Silver Bear Resources Plc - Annual Report 2021

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm(PCAOB ID: 42)		59
Consolidated Balance Sheets		60
Consolidated Statements of Operations and Comprehensive Loss		61
Consolidated Statements of Equity		62
Consolidated Statements of Cash Flows		63
Notes to Consolidated Financial Statements		65
	58

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Akumin Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Akumin Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2019.

Orlando, Florida March 16, 2022

AKUMIN INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

	Decembe	r 31, 2020
	2021
ASSETS
Current assets:
Cash and cash equivalents	$ 48,419	$ 44,396
Accounts receivable	121,525	62,259
Prepaid expenses	8,196	2,996
Other current assets	7,025	1,435
Total current assets	185,165	111,086
Property and equipment, net	259,122	63,714
Operating lease right-of-use assets	194,565	127,062
Goodwill	840,353	351,610
Other intangible assets, net	414,146	6,748
Other assets	25,475	4,832
Total assets	$1,918,826	$665,052
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current liabilities:
Accounts payable	$ 34,326	$ 16,213
Current portion of long-term debt	14,789	406
Current portion of obligations under finance leases	6,460	3,265
Current portion of obligations under operating leases	20,794	9,345
Other accrued liabilities	87,813	22,771
Total current liabilities	164,182	52,000
Long-term debt, net of current portion	1,197,596	389,580
Obligations under finance leases, net of current portion	15,951	12,309
Obligations under operating leases, net of current portion	184,375	122,954
Other liabilities	35,574	3,039
Total liabilities	1,597,678	579,882
Redeemable noncontrolling interests	37,469	—
Shareholders’ equity:
Common stock, no par value; unlimited number of shares authorized; 89,026,997 and 70,178,428 shares issued and outstanding as of December 31, 2021 and 2020, respectively	228,595	160,965
Accumulated other comprehensive income	18	—
Accumulated deficit	(123,424)	(80,133)
Total shareholders’ equity	105,189	80,832
Noncontrolling interests	178,490	4,338
Total equity	283,679	85,170
Total liabilities, redeemable noncontrolling interests and equity	$1,918,826	$665,052

See accompanying notes to the consolidated financial statements.

AKUMIN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

	Year Ended De	cember 31, 2020
	2021
Revenues	$ 421,079	$ 245,626
Operating expenses:
Cost of operations, excluding depreciation and amortization	359,735	205,635
Depreciation and amortization	44,895	17,060
Stock-based compensation	2,792	2,084
Other operating losses (gains)	583	(4,130)
Total operating expenses	408,005	220,649
Income from operations	13,074	24,977
Other expense (income):
Interest expense	62,575	32,781
Acquisition-related costs	20,233	1,079
Settlement and related costs (recoveries)	(539)	2,324
Other non-operating losses (gains)	(3,990)	22,387
Total other expense, net	78,279	58,571
Loss before income taxes	(65,205)	(33,594)
Income tax expense (benefit)	(30,391)	562
Net loss	(34,814)	(34,156)
Less: Net income attributable to noncontrolling interests	8,477	2,585
Net loss attributable to common shareholders	$ (43,291)	$ (36,741)
Comprehensive loss, net of taxes:
Net loss	$ (34,814)	$ (34,156)
Other comprehensive income:
Unrealized loss on hedging transactions, net of taxes	(10)	—
Reclassification adjustment for losses included in net loss, net of taxes	28	—
Other comprehensive income	18	—
Comprehensive loss, net of taxes	(34,796)	(34,156)
Less: Comprehensive income attributable to noncontrolling interests	8,477	2,585
Comprehensive loss attributable to common shareholders	$ (43,273)	$ (36,741)
Net loss per share attributable to common shareholders:
Basic and diluted	$ (0.56)	$ (0.52)

See accompanying notes to the consolidated financial statements.

AKUMIN INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share amounts)

	Common Stock Shares Amount	Common Stock Shares Amount	Accumulated Other Comprehensive Income	Accumulated Deficit	Total Shareholders’ Equity	Noncontrolling Interests	Total Equity
	Shares
Balance, December 31, 2019	69,840,928	$158,881	$ —	$ (43,392)	$ 115,489	$ 3,500	$118,989
Net income (loss)	—	—	—	(36,741)	(36,741)	2,585	(34,156)
Issuance of common stock under stock-based awards	337,500	—	—	—	—	—	—
Stock-based compensation	—	2,084	—	—	2,084	—	2,084
Distributions paid to noncontrolling interests	—	—	—	—	—	(1,747)	(1,747)
Balance, December 31, 2020	70,178,428	160,965	—	(80,133)	80,832	4,338	85,170
Net income (loss), net of the net income attributable to redeemable noncontrolling interests	—	—	—	(43,291)	(43,291)	7,715	(35,576)
Issuance of common stock:
Acquisition consideration	15,198,569	33,878	—	—	33,878	—	33,878
Other issuance	3,500,000	10,000	—	—	10,000	—	10,000
Warrants issued	—	21,014	—	—	21,014	—	21,014
Stock options exercised	150,000	75	—	—	75	—	75
Stock-based compensation	—	2,792	—	—	2,792	—	2,792
Other comprehensive income	—	—	18	—	18	—	18
Acquisition of noncontrolling interests	—	—	—	—	—	174,976	174,976
Distributions paid to noncontrolling interests	—	—	—	—	—	(9,969)	(9,969)
Other equity transactions	—	(129)	—	—	(129)	1,430	1,301
Balance, December 31, 2021	89,026,997	$228,595	$ 18	$ (123,424)	$ 105,189	$ 178,490	$283,679

See accompanying notes to the consolidated financial statements.

AKUMIN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year En Decembe	ded r 31, 2020
	2021
Operating activities:
Net loss	$ (34,814)	$(34,156)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	44,895	17,060
Stock-based compensation	2,792	2,084
Deferred income taxes	(30,432)	700
Non-cash interest expense	15,470	2,241
Amortization of deferred financing costs and accretion of discount on long-term debt	1,508	3,241
Non-cash change in fair value of financial instruments	(100)	(5,457)
Loss on extinguishment of debt	—	18,279
Loss on settlement of derivative	—	4,162
Other non-cash items	(2,888)	1,273
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	12,308	(3,075)
Prepaid expenses and other assets	3,175	273
Accounts payable and other liabilities	4,134	9,037
Operating lease liabilities and right-of-use assets	1,002	2,953
Net cash provided by operating activities	17,050	18,615
Investing activities:
Purchases of property and equipment	(17,867)	(5,344)
Business acquisitions, net of cash acquired	(758,114)	(3,199)
Other investing activities	(3,190)	(464)
Net cash used in investing activities	(779,171)	(9,007)

See accompanying notes to the consolidated financial statements.

AKUMIN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

	Year Ended D	ecember 31, 2020
	2021
Financing activities:
Proceeds from long-term debt	803,045	406,300
Principal payments on long-term debt	(5,997)	(371,524)
Principal payments on finance leases	(4,342)	(1,525)
Payment of debt issuance costs	(22,037)	(15,216)
Payment of earn-out liability	(4,689)	(4,689)
Proceeds from issuance of common stock	10,505	—
Payment of issuance costs for common stock and warrants	(1,334)	—
Contributions received from noncontrolling interests	1,239	—
Distributions paid to noncontrolling interests	(11,541)	(1,747)
Other financing activities	1,295	(200)
Net cash provided by financing activities	766,144	11,399
Net increase in cash and cash equivalents	4,023	21,007
Cash and cash equivalents, beginning of period	44,396	23,389
Cash and cash equivalents, end of period	$ 48,419	$ 44,396
Supplemental disclosure of cash flow information:
Interest paid	$ 35,028	$ 22,844
Income taxes paid, net	217	1,172
Supplemental disclosure of non-cash investing and financing activities:
Interest payable-in-kind on long-term debt	15,470	2,241
Warrants issued with long-term debt	21,918	—
Embedded derivative related to long-term debt	7,622	—
Property and equipment purchases in accounts payable and other accrued liabilities	9,534	334

See accompanying notes to the consolidated financial statements.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021 and 2020

1. Description of the Company

General Business Information

Akumin Inc. (“Akumin” or the “Company”) and its subsidiaries provide services to U.S. hospitals, health systems and physician groups, with solutions addressing outsourced radiology and oncology service line needs. With the acquisition of Alliance HealthCare Services, Inc. (“Alliance,” see Note 4), Akumin provides fixed-site outpatient diagnostic imaging services through a network of approximately 200 owned and/or operated imaging locations; and outpatient radiology and oncology services and solutions to approximately 1,000 hospitals and health systems across 46 states. Akumin’s imaging procedures include magnetic resonance imaging (“MRI”), computerized tomography (“CT”), positron emission tomography (“PET” and “PET/CT”), ultrasound, diagnostic radiology (X-ray), mammography and other related procedures. Akumin’s cancer care services include a full suite of radiation therapy and related offerings.

The Company’s revenue is derived from a diverse mix of third-party payors, including private, managed care, capitated and government payors, as well as directly from hospitals and healthcare providers. The Company derives a substantial portion of its revenue from direct billings to governmental healthcare programs, such as Medicare and Medicaid, and private health insurance companies and/or health plans.

COVID-19

Commencing during the first quarter of 2020 and continuing through the present, a pandemic relating to the novel coronavirus known as COVID-19 occurred causing significant financial market disruption and social dislocation. The pandemic is dynamic, with various cities, counties, states and countries around the world responding or having responded in different ways to address and contain the outbreak, including the declaration of a global pandemic by the World Health Organization, a National State of Emergency in the United States, and state and local executive orders and ordinances forcing the closure of non-essential businesses and persons not employed in or using essential services to “stay at home” or “shelter in place.” At this stage, while there are signs of improvement, the Company is uncertain as to how long the pandemic, or a more limited epidemic, will last, what regions will be most affected, to what extent containment measures will be applied, or the nature and timing of possible vaccinations. Imaging and radiation therapy centers are healthcare facilities and are generally considered an essential service with the expectation that they continue to operate during the pandemic.

The Company instituted several realignment and cost containment measures to respond to the drop in volume that resulted from the COVID-19 pandemic and related government orders.

The Company’s cost containment measures included the temporary closure of certain of the Company’s imaging centers to consolidate volume to nearby centers and reduced operating hours at the remainder of its imaging centers, with the highest number of centers closed in mid-April 2020. At that same time, the Company furloughed or laid off a portion of its workforce, reduced work hours for its hourly personnel and reduced salaries of employees, as well as negotiated deferral of certain costs due to landlords and other vendors.

In light of the improving business environment for the Company, it gradually increased its workforce during 2021. Effective January 1, 2021, all reduced salaries had been returned to normal levels. Clinical operations have resumed to normal operating hours as patient volumes allow and substantially all of the clinics that had temporarily closed due to the COVID-19 pandemic have resumed normal operations. If the future economic or legislative environment related to the COVID-19 pandemic again leads to weakened business volume, the Company might re-institute cost containment measures similar to those described above in order to preserve its liquidity.

In connection with the COVID-19 pandemic, the Company received government grant funds in 2020 and 2021 from the U.S. Department of Health and Human Services (“HHS”) and advanced payments in 2020 from the U.S. Centers for Medicare and Medicaid Services (“CMS”), both of which were provided by U.S. federal government stimulus programs pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (see Note 24).

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Financial Statement Presentation

The audited consolidated financial statements of the Company include the assets, liabilities, revenues and expenses of all subsidiaries over which the Company exercises control. Intercompany balances and transactions have been eliminated in consolidation. The Company evaluates participating rights in its assessment of control in determining consolidation of joint venture partnerships. The Company records noncontrolling interests related to its consolidated subsidiaries that are not wholly owned. Investments in non-consolidated investees over which it exercises significant influence but does not control are accounted for under the equity method and are included in other assets in the consolidated balance sheets. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“generally accepted accounting principles” or “GAAP”).

Variable Interest Entities

In accordance with consolidation guidance, a reporting entity with a variable interest in another entity is required to include the assets and liabilities and revenues and expenses of that separate entity (i.e., consolidate with the financial statements of the reporting entity) when the variable interest is determined to be a controlling financial interest. A reporting entity is considered to have a controlling financial interest in a variable interest entity (“VIE”) if (i) the reporting entity has the power to direct the activities of the VIE that most significantly impacts its economic performance and (ii) the reporting entity has the obligation to absorb losses of the VIE that could be potentially significant to the VIE.

As a result of the financial relationship established between the Company and certain entities (the “Revenue Practices”) through respective management service agreements, the Revenue Practices individually qualify as VIEs as the Company, which provides them non-medical, technical and administrative services, has the power to direct their respective activities and the obligation to absorb their gains and losses. As a result, the Company is considered the primary beneficiary of the Revenue Practices, and accordingly, the assets and liabilities and revenues and expenses of the Revenue Practices are included in these consolidated financial statements. The following information excludes any intercompany transactions and costs allocated by the Company to the Revenue Practices. As of December 31, 2021 and 2020, the Revenue Practices’ assets included in the Company’s consolidated balance sheets were $20.4 million and $34.1 million, respectively, and liabilities included in the Company’s consolidated balance sheets were $0.6 million and $2.4 million, respectively. The assets of the Revenue Practices can only be used to settle their obligations. During the years ended December 31, 2021 and 2020, the Revenue Practices’ revenues were $173.6 million and $139.2 million, respectively, and the net cash provided from operating activities was $180.6 million and $134.7 million, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The COVID-19 pandemic has introduced significant additional uncertainty with respect to estimates, judgments and assumptions, which may materially impact the Company’s estimates.

The most significant assumptions and estimates underlying these consolidated financial statements involve revenue recognition, accounts receivable, business combinations, impairments of long-lived assets including goodwill, income taxes and fair value of financial instruments.

Revenue Recognition

The majority of the Company’s revenues are derived from net patient fees received from various payors and patients themselves based on established contractual billing rates, less allowances for contractual adjustments and implicit price concessions. Revenues are also derived directly from hospitals and healthcare providers.

The Company recognizes revenue in the period in which performance obligations are satisfied by providing services to customers. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those services. The Company applies the following five-step model in order to determine this amount: (i) identification of the contract with a customer; (ii) identification of the promised services in the contract and determination of whether they represent performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Patient Fee Payors

Patient fee revenues are generated from freestanding facilities managed and operated by the Company, which submit billings and collect fees directly from the patients and third-party payors. The Company’s performance obligations are to provide outpatient medical services to patients, such as

diagnostic services, radiation therapy, or the provision of goods and services during a patient visit. Revenues are recorded during the period the obligations to provide medical services are satisfied. Performance obligations for medical services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payor (Medicare, Medicaid, managed care health plans, attorneys, employers and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payors. The payment arrangements with third-party payors for the services the Company provides to the related patients typically specify payments at amounts less than standard charges and generally provide for payments based upon predetermined rates per diagnostic services or discounted fee-for-service rates. Uninsured patients are billed based on established patient fee schedule or fees negotiated. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in contractual terms resulting from contract renegotiations and renewals.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Revenue recorded is based upon the estimated amounts the Company expects to be entitled to receive from patients and third-party payors. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements, negotiated rates and historical and expected payment patterns. Revenues related to uninsured patients, uninsured copayment, and deductible amounts for patients who have healthcare coverage may have discounts applied (uninsured discounts and contractual discounts). The Company also records estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record self-pay revenues at the estimated amounts ultimately expected to be collected. The Company considers readily available information when preparing its estimates.

Hospital and Healthcare Providers

Revenues are derived from services provided under an outsourced contract arrangement with hospitals, physician groups and other healthcare providers. Under outsourced service contracts with hospitals and other healthcare provider customers, the Company provides medical services to patients at a fixed site facility or mobile unit. The Company typically bundles its services in providing diagnostic imaging or radiation therapy services, staffing, supplies and other patient related administrative tasks depending on the customers’ needs. The majority of the Company’s contracts have a single performance obligation, as a series of distinct services that are substantially the same are provided and are transferred with the same pattern to the customer. The Company bills customers on a fee per procedure, percentage of collections, or fixed-payment methodology. Service fees based on fee per procedure and fixed-payment methodology are negotiated and agreed upon by both parties. The Company does not have a business practice of accepting less than contractual amounts. Any amounts not collected do not represent implicit price concessions and instead are due to general credit risk; therefore, the Company treats the allowance for doubtful accounts related to these arrangements as bad debt expense, which is recorded in operating expenses in the consolidated statements of operations and comprehensive loss. For service fees based on a percentage of collections, the Company receives payment after the hospital and other healthcare provider customers are paid by third-party payors and patients. Revenue is recognized over time as medical services are provided and the measurement of the transaction price is generally consistent with the methodology used with patient fee payors.

Other

Other revenue consists of miscellaneous fees under contractual arrangements, including service fee revenue under capitation arrangements with third-party payors, management fees, government grants and fees for other services provided to third parties. The Company records revenue from management services that it performs based upon management service contracts with predetermined pricing and records such revenues in the period in which the service is performed and at the amounts expected to be collected. During the years ended December 31, 2021 and 2020, the Company received grants from HHS (see Note 24).

No single payor or provider accounted for more than 10% of consolidated revenues during the years ended December 31, 2021 and 2020.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company operates in two reportable segments: Radiology and Oncology. Each of these segments, on a stand-alone basis, provides and makes available its respective medical services in similar settings and operates within a singular regulatory environment. Further, management assesses the Company’s segment operations and each segment’s degree of efficiency and performance based on this structure of financial reporting and primarily makes operating decisions from these reportable segment results.

Cash and Cash Equivalents

The Company classifies short-term investments with original maturities of three months or less as cash equivalents.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Accounts Receivable

The Company provides shared and single-user diagnostic imaging and oncology equipment and technical support services to the healthcare industry and directly to patients on an outpatient basis. Substantially all of the Company’s accounts receivable are due from health insurance providers (including Medicare and Medicaid), hospitals, other healthcare providers and patients, located throughout the U.S. A significant portion of the Company’s services are provided directly to patients or pursuant to long-term contracts with hospitals and other healthcare providers. Estimated credit losses are provided for in the consolidated financial statements.

Accounts receivable are reported at realizable value, net of allowances for price concessions and doubtful accounts, which are estimated and recorded in the period the related revenue is recorded. Implicit price concessions are recorded as a reduction in revenue with an offsetting amount reducing the carrying value of the receivable. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the age of the receivable balances. Changes to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense within operating expenses in the consolidated statements of operations and comprehensive loss. Receivables deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents in high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits.

The Company’s accounts receivable are primarily from third-party payors and clients in the healthcare industry. No individual customer represented more than 10% of the Company’s accounts receivable at December 31, 2021 and 2020.

Property and Equipment

Property and equipment are stated at cost. Property and equipment acquired through business combinations are recorded at their acquisition date fair value. Depreciation is calculated using the straight-line method over the following estimated useful lives:

	Estimated Useful Life
Medical equipment and equipment under finance leases	2 to 10 years
Office and computer equipment	2 to 7 years
Transportation and service equipment	3 to 10 years
Furniture and fixtures	5 to 10 years
Leasehold improvements	Shorter of the lease term or estimated useful life

Routine maintenance and repairs are charged to expense as incurred. Major repairs and purchased software and hardware upgrades, which extend the life of or add value to the equipment, are capitalized and depreciated over the remaining useful life. Operating lease right-of-use (“ROU”) equipment buyouts and significant upgrades are capitalized.

Leases

The Company’s operating lease portfolio primarily consists of real estate leases for its imaging centers, oncology centers and corporate offices. A smaller portion consists of medical and office equipment leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, current portion of obligations under operating leases, and obligations under operating leases, net of current portion in the consolidated balance sheets. Finance leases are included in property and equipment, current portion of obligations under finance leases, and obligations under finance leases, net of current portion in the consolidated balance sheets. The Company has elected to use the accounting policy practical expedients by class of underlying asset to (i) combine associated lease and non-lease components into a single lease component; and (ii) exclude recording short-term leases as ROU assets and liabilities on the consolidated balance sheets.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities are recorded at the present value of remaining lease payments not yet paid for the lease term discounted using the incremental borrowing rate associated with each lease. Operating lease ROU assets represent operating lease liabilities adjusted for prepayments, accrued lease payments, lease incentives and initial direct costs. Certain of the Company’s leases include renewal or termination options. Calculation of operating lease ROU assets and liabilities includes the initial lease term unless it is reasonably certain a renewal or termination option will be exercised. The Company’s initial real estate lease term typically varies from 3 to 15 years. Including renewal options, the lease term may typically vary from 10 to 30 years.

Variable components of lease payments fluctuating with a future index or rate are estimated at lease commencement based on the index or rate at lease commencement. If the payments change as the result of a change in an index or rate subsequent to lease commencement, the difference is recognized in the consolidated statements of operations and comprehensive loss in the period in which the change occurs. Variable payments for maintenance such as common area maintenance costs and taxes, are not included in determining lease payments and are expensed as incurred. Most of the Company’s leases do not contain implicit borrowing rates, and therefore to measure lease liabilities, the Company uses its incremental borrowing rates based on the information available at the lease commencement date. Lease liabilities are remeasured when there is a significant change in the lease contracts.

Goodwill and Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized but instead tested for impairment at least annually at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and reviewed by management. The Company has evaluated and concluded there are two operating segments: Radiology and Oncology. The Company has assessed that each component listed above meets the definition of a reporting unit based on the conclusions that each component constitutes a business, discrete financial information is available for each component, and management regularly reviews the results of such financial information.

The Company performs an annual impairment test in the fourth quarter for goodwill and indefinite-lived intangible assets or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Such indicators include a significant decline in expected future cash flows due to changes in company-specific factors or the broader business climate.

In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more-likely-than-not the fair value of a reporting unit is less than its carrying amount. If the Company concludes it is more-likely-than-not the fair value of a reporting unit is less than its carrying amount, the Company conducts a quantitative goodwill impairment test. First, for each reporting unit, the Company compares its estimated fair value with its net book value. If the estimated fair value exceeds its net book value, goodwill is deemed not to be impaired, and no further testing is necessary. If the estimated fair value does not exceed its net book value, goodwill is deemed to be impaired. The Company records an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.

The quantitative impairment analysis utilizes two primary approaches to calculate the fair value of the reporting unit: the discounted cash flow (“DCF”) method and the Guideline Public Company (“GPC”) method.

Under the DCF method, fair value is measured as the present worth of anticipated future net cash flows generated by a business. In a multi-period model, net cash flows attributable to a business are forecast for an appropriate period and then discounted to present value using an appropriate discount rate. In a single-period model, net cash flow or earnings for a normalized period are capitalized to reach a determination of present value. The methods, key assumptions, degree of uncertainty associated with the key assumptions, and the potential events or changes in circumstances that could reasonably be expected to negatively affect the key assumptions with respect to the reporting unit are the estimated future net cash flows generated and the discount rate applied to capture the associated risks. The ability to achieve anticipated future net cash flows is subject to numerous assumptions and risks, including company-specific risks such as the ability to maintain and grow revenues, maintain or improve operating margins, control costs and anticipate working capital requirements. The anticipated future net cash flows are also dependent on industry-level factors, such as the impact of legislation, patient volumes, cost-reimbursement levels, and continued availability of qualified doctors and other medical professionals who are necessary to staff the Company’s operations, among other potential impacts.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Under the GPC method, value is estimated by comparing the subject company to similar companies with publicly-traded ownership interests. Guideline companies are selected based on comparability to the subject company, and valuation multiples are calculated and applied to subject company operating data. The key assumption used in connection with the GPC method focuses on identifying guideline companies that operate in the same (or similar) line of business as the reporting units with the same (or similar) operating characteristics. Eligible companies are selected based on Global Industry Classification Standard codes, Standard Industrial Classification codes, company descriptions, and industry affiliations. Considered factors include relative risk, profitability and growth considerations of the reporting unit relative to the guideline companies. Value estimates for the reporting unit involve using multiples of market value of invested capital excluding cash to revenue and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). Valuations derived using the GPC method rely on information primarily obtained from available industry market data and publicly available filings with the Securities and Exchange Commission (“SEC”).

In evaluating indefinite-lived intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more-likely-than-not the fair value of an indefinite-lived intangible asset is less than its carrying amount. If the Company concludes it is more-likely-than-not the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company conducts a quantitative impairment test, which consist of a comparison of the fair value to its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Finite-lived intangible assets are amortized over their respective estimated useful lives (see Note 7) on a straight-line basis and are reviewed for impairment consistent with property and equipment.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Business Combinations

The assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill if it exceeds the estimated fair value and as a bargain purchase gain if it is below the estimated fair value. Non-controlling interests in the acquired company are measured at their fair value. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment, often utilizes independent valuation experts and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through depreciation and amortization expense.

Acquisitions of entities over which the Company exercises control have been recorded using the acquisition method of accounting and, accordingly, results of their operations have been included in the Company’s consolidated financial statements as of the effective date of each respective acquisition.

Redeemable Noncontrolling Interests

The Company has noncontrolling interests with redemption features. These redemption features could require the Company to make an offer to purchase the noncontrolling interests in the case of certain events, including (i) the expiration or termination of certain operating agreements of the joint venture, or (ii) the noncontrolling interests’ tax-exempt status is jeopardized by the joint venture.

As of December 31, 2021, the Company holds redeemable noncontrolling interests of $37.5 million which are not currently redeemable or probable of becoming redeemable. The redemption of these noncontrolling interests is not solely within the Company’s control, therefore, they are presented in the temporary equity section of the Company’s consolidated balance sheets. The Company does not believe it is probable the redemption features related to these noncontrolling interest securities will be triggered as the triggering events are generally not probable until they occur. As such, these noncontrolling interests have not been remeasured to redemption value.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The following is a rollforward of the activity in the redeemable noncontrolling interests for the year ended December 31, 2021:

(in thousands)
Balance, December 31, 2020	$ —
Fair value at time of Alliance Acquisition	37,040
Net income attributable to redeemable noncontrolling interests	762
Contributions received from redeemable noncontrolling interests	1,239
Distributions paid to redeemable noncontrolling interests	(1,572)
Balance, December 31, 2021	$37,469

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards, including restricted share units (“RSUs”) and stock options, based on estimated fair value on the measurement date. The Company recognizes stock-based compensation expense over the requisite service period for each separately vesting portion of the award. The fair value of RSUs is computed based on the market value of the Company’s common stock on the date of grant. The fair value of stock options is computed using the Black-Scholes option pricing model, which is affected by the Company’s common stock price and related volatility, expected dividend yield, term of the option, exercise price and risk-free interest rate. The Company recognizes forfeitures as they occur.

Income Taxes

Income tax expense is computed using the asset and liability method. Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse. Future income tax benefits are recognized only to the extent that the realization of such benefits is considered to be more likely than not. The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance, when it is more likely than not that such deferred tax assets will not be recoverable, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences.

Earnings per share

The Company computes basic net income per share attributable to common shareholders based on the weighted-average number of common shares outstanding during the periods presented. Diluted net income per share attributable to common shareholders is computed based on the weightedaverage number of common and any dilutive potential common shares outstanding using the treasury method.

Comprehensive Income

Comprehensive income includes all changes in equity other than transactions with shareholders and noncontrolling interests. The Company’s accumulated other comprehensive income consists of unrealized gains and losses, and related reclassification adjustments, related to interest rate swaps that qualify as cash flow hedges.

Fair Value of Financial Instruments

The Company uses the following methods and assumptions in estimating fair value disclosure for financial instruments:

Debt: The carrying amounts of debt are recorded at amortized cost. The carrying amounts of variable-rate borrowings approximate fair value estimates based on current market rates and credit spreads for similar debt instruments.
Derivative instruments: Fair value is determined based on the income approach and standard valuation techniques to convert future amounts to a single present amount and approximates the net gains and losses that would have been realized if the contracts had been settled at each period-end.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair value. Accordingly, assets and liabilities carried at fair value are classified within the fair value hierarchy in one of the following categories:

Level 1 – Fair value is determined by using quoted prices that are available in active markets for identical assets and liabilities.
Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets.
Level 3 – Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgment.

Derivatives, Cash Flow Hedges and Embedded Derivatives

The Company has interest rate swap agreements to hedge the future interest payments on portions of its variable-rate equipment debt in order to reduce volatility in operating results due to fluctuations in interest rates. Management has determined the interest rate swap agreements are derivative instruments designated as cash flow hedges. The Company formally measures effectiveness of its hedging relationships at hedge inception in accordance with its risk management policy. The Company’s derivatives are recorded on the consolidated balance sheets at fair value. The Company does not recognize hedge ineffectiveness in its consolidated statements of operations but instead recognizes the entire change in the fair value of cash flow hedges in other comprehensive income. The amounts recorded in other comprehensive income are subsequently reclassified to earnings in the same line item in the consolidated statements of operations as impacted by the hedged item when the hedged item affects earnings.

The Company reviews the terms of debt and equity financing transactions to identify whether there are any embedded derivatives that require separation from the related host financial instrument. Any such embedded derivatives are presented at fair value in the consolidated balance sheets, with changes in fair value recorded in other non-operating losses (gains) in the consolidated statements of operations and comprehensive loss. The Company separates an embedded provision in a debt or equity contract in which (i) the economic characteristics and risks of the embedded derivative provision are not clearly and closely related to the economic characteristics and risks of the host instrument, (ii) the host instrument itself is not carried at fair value in the consolidated balance sheets, and (iii) the embedded provision would meet the definition of a derivative financial instrument if it were issued on a standalone basis. The Company identified an embedded derivative that it has separated from the Subordinated Notes, as discussed in Note 8.

Warrants

The Company reviews the terms of warrants to purchase its common stock to determine whether warrants should be classified as liabilities or shareholders’ equity in its consolidated balance sheets. In order for a warrant to be classified in shareholders’ equity, the warrant must be (i) indexed to the Company’s equity and (ii) meet the conditions for equity classification.

If a warrant does not meet the conditions for shareholders’ equity classification, it is carried on the consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other non-operating losses (gains) in the consolidated statements of operations and comprehensive loss. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in shareholders’ equity in the consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair value. As discussed in Note 8, the Company issued warrants in connection with the Subordinated Notes.

Self-Insurance

The Company has purchased large deductible insurance policies for certain of its workers’ compensation, auto liability, general liability and professional liability exposures. For a portion of the exposures, the Company is self-insured and retains the risk for certain liabilities.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The Company’s policy is to accrue amounts equal to the actuarially estimated costs to settle open claims of insureds, as well as an estimate of the cost of insured claims that have been incurred but not reported. The Company develops information about the size of the ultimate claims based on historical experience, current industry information, and actuarial analysis and evaluates the estimates for claim loss exposure on an annual basis.

The Company believes that adequate provision has been made in the consolidated financial statements for these liabilities. The most significant assumptions used in the estimation process include determining the trend in costs, the expected cost of claims incurred but not reported and the expected costs to settle or pay damage awards with respect to unpaid claims. Recorded liabilities are based upon estimates, and while management believes the estimates of loss are reasonable, the ultimate liability may be in excess of or less than the recorded amounts.

3. New Accounting Standards

Recently Adopted Accounting Standards

ASU 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Topic 350-40)

In August 2018, the Financial Accounting Standard Board (“FASB”) issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Topic 350-40). The ASU is intended to improve the recognition and measurement of financial instruments. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. For all other entities, this ASU is effective for annual reporting periods beginning after December 15, 2020 and interim periods in annual reporting periods after December 15, 2021. The Company is considered an Emerging Growth Company as classified by the SEC, which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company adopted this standard on a prospective basis during the three months ended June 30, 2021, and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Effective

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , and related clarifying standards, which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to assess credit loss estimates. This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2022. The Company is considered an Emerging Growth Company as classified by the SEC, which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU 2020-04, Financial Instruments – Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides optional expedients and exceptions for applying generally accepted accounting principles to certain contract modifications and hedging relationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. For all entities, the guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

ASU 2021-01, Reference Rate Reform (Topic 848), Scope

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), Scope . This ASU clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain option expedients and exceptions in Topic 848. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)

In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) . This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805)

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , creating an exception to the recognition and measurement principles in ASC 805, Business Combinations . The amendments require an acquirer to use the guidance in ASC 606, Revenue from Contracts with Customers , rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. In addition, the amendments clarify that all contracts requiring the recognition of assets and liabilities in accordance with the guidance in ASC 606, such as contract liabilities derived from the sale of nonfinancial assets within the scope of ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets , fall within the scope of the amended guidance in ASC 805. The amendments do not affect the accounting for other assets or liabilities arising from revenue contracts with customers in a business combination, such as customer-related intangible assets and contract-based intangible assets, including off-market contract terms. This ASU is effective for public entities for fiscal years beginning after December 15, 2022, with early adoption permitted. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023. The Company is considered an Emerging Growth Company as classified by the SEC, which gives the Company relief in the timing of implementation of this standard by allowing the private company timing for adoption. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance , which aims to provide increased transparency by requiring business entities to disclose information about certain types of government assistance they receive in the notes to the financial statements. ASU 2021-10 also adds a new Topic - ASC 832, Government Assistance —to the FASB’s Codification. The disclosure requirements only apply to transactions with a government that are accounted for by analogizing to either a grant model or a contribution model. The guidance in ASU 2021-10 is effective for financial statements of all entities, including private companies, for annual periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements.

4. Business Combinations

Alliance Acquisition

On September 1, 2021, the Company acquired all of the issued and outstanding common stock of Thaihot Investment Company US Limited, which owns 100% of the common stock of Alliance, from Thaihot Investment Co., Ltd. (“Seller”) for a total purchase price of $785.6 million (the “Alliance Acquisition”). The acquisition included Alliance’s ownership interests in its joint ventures which had a fair value of $212.0 million on the acquisition date.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The acquisition was financed with (i) cash on hand, (ii) $340.0 million of proceeds from the issuance of unsecured notes, (iii) $10.4 million of proceeds from the issuance of 3,500,000 shares of the Company’s common stock at a price of $2.98 per share, (iv) $375.0 million of proceeds from a private offering of 7.5% senior secured notes, and (v) the issuance of 14,223,570 shares of the Company’s common stock to the Seller at a price of $2.17 per share, which represents the closing market price of the Company’s common stock immediately prior to the acquisition date.

The following table summarizes the fair value of the purchase consideration for the Alliance Acquisition as of the date of the acquisition:

(in thousands, except share and per share amounts)
Shares of common stock issued	14,223,570
Per share value of common stock issued	$ 2.17
Fair value of common stock issued	$ 30,865
Cash paid at closing	748,490
Working capital and other adjustments	6,261
Total purchase price	$ 785,616

The following table summarizes the preliminary assessment of fair value of the assets acquired and liabilities assumed as of the date of the acquisition:

(in thousands)
Assets acquired:
Cash and cash equivalents	$ 26,125
Net working capital	14,221
Property and equipment	206,475
Operating lease right-of-use assets	69,919
Goodwill	455,760
Intangibles – Customer contracts	266,224
Intangibles – Trade names	69,108
Intangibles – Third party management agreements	10,200
Intangibles – Certificates of need	69,558
Other assets	8,170
	1,195,760
Liabilities assumed:
Equipment debt	54,673
Obligations under finance leases	9,041
Obligations under operating leases	74,290
Deferred tax liabilities	52,760
Other liabilities	7,364
	198,128
Net assets acquired	997,632
Less redeemable noncontrolling interests	37,040
Less noncontrolling interests	174,976
Purchase price	$ 785,616

As of September 30, 2021, the Company had preliminarily estimated the fair value of the assets acquired and liabilities assumed and allocated a portion of the total purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition. Noncontrolling interests have also been recorded at fair value as of the acquisition date. The fair value of the total enterprise applicable to joint ventures has been allocated to the individual joint ventures; the amount allocated to each noncontrolling interest has been computed by multiplying the respective joint venture total fair value by the ownership interest percentage of the noncontrolling interest and applying an appropriate lack of control discount. During the three months ended December 31, 2021, the Company updated the preliminary assessment of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in certain changes to the preliminary amounts previously recorded.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

These changes were composed primarily of (i) an increase in identifiable intangible assets acquired of $52.4 million due to refinements in the valuation analysis, (ii) an increase in deferred tax liabilities of $15.1 million related to the tax effect of the assets acquired and liabilities assumed, (iii) a decrease in each of the operating lease right-of-use assets and related lease obligations of $12.7 million due primarily to a revision of the inputs used upon Alliance’s adoption of ASC 842, Leases , as of the date of the acquisition and (iv) a decrease in accounts receivable of $2.0 million. The net effect of the changes to preliminary fair value of the assets acquired and liabilities assumed resulted in a decrease in goodwill of $35.0 million. The final determination of the fair value of certain assets acquired and liabilities assumed, including deferred tax liabilities and the assignment of goodwill to reporting units, was not complete as of December 31, 2021, but will be finalized within the allowable one-year measurement period.

The acquisition enabled the Company to expand its business into areas of the United States in which it previously did not have operations. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill, which will not be deductible for income tax purposes. The total goodwill has been allocated $297.4 million and $158.4 million to the Radiology segment and Oncology segment, respectively. The Company believes the goodwill resulting from the acquisition is primarily attributable to the expected synergies related to operating efficiencies and enhanced opportunities for growth. Since the acquisition date, the Alliance Acquisition contributed revenues of $155.2 million and income before income taxes of $4.5 million to the Company’s consolidated results of operations.

The results of operations of this acquisition have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date. The unaudited pro forma financial data presented below gives effect to the acquisition as if it had occurred on January 1, 2020. The unaudited pro forma information includes adjustments to amortization and depreciation for acquired intangible assets and property and equipment, interest expense and related gains and losses on Alliance’s term loan and credit facilities, and transaction costs. For the year ended December 31, 2020, non-recurring pro forma adjustments directly attributable to the Alliance Acquisition in the pro forma information presented below included (i) depreciation and amortization expense of $59.2 million, (ii) interest expense and related gains and losses on Alliance’s term loan and credit facilities of $7.4 million, and (iii) transaction costs of $30.4 million. This pro forma data is presented for illustrative purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the Company completed the acquisition on January 1, 2020.

(unaudited; in thousands)	Year Ended Dec	ember 31, 2020
	2021
Pro forma net revenues	$ 746,550	$ 741,834
Pro forma net loss before income taxes	(132,494)	(181,554)

The values of the intangible assets relating to customer contracts, trade names and certificates of need represent Level 3 measurements as they were based on unobservable inputs reflecting the Company’s assumptions used in determining the fair value of the assets. These inputs required significant judgments and estimates at the time of the valuation.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The following table describes the valuation techniques used to calculate fair values for assets in Level 3. The significant unobservable inputs used in the fair value measurement of the Company’s identifiable intangible assets are growth and attrition rates, discount rate and royalty rate. Significant changes in these inputs would result in a significant change of fair value measurement.

(in thousands)	Fair value at September 1, 2021	Valuation Technique	Unobservable Input	Selected Assumptions
Customer contracts	$ 266,224	Attrition rate	Attrition rate Growth rate Discount rate	2.8% - 5.8% 3.0% 9.0% - 12.3%
Trade names	69,108	Relief from royalty method	Royalty rate Discount rate	1.5% 9.0% - 12.3%
Certificates of need	69,558	Acquisition costs	Discount rate	9.0% - 12.3%

Acquisition and integration costs related to the Alliance Acquisition were $13.6 million for the year ended December 31, 2021, and are included in acquisition-related costs in the Company’s consolidated statements of operations and comprehensive loss.

Massachusetts Acquisition

On June 1, 2021, the Company acquired through a subsidiary, all of the issued and outstanding equity interests in a company that owns three outpatient diagnostic imaging centers in Massachusetts for cash consideration of $0.4 million (the “Massachusetts Acquisition”). Subsequent to the completion of the acquisition, the cash purchase price was increased by $0.05 million due to working capital adjustments in accordance with the purchase agreement. During 2021, the Company completed the final assessment of the fair value of the assets acquired and liabilities assumed. The results of the final assessment were not material. The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of the date of acquisition:

(in thousands)
Assets acquired:
Cash	$ 5
Accounts receivable	59
Property and equipment	329
Operating lease right-of-use assets	1,413
Goodwill	94
	1,900
Liabilities assumed:
Accounts payable and other accrued liabilities	33
Obligations under operating leases	1,413
	1,446
Purchase price	$ 454

This acquisition was an opportunity for the Company to enter the Massachusetts market. The goodwill assessed on acquisition, expected to be deductible for income tax purposes, reflects the Company’s expectation of future benefits from the acquired business and workforce, as well as potential synergies from cost savings. The results of operations of this acquisition have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date. Since the acquisition date, the revenues and loss before income taxes contributed by this acquisition to the Company’s consolidated results of operations were not material.

Florida Acquisition

On May 1, 2021, the Company acquired, through a subsidiary, six outpatient diagnostic imaging centers in Florida in six simultaneous transactions with related sellers, for aggregate cash consideration of $34.5 million and share consideration of $3.0 million through issuance of 974,999 common shares of the Company at a price of $3.09 per share based on the share price at the close of April 30, 2021 (the “Florida Acquisition”).

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Subsequent to the completion of the acquisition, the cash purchase price was decreased by $0.4 million due to working capital adjustments in accordance with the purchase agreement. During 2021, the Company completed the final assessment of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed. The results of the final assessment were not material. The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of the date of acquisition:

(in thousands)
Assets acquired:
Accounts receivable	$ 3,594
Prepaid expenses	83
Property and equipment	483
Operating lease right-of-use assets	6,874
Goodwill	32,610
Other intangible assets	841
	44,485
Liabilities assumed:
Accounts payable and other accrued liabilities	350
Obligations under finance leases	136
Obligations under operating leases	6,874
	7,360
Purchase price	$37,125

This acquisition was an opportunity for the Company to increase its economies of scale in Florida. The goodwill assessed on acquisition, expected to be deductible for income tax purposes, reflects the Company’s expectation of future benefits from the acquired business and workforce, as well as potential synergies from cost savings. The results of operations of this acquisition have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date. Since the acquisition date, the revenues and income before income taxes contributed by this acquisition to the Company’s consolidated results of operations were not material.

Sunrise Acquisition

On May 1, 2021, the Company acquired, through a subsidiary, a single outpatient diagnostic imaging center in Sunrise, Florida for cash consideration of $0.8 million (the “Sunrise Acquisition”). This asset acquisition was considered a business combination. The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of the date of acquisition:

(in thousands)
Assets acquired:
Property and equipment	$ 521
Operating lease right-of-use assets	2,308
Goodwill	279
	3,108
Liabilities assumed:
Obligations under operating leases	2,308
Purchase price	$ 800

This acquisition was an opportunity for the Company to increase its economies of scale in Florida. The goodwill assessed on acquisition, expected to be deductible for income tax purposes, reflects the Company’s expectation of future benefits from the acquired business and workforce, as well as potential synergies from cost savings. The results of operations of this acquisition have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date. Since the acquisition date, the revenues and loss before income taxes contributed by this acquisition to the Company’s consolidated results of operations were not material.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Coral Springs Acquisition

On January 1, 2020, the Company acquired, through a subsidiary, a single outpatient diagnostic imaging center in Coral Springs, Florida for cash consideration of $2.1 million (the “Coral Springs Acquisition”). In accordance with the transaction agreement, $0.1 million of this purchase price was withheld as security for indemnity obligations and was released to the seller during June 2020. This asset acquisition was considered a business combination. The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of the date of acquisition:

(in thousands)
Assets acquired:
Prepaid expenses	$ 33
Property and equipment	412
Operating lease right-of-use assets	2,428
Goodwill	1,275
Other assets	369
	4,517
Liabilities assumed:
Obligations under operating leases	2,428
Purchase price	$2,089

Crystal Lake Acquisition

On January 1, 2020, the Company acquired, through a subsidiary, a single outpatient diagnostic imaging center in Crystal Lake, Illinois for cash consideration of $1.2 million (the “Crystal Lake Acquisition”). In accordance with the transaction agreement, $0.1 million of this purchase price was withheld as security for indemnity obligations and was released to the seller during June 2020. This asset acquisition was considered a business combination. The following table summarizes the final allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of the date of acquisition:

(in thousands)
Assets acquired:
Property and equipment	$ 820
Operating lease right-of-use assets	555
Goodwill	400
Other assets	6
	1,781
Liabilities assumed:
Obligations under operating leases	555
Purchase price	$1,226

This acquisition was an opportunity for the Company to increase its presence in Illinois. The goodwill assessed on acquisition, expected to be deductible for income tax purposes, reflects the Company’s expectation of future benefits from the acquired business and workforce, as well as potential synergies from cost savings. The results of operations of this acquisition have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

5. Property and Equipment

Property and equipment consist of the following:

(in thousands)	Decembe	r 31,
	2021	2020
Medical equipment	$227,796	$ 62,406
Leasehold improvements	39,763	19,360
Equipment under finance leases	34,597	23,169
Office and computer equipment	16,701	452
Transportation and service equipment	8,996	—
Furniture and fixtures	3,130	1,479
Construction in progress	6,423	—
	337,406	106,866
Less accumulated depreciation	78,284	43,152
	$259,122	$ 63,714

Depreciation expense for the year ended December 31, 2021 and 2020 was $36.4 million and $14.4 million, respectively.

As of December 31, 2021 and 2020, the equipment under finance leases had a net book value of $22.2 million and $15.0 million, respectively.

6. Goodwill

Changes in the carrying amount of goodwill are as follows:

(in thousands)	Radiology	Oncology	Total
Balance, December 31, 2019	$355,667	$ —	$355,667
Acquisitions	1,675	—	1,675
Adjustments	(5,732)	—	(5,732)
Balance, December 31, 2020	351,610	—	351,610
Acquisitions	330,383	158,360	488,743
Balance, December 31, 2021	$681,993	$158,360	$840,353

The Company tests its goodwill and indefinite-lived intangible assets annually or more frequently depending on certain impairment indicators. There were no interim impairment tests performed. Goodwill was tested for impairment at the reporting unit level as of October 1, 2021 and 2020, the dates of the Company’s annual impairment review for the years ended December 31, 2021 and 2020, respectively. The Company performed a quantitative test as part of its annual impairment review. In both 2021 and 2020, the respective annual impairment tests yielded individual fair values for its reporting units that exceeded their respective carrying values.

In estimating fair values as of October 1, 2021, the Company used a combination of the income approach (the DCF method) and the market approach (the GPC method). Specifically, the Company utilized the following Level 3 estimates and assumptions in its analyses:

	October 1, 2021
Discount rate	9.5%
Perpetual growth rate	2.5%
Tax rate	26.0%
Risk-free interest rate	2.5%
EBITDA multiple	7.5x to 10.5x

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The estimated fair values at October 1, 2021 exceeded their carrying values by 4% and 2% for the Radiology and Oncology reporting units, respectively.

Changes in estimates or assumptions could materially affect the determination of fair value and the conclusions of the Company’s impairment test. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. As of December 31, 2021 and 2020, there were no indications of impairment of the Company’s goodwill balances.

7. Other Intangible Assets

Other intangible assets consist of the following:

(dollars in thousands)	Weighted Average Useful Life (in years)	D	ecember 31, 2021	Intangible Assets, Net	D	ecember 31, 2020	Intangible Assets, Net
		Gross Carrying Amount	Accumulated Amortization		Gross Carrying Amount	Accumulated Amortization
Finite-lived intangible assets:
Customer contracts	20	$266,224	$ (4,437)	$261,787	$ —	$ —	$ —
Trade names	18	77,466	(6,054)	71,412	7,823	(3,258)	4,565
Management agreements	17	10,200	(200)	10,000	—	—	—
Other	4	4,814	(3,425)	1,389	4,508	(2,325)	2,183
Total		$358,704	$ (14,116)	344,588	$12,331	$ (5,583)	6,748
Indefinite-lived intangible assets				69,558			—
Total other intangible assets				$414,146			$ 6,748

Indefinite-lived intangible assets consist of Certificates of Need, which arose from the Alliance Acquisition, were tested for impairment as of October 1, 2021, the date of the Company’s annual impairment review for the year ended December 31, 2021. There were no indefinite-lived intangible assets as of December 31, 2020. The Company elected to perform a qualitative assessment of factors to determine whether further impairment testing was required. Based on its testing, the Company concluded there was no impairment of indefinite-lived intangible assets as of October 1, 2021.

In addition to its annual review, the Company performs an impairment test when indicators of impairment are present. As of December 31, 2021 and 2020, there were no indications of impairment of the Company’s other intangible assets balances.

The aggregate amortization expense for the Company’s finite-lived intangible assets was $8.5 million and $2.7 million for the years ended December 31, 2021 and 2020, respectively.

Estimated annual amortization expense related to finite-lived intangible assets is presented below:

(in thousands)
Year ending December 31:
2022	$ 19,814
2023	18,837
2024	18,132
2025	17,475
2026	17,421
Thereafter	252,909
	$344,588

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

8. Long-Term Debt

Long-term debt consists of the following:

(in thousands)	December	31, 2020
	2021
2028 Senior Notes	$ 375,000	$ —
2025 Senior Notes	475,000	400,000
Subordinated Notes	372,470	—
Equipment Debt	58,827	1,129
	1,281,297	401,129
Debt discount and deferred issuance costs	(68,912)	(11,143)
	1,212,385	389,986
Less current portion	14,789	406
Long-term debt, net of current portion	$1,197,596	$389,580

The minimum annual principal payments with respect to long-term debt as of December 31, 2021 are as follows:

(in thousands)
Year ending December 31:
2022	$ 14,789
2023	15,807
2024	13,009
2025	484,376
2026	2,570
Thereafter	750,746
	$1,281,297

2028 Senior Notes

On August 9, 2021, the Company closed its offering of $375.0 million of aggregate principal amount of 7.5% senior secured notes due August 1, 2028 (the “2028 Senior Notes”). The offering was completed by Akumin Escrow Inc., a wholly owned subsidiary of the Company, in escrow. The proceeds of the offering were used to fund the Alliance Acquisition and were released from escrow contemporaneously with the completion of the acquisition. In addition, upon closing of the acquisition, the Company assumed all obligations of Akumin Escrow Inc., including all obligations due under the 2028 Senior Notes, and all assets of Akumin Escrow Inc. were liquidated to the Company.

The 2028 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by Akumin and each of its direct or indirect wholly owned subsidiaries and Alliance and its wholly owned subsidiaries, and secured against substantially all of the assets of the Company and the guarantors pari passu with the security granted in connection with the 2025 Senior Notes and 2020 Revolving Facility.

The 2028 Senior Notes indenture is substantially similar to the indenture for the 2025 Senior Notes, except the principal payment is due at maturity on August 1, 2028. Interest is accrued and payable every six months on February 1 and August 1 at a rate of 7.5% per annum.

On August 9, 2021, the 2028 Senior Notes were issued at their face value of $375.0 million net of debt issuance costs of $7.8 million. As of December 31, 2021, the 2028 Senior Notes had a face value of $375.0 million and an amortized cost balance of $367.7 million. The effective interest rate of the 2028 Senior Notes is 7.88%.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

2025 Senior Notes

On November 2, 2020, the Company closed an offering of $400.0 million of aggregate principal amount of 7.0% senior secured notes due November 1, 2025 (the “2025 Senior Notes”). The net proceeds from this offering were used to repay in full the Amended May 2019 Term Loans and related Revolving Facility, and net derivative financial instrument liabilities, in accordance with their respective contracts, and to pay related financing fees and expenses. A balance of $19.0 million was retained as cash. In connection with the repayment of the Amended May 2019 Term Loans, the Company recognized an $18.3 million loss on extinguishment of debt. In addition, the Company terminated and settled an interest rate cap derivative financial instrument and recognized a $4.2 million loss on settlement of this derivative. The loss on extinguishment of debt and loss on settlement of derivative are recorded in other non-operating losses (gains) in the 2020 consolidated statement of operations and comprehensive loss.

The Company’s obligations under the 2025 Senior Notes are fully and unconditionally guaranteed, jointly and severally, by each of the Company’s direct or indirect subsidiaries, and secured against substantially all of the assets of the Company and the guarantors pari passu with the security granted in connection with the 2020 Revolving Facility. On November 2, 2020, the 2025 Senior Notes were issued at their face value of $400.0 million net of debt issuance costs of $11.5 million.

On February 11, 2021, the Company completed a private offering of $75.0 million aggregate principal amount of additional 7.0% senior secured notes due November 2025 (the “New Notes” and together with the 2025 Senior Notes, the “2025 Senior Notes”). The New Notes were offered as additional notes under the same indenture as the previously issued 2025 Senior Notes and will be treated as a single series with the 2025 Senior Notes. The Company applied part of the net proceeds from the New Notes for acquisitions, with any unused proceeds to be used for working capital and other general corporate purposes. The New Notes were issued at 5.0% premium to their face value of $75.0 million net of debt issuance costs of $1.1 million. The premium on issuance of New Notes of $3.75 million is being amortized to interest expense over the remaining term of the 2025 Senior Notes. The Company also received accrued interest on the New Notes from November 2, 2020 to February 10, 2021 of $1.4 million. This accrued interest was repaid by the Company along with the balance of the accrued interest on April 29, 2021. As of December 31, 2021, the 2025 Senior Notes had a face value of $475.0 million and an amortized cost balance of $468.0 million. The effective interest rate of the 2025 Senior Notes is 7.64%.

The 2025 Senior Notes indenture allows the Company to redeem the 2025 Senior Notes prior to maturity together with any accrued and unpaid interest. The 2025 Senior Notes indenture provides for the following (capitalized terms used below in this note and not defined elsewhere in these notes have the respective meanings given to them in the 2025 Senior Notes indenture):

Payments

The principal payment is due at maturity on November 1, 2025. Interest is accrued and payable every six months on May 1 and November 1.

Restrictive covenants

The 2025 Senior Notes indenture restricts the Company’s ability to, among other things: incur certain additional indebtedness and issue preferred stock; make certain distributions, investments and other restricted payments; sell certain assets; agree to any restrictions on the ability of the subsidiaries to make payments to the Company; create certain liens; merge, consolidate or sell substantially all of the Company’s assets; and enter into certain transactions with affiliates. These covenants are subject to exceptions and qualifications and many of these covenants will not be applicable during any period when the 2025 Senior Notes have an investment grade rating.

Financial covenants

There are no maintenance financial covenants. There are incurrence-based covenants related to the restrictive covenants noted above. The Company is in compliance with the covenants and has no events of default under this indenture as of December 31, 2021.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Events of default

Events of default under the 2025 Senior Notes indenture include, among others, failure to pay principal or interest on the 2025 Senior Notes and certain final judgments when due (subject to appropriate periods and conditions); failure to comply, within appropriate period, with obligations under certain covenants or any provision in the 2025 Senior Notes indenture; certain events of bankruptcy or insolvency and if any Guarantee by a Significant Subsidiary is held in a judicial proceeding to be unenforceable or invalid. The occurrence of an event of default would permit the Trustee or holders of at least 25% of the 2025 Senior Notes to declare all of the 2025 Senior Notes together with unpaid accrued interest to be immediately due and payable and to exercise other default remedies.

2020 Revolving Facility

Concurrently with the closing of the 2025 Senior Notes, the Company entered into a new revolving credit agreement (the “2020 Revolving Credit Agreement”) with a US financial institution, as administrative and collateral agent, and other financial institutions, as lenders, to provide a senior secured revolving credit facility in an aggregate principal amount of $55.0 million (the “2020 Revolving Facility”, and together with 2025 Senior Notes, the “2025 Loans”), with sub-limits for the issuance of letters of credit and for swingline loans. The 2020 Revolving Facility is secured pari passu with the obligations under the 2025 Senior Notes. The 2020 Revolving Facility will mature on the date that is five years after the issue date (the “2020 Revolving Facility Maturity Date”); provided that, if more than $50.0 million in aggregate principal amount of the 2025 Senior Notes is outstanding on the date that is 181 days prior to the 2020 Revolving Facility Maturity Date, then the 2020 Revolving Facility Maturity Date shall instead be the date that is 181 days prior to the 2020 Revolving Facility Maturity Date.

The availability of borrowings under the 2020 Revolving Facility is subject to customary terms and conditions. The 2020 Revolving Facility was undrawn at November 2, 2020. The issuance costs related to this credit facility were $2.0 million (including $0.9 million related to the prior Revolving Facility since the settlement of that Revolving Facility was considered debt modification for accounting purposes). These costs are included in other assets in the consolidated balance sheets and are being amortized to interest expense over the term of the 2020 Revolving Facility on a straight-line basis. The annual commitment fee related to the 2020 Revolving Facility is capped at 0.5% of the aggregate principal amount of $55.0 million. As of December 31, 2021 and 2020, the 2020 Revolving Facility had a face value and amortized cost balance of zero.

The 2020 Revolving Credit Agreement provides for the following (capitalized terms used below in this note and not defined elsewhere in these notes have the respective meanings given to them in the 2020 Revolving Credit Agreement):

Interest

The interest rates payable on the 2020 Revolving Facility are as follows: (i) each Eurodollar Rate Loan bears interest on the outstanding principal amount at Adjusted Eurodollar Rate plus the Applicable Rate; (ii) each Base Rate Loan bears interest on the outstanding principal amount at the Base Rate (the highest of (a) the Prime Rate, (b) the Federal Reserve Bank of New York Rate plus 0.5% and (c) one-month Adjusted Eurodollar Rate plus 1.0%) plus the Applicable Rate; and (iii) each Swingline Loan bears interest on the outstanding principal amount at the Base Rate plus the Applicable Rate. As of December 31, 2021, no amount has been drawn under the 2020 Revolving Facility since its inception.

Restrictive covenants

In addition to certain covenants, the 2020 Revolving Credit Agreement places limits on the Company’s ability to declare dividends or redeem or repurchase capital stock (including options or warrants), prepay, redeem or purchase debt, incur liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness, amend or otherwise alter debt and other material agreements, engage in mergers, acquisitions and asset sales, enter into transactions with affiliates and alter the business the Company and the subsidiaries currently conduct.

Financial covenant

The 2020 Revolving Credit Agreement contains a financial covenant related to a leverage ratio that is tested on the last day of any fiscal quarter (commencing with the fiscal quarter ended March 31, 2021) only if on the last day of any such fiscal quarter, the outstanding amount under the 2020 Revolving Facility (excluding certain letter of credit obligations) exceeds 30% of the total commitment under the 2020 Revolving Facility of $55.0 million.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

There were no borrowings under the 2020 Revolving Facility as of December 31, 2021 and therefore did not exceed 30% of the total commitment under the 2020 Revolving Facility. As a result, the Company is in compliance with the financial covenant.

Events of default

Events of default under the 2020 Revolving Credit Agreement include, among others, failure to pay principal or interest on the 2020 Revolving Facility when due, failure to pay any fee or other amount due, failure of any loan party to comply with any covenants or agreements in the loan documents (subject to applicable grace periods and/or notice requirements), a representation or warranty contained in the loan documents is incorrect or misleading in a material respect when made, events of bankruptcy and a change of control. The occurrence of an event of default would permit the lenders under the 2020 Revolving Credit Agreement to declare all amounts borrowed, together with accrued interest and fees, to be immediately due and payable and to exercise other default remedies.

Subordinated Notes

The purchase price for the Alliance Acquisition was funded on September 1, 2021 partly with debt and equity commitments from Stonepeak Magnet Holdings LP (“Stonepeak Magnet”) (the “Stonepeak Financing”).

On September 1, 2021, Stonepeak Magnet purchased $340.0 million principal amount of unsecured notes of Akumin Corp., a wholly-owned indirect subsidiary of the Company (the “Stonepeak Notes” or “Subordinated Notes”), together with warrants to purchase 17,114,093 common shares of Akumin (the “Stonepeak Warrants”) with an exercise price of $2.98 per share and an expiry term of ten years from date of issuance, and 3,500,000 common shares of the Company (the “Stonepeak Shares”) at a price of $2.98 per share for total cash consideration of $10.4 million. No consideration was paid for the Stonepeak Warrants. The Company capitalized $53.0 million relating to Stonepeak Financing debt issuance costs and debt discount, which are being accreted to the Stonepeak Notes using the effective interest method.

The Stonepeak Warrants contain standard antidilution provisions that may change the number of shares or exercise price per warrant share. The Stonepeak Warrants may be exercised at the option of Stonepeak Magnet by either delivering the exercise price and receiving common shares on a gross basis or by cashless exercise (net share settlement).

The Stonepeak Notes, Stonepeak Warrants, Stonepeak Shares and additional draws were made available on the terms of the Series A Notes and Common Share Purchase Agreement dated June 25, 2021 among the Company, Akumin Corp., and Stonepeak Magnet.

The Company has the right under the Stonepeak Notes to elect to pay interest in-kind (“PIK”) for the first two years from the issuance of the Stonepeak Notes at a rate of 13% per annum, as opposed to cash interest at 11% per annum. The current financial statements assume the PIK interest rate of 13% per annum. During an event of default or at a time when certain affirmative or negative covenants are not complied with, the cash interest rate on the Stonepeak Notes shall automatically be increased by 200 basis points per annum.

The Stonepeak Notes contain certain covenants similar to the covenants in the 2025 Senior Notes indenture. The Company is in compliance with the covenants and has no events of default as of December 31, 2021.

For a three-year period following September 1, 2021, provided certain conditions are met, the Company will be permitted to draw up to an additional $349.6 million from Stonepeak Magnet. Any such future subscription by Stonepeak Magnet will involve a further issuance of Stonepeak Notes and Stonepeak Warrants, in each case on terms substantially similar to those issued upon closing of the Alliance Acquisition; provided, however, that the number of additional Stonepeak Warrants would equal 20% of the dollar amount drawn by the Company divided by 120% of the 10-day volume weighted average price of the Company’s common shares ending on the trading day immediately prior to the earlier of the day of announcement or issuance of such Stonepeak Warrants, and the exercise price for such additional Stonepeak Warrants would be equal to that same volume weighted average price, subject to regulatory approval. The proceeds relating to any such future subscription would be used to finance the Company’s organic growth as well as future acquisition opportunities that are agreed to between the Company and Stonepeak Magnet. A portion of the lender fees paid to Stonepeak Magnet have been allocated to the unfunded commitment and have been recorded as a prepaid transaction cost related to the remaining $349.6 million unfunded commitment. Such cost, totaling $6.6 million, is included in other assets in the consolidated balance sheet as of December 31, 2021 and is being accreted to interest expense over the three-year commitment period on a straight-line basis. As additional borrowings are made by Stonepeak Magnet, a proportionate amount of the remaining unamortized prepaid transaction costs will be reclassified to offset the additional amount borrowed and will be accreted, along with the debt discount to the Stonepeak Notes, using the effective interest method over the remaining term of the debt.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

At any time after seven years from the issuance date of the Stonepeak Notes, the Company may redeem such Stonepeak Notes, in whole or in part, by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus a prepayment premium of 5%. To the extent that the Company has not redeemed any Stonepeak Notes by the eleventh anniversary of the issuance date of such Stonepeak Notes, the Company will be required to redeem: (a) 50% of such Stonepeak Notes on the eleventh anniversary of such issuance date by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus 5%; and (b) the remaining balance by the twelfth anniversary of such issuance date by paying in cash the principal amount and any accrued but unpaid interest, in each case, plus 5%.

In the event of a change of control before the seventh (7th) anniversary of the issuance date, the Company or Stonepeak Magnet may elect to redeem the Stonepeak Notes in part or in whole and the Company will be required to pay Stonepeak Magnet the principal amount to be redeemed plus a prepayment premium that varies between 25% and 5% depending on the timing of the change of control (first to 7th anniversary of the issuance date) with respect to the prepaid amount (the “Change of Control Redemption Election”). The Company determined the Change of Control Redemption Election held by Stonepeak Magnet meets the accounting definition of an embedded derivative that must be separated from the Stonepeak Notes and initially and subsequently be reported as a liability and measured at fair value. The fair value of the Change of Control Redemption Election liability was determined using a probability weighted scenario analysis regarding a potential change of control during the seven years from September 1, 2021. The estimated value of the redemption premium was discounted by the expected weighted average time to exit at a discount rate of 11%. The fair value of the Change in Control Redemption Election of $7.6 million at September 1, 2021 was recorded as a derivative liability and included in other liabilities in the consolidated balance sheet. The fair value of the Change in Control Redemption Election at December 31, 2021 is $7.5 million and is recorded in other liabilities in the consolidated balance sheet as of December 31, 2021. The $0.1 million change in the fair value of the Change in Control Redemption Election derivative is recorded as a gain and included in other non-operating losses (gains) in the 2021 consolidated statement of operations and comprehensive loss.

The fair value of the Stonepeak Warrants at the date of issuance was determined to be $1.2807 per warrant using the Black-Scholes option pricing model based on the following assumptions: common share price of $2.17 per share, which represents the closing market price of the Company’s common stock immediately prior to the Alliance Acquisition, exercise price of $2.98, historical common share price volatility of 56%; term of warrants of ten years from September 1, 2021; expected dividend yield of zero; and annual risk-free interest rate of 1.30%. The fair value of Stonepeak Warrants was $21.9 million on September 1, 2021. The Company determined the Stonepeak Warrants should be classified in shareholders’ equity in accordance with the accounting guidance for equity classification of contracts based on an entity’s own shares. The relative fair value of the Stonepeak Warrants on the issuance date, net of allocated transaction costs, was $21.0 million and is included in common stock in the consolidated balance sheet as of December 31, 2021. The initial carrying value of the Stonepeak Warrants will not be remeasured in future periods.

The table below shows the allocation of the gross proceeds of $350.4 million from the Stonepeak Notes and Stonepeak Shares to the three financial instruments and the embedded derivative at the issuance date. The discount generated due to the allocation of proceeds to Stonepeak Warrants of $21.9 million and the Change in Control Redemption Election of $7.6 million, together with the issuance costs allocated to the Stonepeak Notes of $6.5 million and the 5% repayment premium of $17.0 million, was treated as debt discount, which is being accreted to interest expense over the term of the Stonepeak Notes using the effective interest method and an effective interest rate of 13.0%.

(dollars in thousands)	Standalone Fair Value	Relative Fair Value %	Allocation o Fair Value	n Relative Basis of Transaction Costs	Allocation of Proceeds Net of Transaction Costs	Embedded Derivative	Allocation of Cost to Stonepeak Prepaid Transaction Costs	Allocation of Proceeds Net of Transaction Costs
			Gross Proceeds
Stonepeak Notes	$318,082	90.8%	$318,082	$ 13,116	$ 304,966	$ (7,622)	$ 6,649	$ 303,993
Stonepeak Shares	10,430	3.0%	10,430	430	10,000	—	—	10,000
Stonepeak Warrants	21,918	6.2%	21,918	904	21,014	—	—	21,014
Embedded Derivative	—	—	—	—	—	7,622	—	7,622
	$350,430	100.0%	$350,430	$ 14,450	$ 335,980	$ —	$ 6,649	$ 342,629

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

On September 1, 2021, the Stonepeak Notes were issued at their face value of $357.0 million (including the 5% repayment premium of $17.0 million) net of discount and debt issuance costs totaling $53.0 million. Since September 1, 2021, the principal balance of the Stonepeak Notes has increased by $14.7 million to $354.7 million due to PIK interest and the resulting face value of these notes has increased to $372.5 million (due to 5% repayment premium of $17.8 million) at December 31, 2021. The increase in repayment premium of $0.7 million due to PIK interest has been treated as interest expense accretion during the three months ended December 31, 2021. As of December 31, 2021, the Stonepeak Notes had a face value of $372.5 million and an accreted cost balance of $318.0 million.

Equipment Debt

The Company’s equipment debt is composed of financing arrangements with various lenders, which are collateralized by the related equipment. Certain of the debt obligations are subject to covenants with which the Company must comply on a quarterly or annual basis. The Company was in compliance with all such covenants as of December 31, 2021.

9. Finance Leases

The information pertaining to obligations under finance leases is as follows:

(in thousands)	Decembe	r 31,
	2021	2020
Obligations under finance leases	$22,411	$15,574
Less current portion	6,460	3,265
Non-current obligations under finance leases	$15,951	$12,309

The components of finance lease cost recognized in the consolidated statements of operations and comprehensive loss are as follows.

(in thousands)	Year Ended De	cember 31,
	2021	2020
Amortization expense for equipment under finance leases	$ 4,184	$ 2,927
Interest expense on finance lease liabilities	885	637
Finance lease cost	$ 5,069	$ 3,564

Undiscounted cash flows for finance leases recorded in the consolidated balance sheet as of December 31, 2021 are as follows.

(in thousands)
Year ending December 31:
2022	$ 7,424
2023	5,906
2024	5,414
2025	3,652
2026	1,743
Thereafter	587
Total minimum lease payments	24,726
Less amount of lease payments representing interest	2,315
Present value of future minimum lease payments	22,411
Less current portion	6,460
Non-current obligations under finance leases	$15,951

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The lease term and discount rates are as follows:

Weighted average remaining lease term – finance leases (years) Weighted average discount rate – finance leases Supplemental cash flow information related to finance leases is as follows:	Year Ended Dece	mber 31,
	2021	2020
	3.9	4.9
	5.2%	4.6%

(in thousands)	Year Ended Dec	ember 31,
	2021	2020
Operating cash flows from finance leases	$ 877	$ 637
Equipment acquired in exchange for finance lease obligations	1,070	8,817

10. Operating Leases

The information pertaining to obligations under operating leases is as follows:

(in thousands)	Decemb	er 31,
	2021	2020
Obligations under operating leases	$205,169	$132,299
Less current portion	20,794	9,345
Non-current obligations under operating leases	$184,375	$122,954

The components of operating lease cost recognized in the consolidated statements of operations and comprehensive loss are as follows.

(in thousands)	Year Ended De	cember 31,
	2021	2020
Operating lease cost	$ 27,027	$ 20,625
Variable lease cost	4,515	4,109
Short-term lease cost	671	247
Total operating lease cost	$ 32,213	$ 24,981

Undiscounted cash flows for operating leases recorded in the consolidated balance sheet as of December 31, 2021 are as follows.

(in thousands)
Year ending December 31:
2022	$ 34,990
2023	33,294
2024	30,385
2025	26,430
2026	22,922
Thereafter	175,681
Total minimum lease payments	323,702
Less amount of lease payments representing interest	118,533
Present value of future minimum lease payments	205,169
Less current portion	20,794
Non-current obligations under operating leases	$184,375

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The lease term and discount rates are as follows:

	Year Ended De	cember 31,
	2021	2020
Weighted average remaining lease term – operating leases (years)	11.4	12.7
Weighted average discount rate – operating leases	7.7%	7.4%

Supplemental cash flow information related to operating leases is as follows:

(in thousands)	Year Ended De 2021	cember 31,
		2020
Operating cash flows from operating leases	$ 25,245	$ 17,672
Right-of-use assets acquired in exchange for operating lease obligations	3,769	10,818

11. Other Accrued Liabilities

Other accrued liabilities consist of the following:

(in thousands)	Decembe	r 31,
	2021	2020
Accrued compensation and related expenses	$26,486	$ 3,831
Accrued interest expense	16,840	4,588
MAAPP funds (Note 24)	2,398	3,085
Earn-out liability (Note 12)	—	4,689
Other	42,089	6,578
Total	$87,813	$22,771

12. Earn-Out Liability

A portion of the purchase price payable related to the 2019 acquisition of SFL Radiology Holdings, LLC (Georgia business), was subject to an earn-out (the “ADG Acquisition – Earn-out liability”) based on its annualized revenues earned in the first two quarters of 2020 less certain costs including certain operating expenses, capital expenditures and incremental working capital.

Management estimated the fair value of the ADG Acquisition Earn-out liability as of the acquisition date at $14.7 million based on a discount rate of 7% and management’s estimated probability weighted range of the ADG Acquisition – Earn-out liability. Subsequently, the ADG Acquisition Earn-out liability estimate was revalued to $14.8 million as of December 31, 2019. During 2020, this liability was revalued to $9.4 million based on a settlement reached pursuant to the terms of the purchase agreement with the representatives of the sellers of the Company’s Georgia business, and the change in fair value was recognized in other operating losses (gains) in the 2020 consolidated statement of operations and comprehensive loss. Fifty percent of this liability was paid in 2020 and the remaining $4.7 million balance was included in other accrued liabilities as of December 31, 2020 and was subsequently paid in 2021. During the year ended December 31, 2020, the Company recognized a gain of $5.5 million due to changes in fair value of the ADG Acquisition – Earn-out liability.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

13. Financial Instruments

Assets and liabilities that are measured at fair value on a recurring basis

The following table summarizes the valuation of the Company’s financial instruments that are reported at fair value on a recurring basis:

(in thousands)	Fair V	alue as of D	ecember 31,	2021 Total	Fair Va	lue as of De	cember 31, 2020 Level 2 Level 3	cember 31, 2020 Level 2 Level 3
	Level 1	Level 2	Level 3		Total	Level 1	Level 2
Current and long-term liabilities:
Derivative in subordinated notes	$ —	$ —	$7,522	$7,522	$ —	$ —	$ —	$ —
Interest rate contracts	$ —	$ 53	$ —	$ 53	$ —	$ —	$ —	$ —

The derivative in subordinated notes relates to the Change of Control Redemption Election included in the Subordinated Notes (see Note 8). The estimated fair values of the Change of Control Redemption Election as of December 31, 2021 and September 1, 2021 (inception) use unobservable inputs for probability weighted time until an exit event of 4.2 years and 4.1 years, respectively, and an exit event probability weighting of 24.5% and 25.0%, respectively.

The following is a reconciliation of the opening and closing balances for the liability related to the embedded derivative included in the Subordinated Notes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended December 31, 2021:

(in thousands)
Balance, December 31, 2020	$ —
Fair value at time of Alliance Acquisition	7,622
Change in fair value	(100)
Balance, December 31, 2021	$7,522

The Company’s interest rate contracts arose from the Alliance Acquisition and are primarily pay-fixed, receive-variable interest rate swaps related to certain of the Company’s equipment debt. The amount that the Company expects to reclassify from accumulated other comprehensive income to interest expense over the next twelve months is immaterial.

Assets and liabilities for which fair value is only disclosed

The estimated fair values of other current and non-current liabilities are as follows:

(in thousands)	December	31,
	2021	2020
2028 Senior Notes	$ 345,938	$ —
2025 Senior Notes	446,500	424,016
Subordinated Notes	323,620	—
Equipment Debt	56,879	1,122
Total	$1,172,937	$425,138

As of December 31, 2021, the estimated fair values of the 2028 Senior Notes and 2025 Senior Notes were determined using Level 2 inputs and the estimated fair values of the Subordinated Notes and Equipment Debt were determined using Level 3 inputs.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities, and the current portion of lease liabilities approximates their fair value given their short-term nature. The carrying value of the non-current portion of lease liabilities approximates their fair value given the difference between the discount rates used to recognize the liabilities in the consolidated balance sheets and the normalized expected market rates of interest is insignificant.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Financial instruments are classified into one of the following categories: amortized cost, fair value through earnings and fair value through other comprehensive income. The following table summarizes information regarding the carrying value of the Company’s financial instruments:

(in thousands)	December	31,
	2021	2020
Financial assets measured at amortized cost:
Cash and cash equivalents	$ 48,419	$ 44,396
Accounts receivable	121,525	62,259
	$ 169,944	$106,655
Financial liabilities measured at amortized cost:
Accounts payable	$ 34,326	$ 16,213
Current portion of long-term debt	14,789	406
Current portion of leases	27,254	12,610
Non-current portion of long-term debt	1,197,596	389,580
Non-current portion of leases	200,326	135,263
Other accrued liabilities	87,813	22,771
	$1,562,104	$576,843
Financial liabilities measured at fair value through earnings:
Derivative in subordinated notes	$ 7,522	$ —
Financial liabilities measured at fair value through other comprehensive income:
Interest rate contracts	$ 53	$ —

Assets and liabilities that are measured at fair value on a nonrecurring basis

The Company measures certain non-financial assets at fair value on a nonrecurring basis, primarily intangible assets, goodwill and long-lived assets in connection with acquisitions and periodic evaluations for potential impairment. The Company estimates the fair value of these assets using primarily unobservable inputs; therefore, these are considered Level 3 fair value measurements. See disclosure of Level 3 measurements related to the valuation of identifiable intangible assets in connection with the Alliance Acquisition in Note 4 and the goodwill impairment analysis in Note 6.

Interest Rate Risk

Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Changes in lending rates can cause fluctuations in interest payments and cash flows. Certain of the Company’s equipment debt arrangements have interest rate swap agreements to hedge the future variable cash interest payments in order to avoid volatility in operating results due to fluctuations in interest rates. As of December 31, 2021, the Company had $1.8 million of variable interest rate equipment debt that is not hedged. In addition, the Company is exposed to variable interest rates related to the 2020 Revolving Facility, which was not drawn upon during the years ended December 31, 2021 or 2020. The Company’s exposure to interest rate risk from a 1% increase or decrease in the variable interest rates is not material.

14. Stock-Based Awards

The Company may grant stock-based awards to employees, directors and consultants under the Amended and Restated Restricted Share Unit Plan, adopted as of November 14, 2017 (the “RSU Plan”) and the Amended and Restated Stock Option Plan, adopted as of November 14, 2017 (the “Stock Option Plan” and together with the RSU Plan, the “2017 Stock Plans”). Under the 2017 Stock Plans, the collective maximum number of shares reserved for issuance is equal to 10% of the number of capital shares of the Company that are outstanding from time to time. As of December 31, 2021 and 2020, common shares reserved for issuance under the 2017 Stock Plans were 8,902,699 and 7,017,842, respectively. The 2017 Stock Plans are administered by the Board of Directors, which has authority to select eligible persons to receive awards and to determine the terms and conditions of the awards.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Restricted Share Units

RSUs represent a right to receive a share of common stock at a future vesting date with no cash payment from the holder. RSUs granted vest over two years from the date of grant. A summary of RSU activity is as follows:

	Number of RSUs	Weighted- Average Grant Date Fair Value	Aggregate Fair Value (in thousands)
Outstanding and unvested at December 31, 2019	337,500	$ 3.89
Vested	(337,500)	3.89	$ 1,313
Outstanding and unvested at December 31, 2020	—	—
Granted	2,029,032	2.41
Outstanding and unvested at December 31, 2021	2,029,032	$ 2.41	$ 4,890

Stock Options

Stock options are awarded as consideration in exchange for services rendered to the Company. Stock options granted generally have terms of 7 to 10 years and vest over 3 years. A summary of the stock option activity is as follows:

	Number of Options	Weighted- Average Exercise price	Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2019	5,778,120	$ 2.47
Cancelled	(18,000)	3.74
Outstanding at December 31, 2020	5,760,120	2.47
Granted	70,000	3.58
Exercised	(150,000)	0.50		$ 413
Outstanding at December 31, 2021	5,680,120	$ 2.54	4.4	$ 2,344
Exercisable at December 31, 2021	5,060,719	$ 2.44	4.2	$ 2,344

Aggregate intrinsic value for outstanding and exercisable stock options in the table above represents the difference between the closing stock price on December 31, 2021 and the exercise price multiplied by the number of in-the-money options. The intrinsic value of options exercised in the table above is calculated as the difference between the market price on the date of exercise and the exercise price multiplied by the number of options exercised.

The fair value of stock options granted during the year ended December 31, 2021 have been estimated using the Black-Scholes option pricing model. The weighted-average fair value and underlying assumptions are as follows:

Fair value	$1.39
Expected volatility	35.5%
Risk-free interest rate	1.2%
Expected life (years)	7.0
Dividend yield	—

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Stock-Based Compensation Expense

During the year ended December 31, 2021 and 2020, the Company recorded total stock-based compensation expense related to all stock-based awards of $2.8 million and $2.1 million, respectively.

As of December 31, 2021, there was $3.3 million of total unrecognized compensation costs related to outstanding stock-based awards. These costs are expected to be recognized over a weighted-average period of 1.9 years.

15. Commitments and Contingencies

Purchase Commitments

The Company has certain binding purchase commitments primarily for the purchase of equipment from various suppliers. As of December 31, 2021, the obligations for these future purchase commitments totaled $24.8 million, of which $15.9 million is expected to be paid over the next twelve months and $8.9 million is expected to be paid thereafter.

Guarantees and Indemnities

In the normal course of business, the Company has made certain guarantees and indemnities, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. The Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims arising from a breach of representations or covenants. In addition, the Company has entered into indemnification agreements with its executive officers and directors and the Company’s bylaws contain similar indemnification obligations. Under these arrangements, the Company is obligated to indemnify, to the fullest extent permitted under applicable law, its current or former officers and directors for various amounts incurred with respect to actions, suits or proceedings in which they were made, or threatened to be made, a party as a result of acting as an officer or director.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made related to these indemnifications have been immaterial. As of December 31, 2021, the Company has determined that no liability is necessary related to these guarantees and indemnities.

Legal Matters

On November 22, 2021, an alleged shareholder of the Company filed a putative class action claim with the Ontario Superior Court of Justice against the Company and certain of its directors and officers alleging violations of Securities Act (Ontario), negligent misrepresentation and other related claims. The claims generally allege that certain of the Company’s prior public financial statements misrepresented the Company’s revenue, accounts receivable and the value of its assets based upon the Company’s August 12, 2021, October 12, 2021 and November 8, 2021 disclosures relating to a review of certain procedures related to its financial statements and to the restatement of financial statements affecting accounts receivable and net book value of property and equipment. The claim does not quantify a damage request. Defendants have not yet responded to the claim. On December 20, 2021 a second statement of claim was filed by a new plaintiff making similar allegations. The new statement of claim names additional directors of the Company as well as the auditors of the Company. As the two statements of claim involve similar subject matter and some of the same class members, the new plaintiff firm has requested a motion for carriage under the Class Proceedings Act, 1992 (Ontario) so the court can determine which plaintiff firm will have carriage of the class action proceedings.

Other Matters

The Company is party to various legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. With respect to these matters, management evaluates the developments on a regular basis and accrues a liability when it believes a loss is probable and the amount can be reasonably estimated. Management believes that the amount or any estimable range of reasonably possible or probable loss will not, either individually or in the aggregate, have a material adverse effect on the Company’s business and consolidated financial statements. However, the outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, the Company’s results of operations and financial condition could be materially and adversely affected.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

16. Supplemental Revenue Information

Revenues consist primarily of net patient fees received from various payors and patients based on established contractual billing rates, less allowances for contractual adjustments and implicit price concessions. Revenues are also derived directly from hospitals and healthcare providers.

The following table summarizes the components of the Company’s revenues by payor category:

(in thousands)	Year Ended D	ecember 31,
	2021	2020
Patient fee payors:
Commercial	$ 226,843	$ 193,917
Medicare	51,238	27,874
Medicaid	8,002	7,700
Other patient revenue	11,499	8,833
	297,582	238,324
Hospitals and healthcare providers	118,491	—
Other revenues	5,006	7,302
	$ 421,079	$ 245,626

17. Cost of Operations, excluding Depreciation and Amortization

The following table summarizes the components of the Company’s cost of operations, excluding depreciation and amortization:

(in thousands)	Year Ended D	ecember 31,
	2021	2020
Employee compensation	$ 164,053	$ 84,038
Third-party services and professional fees	63,301	30,183
Reading fees	42,842	37,818
Rent and utilities	37,158	30,203
Administrative	24,660	12,231
Medical supplies and other	27,721	11,162
	$ 359,735	$ 205,635

18. Supplemental Statement of Operations Information

Acquisition-related costs for the year ended December 31, 2021 consist primarily of $13.6 million related to the Alliance Acquisition. Other acquisition-related costs relate to various other acquisitions and potential transactions.

Settlement and related costs (recoveries) for the year ended December 31, 2021 consist primarily of a $1.3 million recovery from insurance due to weather related damage to two locations, partially offset by other costs. Settlement and related costs (recoveries) for the year ended December 31, 2020 consist primarily of an $0.8 million settlement of a government investigation related predominantly to historical reimbursements paid under federal healthcare programs to certain of the Company’s subsidiaries, which was reached in January 2021, and $1.1 million for various settlement costs related to certain of the Company’s vendors.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

19. Other Operating and Non-Operating Losses (Gains)

Other operating losses (gains) consist of the following:

(in thousands)	Year Ended D	ecember 31, 2020
	2021
Gain on revaluation of earn-out liability (Note 12)	$ —	$ (5,457)
Loss on disposal of property and equipment, net	748	1,327
Other gains	(165)	—
	$ 583	$ (4,130)

Other non-operating losses (gains) consist of the following:

(in thousands)	Year Ended De	cember 31, 2020
	2021
Loss on extinguishment of debt (Note 8)	$ —	$ 18,279
Loss on settlement of interest rate cap derivative (Note 8)	—	4,162
Gain on conversion of debt to equity investment (Note 20)	(3,360)	—
Earnings from equity method investments	(291)	—
Other gains	(339)	(54)
	$ (3,990)	$ 22,387

20. Investments in Unconsolidated Investees

Effective March 1, 2021, the Company completed a common equity investment in an artificial intelligence business (“AI business”) as part of a private placement offering for $4.6 million. The AI business develops artificial intelligence aided software programs for use in medical businesses, including outpatient imaging services provided by the Company. As a result of the investment, a previous investment in a convertible note instrument issued by the AI business to the Company in May 2020 converted to common equity. The Company’s total common equity investment is estimated to be valued at $7.9 million and represents a 34.5% interest in the AI business on a non-diluted basis. In addition, the Company holds share purchase warrants which, subject to the occurrence of certain events and certain assumptions, and the payment of $0.4 million, would entitle the Company to acquire an additional 2.4% ownership interest in the AI business common equity. During the year ended December 31, 2021, the Company recognized a gain of $3.4 million on the conversion of the convertible note instrument to common equity and the share purchase warrants. This gain is included in other non-operating losses (gains) in the consolidated statements of operations and comprehensive loss.

The Company has a 15% direct ownership in an unconsolidated investee and provides management services under a management agreement with the investee. The Company provides services as part of its ongoing operations for and on behalf of the unconsolidated investee, which reimburses the Company for the actual amount of the expenses incurred. The Company records the expenses in cost of operations and the reimbursement as revenue in the 2021 consolidated statement of operations and comprehensive loss.

The financial position and results of operations of these unconsolidated investees are not material to the Company’s consolidated financial statements.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

21. Income Taxes

The income tax expense (benefit) shown in the consolidated statements of operations and comprehensive loss consists of the following:

(in thousands)	Year Ended Decem	ber 31, 2020
	2021
Current:
Federal	$ —	$ —
State	41	(138)
Total current	41	(138)
Deferred:
Federal	(25,362)	700
State	(5,070)	—
Total deferred	(30,432)	700
Total income tax expense (benefit)	$ (30,391)	$ 562

Significant components of the Company’s net deferred tax assets (liabilities) are as follows:

(in thousands)	December	31, 2020
	2021
Deferred tax assets:
Net operating losses	$ 54,050	$ 16,559
Lease-related liabilities	45,367	31,615
Accruals not currently deductible	27,538	13,332
Interest expense limitation	25,123	2,025
Other	11,760	6,192
Valuation allowance	(2,398)	(16,852)
Total deferred tax assets	161,440	52,871
Deferred tax liabilities:
Intangible assets	(50,213)	(441)
Operating lease right-of-use assets	(42,642)	(30,349)
Property and equipment	(42,474)	(11,197)
Basis difference in joint ventures	(30,539)	—
Goodwill	(13,979)	(10,661)
Other	(5,620)	(1,916)
Total deferred tax liabilities	(185,467)	(54,564)
Net deferred tax liabilities	$ (24,027)	$ (1,693)

A reconciliation of the total income tax expense (benefit) with the amount computed by applying the Canadian statutory tax rate of 26.5% to the loss before income taxes is as follows:

(in thousands)	Year Ended Dec	ember 31, 2020
	2021
Tax benefit at Canadian statutory rate	$ (17,279)	$ (8,902)
Non-deductible items	4,367	40
Stock-based compensation	973	397
Noncontrolling interests	(2,246)	(685)
Valuation allowance	(15,547)	8,916
Other	(659)	796
Income tax expense (benefit)	$ (30,391)	$ 562

As of December 31, 2021, the Company had net operating loss (“NOL”) carryforwards of $210.6 million and $170.5 million for U.S. federal and state income tax purposes, respectively. These loss carryforwards will expire at various dates from 2031 through 2037; however, $133.1 million of the federal NOL carryforward was generated after December 31, 2017 and has no expiration date. These NOLS are subject to certain utilization limitations. The Company also has interest expense limitation carryforwards of $20.4 million as of December 31, 2021 which do not expire but are subject to utilization restrictions.

Based on the Company’s earnings history and available objectively verifiable positive and negative evidence, the Company determined that it is more likely than not that a portion of its deferred tax assets will not be realized in the future. As of December 31, 2021 and 2020, the Company recorded a valuation allowance of $2.4 million and $16.9 million, respectively, against its deferred tax assets that were determined to not be more likely than not realizable. The income tax benefit for the year ended December 31, 2021 includes a $15.5 million reversal of the valuation allowance on deferred tax assets that had been previously established based on management’s prior year determination that it was more likely than not that a portion of the deferred tax assets would not be realized in the future. In connection with the acquisition of Alliance in 2021, management recorded deferred tax liabilities that provided sufficient evidence regarding future taxable income and, accordingly, recorded a release of a portion of the valuation allowance recorded in prior years.

The amount of the deferred tax assets considered realizable could be adjusted if there are changes in the estimates of future taxable income during the carry forward period. The Company has made significant investments in its U.S. operations and asserts that earnings from such operations will be indefinitely reinvested. Therefore, the determination of unrecognized deferred tax liabilities on outside basis differences is not practicable at this time.

A roll forward of the activity for the gross unrecognized tax benefits is as follows:

(in thousands)	2021
Unrecognized tax benefits at January 1	$—
Increases for positions taken in current year	112
Decreases for positions taken in a prior year	(7)
Decreases for lapses in the applicable statute of limitations	(25)
Unrecognized tax benefits at December 31	$ 80

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax benefit in the consolidated statements of operations and comprehensive loss. Accrued interest and penalties related to unrecognized tax benefits as of December 31, 2021 were not material.

The Company is subject to Canadian and U.S. federal income tax as well as income tax of multiple state tax jurisdictions. The Company’s Canadian income tax returns are currently open to audit under the applicable statute of limitations for the years ended December 31, 2017 through 2021. The Company’s U.S. federal income tax returns are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2018 through 2021. The Company’s state income tax returns are open to audit under the applicable statutes of limitations for the years ended December 31, 2017 through 2021. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

22. Basic and Diluted Loss per Share

The loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average common shares outstanding during the period.

(in thousands, except share and per share amounts)	Year ended Dece	mber 31, 2020
	2021
Net loss attributable to common shareholders	$ (43,291)	$ (36,741)
Weighted average common shares outstanding:
Basic and diluted	76,836,032	70,101,618
Net loss per share attributable to common shareholders:
Basic and diluted	$ (0.56)	$ (0.52)
Employee stock options, warrants and restricted stock units excluded from the computation of diluted per share amounts as their effect would be antidilutive	2,215,163	1,664,231

23. Segment Information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision makers, who are responsible for allocating resources and assessing performance of the operating segments, have been identified as the Co-Chief Executive Officers. Prior to the Alliance Acquisition, the Company had one reportable segment, which was outpatient diagnostic imaging services. As a result of the acquisition, the Company operates in two reportable segments: Radiology and Oncology. All intercompany revenues, expenses, payables and receivables are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment’s performance is evaluated based on revenue and earnings before interest, income taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The following table summarizes the Company’s revenues by segment:

(in thousands)	Year Ended De	cember 31,
	2021	2020
Radiology	$374,402	$245,626
Oncology	46,677	—
	$421,079	$245,626

Adjusted EBITDA is defined as net income before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation, acquisition-related costs, settlement and related costs (recoveries), financial instruments revaluation and related losses (gains), loss on extinguishment of debt, severance and related costs, restructuring charges, asset impairments, other losses (gains), deferred rent expense and one-time adjustments. Adjusted EBITDA should not be considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA should not be considered in isolation or as alternatives to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity. Adjusted EBITDA is not a measurement determined in accordance with GAAP and is therefore susceptible to varying methods of calculation and may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA is the most frequently used measure of each segment’s performance and is commonly used in setting performance goals.

The Company is unable to present comparable Adjusted EBITDA by segment for the year ended December 31, 2020, as it is impracticable to do so. The following table summarizes the Company’s Adjusted EBITDA for the year ended December 31, 2021:

(in thousands)	Year Ended December 31, 2021
Adjusted EBITDA:
Radiology	$ 64,992
Oncology	15,466
Corporate	(13,555)
	$ 66,903

A reconciliation of the net loss to total Adjusted EBITDA is shown below:

(in thousands)	Year Ended De	cember 31, 2020
	2021
Net loss	$ (34,814)	$ (34,156)
Interest expense	62,575	32,781
Income tax expense (benefit)	(30,391)	562
Depreciation and amortization	44,895	17,060
EBITDA	42,265	16,247
Adjustments:
Stock-based compensation	2,792	2,084
Acquisition-related costs	20,233	1,079
Settlement and related costs (recoveries)	(539)	2,324
Gain on revaluation of earn-out liability	—	(5,457)
Loss on extinguishment of debt	—	18,279
Loss on settlement of interest rate cap derivative	—	4,162
Gain on conversion of debt to equity investment	(3,360)	—
Severance, restructuring and other charges	3,368	—
Other losses, net	342	407
Deferred rent expense	1,802	2,953
Adjusted EBITDA	$ 66,903	$ 42,078

The following table summarizes the Company’s total assets by segment:

(in thousands)	December	31,
	2021	2020
Identifiable assets:
Radiology	$1,451,905	$662,191
Oncology	440,416	—

Corporate	26,505	2,861
Total	$1,918,826	$665,052

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

The following table summarizes the Company’s capital expenditures by segment:

(in thousands)	Year Ended Dec	ember 31,
	2021	2020
Capital expenditures:
Radiology	$ 12,478	$ 5,344
Oncology	5,117	—
Corporate	272	—
Total	$ 17,867	$ 5,344

24. CARES Act

The CARES Act provided for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP”) during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. During 2020, the Company applied for and received approval to receive $3.1 million of MAAPP funds from CMS. The Company recorded these payments as a liability until all performance obligations have been met, as the payments were made on behalf of patients before services were provided. MAAPP funds received are required to be applied to future Medicare billings commencing in April 2021 with all such remaining amounts required to be repaid by September 2022. In connection with the Alliance Acquisition, the Company assumed an obligation totaling $3.3 million related to MAAPP funds received by Alliance. As of December 31, 2021, the Company has a total remaining balance of $2.4 million of MAAPP funds to be applied to future Medicare claims.

In addition, the CARES Act provided waivers, reimbursement, grants and other funds to assist healthcare providers during the COVID-19 pandemic, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible healthcare providers for lost revenues and healthcare related expenses that are attributable to COVID-19. During 2021 and 2020, the Company received government grants totaling $0.8 million and $5.1 million, respectively, from HHS. These grants are recorded in other revenue in the consolidated statements of operations and comprehensive loss.

The CARES Act provided for the deferred payment of the employer portion of Social Security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of December 31, 2021, $4.3 million related to these deferred payments are included in other accrued liabilities in the consolidated balance sheet.

AI assistant

Silver Bear Resources Plc — Annual Report 2021

47458_rns_2022-03-16_fd89229f-3dc3-4f5e-a068-94a45dd91dcb.pdf

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Opinion on the Financial Statements

Basis for Opinion

/s/ Ernst & Young LLP

AKUMIN INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

AKUMIN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

AKUMIN INC.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share amounts)

AKUMIN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

AKUMIN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(in thousands)

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021 and 2020

1. Description of the Company

General Business Information

COVID-19

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Financial Statement Presentation

Variable Interest Entities

Use of Estimates

Revenue Recognition

Patient Fee Payors

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Hospital and Healthcare Providers

Other

Segment Reporting

Cash and Cash Equivalents

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Accounts Receivable

Concentration of Credit Risk

Property and Equipment

Leases

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Goodwill and Intangible Assets

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Impairment of Long-Lived Assets

Business Combinations

Redeemable Noncontrolling Interests

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Stock-Based Compensation

Income Taxes

Earnings per share

Comprehensive Income

Fair Value of Financial Instruments

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

Derivatives, Cash Flow Hedges and Embedded Derivatives

Warrants

Self-Insurance

AKUMIN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

December 31, 2021 and 2020

3. New Accounting Standards

Silver Bear Resources Plc Annual Report 2021