requirements primarily from revenues generated from its services, by utilizing debt facilities and from the sale of common stock.
Payment for services, revenue mix and seasonality
Over half of Assure’s patients commonly have commercial health insurance coverage (“Commercial Payor”) and we are compensated via their health insurance plan. Assure’s commercial insurance patients represent the significant majority of our revenue and profit margin. We produce separate bills for the Technical Component and the Professional Component of the IONM services we perform. The majority of our commercial payors are billed out-of-network and we negotiate payment for each claim. The remainder of commercial payors utilize a contracted rate. The majority of contracted rates are via indirect agreements with third-party organizations or related entities of the commercial payor with a smaller portion in direct agreements with contracted rates.
We bill, collect, and retain 100% of the revenue associated with the Technical Component of the services we provide. For the Professional Component, when the supervising practitioner is an Assure employee or where we own 100% of the entity managing the procedure, the Company bills, collects and retains 100% of the revenue. In instances in which the Professional Component is provided via Managed Service Agreements (“MSAs”) with surgeons or through agreements with Professional Entities (“PEs”), we engage in a revenue share based on the percentage outlined in the underlying agreement.
For the balance of the patients we serve, billing is made under individual facility service agreements with hospitals. In these cases, the hospital’s patient may be uninsured or have government insurance. Regardless, Assure provides the same high level of service and quality of care.
The surgical segment of the health care industry tends to be impacted by seasonality due to the nature of most benefit plans resetting on a calendar year basis. As patients utilize and reduce their remaining deductible throughout the year, Assure typically see an increase in volume throughout the year with the biggest impact coming during the fourth quarter. As a result, historically our annual revenues are overweighted in the fourth quarter.
Seasonality impacts our revenue mix for similar reasons. As patients with commercial insurance utilize and reduce their remaining deductible throughout the year, we typically see an increase in volume with the biggest impact coming in the fourth quarter. Historically, our revenue mix is relatively overweighted to patients with commercial insurance in the second half of the year and to patients with government insurance in the first half of the year.
COVID-19
Our business and results of operations have been, and continues to be, adversely affected by the global COVID-19 pandemic and related events and we expect its impact to continue. The impact to date has included periods of significant volatility in various markets and industries, including the healthcare industry. The volatility has had, and we anticipate it will continue to have, an adverse effect on our customers and on our business, financial condition and results of operations, and may result in an impairment of our long-lived assets, including goodwill, increased credit losses and impairments of investments in other companies. In particular, the healthcare industry, hospitals and providers of elective procedures have been and may continue to be impacted by the pandemic and/or other events beyond our control, and further volatility could have an additional negative impact on these industries, customers, and our business. In addition, the COVID-19 pandemic and, to a lesser extent, the impact on other industries, including automotive, electronics and real estate, increased fuel costs, U.S. restrictions on trade, and transitory inflation have impacted and may continue to impact the financial conditions of our customers and the patients they serve.
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In addition, actions by United States federal, state and foreign governments to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had a significant adverse effect on the markets in which we conduct our businesses. COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an extended period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities. We have implemented policies to allow our employees to work remotely as a result of the pandemic as we reviewed processes related to workplace safety, including social distancing and sanitation practices recommended by the Centers for Disease Control and Prevention. The COVID-19 pandemic could also cause delays in acquiring new customers and executing renewals and could also impact our business as consumer behavior changes in response to the pandemic.
Since the start of the second quarter of 2021, there has been increased availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, and we have experienced a gradual resumption of economic activities in our industries. On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus, including the Delta variant, remain a risk, which may give rise to implementation of restrictions in the geographic areas that we serve. In addition, there are ongoing global impacts resulting from the pandemic, including disruption of the supply chains, product shortages, increased delivery costs, increased governmental regulation, strains on healthcare systems, and delays in shipments, product development, technology launches and facility access.
We have been closely monitoring the COVID-19 pandemic and its impact on our business, including legislation to mitigate the impact of COVID-19 such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was enacted in March 2020, and the American Rescue Plan Act of 2021 which was enacted in March 2021. Although a significant portion of our anticipated revenue for 2021 is derived from fixed-fee and minimum-guarantee arrangements, primarily from large, well-capitalized customers which we believe somewhat mitigates the risks to our business, our per-unit and variable-fee based revenue will continue to be susceptible to the volatility, supply chain disruptions, microchip shortages and potential market downturns induced by the COVID-19 pandemic.
The full extent of the future impact of the COVID-19 pandemic on the Company’s operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the spread of new variants of COVID-19; the continued and renewed imposition of protective public safety measures; the impact of COVID-19 on integration of acquisitions, expansion plans, implementation of telemedicine, restrictions on elective procedures, delays in payor remittance and increased regulations; and the impact of the pandemic on the global economy and demand for consumer products. Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our financial expenditures in response to continued uncertainty. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided under Part I, Item 1A – Risk Factors of the Form 10-K.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
The following table provides selected financial information from the condensed consolidated financial statements of income for the three months ended March 31, 2022 and 2021. All dollar amounts set forth in the table below are expressed thousands of dollars, except share and per share amounts.
| Three Months Ended March 31, | Change | Change |
| ||||||||
2022 |
| 2021 |
| $ |
| % |
| |||||
Revenue | ||||||||||||
Technical services | $ | 1,396 | $ | 3,133 | $ | (1,737) | (55.4) | % | ||||
Professional services | 2,473 | 314 | 2,159 | (687.6) | % | |||||||
Other |
| 832 |
| 1,318 |
| (486) | (36.9) | % | ||||
Total revenue |
| 4,701 |
| 4,765 |
| (64) | (1.3) | % | ||||
Cost of revenues, excluding depreciation and amortization |
| 3,877 |
| 2,532 |
| 1,345 | 53.1 | % | ||||
Gross margin |
| 824 |
| 2,233 |
| (1,409) | (63.1) | % | ||||
Operating expenses | ||||||||||||
General and administrative |
| 4,241 |
| 3,132 |
| 1,109 | 35.4 | % | ||||
Sales and marketing |
| 252 |
| 335 |
| (83) | (24.8) | % | ||||
Depreciation and amortization |
| 258 |
| 285 |
| (27) |