See Notes to Consolidated Financial Statements.
AMERICAN
CARESO
UR
CE HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(820,230
|
)
|
|
$
|
(1,313,827
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
(used
in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
328,839
|
|
|
|
316,304
|
|
Compensation
expense related to warrants
|
|
|
46,300
|
|
|
|
185,200
|
|
Stock
option compensation
|
|
|
418,058
|
|
|
|
213,579
|
|
Client
management fee expense related to warrants
|
|
|
35,276
|
|
|
|
-
|
|
Deferred
taxes
|
|
|
(255,731
|
)
|
|
|
-
|
|
Gain
on disposal of assets
|
|
|
-
|
|
|
|
(32,755
|
)
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,316,253
|
)
|
|
|
(852,791
|
)
|
Prepaid
and other assets
|
|
|
(542,626
|
)
|
|
|
(3,364
|
)
|
Due
to service providers
|
|
|
2,267,104
|
|
|
|
690,957
|
|
Accounts
payable and other accrued liabilities
|
|
|
558,110
|
|
|
|
409,543
|
|
Net
cash used in operating activities
|
|
|
(281,153
|
)
|
|
|
(387,154
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(181,153
|
)
|
|
|
(234,376
|
)
|
Proceeds
from sales of equipment
|
|
|
-
|
|
|
|
73,462
|
|
Purchase
of Certificate of Deposit
|
|
|
-
|
|
|
|
(145,000
|
)
|
Net
cash used in investing activities
|
|
|
(181,153
|
)
|
|
|
(305,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments
on line of credit, net
|
|
|
-
|
|
|
|
(3,450,000
|
)
|
Proceeds
from long term debt
|
|
|
-
|
|
|
|
135,000
|
|
Payments
on long term debt
|
|
|
(348,215
|
)
|
|
|
(96,901
|
)
|
Net
proceeds from the sale of capital stock
|
|
|
-
|
|
|
|
9,069,848
|
|
Net
proceeds from the exercise of stock options
|
|
|
57,639
|
|
|
|
37,102
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(290,576
|
)
|
|
|
5,695,049
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(752,882
|
)
|
|
|
5,001,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
5,025,380
|
|
|
|
23,399
|
|
Cash
and cash equivalents at end of year
|
|
$
|
4,272,498
|
|
|
$
|
5,025,380
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION, cash paid for interest
|
|
$
|
30,101
|
|
|
$
|
52,532
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH OPERATING AND FINANCIAL ACTIVITIES
|
|
|
|
|
|
|
|
|
Warrants
issued in payment of client management fees
|
|
|
105,825
|
|
|
|
-
|
|
Warrants
issued for stock issuance
|
|
|
-
|
|
|
|
463,861
|
|
|
|
|
|
|
|
|
|
|
See Notes
to Consolidated Financial Statements
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Note
1. Summary of Significant Accounting Policies
Organization and Description
of business
: Essentially all of the outstanding shares of
common stock of American CareSource Holdings, Inc. (the “Company” or “American
CareSource Holdings”), a Delaware corporation, were distributed by dividend to
the stockholders of Patient Infosystems, Inc. (“Patient Infosystems”) on
December 23, 2005. Public trading of the Company’s common stock
commenced on December 28, 2005 under the symbol ACSH.OB on the Over the Counter
Bulletin Board Market (“OTC Bulletin Board”). The Company’s common
stock was listed for trading on the American Stock Exchange on October 19, 2006
under the symbol XSI.
American
CareSource Holdings has one wholly owned subsidiary, Ancillary Care Services,
Inc.
The
Company’s predecessor was formed as Physician’s Referral Network in 1995 and
merged into Health Data Solutions, Inc. in October 1997. At the time
of such merger, Health Data Solutions changed its name to American CareSource
Corporation. American CareSource Corporation was acquired by Patient
Infosystems on December 31, 2003. The Company was incorporated on
November 24, 2003 as a wholly-owned subsidiary of Patient Infosystems in order
to facilitate Patient Infosystems’ acquisition of substantially all of the
assets of American CareSource Corporation.
The
Company is in the business of delivering ancillary healthcare services for
employment groups through its national network of ancillary care
providers. The Company markets its products to insurance companies,
third party administrators, and preferred provider organizations.
Segment:
The
Company uses the “management approach” for reporting information about segments
in annual and interim financial statements. The management approach is
based on the way the chief operating decision-maker organizes segments within a
company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure and any other manner in which management
disaggregates a company. Based on the “management approach” model, the
Company has determined that its business is comprised of a single operating
segment.
Principles of
consolidation:
The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly
owned. All material inter-company accounts and transactions are
eliminated in consolidation.
Use of estimates in the
preparation of financial statements
: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those
estimates.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Cash and cash
equivalents:
The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. Cash and cash equivalents include amounts in deposit accounts in
excess of federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue
recognition
: The Company evaluates its service provider
contracts using the indicators of EITF No. 99-19 “Reporting Gross Revenue as a
Principal vs. Net as an Agent” (EITF 99-19) to determine whether the Company is
acting as a principal or an agent in the fulfillment of services to be
rendered.
Revenues
are recorded gross when services by providers have been authorized and performed
and collections from third party payors are reasonably assured. The
Company acts as principal under EITF 99-19 when settling claims for service
providers through its contracted service provider network for the following
reasons:
The
Company negotiates a contract with the service provider and also negotiates a
separate contract with the client payor. Neither the service provider
nor the payor can look through the Company and claim directly against the other
party. Each service provider contracts with the Company only, and not
with the payor. Likewise, each payor contracts with the Company only and not
with the service provider. Each party deals directly with the Company
and does not deal with each other directly.
The
Company determines through negotiations which service providers will be included
or excluded in the network to be offered to the client payor based on price,
access, etc.
The
Company does not earn a fixed dollar amount per customer transaction regardless
of the amount billed to customers or earn a stated percentage of the amount
billed to its customers.
The
Company is responsible to the service provider for processing claims and
managing the claims its adjustors process.
The
Company sets prices to be settled with payors and separately negotiates the
prices to be settled with the service providers.
The
Company may realize a positive or negative margin represented by the difference
between the negotiated fees received from the payor and the negotiated amount
paid to the service providers.
When
claims are recorded gross, the payor’s payment to be Company is recorded as
revenue and the Company’s payment to the service provider is recorded as cost of
revenue in the statement of operations.
The
Company does not have responsibility to collect co-payments to be made or
co-insurance claims to be received. Accordingly, co-payments or
co-insurance claims collected are not recorded as either revenue or cost of
sales.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
The
Company does record an allowance on all sales reported as gross to arrive at a
net revenue number. Copayments, deductibles and co-insurance can all
impact the collectability of each individual claim. While the Company
is able to re-price a claim and accurately estimate what it should be paid for
the service, the presence of co-pays, deductibles and coinsurance can all affect
the ultimate collectability of the claim. In addition, the Company’s
collection experience with each payor varies. The Company records an
allowance against gross revenue to better estimate
collectability. This allowance is applied specifically for each payor
and is adjusted to reflect the Company’s collection experience each
quarter.
Accounts
receivable
: Accounts receivable are reported at amounts
expected to be received from third party payors and other
customers. These amounts are net of an allowance to adjust for
expected collectability.
Fair value of financial
instruments
: The Company’s financial instruments consist
primarily of cash and cash equivalents, a certificate of deposit, accounts
receivable, accounts payable, accrued expenses and long-term
debt. The fair value of instruments is determined by reference to
various market data and other valuation techniques, as
appropriate. Unless otherwise disclosed, the fair value of short-term
financial instruments approximates their recorded values due to the short-term
nature of the instruments. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities, the fair value of long-term debt approximates its carrying
value.
Property and
equipment
: Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and
amortization is computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes and on the straight-line
and accelerated methods for tax purposes. Leasehold improvements are
amortized using the straight-line method over their estimated useful lives or
the lease term, whichever is shorter. Ordinary maintenance and
repairs are charged to operations. Expenditures that extend the
physical or economic life of property and equipment are
capitalized.
The
estimated useful lives of property and equipment are as follows:
Leasehold
improvements
|
5
years
|
Computer
equipment
|
3
years
|
Furniture
and fixtures
|
7
years
|
Software
|
3
- 5 years
|
Costs of
revenues
: Costs of ancillary health revenues consist of
expenses due to providers for providing patient services, the related direct
labor and administrative fees for providing the service, direct labor and
overhead to administer the patient claims processing and
administration. The Company is not liable for costs incurred by
independent contract service providers until payment is received by the Company
from the respective payors. The Company recognizes actual or
estimated liabilities to independent contract service providers as related
revenues are recognized.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Issuance of
Warrants
: The Company has issued warrants to stockholders and
directors in exchange for a guarantee of Company debt. The warrants
were valued at $376,646 as of the dates of the grants using the fair value
method. The exercise price of these warrants ranges from $0.40 -
$0.49. These deferred debt issuance costs were amortized to expense
over the life of the guarantee.
The
Company also issued warrants to purchase up to 159,952 shares of common stock
with an exercise price of $5.50, in connection with the Private Placement
financing completed in March of 2006, to Laidlaw as part of their compensation
for the financing. These warrants were valued at $463,861 as of the
date of the grant using the fair value method.
On July
2, 2007, the Company announced that it had signed an Ancillary Care Services
Network Access Agreement (the “Ancillary Care Services Agreement”) effective as
of May 21, 2007 (the “Effective Date”) with a new customer, Texas True Choice,
Inc. (“Texas True Choice”), a Texas-based preferred provider organization
network, and certain subsidiaries of Texas True Choice. As partial compensation
to Texas True Choice under the Ancillary Care Services Agreement, the Company
issued to Corporate Health Plans of America, Inc., an affiliate of Texas True
Choice, warrants to purchase a total of 225,000 shares of the Company’s common
stock at an exercise price of $1.84, the closing price of the common stock of
the Company as reported on the American Stock Exchange on the Effective Date.
These warrants vested as to 25% of the shares on the Effective Date, shall vest
an additional 25% on each anniversary date of the Effective Date, and have an
expiration date of May 20, 2012. In the event of an early termination of the
Ancillary Care Services Agreement, the warrants terminate with respect to all
unvested shares at the time of such early termination.
Concentration of
revenues
: The Company has three customers that each comprise a
significant portion of the Company’s revenue. The following is a
summary of the approximate amounts of the Company’s revenue and accounts
receivable contributed by each of these customers:
|
|
Twelve Months Ended December 31,
2007
|
|
|
Twelve Months Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
$
|
1,964,000
|
|
|
$
|
15,195,000
|
|
|
|
65
|
%
|
|
$
|
826,000
|
|
|
$
|
8,183,000
|
|
|
|
72
|
%
|
Customer
B
|
|
|
1,473,000
|
|
|
|
6,633,000
|
|
|
|
28
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0
|
%
|
Customer
C
|
|
|
42,000
|
|
|
|
684,000
|
|
|
|
3
|
%
|
|
|
287,000
|
|
|
|
2,442,000
|
|
|
|
21
|
%
|
All
Others
|
|
|
172,000
|
|
|
|
976,000
|
|
|
|
4
|
%
|
|
|
222,000
|
|
|
|
794,000
|
|
|
|
7
|
%
|
|
|
$
|
3,651,000
|
|
|
$
|
23,488,000
|
|
|
|
100
|
%
|
|
$
|
1,335,000
|
|
|
$
|
11,419,000
|
|
|
|
100
|
%
|
Stock-Based
Compensation
:
At
December 31, 2007, the Company has a stock based compensation plan, which is
described more fully in Note 6. Prior to January 1, 2006, the Company
accounted for the plans under the recognition and measurement provisions of
APB25, and related Interpretations, as permitted by SFAS
123. Effective January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS 123R using the modified prospective transition
method. Under this
transition
method, compensation cost recognized in the year ended December 31, 2006,
included: (a) compensation expense of all share-based payments granted prior to,
but not yet vested as of January 1, 2006 (based on the grant-date fair value
estimated in accordance with the original provisions for SFAS 123), and (b)
compensation cost for all share-based payments granted subsequent to January 1,
2006 (based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R). Results for prior periods have not been
restated.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Intangible
assets
: Intangible assets consist of provider contracts and
internally developed claims payment and billing software. Each of
these items is being amortized using the straight line method over its expected
useful life, 5 years for the software and 15 years for the provider
contracts. Our experience to date is that we have approximately 3%
annual turnover or attrition of provider contracts. The provider
contracts are being accounted for on a pooled basis and the actual cancellation
rates of provider contracts that were acquired will be monitored for potential
impairment or amortization adjustment, if warranted. As of December
31, 2007, there is no impairment of this intangible asset. The cost
of adding additional providers is considered an ongoing operating
expense.
The
following is a summary of the intangible assets as of December 31, 2007 and
2006:
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Accumulated
Amortization
|
|
Software
|
|
$
|
427,581
|
|
|
$
|
342,065
|
|
|
$
|
256,549
|
|
Provider
Contracts
|
|
|
1,920,984
|
|
|
|
512,262
|
|
|
|
384,197
|
|
|
|
$
|
2,348,565
|
|
|
$
|
854,327
|
|
|
$
|
640,746
|
|
Amortization
expense was approximately 214,000 for each of the years ended December 31, 2007
and 2006.
Estimated
aggregated amortization expenses for the next five years are as
follows:
|
|
Estimated
Amortization
Expense
|
|
|
|
|
|
Year
ending December 31:
|
|
|
|
2008
|
|
$
|
214,000
|
|
2009
|
|
|
128,000
|
|
2010
|
|
|
128,000
|
|
2011
|
|
|
128,000
|
|
2012
|
|
|
128,000
|
|
|
|
$
|
726,000
|
|
Goodwill
is tested annually for impairment based on the valuation of the Company’s
stock. Management deemed there was no impairment as of December 31,
2007 and 2006.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Research and
development
: Research and development costs are expensed as
incurred. The Company capitalizes costs associated with internal
software development. Capitalized internal software is depreciated
over a period of 5 years.
Earnings per common
share
: Basic earnings per share is computed by dividing net
loss by the weighted average number of shares outstanding during each of the
periods. Diluted earnings per share is the same amount because all
outstanding stock equivalents have been excluded from the calculation of diluted
earnings per share since they are anti-dilutive.
Income
taxes
: Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for all
the effects of changes in tax laws and rates on the date of enactment. Prior to
December 16, 2005, the Company filed consolidated tax returns with Patient
Infosystems. The Company recorded its tax expense using the separate
company method.
On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation (FIN) 48, “Accounting for Uncertainty in Income
Taxes.” FIN 48, an interpretation of Statement of Financial Accounting Standard
(SFAS) 109, “Accounting for Income Taxes,” clarifies the accounting and
disclosure requirements for uncertainty in tax positions as defined by the
standard. In connection with the adoption of FIN 48, the Company has
analyzed its filing positions in all significant jurisdictions where it is
required to file income tax returns for the open tax years in such
jurisdictions. The Company has identified three states as major tax
jurisdictions, as defined by FIN 48, its federal income tax return and its
state income tax.. The Company’s income tax returns in major state
income tax jurisdictions remain subject to examination for various periods
subsequent to December 31, 2003. The Company currently believes that all
significant filing positions are highly certain and that, more likely than not,
all of its income tax filing positions and deductions would be sustained.
Therefore, the Company has no significant reserves for uncertain tax positions
and no adjustments to such reserves were required upon the adoption of
FIN 48. If interest and penalties are assessed, interest costs will be
recognized in interest expense and penalties will be recognized in operating
expenses.
Pending Accounting
Pronouncements
:
In
September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurements”.
This Statement defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value
measurements. Statement No. 157 also emphasizes that fair value
is a market-based measurement, not an entity-specific measurement, and sets out
a fair value hierarchy with the highest priority being quoted prices in active
markets. Under Statement No. 157, fair value measurements are
disclosed by level within that hierarchy. The requirements of
Statement No. 157 are first effective for our fiscal year beginning January 1,
2008. However, in February 2008, the FASB decided that an entity need
not apply this standard to nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring
basis until the subsequent year. Accordingly, our adoption of this
standard on January 1, 2008 is limited to financial assets and liabilities, and
any nonfinancial assets and liabilities recognized or disclosed at fair value on
a recurring basis. The Company is currently assessing the potential
effect of Statement No. 157 on its financial position, results of operations and
cash flows.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
In
February 2007, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement No. 115”, which provides
all entities, including not-for-profit organizations, with an option to report
selected financial assets and liabilities at fair value. The
objective of the Statement is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in earnings caused by
measuring related assets and liabilities differently without having to apply the
complex provisions of hedge accounting. Certain specified items are
eligible for the irrevocable fair value measurement option as established by
Statement No. 159. Statement No. 159 is effective as of the beginning
of an entity’s first fiscal year beginning after November 15,
2007. The Company is currently evaluating the impact that the
adoption of this Statement will have on its financial position, results of
operation and cash flows.
Note
2. Property and Equipment
Property
and equipment consist of the following:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$
|
257,938
|
|
|
$
|
184,071
|
|
Software
|
|
|
231,948
|
|
|
|
132,051
|
|
Furniture
and fixtures
|
|
|
122,382
|
|
|
|
116,275
|
|
Leasehold
improvements
|
|
|
33,149
|
|
|
|
31,867
|
|
|
|
|
645,417
|
|
|
|
464,264
|
|
Less
accumulated depreciation and amortization
|
|
|
(312,967
|
)
|
|
|
(197,709
|
)
|
|
|
$
|
332,450
|
|
|
$
|
266,555
|
|
Included
in property and equipment is equipment held under capitalized leases as
follows:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Computer
Equipment
|
|
$
|
47,179
|
|
|
$
|
47,179
|
|
Less
accumulated amortization
|
|
|
(43,248
|
)
|
|
|
(27,521
|
)
|
|
|
$
|
3,931
|
|
|
$
|
19,658
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Note
3. Long-Term Debt
Long-term
debt consists of the following:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Note
payable to CareGuide, Inc. (formerly Patient Infosystems,
Inc.)
|
|
$
|
0
|
|
|
$
|
300,505
|
|
|
|
|
|
|
|
|
|
|
Note
payable due in monthly installments of approximately $4,200 including
interest at 6.5%, maturing in September 2009. Debt is secured by a CD held
with lender
|
|
|
81,939
|
|
|
|
121,263
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations
|
|
|
24,106
|
|
|
|
32,491
|
|
|
|
|
106,045
|
|
|
|
454,259
|
|
Less
current maturities
|
|
|
(55,697
|
)
|
|
|
(352,718
|
)
|
Long-term
debt, less current maturities
|
|
$
|
50,348
|
|
|
$
|
101,541
|
|
|
|
|
|
|
|
|
|
|
Approximate
scheduled payments in each of the next five years and thereafter on the debt and
capital lease obligations are as follows:
Year
ending December 31:
|
|
|
|
2008
|
|
$
|
56,000
|
|
2009
|
|
|
47,000
|
|
2010
|
|
|
3,000
|
|
|
|
$
|
106,000
|
|
Note
4. Income Taxes
Income
tax expense for the years ended December 31 differed from the U.S. federal
income tax rate of 34% as a result of approximately the following:
|
|
2007
|
|
|
2006
|
|
Computed
“expected” tax benefit
|
|
$
|
(365,000
|
)
|
|
$
|
(447,000
|
)
|
Change
in the valuation allowance for deferred tax assets
|
|
|
456,000
|
|
|
|
588,000
|
|
Tax
benefit of stock options exercised
|
|
|
(85,000
|
)
|
|
|
(187,000
|
)
|
Texas
margin tax credit carryforward
|
|
|
(262,000
|
)
|
|
|
-
|
|
State
taxes
|
|
|
29,000
|
|
|
|
-
|
|
Other
|
|
|
(6,000
|
)
|
|
|
46,000
|
|
Total
income tax (benefit)
|
|
$
|
(233,000
|
)
|
|
$
|
-
|
|
Differences
between financial accounting principles and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting purposes and
tax purposes. The current year income tax benefit is the result of the Company
filing for the Texas margin tax credit that is available due to the change in
the Texas taxation method. Based on the method that the new tax is
calculated and the credit that is available the Company now believes that this
amount will be realized for financial statement purposes.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
The tax
effects of these differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities under SFAS 109 and consisted of the
following components:
|
|
2007
|
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Operating
loss carryforward
|
|
$
|
2,107,000
|
|
|
$
|
1,904,000
|
|
Accounts
receivable allowance
|
|
|
64,000
|
|
|
|
-
|
|
Fixed
assets
|
|
|
4,000
|
|
|
|
-
|
|
Warrants
|
|
|
143,000
|
|
|
|
115,000
|
|
Texas
tax credit carryforward
|
|
|
256,000
|
|
|
|
-
|
|
Stock
option compensation
|
|
|
205,000
|
|
|
|
73,000
|
|
Accrued
expenses
|
|
|
194,000
|
|
|
|
39,000
|
|
Total
deferred tax assets
|
|
|
2,973,000
|
|
|
|
2,131,000
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(195,000
|
)
|
|
|
(78,000
|
)
|
Fixed
assets
|
|
|
-
|
|
|
|
(4,000
|
)
|
Prepaid
expense
|
|
|
(21,000
|
)
|
|
|
(4,000
|
)
|
Total
deferred tax liabilities
|
|
|
(216,000
|
)
|
|
|
(86,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
2,757,000
|
|
|
|
2,045,000
|
|
Valuation
allowance
|
|
|
(2,501,000
|
)
|
|
|
(2,045,000
|
)
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
256,000
|
|
|
$
|
-
|
|
The
valuation allowance increased $456,000 and $588,000 during the year ended
December 31, 2007 and 2006, respectively.
The
Company has a net operating loss carryforward of approximately $6,197,000 which
expires in 2024 through 2027.
The
income tax expense (benefit) shown on the statement of operations for the years
ended December 31, 2007 and 2006 consisted of the following:
|
|
2007
|
|
|
2006
|
|
Current
|
|
$
|
22,977
|
|
|
$
|
-
|
|
Deferred
|
|
|
(255,731
|
)
|
|
|
-
|
|
|
|
$
|
(232,754
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
Note
5. Commitments and Contingencies
Operating
leases: The Company leases certain equipment and office space under
noncancelable lease agreements, which expire at various dates through March
2013.
At
December 31, 2007 minimum annual lease payments for operating and capital leases
are approximately as follows:
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
12,000
|
|
|
$
|
169,000
|
|
|
$
|
181,000
|
|
2009
|
|
|
12,000
|
|
|
|
200,000
|
|
|
|
212,000
|
|
2010
|
|
|
3,000
|
|
|
|
202,000
|
|
|
|
205,000
|
|
2011
|
|
|
--
|
|
|
|
197,000
|
|
|
|
197,000
|
|
2012
|
|
|
--
|
|
|
|
196,000
|
|
|
|
196,000
|
|
Thereafter
|
|
|
--
|
|
|
|
49,000
|
|
|
|
49,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
|
27,000
|
|
|
|
1,013,000
|
|
|
|
1,040,000
|
|
Less
amount representing interest at 9.5%
|
|
|
(3,000
|
)
|
|
|
---
|
|
|
|
(3,000
|
)
|
|
|
$
|
24,000
|
|
|
$
|
1,013,000
|
|
|
$
|
1,037,000
|
|
Rent
expense related to operating leases was approximately $172,000 and $143,000 for
the years ended December 31, 2007 and 2006, respectively.
Employment
agreements
: The Company has executed employment agreements
with two employees effective through various dates from April 2008 to October
2010, providing for minimum annual salaries and incentives. In
addition, the Company had employment agreements providing for general terms of
employment in effect with two additional employees effective through January
2008 which were not renewed upon their expiration.
Note
6. Stock Options and Warrants
Stock
Option Incentive Plan
American
CareSource Holdings, Inc. has an Employee Stock Option Plan (the “Stock Option
Plan”) for the benefit of certain employees, non-employee directors, and key
advisors. On May 16, 2005, the stockholders approved the Stock Option
Plan which (i) authorized 2,249,329 (split adjusted ) options and (ii)
established the class of eligible participants to include employees, nominees to
the Board of Directors of American CareSource Holdings and consultants engaged
by American CareSource Holdings, limited to 50,000 the number of shares of
Common Stock underlying the one-time grant of a Non-Qualified Option to which
non-employee directors or non-employee nominees of the Board of Directors may be
entitled. The Company filed a Form S-8 registering 2,249,329 of the
Stock Option Plan shares on April 7, 2006. Stock options granted under the Stock
Option Plan may be of two types: (1) incentive stock options and (2)
nonqualified stock options. The option price of such grants shall be
determined by a Committee of the Board of Directors (the “Committee”), but shall
not be less than the estimated fair market value of the common stock at the date
the option is granted. The Committee shall fix the terms
of the
grants with no option term lasting longer than ten years. The ability
to exercise such options shall be determined by the Committee when the options
are granted.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
On May
24, 2007, the Company amended the Stock Option Plan to increase the maximum
number of shares of Common Stock that may be issued pursuant to the Stock Option
Plan. The American CareSource Holdings, Inc. Amended and Restated
2005 Stock Option Plan (the “Amended and Restated Plan”) increased the shares
available for issue under the Stock Option Plan by 1,000,000 shares to a total
of 3,249,329 shares. The Company filed a Form S-8 registering the
additional shares on June 14, 2007.
Shares of
common stock reserved for future grants under the plan were 948,559 and 285,231
December 31, 2007 and 2006 respectively.
Under the
Stock Option incentive plan, the compensation cost that has been charged against
income for the year ended December 31, 2007 and 2006 was $418,058 and $213,579,
respectively. No income tax benefit has been recognized in the
consolidated statement of operations for share-based compensation arrangements
for the years ended December 31, 2007 and 2006 due to the fact that the Company
has net operating loss carryforwards for which a full valuation allowance has
been established. At the time the tax benefit of those net operating
loss carryforwards is realized, approximately $84,000 of such benefit related to
the share based compensation deduction will be credited directly to additional
paid in capital.
The
non-qualified options granted to employees and outside directors under American
CareSource Holdings, Inc.’s Stock option incentive plan become exercisable in
cumulative installments over periods of one to four years and expire after 10
years. The fair value of each option award granted is estimated on
the date of grant using the Black-Scholes-Merton valuation model that uses the
assumptions noted in the following table. Volatility is calculated
using an analysis of historical volatility. The Company believes that
the historical volatility of the Company’s stock is the best method for
estimating future volatility. The expected lives of options are
determined based on the Company’s historical share option exercise experience
using a rolling one-year average. The Company believes the historical
experience method is the best estimate of future exercise patterns currently
available. The risk-free interest rates are determined using the
implied yield currently available for zero-coupon U.S. government issues with a
remaining term equal to the expected life of the options. The
expected dividend yields are based on the approved annual dividend rate in
effect and current market price of the underlying common stock at the time of
grant.
|
|
2007
|
|
|
2006
|
|
Weighted
average grant date fair value
|
|
$
1.17
|
|
|
$
2.53
|
|
Weighted
average assumptions used
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
66.0%
|
|
|
111.0%
|
|
Expected
lives
|
|
3.2
years
|
|
|
5
years
|
|
Risk
free interest rate
|
|
5.7%
|
|
|
6.5%
|
|
Forfeiture
rate
|
|
24.3%
|
|
|
3.8%
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
A summary
of stock option activity follows:
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2005
|
|
|
1,608,738
|
|
|
$
0.33
|
|
|
|
|
|
|
|
|
|
|
Options
granted during the year ended December 31, 2006
|
|
|
408,000
|
|
|
$
3.22
|
|
|
|
|
|
|
|
|
|
|
Options
forfeited by holders during the year
|
|
|
|
|
|
|
|
|
ended
December 31, 2006
|
|
|
(52,640)
|
|
|
$
2.56
|
|
|
|
|
|
|
|
|
|
|
Options
exercised during the year ended December 31, 2006
|
|
|
(115,906)
|
|
|
$
0.32
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2006
|
|
|
1,848,192
|
|
|
$
0.90
|
|
|
|
|
|
|
|
|
|
|
Options
granted during the year ended December 31, 2007
|
|
|
779,488
|
|
|
$
2.38
|
|
|
|
|
|
|
|
|
|
|
Options
forfeited by holders during the year
|
|
|
|
|
|
|
|
|
ended
December 31, 2007
|
|
|
(442,816)
|
|
|
$
1.45
|
|
|
|
|
|
|
|
|
|
|
Options
exercised during the year ended December 31, 2007
|
|
|
(184,301)
|
|
|
$
0.31
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
|
2,000,563
|
|
|
$
1.41
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2007
|
|
|
1,290,298
|
|
|
$
0.93
|
|
The
following table summarizes information concerning outstanding and exercisable
options at December 31, 2007:
|
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
Average
|
|
|
|
|
Average
|
|
Range
of
|
|
|
Number
|
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Life
|
|
Price
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
$1.00
|
|
|
|
1,029,146
|
|
|
|
7.4
|
|
|
$
0.33
|
|
|
|
|
904,734
|
|
|
$
0.33
|
|
$
1.00
- $2.00
|
|
|
|
492,000
|
|
|
|
9.2
|
|
|
$
1.86
|
|
|
|
|
297,912
|
|
|
$
1.87
|
|
$
2.01
- $3.00
|
|
|
|
235,750
|
|
|
|
9.3
|
|
|
$
2.54
|
|
|
|
|
30,708
|
|
|
$
2.55
|
|
$
3.01
- $4.00
|
|
|
|
193,667
|
|
|
|
9.7
|
|
|
$
3.53
|
|
|
|
|
26,389
|
|
|
$
3.72
|
|
Greater
than $4.01
|
|
|
|
50,000
|
|
|
|
8.2
|
|
|
$
5.60
|
|
|
|
|
30,555
|
|
|
$
5.60
|
|
The total
intrinsic value of options outstanding at December 31, 2007 and 2006 was
$3,583,650 and $2,232,320, respectively. The total intrinsic value of
the options that are exercisable at December 31, 2007 and 2006 was $2,925,782
and $1,263,572, respectively. The total intrinsic value of options
exercised during the year ended December 31, 2007 and 2006 was $296,562 and
$550,789, respectively.
AMERICAN
CARESOURCE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
As of
December 31, 2007, there was approximately $910,000 of total unrecognized
compensation cost related to non-vested share based compensation arrangements
granted under the plan. The cost is expected to be recognized over a
weighted average period of 2.4 years.
American
CareSource has warrants outstanding and exercisable for the purchase of
1,953,752 shares of common stock at December 31, 2007, with warrants for another
56,250 shares scheduled to vest on May 21, 2008, 2009 and
2010. American CareSource valued the warrants using the
Black-Scholes-Merton method. As of December 31, 2007, there was
approximately $316,000 of total unrecognized cost related to non-vested
warrants. The weighted average exercise price at December 31, 2007
was $0.89. These warrants expire five years after issuance. The
weighted average remaining life of the warrants is 2.5 years.
Note
7. Related Party Transactions
In 2007,
the Company engaged the services of Michael McComb, who has a familial
relationship with Director and Chairman Edward Berger. The Company
paid Mr. McComb approximately $10,000 for management consulting
services.
American
CareSource Holdings reimbursed a Director, John Pappajohn, approximately $12,000
for business related expenses in 2007. The Company made similar
payments of approximately $20,000 to Mr. Pappajohn in 2006.
In 2006,
the Company issued 100,000 options with a fair value of $113,028 to David
George, who was at the time a Director of the company, for consulting services
through 2007. The strike price of the options was set at the market
price of the stock at the date of grant. The options vested over 12
months.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
|
|
|
|
By:
/s/ David S. Boone
|
|
March
31, 2008
|
David S. Boone
Chief Executive
Officer
(Principal Executive
Officer)
|
|
Date
|
|
|
Pursuant
to the requirements the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
|
|
|
|
|
By:
/s/ Edward B. Berger
|
|
March
31, 2008
|
Edward B. Berger
Executive Chairman and
Director
|
|
Date
|
|
|
|
|
|
|
By:
/s/ David S. Boone
|
|
March
31, 2008
|
David S. Boone
Chief Executive
Officer
(Principal Executive
Officer)
|
|
Date
|
|
|
|
|
|
|
By:
/s/ Steven J. Armond
|
|
March
31, 2008
|
Steven J. Armond
Chief Financial
Officer
(Principal Financial
Officer)
|
|
Date
|
|
|
|
|
|
|
By:
/s/ Steven M. Phillips
|
|
March
31, 2008
|
Steven M. Phillips
Controller, Principal Accounting
Officer
(Principal Accounting
Officer)
|
|
Date
|
|
|
|
|
|
|
By:
/s/ Kenneth S. George
|
|
March
31, 2008
|
Kenneth S. George
Director
|
|
Date
|
|
|
|
|
|
|
By:
/s/ John N. Hatsopoulos
|
|
March
31, 2008
|
John N. Hatsopoulos
Director
|
|
Date
|
|
|
|
|
|
|
By:
/s/ Derace L. Schaffer
|
|
March
31, 2008
|
Derace L. Schaffer
Director
|
|
Date
|
|
|
|
|
|
|
By:
/s/ John Pappajohn
|
|
March
31, 2008
|
John Pappajohn
Director
|
|
Date
|
|
|
|
|
|
|
By:
/s/ John W. Colloton
|
|
March
31, 2008
|
John W. Colloton
Director
|
|
Date
|
EXHIBIT
INDEX
Exhibit
#
|
Description
of Exhibits
|
|
|
3.1(1)
|
Certificate
of Incorporation of American CareSource Holdings, Inc.
|
|
|
3.2(1)
|
By-Laws
|
|
|
3.3(2)
|
Amendment
to the Certificate of Incorporation of American CareSource Holdings, Inc.,
dated May 25, 2005
|
|
|
3.4(2)
|
Amendment
to the Certificate of Incorporation of American CareSource Holdings, Inc.,
dated June 2, 2005
|
|
|
3.5(3)
|
Amendment
to the Certificate of Incorporation of American CareSource Holdings, Inc.,
dated November 14, 2005
|
|
|
3.6(4)
|
Certificate
of Incorporation of Ancillary Care Services – Group Health,
Inc.
|
|
|
3.7(4)
|
Certificate
of Incorporation of Ancillary Care Services – Medicare,
Inc.
|
|
|
3.8(4)
|
Certificate
of Incorporation of Ancillary Care Services – Worker’s Compensation,
Inc.
|
|
|
3.9(4)
|
Certificate
of Incorporation of Ancillary Care Services, Inc.
|
|
|
4.1(6)
|
Amended
and Restated 2005 Stock Option Plan
|
|
|
4.2(2)
|
Specimen
Stock Certificate
|
|
|
10.01(2)*
|
Employment
Agreement dated October 11, 2004 between American CareSource Holdings,
Inc. and Wayne A. Schellhammer
|
|
|
10.02(2)*
|
Employment
Agreement dated May 1, 2005, between American CareSource Holdings, Inc.
and David Boone
|
|
|
10.03(7)*
|
Employment
Agreement dated September 1, 2006 between American CareSource Holdings,
Inc. and Kurt Fullmer
|
|
|
10.04(7)*
|
Employment
Agreement dated February 19, 2007 between American CareSource Holdings,
Inc. and Maria Baker
|
|
|
10.05(7)*
|
Employment
Agreement dated February 19, 2007 between American CareSource Holdings,
Inc. and Jennifer Boone
|
|
|
10.06(9)*
|
Employment
Agreement dated October 12, 2007 between American CareSource Holdings,
Inc. and Steven J. Armond
|
|
|
10.07(8)*
|
Separation
Agreement and General Release dated July 12, 2007 between American
CareSource Holdings, Inc. and Wayne Schellhammer
|
|
|
10.08*
|
Employment
Letter dated January 29, 2008 between American CareSource Holdings, Inc.
and Cornelia Outten
|
|
|
10.09*
|
Employment
Letter dated March 6, 2008 between American CareSource Holdings, Inc. and
Rost Ginevich
|
|
|
10.10(4)
|
Form
of Registration Rights Agreement used in March 2006 private
placement
|
|
|
10.11(4)
|
Form
of Subscription Agreement used in March 2006 private
placement
|
10.12(4)
|
Amended
and Restated Stock Purchase Warrant dated March 30, 2006 by and among
American CareSource Holdings, Inc. and John Pappajohn (amends Stock
Purchase Warrant dated January 27, 2005).
|
|
|
10.13(4)
|
Amended
and Restated Stock Purchase Warrant dated March 29, 2006 by and among
American CareSource Holdings, Inc. and Derace L. Schaffer (amends Stock
Purchase Warrant dated January 27, 2005).
|
|
|
10.14(4)
|
Amended
and Restated Stock Purchase Warrant dated March 29, 2006 by and among
American CareSource Holdings, Inc. and John Pappajohn (amends Stock
Purchase Warrant dated August 15, 2005).
|
|
|
10.15(4)
|
Amended
and Restated Stock Purchase Warrant dated March 29, 2006 by and among
American CareSource Holdings, Inc. and Derace L. Schaffer (amends Stock
Purchase Warrant dated August 15, 2005).
|
|
|
10.16(4)
|
Amended
and Restated Stock Purchase Warrant dated March 30, 2006 by and among
American CareSource Holdings, Inc. and Matthew P. Kinley (amends Stock
Purchase Warrant dated August 15, 2005).
|
|
|
10.17(5)
|
Lease
dated June 14, 2006, between American CareSource Holdings, Inc. and TR LBJ
Campus Partners, L.P.
|
|
|
14.1
|
Code
of Ethics
|
|
|
20.1(5)
|
Governance
and Nominating Committee Charter
|
|
|
20.2(5)
|
Audit
Committee Charter
|
|
|
20.3(5)
|
Compensation
Committee Charter
|
|
|
21.1
|
Subsidiaries
|
|
|
23.1
|
Consent
of McGladrey & Pullen LLP
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
of the Chief Financial Officer and Chief Operating Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.3
|
Certification
of the Principal Accounting Officer and Controller pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*Designates
a management contract or compensatory plan or arrangement required to be filed
as an exhibit to this report pursuant to Item 15(a)(3) of this
report.
|
(1)
|
Previously
filed with the Securities and Exchange Commission as an exhibit
toAmendment No. 1 to the Form SB-2 filed May 13, 2005 and incorporated
herein byreference.
|
(2)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to
Amendment No. 5 to the Form SB-2 filed August 12, 2005 and incorporated
herein by reference.
|
(3)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to
Amendment No. 8 to the Form SB-2 filed November 18, 2005 and
incorporated herein by reference.
|
(4)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to the
Form 10-KSB filed March 31, 2006 and incorporated herein by
reference.
|
(5)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to the
Form 10-QSB filed August 11, 2006 and incorporated herein by
reference.
|
(6)
|
Previously
filed with the Securities and Exchange Commission as Exhibit A to
Amendment No. 1 to the Proxy Statement for the 2007 Annual Meeting of
Stockholders filed May 1, 2007 and incorporated herein by
reference.
|
(7)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to the
Form 10-QSB filed May 15, 2007 and incorporated herein by
reference.
|
(8)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to the
Form 8-K filed July 17, 2007 and incorporated herein by
reference.
|
(9)
|
Previously
filed with the Securities and Exchange Commission as an exhibit to the
Form 10-QSB filed November 13, 2007 and incorporated herein by
reference.
|
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