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Item 1A. Risk Factors

2022-03-30 compared with 2021-04-06 · 65 added, 48 removed, 64 unchanged (64% of the section changed)

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Company, Industry and Economic Risk

The Impact of the COVID-19 pandemic and associated economic disruptions may continue to adversely affect the company’s business operations and financial condition.

The ongoing novel coronavirus COVID-19 has spread across the globe, has been declared a national emergency in the United States and, during 2020, shut down many business operations around the globe.

Many states and municipalities in the United States, including California, have recommended or mandated aggressive and unprecedented actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing shelter-in-place” orders, which direct individuals to shelter at their places of residence (subject to limited exceptions).

The impact of the COVID-19 pandemic and associated economic disruptions may continue to adversely affect the company ’

s business operations and financial condition.

The ongoing novel coronavirus COVID-19 has spread across the globe, has been declared a national emergency in the United States, Peru and Ecuador, and, during 2020, shut down many business operations around the globe.

Many states and municipalities in the United States, Peru and Ecuador, have recommended or mandated aggressive and unprecedented actions to reduce the spread of the disease, including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and issuing shelter-in-place”

orders, which direct individuals to shelter at their places of residence (subject to limited exceptions).

Across our operations, although most governmental restrictions on certain medical procedures have been lifted, the pandemic adversely impacted our business, as healthcare resources were being prioritized for the treatment and management of the outbreak in some cases.

Consequently, there were and continue to be delays in delivering certain Gamma Knife and PBRT treatments and significant volatility or reductions in demand for such treatments may continue.

Consequently, there may continue to be delays in delivering certain Gamma Knife and PBRT treatments and significant volatility or reductions in demand for such treatments may continue.

The COVID-19 pandemic poses the risk that the Company or its employees, contractors, customers, government and third party payors and others may be prevented from conducting business activities at full capacity for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that have been and may continue to be recommended or mandated by governmental authorities.

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there may be significant volatility or continued reductions in demand for Gamma Knife and PBRT treatments due to limitations on operations at medical facilities, including in geographies that continue to experience severe impacts of the pandemic;

• the pandemic may materially impact the Company’s operations for a sustained period of time due to the current travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns, including at our corporate headquarters in San Francisco, California;

there may be continued disruptions to the supply chain of the Company’s suppliers, resulting in price increases for purchased services and capital acquisitions by the Company; 

the pandemic may materially impact the Company’s operations for a sustained period of time due to the current travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns;

and/or members of the board, management or employee team, some of whom are particularly at risk for the severe symptoms of COVID-19, or of our small number of other employees, may become ill or have family members who are ill and are absent as a result, or they may elect not to come to work due to the illness affecting others in our office or facilities.

The occurrence of any of the foregoing events could have a material adverse effect on our business, results of operations, financial condition, liquidity and cash flows.

The COVID-19 pandemic and mitigation measures have had and may continue to have an adverse impact on global economic conditions and healthcare activity, which could have an adverse effect on the Company’s business and financial condition.

The full impact of the COVID-19 pandemic remains unknown, including the impact on the global economy and the healthcare industry.

The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus, the effectiveness and implementation of vaccinations to counter the virus, actions to contain its impact, the efficacy of the current governmental orders in slowing down the pandemic, the governments’ changing calculations on the economic impact and the health implications of maintaining these orders, the progress in the healthcare industry’s ability to effectively combat the virus, and potential increase or decrease in healthcare demand, volatility and uncertainty resulting from COVID-19 responses, all of which are highly unpredictable.

Likewise, the financial market as a whole has experienced extreme volatility as a result of the global economic impact of the COVID-19 pandemic, which has impacted, and may continue to impact, the Company’s stock price.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.

changing calculations on the economic impact and the health implications of maintaining these orders, the progress in the healthcare industry’s ability to effectively combat the virus, and potential increase or decrease in healthcare demand, volatility and uncertainty resulting from COVID-19 responses, all of which are highly unpredictable.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations”

for a more detailed discussions of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.

If the Company is not successful at diversifying its business model, its revenues and profitability may decline.

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As a result, we plan to adapt our business model to place other types of stereotactic radiosurgery and advanced radiation therapy equipment in addition to Gamma Knife units and PBRT systems.

This will constitute a reorientation for the Company and there can be no assurance that we can successfully adapt our historical business model to these new product offerings.

This will constitute an expanded product mix for the Company and there can be no assurance that we can successfully adapt our historical business model to these new product offerings.

If we are not successful, our revenues and profitability could decline substantially as existing contracts expire and are not renewed.

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There can be no assurance that CMS reimbursement levels will be maintained at levels providing the Company an adequate return on its investment.

Any future reductions in the reimbursement rate would adversely affect the Company’s revenues and financial results.

Introduction of the RO APM Reimbursement Model.

Any future reductions in the reimbursement rate would adversely affect the Company’s revenues and financial results.

Introduction of the RO APM reimbursement model could negatively impact the Company's revenue and financial results.

On September 18, 2020, CMS issued the final rule that would implement a new mandatory payment model for radiation oncology services:

the Radiation Oncology Alternative Payment Model (“RO APM”).

The RO APM is scheduled to commence January 1, 2022 and will be in effect for a five (5) year period.

The RO APM is scheduled to commence January 1, 2023 and will be in effect for a five year period.

The RO APM significantly alters CMS' payment methodology from a fee for service paradigm to a set reimbursement by cancer type methodology for radiation services provided within a 90 day episode of care.

Under the RO APM, hospital based and free-standing radiation therapy providers are mandatorily required to participate in the model based on whether the radiation therapy provider is located within a randomly selected Core Based Statistical Area ("CBSA").

CMS projects that providers treating approximately 30% of radiation oncology patients have been selected to participate in the RO APM.

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The RO APM includes but is not limited to PBRT and Gamma Knife services.

Four (4) of the Company's Gamma Knife centers are scheduled to be included in the RO APM.

It is not anticipated that inclusion in the RO APM will have a significant impact on the Company's Gamma Knife revenues.

The Company's PBRT center was not selected for inclusion in the RO APM.

For centers not included in the RO APM proposed model, Medicare reimbursement in 2021 for the most commonly used PBRT delivery codes will increase by approximately 4.1% and decrease by approximately 1.7% for Gamma Knife.

The Company’s capital investment at each site is substantial and the Company may not be able to fully recover its costs or capital investment which could have a material negative impact on its revenues and financial results.

Three of the Company’s Gamma Knife centers are included in the RO APM.

It is not anticipated that inclusion in the RO APM will have a significant impact on the Company’s Gamma Knife domestic revenues.

The Company’s PBRT center was not initially selected for inclusion in the RO APM, but it could be included at a later date.

If the Company’s PBRT center is included at a later date, the episodic payment methodology is estimated to result in lower reimbursement than the current fee-per-service reimbursement. 

The Company's retail revenue is subject to payor mix variability which could negatively impact the Company's revenue and financial results.

The Company’s average reimbursement rate for its retail and international customers is dependent on the percentage mix of government associated payors and commercial managed care payors. 

Commercial and managed care payors tend to reimburse at a higher level than government payors. 

Therefore, a shift in payor mix to a higher level of government payors will reduce the Company’s average reimbursement rate per treatment. 

The Company ’

s capital investment at each site is substantial and the Company may not be able to fully recover its costs or capital investment which could have a material negative impact on its revenues and financial results.

Each Gamma Knife, PBRT or advanced LINEAR accelerator device requires a substantial capital investment.

In some cases, we contribute additional funds for capital costs and/or annual operating and equipment related costs such as marketing, maintenance, insurance and property taxes.

Due to the structure of our contracts with medical centers, there can be no assurance that these costs will be fully recovered or that we will earn a satisfactory return on our investment, which could have a material negative impact on our revenues and financial results.

Additionally, the Company is obligated to remove the equipment at the end of the lease term.

In the event the customer does not purchase the equipment from the Company or the Company is not able to trade in the equipment, the Company is required to remove the equipment and record an ARO.

The market for the Gamma Knife is limited and the Company may not be able to place additional Gamma Knife units which could negatively impact the Company's revenue and financial results.

There is a limited market for the Gamma Knife, and the market in the United States may be mature.

The Company has begun and continued operation at only seven (7) new Gamma Knife sites in the United States since 2011.

The Company has begun and continued operation at only seven new Gamma Knife sites in the United States since 2011.

Due to the substantial costs of acquiring a Gamma Knife unit, we must identify medical centers that possess neurosurgery and radiation oncology departments capable of performing a large number of Gamma Knife procedures.

As of December 31, 2020, there were approximately 116 operating Gamma Knife units in the United States, of which fourteen (14) units were owned by the Company.

As of December 31, 2021, there were approximately 115  operating Gamma Knife units in the United States, of which thirteen units were owned by the Company.

There can be no assurance that we will be successful in placing additional units at any sites in the future.

The Company’s existing contracts with its customers are fixed in length and there can be no assurance that the customers will wish to extend the contract beyond the end of the term.

In recognition of the Gamma Knife's limited growth opportunity, the Company has expanded its product mix to include LINACs, MRI LINACs, PET LINACs and is continuing to market PBRT units, but there can be no assurance that the Company will be successful in placing these products with customers.

The Company’s existing contracts with its customers are fixed in length and there can be no assurance that the customers will wish to extend the contract beyond the end of the term.

The Company has a high level of debt and may incur additional debt to finance its operations and if the Company is unable to secure additional credit in the future its operations and profits will be negatively impacted.

The Company’s business is capital intensive.

The Company finances its Gamma Knife units through its GKF subsidiary.

The amounts financed through GKF have been generally non-recourse to ASHS.

The Company financed its first proton therapy unit through its wholly-owned subsidiary, Orlando, and guaranteed the lease financing.

The Company’s combined long-term debt and finance leases totaled $13,516,000 as of December 31, 2020 and is collateralized by its Gamma Knife, MEVION S250 and other assets, including accounts receivable and future proceeds from any contract between the Company and any end user of the financed equipment.

Depending on the Company’s financing requirements and market conditions, the Company may seek to finance its operations by incurring additional long-term debt in the future.

The Company’s current level of debt may adversely affect the Company’s ability to secure additional credit in the future, and as a result may affect operations and profitability.

If a default on debt occurs in the future, the Company’s creditors would have the ability to accelerate the defaulted loan, to seize the Gamma Knife or MEVION S250 units or other equipment with respect to which default has occurred, and to apply any collateral they may have at the time to cure the default.

A small number of customers account for a major portion of our revenues and the loss of any one of theses significant customers could have a material adverse effect on the Company's business and results of operations.

A limited number of customers have historically accounted for a substantial portion of the Company’s total revenue, and the Company expects such customer concentration to continue for the foreseeable future.

For example, in 2020, four (4) customers in total accounted for approximately 50% of the Company’s revenue.

The loss of a significant customer or a significant decline in the business from the Company’s largest customers could have a material adverse effect on the Company’s business and results of operations.

The market for the company’s services is competitive and if the Company is not able to compete its business and results of operations could be negatively impacted.

The Company’s business is capital intensive.

On April 9, 2021, the Company and certain of its domestic subsidiaries entered into a five year $22,000,000 credit agreement with Fifth Third Bank, N.A., which refinanced its existing domestic Gamma Knife portfolio. 

The lease financing previously obtained by Orlando was also refinanced as long-term debt by the Credit Agreement.

In June 2020, the Company entered into the DFC Loan in connection with the acquisition of GKCE.

The Company’s combined long-term debt, net, totaled $15,404,000 as of December 31, 2021.

The Credit Agreement is secured by a lien on substantially all of the assets of the Company and certain of its domestic subsidiaries and the DFC Loan is secured by a lien on GKCE’s assets.

The Credit Agreement includes a line of credit of $7,000,000 that it has not drawn on as of December 31, 2021.

Depending on the Company’s financing requirements and market conditions, the Company may seek to finance its operations by incurring additional long-term debt in the future.

The Company’s current level of debt may adversely affect the Company’s ability to secure additional credit in the future, and as a result may affect operations and profitability.

If a default on debt occurs in the future, the Company’s creditors would have the ability to accelerate the defaulted loan, to seize the Company’s assets with respect to which default has occurred, and to apply any collateral they may have at the time to cure the default.

A small number of customers account for a major portion of our revenues and the loss of any one of these significant customers could have a material adverse effect on the Company's business and results of operations.

For example, in 2021, three customers in total accounted for approximately 50% of the Company’s revenue.

The market for the company ’

s services is competitive and i f the Company is not able to compete its business and results of operations could be negatively impacted.

The Company estimates that there are two other companies that actively provide alternative, non-conventional Gamma Knife financing to potential customers.

The Company’s relationship with Elekta, the manufacturer of the Leksell Gamma Knife unit, is non-exclusive, and in the past the Company has lost sales to customers that chose to purchase a Gamma Knife unit directly from Elekta.

The Company also has several competitors in the financing of proton therapy projects.

The Company’s business model differs from its competitors, but there can be no assurances that the Company will not lose placements to its competitors.

In addition, the Company may continue to lose future sales to customers purchasing equipment directly from manufacturers.

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International operations can be subject to exchange rate volatility, which could have an adverse effect on our financial results and cash flows.

In addition, international operations can be subject to legal and regulatory uncertainty and political and economic instability, which could result in problems asserting property or contractual rights, potential tariffs, increased compliance costs, increased regulatory scrutiny, potential adverse tax consequences, the inability to repatriate funds to the United States, and the Company’s inability to operate in those locations.

New technology and products could result in making the Company's equipment obsolete which could have a material adverse impact on its business and results of operations.

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The Perfexion can perform procedures faster than previous Gamma Knife models and it involves less health care personnel intervention.

In 2015, Elekta introduced the Leksell Gamma Knife Icon ™ .

In 2015, Elekta introduced the Leksell Gamma Knife Icon ™.

The Perfexion is upgradeable to the Icon platforms which has enhanced imaging capabilities allowing for treatment without a head frame and the treatment of larger tumors.

Existing model 4Cs of the Gamma Knife are not upgradeable to the Perfexion model.

As of March 1, 2021, all the Company’s Gamma Knife units in the United States are Perfexion models and two (2) of these Perfexion units have the Icon upgrade.

The Company's two (2) South American sites utilize the Model 4(C).

Existing model 4(C)s of the Gamma Knife are not upgradeable to the Perfexion model.

As of March 1, 2022, all the Company’s Gamma Knife units in the United States are Perfexion models and two of these Perfexion units have the Icon upgrade.

The Company's two South American sites utilize the Model 4(C).

The failure to acquire or use new technology and products could have a material adverse effect on our business and results of operations.

The Company has invested in a Proton Beam business and is obligated to fund two additional proton beams systems;

there is no assurance that the Company will be able to fund these additional proton systems and if the Company is unable to do so the may be a negative impact on the Company’s business and results of operations .

there is no assurance that the Company will be able to fund these additional proton systems and if the Company is unable to do so the may be a negative impact on the Company ’

s business and results of operations .

We have committed a substantial amount of our financial resources to next-generation proton beam technology.

The first MEVION S250 system began treating patients in December 2013.

The Company’s first MEVION S250 system began treating patients in April 2016.

The Company has committed to purchase two (2) additional MEVION S250i systems and has already made deposits of $2,250,000 towards this commitment.

The Company’s first MEVION S250 system began treating patients in April 2016.

The Company has committed to purchase two additional MEVION S250i systems and has already made deposits of $2,250,000 towards this commitment.

As of December 31, 2020, the Company determined these deposits were impaired and wrote their value down to $0. See Note 3 - Property and Equipment to the consolidated financial statements for further discussion.

There can be no assurance that we will be able to obtain additional customers or be able to finance the two additional systems.

If we are unable to obtain additional customers or are unable to finance the two additional systems, the Company will lose its deposits and there may be a negative impact on the Company’s business and results of operations.

Stock Ownership Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors