UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
x |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
|
|
For the quarterly period ended September 30,
2015
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Commission File Number: 001-33094
American
CareSource Holdings, Inc.
(Exact name of Registrant as specified
in its charter)
Delaware |
20-0428568 |
(State
or other jurisdiction of
incorporation
or organization) |
(IRS
Employer
Identification
No.) |
1170 Peachtree Street, Suite 2350
Atlanta, Georgia 30309
(Address
of principal executive offices)
(404) 465-1000
(Registrant’s
telephone number)
Securities registered pursuant to Section 12(b)
of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered |
Common Stock, par value $.01 per share |
The NASDAQ Capital Market |
Securities registered pursuant to Section 12(g)
of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☐ No ☒
Explanatory Note: As of the date of this Quarterly Report on Form 10-Q, the Registrant
has submitted electronically and posted on its corporate website every interactive data file required to be submitted and posted
pursuant to Rule 405 of Regulation S-T for the preceding 12 months.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
¨ |
Accelerated Filer |
¨ |
Non-Accelerated Filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
x |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of November 3, 2015, there were 6,954,293 outstanding
shares of common stock of the registrant.
EXPLANATORY NOTE
We are filing this Amendment No. 1 on Form
10-Q/A (this “Amended Report”) to amend and restate, in their entirety, the following items of our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2015, as originally filed with the Securities and Exchange Commission on November
16, 2015 (the “Original Report”): (i) Item 1 of Part I “Financial Statements,” (ii) Item 2
of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (iii) Item 6
of Part II, “Exhibits,” and we have also updated the signature page, the certifications of our Acting Chief Executive
Officer and Interim Chief Financial Officer in Exhibits 31.1, 31.2, 32.1 and 32.2, and our financial statements formatted in Extensible
Business Reporting Language (XBRL) in Exhibit 101. This Amended Report is intended to correct the errors described in the immediately
following paragraph. No other Items were affected, but, for the convenience of the reader, this Amended Report restates in its
entirety, as amended, our Original Report.
We have determined that our diluted weighted-average shares outstanding, as reported in the Consolidated Statements of Operations and Note 4 of the Original Report, contained a computational error. We have also determined that expenses
reflected in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” attributable
to shared services for the period ended September 30, 2014 were overstated by $28,000.
This Amended Report
speaks as of the date of the Original Report and should be read in conjunction with the Original
Report. Except as specifically noted above, this Amended Report does not modify or update the financial results or disclosures
in the Original Report. Accordingly, this Amended Report does not reflect events occurring after the filing of the Original Report
or modify or update any related or other disclosures.
TABLE OF CONTENTS
AMERICAN CARESOURCE HOLDINGS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2015
AMERICAN CARESOURCE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
| |
September 30, 2015
(Unaudited) | |
December 31, 2014
(Audited) |
| |
| |
|
ASSETS | |
| |
|
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 197 | | |
$ | 1,020 | |
Accounts receivable | |
| 2,969 | | |
| 4,204 | |
Prepaid expenses and other current assets | |
| 775 | | |
| 612 | |
Deferred income taxes | |
| 6 | | |
| 6 | |
Total current assets | |
| 3,947 | | |
| 5,842 | |
| |
| | | |
| | |
Property and equipment, net | |
| 3,921 | | |
| 4,322 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Deferred income taxes | |
| 12 | | |
| 12 | |
Deferred loan fees, net | |
| 1,625 | | |
| 2,666 | |
Deferred offering costs | |
| 310 | | |
| 225 | |
Other non-current assets | |
| 104 | | |
| 488 | |
Intangible assets, net | |
| 705 | | |
| 1,437 | |
Goodwill | |
| 6,113 | | |
| 6,113 | |
Total other assets | |
| 8,869 | | |
| 10,941 | |
Total assets | |
$ | 16,737 | | |
$ | 21,105 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Lines of credit | |
$ | 5,000 | | |
$ | - | |
Due to ancillary network service providers | |
| 2,900 | | |
| 2,308 | |
Due to HealthSmart, ancillary network | |
| 672 | | |
| 903 | |
Accounts payable | |
| 944 | | |
| 762 | |
Accrued liabilities | |
| 2,062 | | |
| 1,875 | |
Current portion of long-term debt | |
| 351 | | |
| 989 | |
Capital lease obligations, current portion | |
| 130 | | |
| 117 | |
Total current liabilities | |
| 12,059 | | |
| 6,954 | |
| |
| | | |
| | |
Long-term liabilities: | |
| | | |
| | |
Lines of credit | |
| 5,800 | | |
| 4,716 | |
Promissory notes and notes payable | |
| - | | |
| 312 | |
Capital lease obligations | |
| 1,666 | | |
| 1,764 | |
Warrant derivative liability | |
| 1,670 | | |
| 3,200 | |
Other long-term liabilities | |
| 356 | | |
| 222 | |
Total long term liabilities | |
| 9,492 | | |
| 10,214 | |
Total liabilities | |
| 21,551 | | |
| 17,168 | |
| |
| | | |
| | |
Commitments and contingencies | |
| - | | |
| - | |
| |
| | | |
| | |
Stockholders' equity (deficit): | |
| | | |
| | |
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued | |
| - | | |
| - | |
Common stock, $0.01 par value; 40,000 shares authorized; 6,952 and 6,713 shares issued and outstanding in 2015 and 2014, respectively | |
| 69 | | |
| 67 | |
Additional paid-in capital | |
| 26,188 | | |
| 25,731 | |
Accumulated deficit | |
| (31,071 | ) | |
| (21,861 | ) |
Total stockholders' equity (deficit) | |
| (4,814 | ) | |
| 3,937 | |
Total liabilities and stockholders' equity (deficit) | |
$ | 16,737 | | |
$ | 21,105 | |
The accompanying notes are an integral
part of these unaudited financial statements
AMERICAN CARESOURCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(amounts in thousands, except per share
data)
| |
Three months ended September 30, | |
Nine months ended September 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Net revenues: | |
| | | |
| | | |
| | | |
| | |
Ancillary network | |
$ | 4,293 | | |
$ | 5,656 | | |
$ | 15,640 | | |
$ | 16,161 | |
Urgent and primary care | |
| 2,225 | | |
| 1,107 | | |
| 7,251 | | |
| 1,581 | |
Total net revenues | |
| 6,518 | | |
| 6,763 | | |
| 22,891 | | |
| 17,742 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Ancillary network provider payments | |
| 3,130 | | |
| 3,929 | | |
| 11,598 | | |
| 11,562 | |
Ancillary network administrative fees | |
| 275 | | |
| 278 | | |
| 799 | | |
| 805 | |
Ancillary network other operating costs | |
| 1,080 | | |
| - | | |
| 2,985 | | |
| - | |
Ancillary network prepaid write-off | |
| - | | |
| - | | |
| 487 | | |
| - | |
Salaries, wages, contract medical professional fees and related expenses | |
| 2,493 | | |
| 2,406 | | |
| 8,331 | | |
| 5,513 | |
Facility expenses | |
| 337 | | |
| 212 | | |
| 1,048 | | |
| 474 | |
Medical supplies | |
| 225 | | |
| 66 | | |
| 623 | | |
| 93 | |
Other operating expenses | |
| 1,183 | | |
| 1,265 | | |
| 5,344 | | |
| 3,063 | |
Intangible asset impairment | |
| - | | |
| - | | |
| 520 | | |
| - | |
Depreciation and amortization | |
| 274 | | |
| 235 | | |
| 857 | | |
| 628 | |
Total operating expenses | |
| 8,997 | | |
| 8,391 | | |
| 32,592 | | |
| 22,138 | |
Operating (loss) | |
| (2,479 | ) | |
| (1,628 | ) | |
| (9,701 | ) | |
| (4,396 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other (income) expense : | |
| | | |
| | | |
| | | |
| | |
(Gain) on cancellation of acquisition promissory note | |
| (289 | ) | |
| - | | |
| (289 | ) | |
| - | |
Interest expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 101 | | |
| 28 | | |
| 277 | | |
| 37 | |
(Gain)/loss on warrant liability, net of deferred loan fees amortization | |
| (101 | ) | |
| 24 | | |
| (489 | ) | |
| 24 | |
Total other (income) expense and interest expense | |
| (289 | ) | |
| 52 | | |
| (501 | ) | |
| 61 | |
Loss before income taxes | |
| (2,190 | ) | |
| (1,680 | ) | |
| (9,200 | ) | |
| (4,457 | ) |
Income tax expense (benefit) | |
| - | | |
| (226 | ) | |
| 10 | | |
| (225 | ) |
Net (loss) | |
$ | (2,190 | ) | |
$ | (1,454 | ) | |
$ | (9,210 | ) | |
$ | (4,232 | ) |
Basic net loss per share | |
$ | (0.32 | ) | |
$ | (0.22 | ) | |
$ | (1.35 | ) | |
$ | (0.67 | ) |
Diluted net loss per share | |
$ | (0.39 | ) | |
$ | (0.22 | ) | |
$ | (1.60 | ) | |
$ | (0.67 | ) |
Basic weighted-average shares outstanding | |
| 6,921 | | |
| 6,745 | | |
| 6,847 | | |
| 6,290 | |
Diluted weighted-average shares outstanding | |
| 7,038 | | |
| 6,745 | | |
| 6,913 | | |
| 6,290 | |
The accompanying notes are an integral
part of these unaudited financial statements
AMERICAN CARESOURCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT)
(Unaudited)
(amounts in thousands)
| |
Common Stock | |
| |
| |
|
| |
Shares | |
Amount | |
Additional
Paid-In
Capital | |
Accumulated
Deficit | |
Total
Stockholders'
Equity |
Balance at December 31, 2014 | |
| 6,713 | | |
$ | 67 | | |
$ | 25,731 | | |
$ | (21,861 | ) | |
$ | 3,937 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (9,210 | ) | |
| (9,210 | ) |
Stock-based compensation expense | |
| - | | |
| - | | |
| 426 | | |
| - | | |
| 426 | |
Issuance of common stock upon exercise of equity incentive awards | |
| 34 | | |
| - | | |
| 33 | | |
| - | | |
| 33 | |
Issuance of common stock upon conversion of restricted stock units | |
| 155 | | |
| 2 | | |
| (2 | ) | |
| - | | |
| - | |
Issuance of restricted shares of common stock | |
| 50 | | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at September 30, 2015 | |
| 6,952 | | |
| 69 | | |
| 26,188 | | |
| (31,071 | ) | |
| (4,814 | ) |
The accompanying notes are an integral
part of these unaudited financial statements
AMERICAN CARESOURCE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
| |
Nine months ended September 30, |
| |
2015 | |
2014 |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (9,210 | ) | |
$ | (4,232 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Non-cash stock-based compensation expense | |
| 426 | | |
| 366 | |
Intangible asset impairment | |
| 520 | | |
| - | |
Depreciation and amortization | |
| 857 | | |
| 628 | |
(Gain) loss on warrant liability, net of deferred loan fees
amortization | |
| (489 | ) | |
| 24 | |
Gain on cancellation of acquisition promissory note | |
| (289 | ) | |
| - | |
Deferred income taxes | |
| - | | |
| (227 | ) |
Change in deferred rent | |
| 134 | | |
| - | |
Changes in operating assets and liabilities, net of effects of acquisitions: | |
| | | |
| | |
Accounts receivable | |
| 1,235 | | |
| (650 | ) |
Prepaid expenses and other assets | |
| 170 | | |
| (235 | ) |
Due to ancillary network service providers | |
| 592 | | |
| 263 | |
Due to HealthSmart, ancillary network | |
| (231 | ) | |
| - | |
Accounts payable | |
| 175 | | |
| 391 | |
Accrued liabilities | |
| 187 | | |
| 576 | |
Net cash used in operating activities | |
| (5,923 | ) | |
| (3,096 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Cost of acquisitions | |
| - | | |
| (5,030 | ) |
Additions to property and equipment | |
| (193 | ) | |
| (422 | ) |
Net cash used in investing activities | |
| (193 | ) | |
| (5,452 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of common stock and option exercises | |
| 33 | | |
| 2,000 | |
Proceeds from borrowings under lines of credit | |
| 6,084 | | |
| 2,834 | |
Principal payments on capital lease obligations | |
| (85 | ) | |
| (14 | ) |
Principal payments on long-term debt | |
| (661 | ) | |
| (17 | ) |
Offering costs, paid and deferred | |
| (78 | ) | |
| - | |
Net cash provided by financing activities | |
| 5,293 | | |
| 4,803 | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (823 | ) | |
| (3,745 | ) |
Cash and cash equivalents at beginning of period | |
| 1,020 | | |
| 6,207 | |
Cash and cash equivalents at end of period | |
$ | 197 | | |
$ | 2,462 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid (received) for taxes, net of refunds | |
$ | (6 | ) | |
$ | 25 | |
Cash paid for interest | |
| 280 | | |
| 36 | |
| |
| | | |
| | |
Supplemental non-cash operating and financing activity: | |
| | | |
| | |
Offering costs, unpaid and deferred | |
$ | 7 | | |
$ | - | |
Reclassified property and equipment from prepaid expenses | |
$ | 51 | | |
$ | - | |
Warrants issued as deferred financing costs | |
$ | 347 | | |
$ | 1,690 | |
Debt issued as consideration in business combination | |
$ | - | | |
$ | 1,308 | |
The accompanying notes are an integral
part of these unaudited financial statements
AMERICAN CARESOURCE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
(tables in
thousands, except per share data)
1. General
Basis of Presentation
The
accompanying unaudited consolidated financial statements of American CareSource Holdings, Inc. and its subsidiaries have been prepared
in accordance with accounting principles generally accepted in the United States for interim financial information, with the instructions
to Form 10-Q and Rule 8-03 of Regulation S-X of the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly,
they do not include all of the information and notes required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, these statements include all adjustments necessary to present
a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim
period are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company’s
financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in the financial statements and notes. Actual results could differ from
those estimates. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial
statements and notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014. References
herein to the "Company," "we," "us," or "our" refer to American CareSource Holdings, Inc.
and its subsidiaries.
Recent Accounting Pronouncements
In April 2015, the
FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs. The guidance relates to the presentation of debt issuance costs. The new standard update provides
guidance that would require debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount
of the debt liability. The new guidance is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2016. Early adoption is permitted. We do not believe the adoption of this guidance will have a material
impact on our consolidated financial statements.
2. Description of
Business
The Company engages
in two lines of business: our urgent and primary care business and our ancillary network business. These
lines of business are supported through a shared services function.
Urgent and Primary Care Business
In early May 2014, we announced our entry
into the urgent and primary care market. During the remainder of 2014, we, through our wholly-owned subsidiaries, consummated
five transactions resulting in our acquisition of ten urgent and primary care centers, three of which are located in Georgia, two
in Florida, three in Alabama and two in Virginia.
Our healthcare centers offer a wide array
of services for non-life-threatening medical conditions. We strive to improve access to quality medical care by offering extended
hours and weekend service primarily on a walk-in basis. Our centers offer a broad range of medical services that generally fall
within the urgent care, primary care, family care, and occupational medicine classifications. Specifically, we offer non-life-threatening,
out-patient medical care for the treatment of acute, episodic, and some chronic medical conditions. When hospitalization or specialty
care is needed, referrals to appropriate providers are made.
Patients typically
visit our centers on a walk-in basis when their condition is not severe enough to warrant an emergency visit or when treatment
by their primary care provider is inconvenient. We also attempt to capture follow-up, preventative and general primary care business
after walk-in visits. The services provided at our centers include, but are not limited to, the following:
|
· |
routine treatment of general medical problems, including colds, flu, ear infections, hypertension, asthma, pneumonia, urinary tract infections, and other conditions typically treated by primary care providers; |
|
· |
treatment of injuries, such as simple fractures, dislocations, sprains, bruises, and cuts; |
|
· |
minor, non-emergent surgical procedures, including suturing of lacerations and removal of foreign bodies; |
|
· |
diagnostic tests, such as x-rays, electrocardiograms, complete blood counts, and urinalyses; and |
|
· |
occupational and industrial medical services, including drug testing, workers' compensation cases, and pre-employment physical examinations. |
All of our centers
are equipped with digital x-ray machines, electrocardiograph machines and basic laboratory equipment, and are generally staffed
with a combination of licensed physicians, nurse practitioners, physician assistants, medical support staff, and administrative
support staff. Our medical support staff includes licensed nurses, certified medical assistants, laboratory technicians, and registered
radiographic technologists.
We intend to grow our urgent and primary
care business through the acquisition of new centers, by improving patient volume and overall performance in our existing centers,
and by developing new centers in strategic areas located in the eastern and southeastern United States.
We believe that
by offering affordable urgent care and primary care services to patients and their families at convenient times and locations,
as well as easily accessible occupational health services to local employers, we are uniquely positioned to serve as a meaningful
part of the solution to the United States’ ongoing healthcare problems.
Ancillary Network Business
Our ancillary network
business offers cost containment strategies, primarily through the utilization of a comprehensive national network of ancillary
healthcare service providers. Our services are marketed to a number of healthcare companies including third-party administrators,
insurance companies, large self-funded organizations, various employer groups, and preferred provider organizations. We
offer payors this solution by:
· |
|
lowering our payors' ancillary care costs throughout network of high quality, cost effective providers that we have under contract at more favorable terms than they could generally obtain on their own; |
· |
|
providing payors with a comprehensive network of ancillary healthcare service providers that is tailored to each payor's needs and is available to each payor's members for covered services; |
· |
|
providing payors with claims management, reporting, processing and payment services; |
· |
|
performing network/needs analysis to assess the benefits to payors of adding additional/different service providers to the payor-specific provider networks; and |
· |
|
credentialing network service providers for inclusion in the payor-specific provider networks. |
On October 1, 2014,
we entered into a management services agreement with HealthSmart Preferred Care II, L.P. ("HealthSmart"). Under
the management services agreement, HealthSmart manages our ancillary network business, subject to the supervision of a five-person
oversight committee comprised of three members selected by us and two members selected by HealthSmart. As part of the
management arrangement, HealthSmart hired substantially all of our ancillary network business employees, purchased substantially
all of our furniture, fixtures and equipment located in our Dallas, Texas office and assumed our lease for that office. As
a result of this arrangement, we no longer employ the workforce of our ancillary network business.
Under the management
services agreement, HealthSmart manages and operates our ancillary network business for a monthly fee equal to the sum of (a) 35%
of the net profit derived from the operation of our ancillary network business plus (b) 120% of all direct and documented operating
expenses and liabilities actually paid during such calendar month by HealthSmart in connection with providing its management services.
For purposes of the fee calculation, the term "net profit" means gross ancillary network business revenue, less the sum
of (x) the provider payments and administrative fees and (y) 120% of all direct and documented operating expenses and liabilities
actually paid during such calendar month by HealthSmart in connection with providing its management services. Any remaining
net profit accrues to us. During the term of the agreement, HealthSmart is responsible for the payment of all expenses
incurred in providing the management services with respect to our ancillary network business, including personnel salaries and
benefits, the cost of supplies and equipment, and rent. The initial term of the management services agreement is three
years, and it renews annually thereafter for one-year terms unless either party gives notice of termination at least 90 days prior
to the end of the then-current term.
Our management
agreement with HealthSmart provides that at any time between October 1, 2016 and the expiration date of the management services
agreement, HealthSmart may purchase, or we may require that HealthSmart purchase, our ancillary network business for a price equal
to $6,500,000 less the aggregate sum of net profit received by us since the beginning of the management arrangement, which as of
September 30, 2015 was approximately $1,700,000. The purchase price is to be payable by HealthSmart solely out of the net profit
it derives from the operation of the ancillary network business after consummation of the transaction. Consummation of the transaction
will be subject to the satisfaction of certain material conditions, currently including stockholder approval of the sale.
Although HealthSmart’s option to purchase and our option to sell the ancillary network business do not become exercisable
until October 1, 2016, we currently are in negotiations with HealthSmart to facilitate an earlier disposition at a price in the
range of $2,500,000 to $4,000,000, which would be in addition to the $1,700,000 of net profit received by us since the beginning of
the management arrangement. However, we cannot assure you such negotiations will result in us disposing of our legacy
business within such price range, earlier than October 1, 2016 or at all. If the sale of our ancillary network business to
HealthSmart is not consummated during or at the end of the term of the management services agreement, we expect to then either
reassume management of that line of business, seek to sell the business on the most favorable terms we are able to obtain, or to
wind-down that line of business.
3. Liquidity and Earnings
(Loss) Per Share
Liquidity
We incurred losses from our investment in
shared services to support planned growth in our urgent and primary care business segment and oversight of the network and ancillary
business, the write-off of intangible assets, the payment and accrual of one-time severance charges, costs incurred to integrate
our acquired urgent and primary care facilities, operating losses incurred by our urgent and primary care business segment as we
implement changes to improve performance, and operating losses incurred in our network and ancillary network business. As a result
of our recurring and nonrecurring losses, we used cash in our operations of $5.9 million and $3.1 million during the nine months
ended September 30, 2015 and 2014, respectively.
We anticipate
we will continue to experience negative cash flow, relating to our losses during the next 12 months, as we try to improve the operating
performance of our existing urgent and primary care centers, expand our urgent and primary care segment and continue the operations
of our ancillary network business. In addition, a portion of our outstanding indebtness to Wells Fargo becomes due and payable
June 1, 2016. (See Note 7 - Lines of Credit, Promissory Notes, and Notes Payable - for further details).
Until
we generate positive cash flows from operations, we will be dependent on our existing lines of credit and outside capital
to fund our operations, fund planned and future acquisitions, and repay debt. At November 13, 2015, in addition to the
$1,000,000 remaining under our revolving credit facility, we had funds of approximately $585,000 available for these needs.
We plan to seek to raise
additional capital through public or private offerings of our common stock, debt financings, borrowings
or a combination thereof. To satisfy any immediate working capital needs, we plan to draw upon the remaining $1,000,000 of
debt capacity under our revolving credit facility. (See Note 7 – Lines of Credit, Promissory Notes, and Notes Payable-
for further details).
There are no assurances
that we will be successful in further extending the maturity dates under our lines of credit, that our guarantors will agree to
continue their obligations under their guarantees, or that we will be able to raise additional capital on terms acceptable to us,
or at all.
Earnings (Loss) Per Share
Basic (loss) per
share is computed by dividing net (loss) available to common stockholders by the weighted-average number of common shares outstanding
during the period of computation. Diluted (loss) per share is computed similar to basic earnings per share except that
the numerator is adjusted for the change in fair value of the warrant liability (only if dilutive), and the denominator is increased
to include the number of dilutive potential common shares outstanding during the period using the treasury stock method.
Basic net (loss)
and diluted net (loss) per share data were computed as follows:
| |
Three months ended
September 30, 2015 | |
Nine months ended
September 30, 2015 |
Numerator: | |
| | | |
| | |
Net (loss) for basic earnings per share | |
$ | (2,190 | ) | |
$ | (9,210 | ) |
Less gain on change in fair value of warrant liability | |
| 548 | | |
| 1,877 | |
Net (loss) for diluted earnings per share | |
| (2,738 | ) | |
| (11,087 | ) |
Denominator: | |
| | | |
| | |
Weighted-average basic common shares outstanding | |
| 6,921 | | |
| 6,847 | |
Assumed conversion of dilutive securities: | |
| | | |
| | |
Common stock purchase warrants | |
| 117 | | |
| 66 | |
Denominator for dilutive earnings per share - adjusted weighted-average shares | |
| 7,038 | | |
| 6,913 | |
| |
| | | |
| | |
Basic net (loss) per share | |
$ | (0.32 | ) | |
$ | (1.35 | ) |
Diluted net (loss) per share | |
$ | (0.39 | ) | |
$ | (1.60 | ) |
The following table
summarizes potentially dilutive shares outstanding as of September 30, 2015, which were excluded from the calculation due to being
anti-dilutive:
| |
2015 |
Common stock purchase warrants | |
| 22 | |
Stock options | |
| 649 | |
Restricted shares of common stock | |
| 50 | |
4. Acquisitions
During the year ended December 31, 2014,
we closed five transactions supporting our entry into the urgent and primary care market. A summary of the acquisitions
is as follows:
Business Acquired |
|
State |
|
Sites |
|
Date of
Closing |
CorrectMed |
|
Georgia |
|
2 |
|
May 8, 2014 |
Bay Walk-In Clinic |
|
Florida |
|
2 |
|
August 29, 2014 |
Mid-South Urgent Care |
|
Alabama |
|
3 |
|
September 12, 2014 |
MedHelp |
|
Georgia |
|
1 |
|
October 31, 2014 |
Stat Medical Care |
|
Virginia |
|
2 |
|
December 31, 2014 |
The following table provides certain pro forma financial information for the Company as if the acquisition of CorrectMed had occurred
on January 1, 2014. Pro forma information for Bay Walk-In, Mid-South Urgent Care, MedHelp, and Stat Medical Care was
not included since it was impracticable to obtain, due to the financial reporting approaches utilized by the prior owners of the
businesses.
| |
Nine months ended September 30, |
| |
2015 | |
2014 |
Net revenue | |
| | | |
| | |
Ancillary network | |
$ | 15,640 | | |
$ | 16,161 | |
Urgent and primary care | |
| 7,251 | | |
| 2,705 | |
Total net revenue | |
| 22,891 | | |
| 18,866 | |
| |
| | | |
| | |
Net loss | |
$ | (9,210 | ) | |
$ | (4,556 | ) |
| |
| | | |
| | |
Basic net (loss) per common share | |
$ | (1.35 | ) | |
$ | (0.72 | ) |
Diluted net (loss) per common share | |
$ | (1.60 | ) | |
$ | (0.72 | ) |
On July 31, 2015, we entered into
an asset purchase agreement with Medac Health Services, P.A., or Medac, and its shareholders to purchase certain assets used
by Medac in the operation of its four urgent care centers in the greater Wilmington, North Carolina area. We refer to
this transaction as the “Medac Asset Acquisition.” The purchase price for the assets is $5,600,000, with
$5,040,000 payable in cash at closing and the balance of $560,000 payable in the form of a promissory note with interest at
5% per annum and maturing 18 months after the closing. The asset purchase agreement provides that consummation of the
transaction is subject to the satisfaction or waiver of certain conditions, including our receipt of financing in an amount
no less than $5,600,000. On October 20, 2015, we agreed, subject to certain customary conditions, to close the Medac Asset
Acquisition no later than November 20, 2015 and provided a nonrefundable $150,000 deposit towards the purchase price. No
assurance can be given that the proposed Medac Asset Acquisition will be consummated by November 20, 2015, on the terms and
conditions set forth herein, or at all. (See Part II, Item 1A. Risk Factors - “We may be unable to complete our planned
acquisition of certain assets of Medac on currently anticipated terms, or at all”).
During the quarter ended September 20, 2015, there was
a measurement period adjustment to Stat Medical Care preliminary accounts receivable balance due to receipt of more
accurate information regarding the accounts receivable balance as of the acquisition date. Accounts receivable was increased
$69,000 and goodwill was decreased by the same amount.
5. Revenue Recognition, Accounts Receivable, and
Concentration of Credit Risk
Our Urgent and Primary Care Business
We have agreements
with governmental and other third-party payors that provide for payments to us based on contractual adjustments to our established
rates. Net revenue is reported at the time service is rendered at the estimated net realizable amounts, after giving effect to
estimated contractual amounts from patients, third-party payors and others, and an estimate for bad debts.
Contractual adjustments
are accrued on an estimated basis in the period the related services are rendered, and adjusted in future periods as final settlements
are determined. We grant credit without collateral to our patients, who consist primarily of local residents insured
by third-party payors. A summary of the basis of reimbursement with major third-party payors is as follows:
Commercial and HMO –
We have entered into agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider
organizations. Billing methodologies under these agreements include discounts from established charges and prospectively determined
rates.
Medicare – Services
rendered to Medicare program beneficiaries are recorded at prospectively determined rates. These rates vary according to a patient
classification system that is based on clinical, diagnostic, and other factors.
In establishing
allowance for bad debts, we consider historical collection experience, the aging of the account, payor classification and patient
payment patterns. We adjust this allowance prospectively.
Collection of payment
for services provided to patients without insurance coverage is done at time of service.
Below is a summary
of accounts receivable as of September 30, 2015, and revenues for the nine months ending September 30, 2015, for our urgent and
primary care business. We entered the urgent and primary care business in May 2014.
| |
September 30, 2015 | |
December 31, 2014 |
Accounts receivable | |
$ | 2,814 | | |
$ | 2,434 | |
Less: | |
| | | |
| | |
Estimated allowance for uncollectible amounts | |
| (1,728 | ) | |
| (847 | ) |
Accounts receivable, net | |
$ | 1,086 | | |
$ | 1,587 | |
| |
September 30, 2015 | |
September 30, 2014 |
Gross revenue | |
$ | 14,356 | | |
$ | 2,867 | |
Less: | |
| | | |
| | |
Provision for contractual adjustments and estimated uncollectible amounts | |
| (7,105 | ) | |
| (1,286 | ) |
Net revenue | |
$ | 7,251 | | |
$ | 1,581 | |
During the quarter
ended September 30, 2015, there was a measurement period adjustment to Stat Medical Care preliminary accounts receivable balance
due to receipt of more accurate information regarding the accounts receivable balance as of the acquisition date. Accounts receivable
was increased $69,000 and goodwill was decreased by the same amount.
Our Ancillary Network Business
We
recognize revenue on the services that we provide, which includes (i) providing payor clients with a comprehensive network of ancillary
healthcare providers; (ii) providing claims management, reporting, processing and payment services; (iii) providing network/need
analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider
networks; and (iv) providing credentialing of network service providers for inclusion in the client payor-specific provider networks. Revenue
is recognized when services are delivered, which occurs after processed claims are billed to the payor clients and collections
are reasonably assured. We estimate revenues and costs of revenues using average historical collection rates and average
historical margins earned on claims. Periodically, revenues are adjusted to reflect actual cash collections so that
revenues recognized accurately reflect cash collected.
We
record a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayment
on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments
made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically
and is based on historical data. We present revenue net of the provision for refunds on the consolidated statement of
operations.
After
careful evaluation of the key gross and net revenue recognition indicators, we have concluded that our circumstances are most consistent
with those key indicators that support gross revenue reporting, since we are fulfilling the services of a principal versus an agent.
Following
are the key indicators that support our conclusion that we act as a principal when settling claims for service providers through
our contracted service provider network:
● |
|
The Company is the primary obligor in the arrangement. We have assessed our role as primary obligor as a strong indicator of gross reporting. We believe that we are the primary obligor in our transactions because we are responsible for providing the services desired by our payor clients. We have distinct, separately negotiated contractual relationships with our payor clients and with the ancillary healthcare providers in our networks. We do not negotiate "on behalf of" our payor clients and do not hold ourselves out as the agent of the payor clients when negotiating the terms of our ancillary healthcare service provider agreements. Our agreements contractually prohibit payor clients and service providers from entering into direct contractual relationships with one another. The payor clients have no control over the terms of our agreements with the service providers. In executing transactions, we assume key performance-related risks. The payor clients hold us responsible for fulfillment, as the provider, of all of the services the payor clients are entitled to under their contracts; payor clients do not look to the service providers for fulfillment. In addition, we bear the pricing/margin risk as the principal in the transactions. Because the contracts with the payor clients and service providers are separately negotiated, we have complete discretion in negotiating both the prices we charge our payor clients and the financial terms of our agreements with the service providers. Because our profit is the spread between the amounts received from the payor clients and the amount paid to the service providers, we bear significant pricing and margin risk. There is no guaranteed mark-up payable to us on the amount we have contracted. Thus, we bear the risk that amounts paid to the service provider will be greater than the amounts received from the payor clients, resulting in a loss or negative claim. |
● |
|
The Company has latitude in establishing pricing. As stated above, we are able to negotiate the price payable to us by our payor clients as well as the price to be paid to each contracted service provider. This type of pricing latitude indicates that we have the risks and rewards normally attributed to a principal in the transactions. |
● |
|
The Company changes the product or performs part of the services. We provide the benefits associated with the relationships we build with the payor clients and the services providers. While the parties could deal with each other directly, the payor clients would not have the benefit of our experience and expertise in assembling a comprehensive network of service providers, in claims management, reporting and processing and payment services, in performing network/needs analysis to assess the benefits to payor clients of adding additional/different service providers to the client payor-specific provider networks, and in credentialing network service providers. |
● |
|
The Company has complete discretion in supplier selection. We have complete discretion in supplier selection. One of the key factors considered by payor clients which engage us is to have the Company undertake the responsibility for identifying, qualifying, contracting with and managing the relationships with the ancillary healthcare service providers. As part of the contractual arrangement between us and our payor clients, the payors identify their obligations to their respective covered persons and then work with us to determine the types of ancillary healthcare services required in order for the payors to meet their obligations. We may select the providers and contract with them to provide services at its discretion. |
● |
|
The Company is involved in the determination of product or service specifications. We work with our payor clients to determine the types of ancillary healthcare services required in order for the payors to meet their obligations to their respective covered persons. In some respects, we are customizing the product through our efforts and ability to assemble a comprehensive network of providers for our payors that is tailored to each payor's specific needs. In addition, as part of our claims processing and payment services, we work with the payor clients, on the one hand, and the providers, on the other, to set claims review, management and payment specifications. |
● |
|
The supplier (and not the Company) has credit risk. We believe we have some level of credit risk, but that risk is mitigated because we do not remit payment to providers unless and until we have received payment from the relevant payor clients following our processing of a claim.. |
● |
|
The amount that the Company earns is not fixed. We do not earn a fixed amount per transaction nor do we realize a per-person per-month charge for our services. |
We have evaluated
the other indicators of gross and net revenue recognition, including whether or not we have general inventory risk. We
do not have any general inventory risk, as our business is not related to the manufacture, purchase or delivery of goods and we
do not purchase in advance any of the services to be provided by the ancillary healthcare service providers. While the
absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, we have carefully
evaluated all of the key gross and net revenue recognition indicators and have concluded that our circumstances are more consistent
with those key indicators that support gross revenue reporting.
If, however, we
were to report our ancillary network revenues, net of provider payments rather than on a gross reporting basis, for the three and
nine months ended September 30, 2015, our net ancillary network revenues would have been $1,200,000 and $4,100,000, respectively.
For the three and nine months ended September 30, 2014, our net ancillary network revenues would have been approximately $1,700,000
and $4,600,000, respectively.
For our ancillary
network business, HealthSmart comprised a significant portion of our net revenue during the period ended September 30, 2015 and
2014. The following is a summary of the approximate amounts of our net revenue and accounts receivable attributable to HealthSmart
as of the dates and for the periods presented:
| |
| |
Period ended September 30, 2015 | |
| |
Period ended September 30, 2014 |
| |
As of
September 30,
2015 | |
Three months | |
Nine months ended | |
As of
September 30,
2014 | |
Three months | |
Nine months ended |
| |
Accounts
Receivable | |
Revenue | |
% of Total
Revenue | |
Revenue | |
% of Total
Revenue | |
Accounts
Receivable | |
Revenue | |
% of Total
Revenue | |
Revenue | |
% of Total
Revenue |
HealthSmart Preferred Care II, L.P. | |
$ | 897 | | |
$ | 2,048 | | |
| 48 | % | |
$ | 5,921 | | |
| 38 | % | |
$ | 876 | | |
$ | 1,938 | | |
| 34 | % | |
$ | 5,483 | | |
| 34 | % |
We maintain an
allowance for uncollectible receivables which primarily relates to payor refunds. Refunds are paid to payors for overpayments
on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payment
made to the ancillary service provider if the claim has been fully resolved. Co-payments, deductibles and co-insurance payments
can also impact the collectability of claims. While we are able to process a claim and estimate the cash we will receive from
the payor for that claim, the presence of co-pays, deductibles and co-insurance payments can affect the ultimate collectability
of the claim. We record an allowance against revenue to better estimate collectability. Provisions for refunds recorded were approximately
$(30,000) and $55,000 for the three-month periods ended September 30, 2015 and 2014, respectively. The allowance was approximately
$71,000 and $354,000 at September 30, 2015 and 2014, respectively.
6. Capital and Operating Lease Obligations
The following
is a schedule of the future required payments under our lease agreements in effect at September 30, 2015:
| |
Capital
Leases | |
Operating
Leases | |
Total |
2015 (remaining 3 months) | |
$ | 74 | | |
$ | 233 | | |
$ | 307 | |
2016 | |
| 299 | | |
| 879 | | |
| 1,178 | |
2017 | |
| 287 | | |
| 766 | | |
| 1,053 | |
2018 | |
| 276 | | |
| 651 | | |
| 927 | |
2019 | |
| 273 | | |
| 585 | | |
| 858 | |
Thereafter | |
| 2,898 | | |
| 830 | | |
| 3,728 | |
Total minimum lease payments | |
| 4,107 | | |
$ | 3,944 | | |
$ | 8,051 | |
Less amount representing interest | |
| (2,311 | ) | |
| | | |
| | |
Present value of net minimum obligations | |
| 1,796 | | |
| | | |
| | |
Less current obligation under capital lease | |
| 130 | | |
| | | |
| | |
Long-term obligation under capital lease | |
$ | 1,666 | | |
| | | |
| | |
7. Lines of Credit, Promissory
Notes, and Notes Payable
Below is a summary
of our short-term and long-term debt obligations.
Lines of Credit
On July 30, 2014,
we entered into a credit agreement with Wells Fargo providing for a $5,000,000 revolving line of credit. On December
4, 2014, we entered into a second credit agreement with Wells Fargo Bank, providing for a $6,000,000 revolving line of credit. We
refer to these two agreements as our credit agreements. Our obligation to repay advances under the credit agreements
are evidenced by revolving line of credit notes, each with a fluctuating interest rate per annum of 1.75% above daily one month
LIBOR, as in effect from time to time. The July 30, 2014 credit agreement matures on June 1, 2016, and all borrowings
under this credit agreement are due and payable on that date. On August 12, 2015, we increased the line of credit under
the December 4, 2014 credit agreement from $6,000,000 to $7,000,000 and extended the maturity date to October 1, 2016, and all
borrowings under the December 2014 credit agreement are due and payable on that date. The obligations under the credit agreements
are secured by all the assets of the Company and its subsidiaries. The credit agreements include ordinary and customary
covenants related to, among other things, additional debt, further encumbrances, sales of assets, and investments and lending.
Borrowings under
the credit agreements are also secured by guarantees provided by certain officers and directors of the Company, among others. On
July 30, 2014, we issued to the guarantors of the July 2014 obligations warrants to purchase an aggregate of 800,000 shares of
our common stock in consideration of their guaranteeing such indebtedness. The July 2014 warrants vested immediately
and are exercisable any time prior to their expiration on October 30, 2019. In addition, on December 4, 2014, we issued
to the guarantors of the December 2014 obligations warrants to purchase an aggregate of 960,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The December 2014 warrants vested immediately and are exercisable
any time prior to their expiration on December 4, 2019. In connection with the $1,000,000 increase in the line of credit under
the December 2014 credit agreement, we issued warrants to the guarantors to purchase an additional 300,000 shares of our common
stock in consideration of their guaranteeing such
indebtedness. The warrants vested immediately and are exercisable at any time prior to their expiration on August 12, 2020.
As of
September 30, 2015, we had outstanding borrowings of $5,000,000 under our July 2014 credit agreement and $5,800,000 under our
December 2014 credit agreement. The amount outstanding under our July 2014 credit agreement was recorded as a current
liability on our consolidated balance sheet as of September 30, 2015. Based on the extension of the December 2014 credit
agreement to October 2016 subsequent to quarter end, the $5,800,000 outstanding balance has been reclassified to long-term on
our consolidated balance sheet. Substantially all of the borrowings under the credit agreements were used to finance
acquisition activity, fund losses, and $200,000, which is not currently available to be borrowed by us, was used to secure a
bond required by a state license for the ancillary network business. The weighted-average interest rate on
these borrowings was 1.94% as of September 30, 2015.
Promissory Notes and Notes Payable
The following is
a summary of all Company debt as of September 30, 2015:
Revolving line of credit | |
$ | 10,800 | |
Promissory notes, related to acquisitions | |
| 351 | |
Total debt | |
| 11,151 | |
Less current maturities | |
| 5,351 | |
Long-term debt | |
$ | 5,800 | |
Outstanding debt balances as of September
30, 2015 mature as follows: 2015 (remaining 3 months) - $194,000; 2016 - $10,957,000.
In 2014, as part
of the purchase consideration for one of our urgent and primary care acquisitions the Company issued a promissory note for $289,000 that was payable to a previous clinic seller in August 2015. During the quarter
ended September 30, 2015 promissory note was cancelled and therefore, we have recorded a one-time gain of $289,000.
8. Intangible Assets
Intangible assets and
related accumulated amortization consists of the following as of the dates presented:
| |
September 30, 2015 | |
December 31, 2014 |
Gross carrying amount of urgent and primary care intangibles: | |
| | | |
| | |
Patient relationships and contracts | |
$ | 972 | | |
$ | 972 | |
Accumulated amortization | |
| (163 | ) | |
| (47 | ) |
Intangible asset impairment* | |
| (520 | ) | |
| - | |
Urgent and primary care intangibles, net | |
| 289 | | |
| 925 | |
| |
| | | |
| | |
Gross carrying amount of ancillary intangibles: | |
| | | |
| | |
Ancillary provider network | |
| 1,921 | | |
| 1,921 | |
Software | |
| 428 | | |
| 428 | |
| |
| 2,349 | | |
| 2,349 | |
Accumulated amortization | |
| (1,933 | ) | |
| (1,837 | ) |
Ancillary intangibles, net | |
| 416 | | |
| 512 | |
Total intangibles, net | |
$ | 705 | | |
$ | 1,437 | |
* At the time we purchased one of our urgent and
primary care centers, we allocated $600,000 of the purchase price to a contract held by the acquired center that related to
non-urgent care services. During the quarter ended June 30, 2015, we suspended our provision of services under that contract
and have recorded a one-time impairment charge of $520,000 relating to the unamortized balance of that intangible asset.
Total
amortization expense related to intangibles was approximately $51,000 and $48,000 during the three-month periods ended September
30, 2015 and 2014, respectively. The patient relationships and contracts are being amortized using the straight-line method over
their estimated useful lives of five years. The ancillary provider network is being amortized using the straight-line method
over its anticipated useful life of 15 years. Experience-to-date is that approximately 2% - 8% annual turnover or attrition
of provider contracts occurs each year. The ancillary provider network is being accounted for on a pooled basis and the actual
cancellation rates of provider contracts that were acquired are monitored for potential impairment or amortization adjustment,
if warranted.
Estimated annual amortization expense relating
to intangibles is as follows:
Years ending December 31, | |
Urgent and Primary
Care | |
Ancillary Care
Services | |
Total |
2015 (remaining 3 months) | |
$ | 19 | | |
$ | 32 | | |
$ | 51 | |
2016 | |
| 74 | | |
| 128 | | |
| 202 | |
2017 | |
| 74 | | |
| 128 | | |
| 202 | |
2018 | |
| 74 | | |
| 128 | | |
| 202 | |
2019 | |
| 48 | | |
| - | | |
| 48 | |
Total | |
$ | 289 | | |
$ | 416 | | |
$ | 705 | |
9. Warrants
The Company had outstanding
warrants to purchase 2,082,222 shares and 822,222 shares of our common stock as of September 30, 2015 and September 30, 2014, respectively.
Warrants to purchase 2,060,000 of those shares at September 30, 2015 are considered derivative warrants because they contain exercise-price
adjustment features. The remaining warrant to purchase 22,222 shares that was outstanding as of September 30, 2015 and 2014 is
a non-derivative warrant, which expires on February 1, 2017, and has an exercise price of $1.50 per share of common stock.
July 30, 2014 Warrants
On July 30, 2014,
we issued warrants to individuals who provided guarantees in connection with a $5,000,000 line of credit that was obtained by
us on that same date. The warrants allow the warrant holders to purchase a total of 800,000 shares of our common stock. The
warrants vested immediately and are exercisable any time prior to their expiration on October 30, 2019. These warrants have
anti-dilution provisions that could require some of the warrants' terms to change upon the occurrence of certain future
events including the warrants' strike price and the number of shares
that can be purchased by the warrant holders.
When the
warrants were issued, they allowed warrant holders to purchase shares of our common stock for $3.15 per share, which was
$0.01 per share higher than the closing market price of our common stock on July 30, 2014. On August 28, 2015, restricted
stock was awarded to our directors pursuant to our director compensation plan. In accordance with the anti-dilution
provisions of the warrant contracts, the warrants’ strike price was reduced to $1.46 per share, which was equal to the
closing market price of our common stock on August 28, 2015. Holders of warrants representing substantially all of the shares
issuable under the July 2014 warrants have waived any adjustment in the number of shares that could be purchased pursuant to
their warrants as a result of the change in the strike price.
Because
the warrants’ strike price is not fixed, the warrants are reported as liabilities on our balance sheet. On the date the
warrants were issued, we recognized a warrant liability that was equal to the warrants' fair value of $1,420,000. A
corresponding entry was made to deferred loan fees. Deferred
loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement, which expires on
June 1, 2016. During the three and nine months ended September 30, 2015, we recognized $194,000 and $582,000, of
amortization expense, respectively, on this asset.
The warrant liability
is adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant liability are
reported as unrealized losses (gains) and reported as a component of interest expense on the Company's statement of operations.
On December 31, 2014 and September 30, 2015, the warrants were adjusted to their estimated fair value of $1,410,000
and $622,000, respectively. The Company's statement of operations for the three and nine months ended September
30, 2015 include unrealized gains of $250,000 and $788,000, respectively.
The warrants' fair
value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution
provisions are only applicable if our common stock is issued in certain transactions at a price below the warrant exercise price
($1.46 as of September 30, 2015) before a public offering is closed for at least $10,000,000. In the September 30, 2015 calculation,
we assumed that there was a 15% probability that the Company would issue common stock in at least one of those transactions in
the remainder of 2015. If the market price of the Company's stock was less than the warrants' exercise price on the date of such
issuance, we assumed that the warrants' exercise price would be reduced, in accordance with the terms of the warrant agreements.
Additional assumptions we used in our valuation calculations were as follows:
| |
September 30, 2015 | |
December 31, 2014 |
Stock price | |
$ | 1.25 | | |
$ | 2.90 | |
Volatility | |
| 90.0 | % | |
| 72.5 | % |
Risk-free interest rate | |
| 1.15 | % | |
| 1.65 | % |
Exercise price | |
$ | 1.46 | | |
$ | 3.15 | |
Expected life (years) | |
| 4.08 | | |
| 4.83 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
Private stock offering % | |
| 15 | % | |
| 15 | % |
Public stock offering % | |
| 80 | % | |
| 80 | % |
Equity raise time period | |
| 4th Quarter 2015 | | |
| 4th Quarter 2015 | |
December 4, 2014 Warrants
On
December 4, 2014, we issued warrants to individuals who provided guarantees in connection with a $6,000,000 line of credit that
was obtained by us on that same date. The warrants allow the warrant holders to purchase a total of 960,000 shares of our common
stock. The warrants vested immediately and are exercisable any time prior to their expiration on December 4, 2019. These
warrants have anti-dilution provisions, under which the warrants' strike price could change if certain future events occur.
When the warrants
were issued, they allowed warrant holders to purchase shares of our common stock for $2.71 per share, which was equal to the closing
market price of our common stock on December 4, 2014. On August 28, 2015, restricted stock was awarded to our directors pursuant
to our director compensation plan. In accordance with the anti-dilution provisions of the warrant contracts, the warrants’
strike price was reduced to $1.46 per share, which was equal to the closing market price of our common stock on August 28, 2015.
Because the warrants’
strike price is not fixed, the warrants are reported as liabilities on our balance sheet. On the date the warrants were issued,
we recognized a warrant liability that was equal to the warrants' fair value of $1,660,000. A corresponding entry was made to deferred
loan fees. Deferred loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement,
which expires on October 1, 2016. During the three and nine months ended September 30, 2015, we recognized $203,000 and
$756,000, of amortization expense, respectively, on this asset.
The warrant liability
is adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant liability are
reported as unrealized losses (gains) and reported as a component of interest expense on the Company's statement of operations.
On December 31, 2014 and September 30, 2015, the warrants were adjusted to their estimated fair value of $1,790,000 and $787,000, respectively. The Company's statement of operations for the three months and nine months ended September
30, 2015 include unrealized gains of $212,000 and $1,003,000, respectively.
The warrants' fair
value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution
provisions are applicable if our common stock is issued in certain transactions at a price below the warrant exercise price ($1.46
as of September 30, 2015). In the September 30, 2015 calculation, we assumed that there was a 95% probability that the Company
would issue common stock in at least one of those transactions in the remainder of 2015. If the market price of the Company's stock
was less than the warrants' exercise price on the date of such issuance, we assumed that the warrants' exercise price would be
reduced, in accordance with the terms of the warrant agreements. Additional assumptions we used in our valuation calculations were
as follows:
| |
September 30, 2015 | |
December 31, 2014 |
Stock price | |
$ | 1.25 | | |
$ | 2.90 | |
Volatility | |
| 90.0 | % | |
| 72.5 | % |
Risk-free interest rate | |
| 1.15 | % | |
| 1.65 | % |
Exercise price | |
$ | 1.46 | | |
$ | 2.71 | |
Expected life (years) | |
| 4.18 | | |
| 4.93 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
August 12, 2015 Warrants
On
August 12, 2015, we issued warrants to individuals who provided guarantees in connection with a $1,000,000 increase in, and extension of, our December 2014 line of credit that was obtained by us on that same date. The warrants allow the warrant
holders to purchase a total of 300,000 shares of our common stock. The warrants vested immediately and are exercisable any
time prior to their expiration on August 12, 2020. These warrants have anti-dilution provisions, under which the warrants'
strike price could change if certain future events occur. Some
of the anti-dilution provisions of warrants issued to our officers and directors do not become effective unless and until
they are approved by our stockholders.
When the warrants
were issued, they allowed warrant holders to purchase shares of our common stock for $1.70 per share, which was equal to the closing
market price of our common stock on August 12, 2015. On August 28, 2015, restricted stock was awarded to our directors pursuant
to our director compensation plan. In accordance with the anti-dilution provisions of the warrant contracts, the warrants’
strike price was reduced to $1.46 per share, which was equal to the closing market price of our common stock on August 28, 2015.
Because the warrants’
strike price is not fixed, the warrants are reported as liabilities on our balance sheet. On the date the warrants were issued,
we recognized a warrant liability that was equal to the warrants' fair value of $347,000. A corresponding entry was made to deferred
loan fees. Deferred loan fees, an asset on our balance sheet, are being amortized over the life of the line of credit agreement,
which expires on October 1, 2016. During the period ended September 30, 2015, we recognized $50,000 of amortization expense on
this asset.
The warrant
liability is adjusted to the warrants' fair value at the end of each reporting period. Increases (decreases) in the warrant
liability are reported as unrealized losses (gains) and reported as a component of interest expense on the Company's
statement of operations. In the September 30, 2015 calculation, we assumed that there was a 100% probability that
any adjustment to the strike price, including the adjustment of the stock price to $1.46 per share, would be approved by
stockholders. On September 30, 2015, the warrants were adjusted to their estimated fair value of $261,000. The Company's
statement of operations for the three and nine months ended September 30, 2015 include an unrealized gain of $86,000. The
unrealized gain corresponds with the decrease in the warrant liability since August 12, 2015.
The warrants' fair
value was calculated using the binomial options-pricing model. Pursuant to the terms of the relevant warrant agreements, the anti-dilution
provisions are applicable if our common stock is issued in certain transactions at a price below the warrant exercise price ($1.46
as of September 30, 2015). In the September 30, 2015 calculation, we assumed that there was a 95% probability that the Company
would issue common stock in at least one of those transactions in the remainder of 2015. If the market price of the Company's stock
was less than the warrants' exercise price on the date of such issuance, we assumed that the warrants' exercise price would be
reduced, in accordance with the terms of the warrant agreements. Additional assumptions we used in our valuation calculations were
as follows:
| |
September 30, 2015 | |
August 12, 2015 |
Stock price | |
$ | 1.25 | | |
$ | 1.70 | |
Volatility | |
| 90.0 | % | |
| 82.5 | % |
Risk-free interest rate | |
| 1.37 | % | |
| 1.52 | % |
Exercise price | |
$ | 1.46 | | |
$ | 1.70 | |
Expected life (years) | |
| 4.87 | | |
| 5 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
The following table summarizes the derivative warrant
activity since December 31, 2014:
| |
Weighted-
Average
Exercise
Price | |
Warrants
Outstanding
December 31,
2014 | |
Warrants
Issued
in 2015 | |
Warrants
Outstanding
September 30,
2015 |
Warrants issued July 30, 2014 | |
$ | 1.46 | | |
| 800 | | |
| - | | |
| 800 | |
Warrants issued December 4, 2014 | |
$ | 1.46 | | |
| 960 | | |
| - | | |
| 960 | |
Warrants issued August 12, 2015 | |
$ | 1.46 | * | |
| - | | |
| 300 | | |
| 300 | |
Total | |
$ | 1.46 | | |
| 1,760 | | |
| 300 | | |
| 2,060 | |
* Assumes adjustment of strike price for
warrants to the purchase 249,990 shares is approved by stockholders.
The following table summarizes changes
in the derivative warrants' fair values since December 31, 2014:
| |
Warrants
Issued on
July 30, 2014 | |
Warrants
Issued on
December 4, 2014 | |
Warrants
Issued on
August 12, 2015 | |
Total |
Fair value of outstanding warrants as of December 31, 2014 | |
$ | 1,410 | | |
$ | 1,790 | | |
$ | - | | |
| 3,200 | |
Fair value of outstanding warrants issued on August 12, 2015 | |
| - | | |
| - | | |
| 347 | | |
| 347 | |
Change in fair value of warrants through 3rd Quarter 2015 | |
| (788 | ) | |
| (1,003 | ) | |
| (86 | ) | |
| (1,877 | ) |
Fair value of outstanding warrants as of September 30, 2015 | |
$ | 622 | | |
$ | 787 | | |
$ | 261 | | |
$ | 1,670 | |
10. Segment Reporting
We operate in two
segments, urgent and primary care and ancillary network. We evaluate performance based on several factors, of which the primary
financial measure for each segment is operating income. We define segment income for our business segments as income
before interest expense, gain or loss on disposal of assets, income taxes, depreciation expense, non-cash amortization of intangible
assets, intangible asset impairment, non-cash stock-based compensation expense, shared service expenses, severance charges and
any non-recurring costs. Shared services primarily consist of compensation costs for the executive management team,
facilities' costs for our corporate headquarters, support services such as finance and accounting, human resources, legal, marketing
and information technology and general administration. Shared services also include transactional costs.
The following tables
set forth a comparison of operations for the following periods presented for our two lines of business and shared services (certain
prior year amounts have been reclassified for comparability purposes).
Consolidated statements
of operations by segment for the respective periods are as follows:
| |
Three months ended September 30, |
| |
2015 | |
2014 |
| |
Urgent and
Primary Care | |
Ancillary
Network | |
Shared
Services | |
Total | |
Urgent and
Primary Care | |
Ancillary
Network | |
Shared
Services | |
Total |
Net revenues | |
$ | 2,225 | | |
$ | 4,293 | | |
$ | - | | |
$ | 6,518 | | |
$ | 1,107 | | |
$ | 5,656 | | |
$ | - | | |
$ | 6,763 | |
Total segment income (loss) | |
| (416 | ) | |
| (192 | ) | |
| (1,484 | ) | |
| (2,092 | ) | |
| 37 | | |
| 405 | | |
| (1,638 | ) | |
| (1,196 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Additional Segment Disclosures: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 76 | | |
| - | | |
| 25 | | |
| 101 | | |
| 28 | | |
| - | | |
| - | | |
| 28 | |
(Gain)/loss on warrant liability, net of deferred loan fee amortization | |
| (76 | ) | |
| - | | |
| (25 | ) | |
| (101 | ) | |
| 18 | | |
| - | | |
| 6 | | |
| 24 | |
Depreciation and amortization expense | |
| 122 | | |
| 152 | | |
| - | | |
| 274 | | |
| 81 | | |
| 154 | | |
| - | | |
| 235 | |
Income tax expense (benefit) | |
| 1 | | |
| (1 | ) | |
| - | | |
| - | | |
| - | | |
| 1 | | |
| (227 | ) | |
| (226 | ) |
Total asset expenditures | |
| 33 | | |
| - | | |
| 22 | | |
| 55 | | |
| 5,030 | | |
| 226 | | |
| - | | |
| 5,256 | |
| |
Nine months ended September 30, |
| |
2015 | |
2014 |
| |
Urgent and
Primary Care | |
Ancillary
Network | |
Shared
Services | |
Total | |
Urgent and
Primary Care | |
Ancillary
Network | |
Shared
Services | |
Total |
Net revenues | |
$ | 7,251 | | |
$ | 15,640 | | |
$ | - | | |
$ | 22,891 | | |
$ | 1,581 | | |
$ | 16,161 | | |
$ | - | | |
$ | 17,742 | |
Total segment income (loss) | |
| (1,661 | ) | |
| 258 | | |
| (5,122 | ) | |
| (6,525 | ) | |
| 108 | | |
| 480 | | |
| (3,853 | ) | |
| (3,265 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Additional Segment Disclosures: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 208 | | |
| - | | |
| 69 | | |
| 277 | | |
| 37 | | |
| - | | |
| - | | |
| 37 | |
(Gain)/loss on warrant liability, net of deferred loan fee amortization | |
| (367 | ) | |
| - | | |
| (122 | ) | |
| (489 | ) | |
| 18 | | |
| - | | |
| 6 | | |
| 24 | |
Depreciation and amortization expense | |
| 422 | | |
| 435 | | |
| - | | |
| 857 | | |
| 122 | | |
| 506 | | |
| - | | |
| 628 | |
Income tax expense (benefit) | |
| 1 | | |
| 9 | | |
| - | | |
| 10 | | |
| - | | |
| 2 | | |
| (227 | ) | |
| (225 | ) |
Total asset expenditures | |
| 52 | | |
| - | | |
| 141 | | |
| 193 | | |
| 5,030 | | |
| 422 | | |
| - | | |
| 5,452 | |
The following provides
a reconciliation of reportable segment operating income (loss) to the Company’s consolidated totals:
| |
Three months ended September 30, | |
Nine months ended September 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
Total segment operating loss | |
$ | (2,092 | ) | |
$ | (1,196 | ) | |
$ | (6,525 | ) | |
$ | (3,265 | ) |
Less: | |
| | | |
| | | |
| | | |
| | |
Severance charges | |
| 51 | | |
| - | | |
| 397 | | |
| 108 | |
Ancillary network prepaid write-off | |
| - | | |
| - | | |
| 487 | | |
| - | |
Depreciation and amortization expense | |
| 274 | | |
| 235 | | |
| 857 | | |
| 628 | |
Non-cash stock-based compensation expense | |
| 23 | | |
| 169 | | |
| 426 | | |
| 366 | |
Intangible asset impairment | |
| - | | |
| - | | |
| 520 | | |
| - | |
Non-recurring professional fees | |
| 39 | | |
| 28 | | |
| 489 | | |
| 28 | |
Operating loss | |
| (2,479 | ) | |
| (1,628 | ) | |
| (9,701 | ) | |
| (4,395 | ) |
Gain on cancellation of acquisition promissory note | |
| (289 | ) | |
| - | | |
| (289 | ) | |
| - | |
Interest expense | |
| 101 | | |
| 28 | | |
| 277 | | |
| 37 | |
(Gain)/loss on warrant liability, net of deferred loan fees amortization | |
| (101 | ) | |
| 24 | | |
| (489 | ) | |
| 24 | |
Loss before income taxes | |
$ | (2,190 | ) | |
$ | (1,680 | ) | |
$ | (9,200 | ) | |
$ | (4,456 | ) |
Segment
assets include accounts receivable, prepaid expenses and other current assets, property and equipment, and intangibles. Shared
services assets consist of cash and cash equivalents, prepaid insurance, deferred income taxes and property and equipment primarily
related to information technology assets. Consolidated assets, by segment and shared services, as of the periods presented
are as follows:
| |
Urgent and
Primary Care | |
Ancillary
Network | |
Shared
Services | |
Consolidated |
September 30, 2015 | |
$ | 11,685 | | |
$ | 4,091 | | |
$ | 961 | | |
$ | 16,737 | |
December 31, 2014 | |
| 11,958 | | |
| 5,202 | | |
| 3,945 | | |
| 21,105 | |
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
As used herein, the “Company,”
“we,” “us,” “our” or similar terms, refer to American CareSource Holdings, Inc. and its wholly
owned subsidiaries, except as expressly indicated or unless the context otherwise requires. The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding
of our financial condition and our historical results of operations for the periods presented and should be read together with
our financial statements and related notes included elsewhere in this report. This MD&A may contain forward-looking statements
that involve risks and uncertainties. See “Forward-Looking Statements” below.
Overview
We engage in two lines of business: our
urgent and primary care business and our ancillary network business. Although we have been engaged in our ancillary
network business for a number of years, with our entry into the urgent and primary care business and our management arrangement
with HealthSmart Preferred Care II, L.P., or HealthSmart, we now focus primarily on our urgent and primary care business. We believe
that urgent and primary care centers are and will continue to be an essential component of the effective delivery of healthcare
services in the United States. Accordingly, our resources are focused on the growth of that line of business.
Our Urgent and Primary Care Business
In early May 2014, we announced our entry
into the urgent and primary care market. During the remainder of 2014, we, through our wholly-owned subsidiaries, consummated
five transactions resulting in our acquisition of ten urgent and primary care centers, three of which are located in Georgia, two
in Florida, three in Alabama and two in Virginia.
Our healthcare centers offer a wide array
of services for non-life-threatening medical conditions. We strive to improve access to quality medical care by offering extended
hours and weekend service primarily on a walk-in basis. Our centers offer a broad range of medical services that generally fall
within the urgent care, primary care, family care, and occupational medicine classifications. Specifically, we offer non-life-threatening,
out-patient medical care for the treatment of acute, episodic, and some chronic medical conditions. When hospitalization or specialty
care is needed, referrals to appropriate providers are made.
Patients typically visit our centers on
a walk-in basis when their condition is not severe enough to warrant an emergency visit or when treatment by their primary care
provider is inconvenient. We also attempt to capture follow-up, preventative and general primary care business after walk-in visits.
The services provided at our centers include, but are not limited to, the following:
|
· |
routine treatment of general medical problems, including colds, flu, ear infections, hypertension, asthma, pneumonia, urinary tract infections, and other conditions typically treated by primary care providers; |
|
· |
treatment of injuries, such as simple fractures, dislocations, sprains, bruises, and cuts; |
|
· |
minor, non-emergent surgical procedures, including suturing of lacerations and removal of foreign bodies; |
|
· |
diagnostic tests, such as x-rays, electrocardiograms, complete blood counts, and urinalyses; and |
|
· |
occupational and industrial medical services, including drug testing, workers' compensation cases, and pre-employment physical examinations. |
We staff our centers with a combination
of licensed physicians, nurse practitioners, physician assistants, medical support staff, and administrative support staff. Our
medical support staff includes licensed nurses, certified medical assistants, laboratory technicians, and registered radiographic
technologists.
Our patient volume, and therefore our revenue,
is sensitive to seasonal fluctuations in urgent and primary care activity. Typically, winter months tend to be busier as we see
a higher occurrence of influenza, bronchitis, pneumonia and similar illnesses; however, the timing and severity of these outbreaks
can vary dramatically. Additionally, as consumers shift towards high deductible insurance plans, they are responsible
for a greater percentage of their bill, particularly in the early months of the year before other healthcare spending has occurred.
Our inability to collect the full patient liability portion of the bill at the time of service may lead to an increase in bad debt
expense during that period. Our quarterly operating results may fluctuate significantly in the future depending on these and other
factors.
In keeping with
the retail nature of the services we offer, we have initiated a rebranding campaign with our new tradename, GoNow Doctors. We believe
our new name and logo will enable us to effectively market our services in our existing and target communities:
We intend to grow our urgent and primary
care business through the acquisition of new centers, by improving patient volume of overall performance in our existing centers,
and by establishing new centers in strategic areas located in the eastern and southeastern United States.
Our Ancillary Network Business
Our ancillary network business offers cost
containment strategies to our payor clients, primarily through the utilization of a comprehensive national network of ancillary
healthcare service providers. This service is marketed to a number of healthcare companies including third-party administrators,
insurance companies, large self-funded organizations, various employer groups and preferred provider organizations. We
are able to lower the payors' ancillary care costs through our network of high quality, cost effective providers that we have under
contract at more favorable terms than the payors could generally obtain on their own.
Payors route healthcare claims to us after
service has been performed by participant providers in our network. We process those claims and charge the payor according
to an agreed upon, contractual rate. Upon processing the claim, we are paid directly by the payor or the insurer for
the service. We then pay the medical service provider according to a separately negotiated contractual rate. We
assume the risk of generating positive margin, which is calculated as the difference between the payment we receive for the service
from the payor and the amount we are obligated to pay the service provider.
On October 1, 2014, we entered into a management
services agreement with HealthSmart. Under the management services agreement, HealthSmart manages the operation of our ancillary
network business, subject to the supervision of a five-person oversight committee comprised of three members selected by us and
two members selected by HealthSmart. As a result of this arrangement, we no longer employ the workforce of our ancillary
network business. Under the management services agreement, HealthSmart operates our ancillary network business
for a management fee equal to the sum of (a) 35% of the net profit derived from operation of our ancillary network business, plus
(b) 120% of all direct and documented operating expenses and liabilities actually paid during such calendar month by HealthSmart
in connection with providing its management services. For purposes of the fee calculation, the term "net profit" means
gross ancillary network business revenue, less the sum of (x) the provider payments and administrative fees and (y) 120% of all
direct and documented operating expenses and liabilities actually paid during such calendar month by HealthSmart in connection
with providing its management services. Any remaining net profit accrues to us. During the term of the agreement, HealthSmart
is responsible for the payment of all expenses incurred in providing the management services with respect to our ancillary network
business, including personnel salaries and benefits, the cost of supplies and equipment, and rent. The initial term
of the management services agreement is three years, and it renews annually thereafter for one-year terms unless either party gives
notice of termination at least 90 days prior to the end of the then-current term.
Our management services agreement
with HealthSmart provides that at any time after October 1, 2016 and during the remaining term of the management services
agreement, HealthSmart may purchase, or we may require that HealthSmart purchase, our ancillary network business for a price
equal to $6,500,000 less the aggregate sum of net profit received by us since the beginning of the management services
agreement. As of September 30, 2015, the aggregate net profit received by us since the beginning of the management services
agreement was approximately $1,700,000. Consummation of the transaction will be subject to the satisfaction of certain
material conditions, currently including stockholder approval of the sale. The purchase price is to be payable by HealthSmart
as follows: Within 30 days following each calendar month after the closing, HealthSmart will be obligated to pay to us 65% of
the net profit derived from the operation of the ancillary network business minus 120% of all direct and documented operating
expenses and liabilities actually paid by HealthSmart during such calendar month in connection with operating the ancillary
network business until the purchase price is paid in full. Although HealthSmart’s option to purchase and our option to
sell the ancillary network business do not become exercisable until October 1, 2016, we currently are in negotiations with
HealthSmart to facilitate an earlier disposition at a price in the range of $2,500,000 to $4,000,000, which would be in
addition to $1,700,000 of net profit received by us since the beginning of the management arrangement. However, we cannot assure you
such negotiations will result in us disposing of our legacy business within such price range, earlier than October 1, 2016 or
at all. If the sale of our ancillary network business to HealthSmart is not consummated during or at the end of the term of
the management services agreement, we expect to then re-assume management of that line of business, seek to sell that
business on the most favorable terms we are able to obtain or wind down that line of business.
Results of Operations
Three Months Ended September 30, 2015 Compared to Three
Months Ended September 30, 2014
The following table summarizes our results
of operations for the three months ended September 30, 2015 and 2014 (in thousands) (certain prior quarter amounts have
been reclassified for comparability purposes):
| |
Three Months |
| |
September 30, 2015 | |
September 30, 2014 | |
Change |
| |
Urgent and Primary Care | |
Ancillary Network | |
Shared Services | |
Total | |
Urgent and Primary Care | |
Ancillary Network | |
Shared Services | |
Total | |
$ | |
% |
Net revenues | |
$ | 2,225 | | |
$ | 4,293 | | |
$ | - | | |
$ | 6,518 | | |
$ | 1,107 | | |
$ | 5,656 | | |
$ | - | | |
$ | 6,763 | | |
$ | (245 | ) | |
| -4 | % |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ancillary network provider payments | |
| - | | |
| 3,130 | | |
| - | | |
| 3,130 | | |
| - | | |
| 3,929 | | |
| - | | |
| 3,929 | | |
| (799 | ) | |
| -20 | % |
Ancillary network administrative fees | |
| - | | |
| 275 | | |
| - | | |
| 275 | | |
| - | | |
| 278 | | |
| - | | |
| 278 | | |
| (3 | ) | |
| -1 | % |
Ancillary network other operating costs | |
| - | | |
| 1,080 | | |
| - | | |
| 1,080 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,080 | | |
| N/A | |
Salaries, wages, contract medical professional fees and related expenses | |
| 1,800 | | |
| - | | |
| 693 | | |
| 2,493 | | |
| 781 | | |
| 793 | | |
| 832 | | |
| 2,406 | | |
| 87 | | |
| 4 | % |
Facility expenses | |
| 254 | | |
| - | | |
| 83 | | |
| 337 | | |
| 89 | | |
| - | | |
| 123 | | |
| 212 | | |
| 125 | | |
| 59 | % |
Medical supplies | |
| 225 | | |
| - | | |
| - | | |
| 225 | | |
| 66 | | |
| - | | |
| - | | |
| 66 | | |
| 159 | | |
| 241 | % |
Other operating expenses | |
| 401 | | |
| - | | |
| 782 | | |
| 1,183 | | |
| 163 | | |
| 250 | | |
| 852 | | |
| 1,265 | | |
| (82 | ) | |
| -7 | % |
Depreciation and amortization | |
| 122 | | |
| 152 | | |
| - | | |
| 274 | | |
| 81 | | |
| 154 | | |
| - | | |
| 235 | | |
| 39 | | |
| 17 | % |
Total operating expenses | |
$ | 2,802 | | |
$ | 4,637 | | |
$ | 1,558 | | |
$ | 8,997 | | |
$ | 1,180 | | |
$ | 5,404 | | |
$ | 1,807 | | |
$ | 8,391 | | |
$ | 606 | | |
| 7 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
$ | (577 | ) | |
$ | (344 | ) | |
$ | (1,558 | ) | |
$ | (2,479 | ) | |
$ | (73 | ) | |
$ | 252 | | |
$ | (1,807 | ) | |
$ | (1,628 | ) | |
$ | (851 | ) | |
| 52 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other (income) expense: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gain on cancellation of acquisition promissory note | |
| | | |
| | | |
| | | |
| (289 | ) | |
| | | |
| | | |
| | | |
| - | | |
| (289 | ) | |
| | |
Interest expense: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| 101 | | |
| | | |
| | | |
| | | |
| 28 | | |
| 73 | | |
| | |
(Gain)/loss on warrant liability, net of deferred loan fee amortization | |
| | | |
| | | |
| | | |
| (101 | ) | |
| | | |
| | | |
| | | |
| 24 | | |
| (125 | ) | |
| | |
Total other (income) expense and
interest expense | |
| | | |
| | | |
| | | |
| (289 | ) | |
| | | |
| | | |
| | | |
| 52 | | |
| (341 | ) | |
| 656 | % |
Loss before income taxes | |
| | | |
| | | |
| | | |
$ | (2,190 | ) | |
| | | |
| | | |
| | | |
$ | (1,680 | ) | |
$ | (510 | ) | |
| 30 | % |
Our Urgent and Primary Care Business
Our urgent and primary care
business segment reported an operating loss of $577,000 during the three months ended September 30, 2015. Because
we entered the urgent and primary care business in May 2014 and owned only two centers for the entire three-month period
ended September 30, 2014, a comparison of the results for the third quarter of 2015 with those for the third quarter of 2014
would not be meaningful. Contributing to the segment's operating loss in the third quarter of 2015 were, among
other things, the following:
|
· |
we experienced predictable declines in our quarter-over-quarter
patient volumes, and therefore revenue, due to the seasonality of the business;
|
|
· |
we incurred expenses in connection with our Medac Asset Acquisition; |
|
· |
we incurred expenses related to our integration of our ten centers, which were acquired at various dates between May and December 2014; |
|
· |
our Springville, Alabama center opened for business in October 2014, and we experienced customary start-up operating losses relating to the center; |
|
· |
two of our centers were underperforming at the time we acquired them, and our operational improvement efforts have yet to produce their expected results; and |
|
· |
we have yet to realize certain economies of scale we expect to realize. |
Net Revenues
Net revenues are recognized at the
time services are rendered at the estimated net realizable amounts from patients, third-party payors and others, after reduction
for estimated contractual adjustments pursuant to agreements with third-party payors and an estimate for bad debts. For the quarter
ended September 30, 2015, our urgent and primary care business experienced, in the aggregate, approximately 21,000 patient visits
which generated net revenues of approximately $2,225,000. We averaged 23 patient visits per day per center, resulting in average
net revenue per patient visit of approximately $105 for the three months ended September 30, 2015. We define a patient visit as
a billable patient encounter.
Salaries, Wages, Contract
Medical Professional Fees, and Related Expenses
Salaries, wages and benefits
primarily consist of compensation and benefits to our clinical providers and staff at our centers. We employ a staffing model
at each center that generally includes at least one board-certified physician, one or more physician assistants or
nurse practitioners, nurses or medical assistants and a front office staff member on-site at all times. Salaries, wages,
benefits and taxes are the most significant operating expense components of our urgent and primary care business. For
the three-month period ended September 30, 2015, salaries, wages, benefits, and taxes represented in the aggregate,
approximately 81% of net revenues, which includes approximately $355,000 of labor costs paid or payable to our contracted (not employed) medical professionals for the
three months ended September 30, 2015. We monitor our center-level staffing to ensure staffing levels
are sufficient, but not excessive, to meet expected patient demands. Management has implemented several cost reduction
measures and is considering several others to further reduce compensation expense relative to revenues.
Facility Expenses
Facility expenses consist of urgent and primary care centers'
rent, property tax, insurance, utilities, telephone, and internet expenses. For the three months ended September 30, 2015,
facility expenses were 11% of net revenue.
Medical Supplies
Medical supplies expenses consist of medical, pharmaceutical,
and laboratory supplies used at our ten urgent and primary care center locations. For the three months ended September 30,
2015, medical supplies were 10% of net revenue.
Other Operating Expenses
Other operating expenses primarily
consist of radiology and laboratory fees, premiums paid for medical malpractice and other insurance, marketing, information
technology, non-medical professional fees, including accounting and legal, and amounts paid to our third-party revenue cycle
manager to bill and collect our urgent and primary care revenue. For the three months ended September 30, 2015,
other operating expenses were 18% of net revenue.
Our Ancillary Network Business
Our ancillary network business segment
reported an operating income (loss) of $(344,000) and $252,000 for the three months ended September 30, 2015 and 2014,
respectively.
Net Revenues
Revenue from our ancillary network business
is recognized when we bill our client payors for services performed and collection is reasonably assured. We estimate revenues
using average historical collection rates. When estimating collectability, we assess the impact of items such as non-covered
benefits, payments made directly to the service provider by the client payor, denied claims, deductibles and co-payments. Periodically,
revenues and related estimates are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash
collected. There are no assurances that actual cash collections will meet or exceed estimated cash collections. There
can be variations in revenue from period-to-period due to the demand for various ancillary service specialties by our clients'
members. The variations can impact revenue, revenue per claim, collectability and margins after payments made to the ancillary
service providers. Also impacting revenue is the mix of ancillary service specialties billed and the ancillary service
providers that are utilized.
During the quarter ended September 30, 2015,
net revenue from our ancillary network business decreased 24%, compared to the same period in 2014. We believe we will
continue to experience declines in revenue in our ancillary network business segment.
Provider Payment and Administrative
Fees
We make payments to our providers and pay
administrative fees to our clients for converting claims to electronic data interchange and routing them to both the Company for
processing and to their payors for payment. Payments to providers are the most significant cost and they consist of our payments
for ancillary care services in accordance with contracts negotiated separately with providers for specific ancillary services.
· |
|
Provider payments. Provider payments represented 73% and 69% of revenues for the three months ended September 30, 2015 and 2014, respectively. |
|
|
|
· |
|
Administrative fees. Administrative fees paid to clients as a percent of net revenue were 6% for the three-month period ended September 30, 2015 and 5% for the comparable period in 2014. |
Other Network Operating Costs
Ancillary network other operating
costs amounted to $1,080,000 in the current year period. This amount represents profit sharing and expense
reimbursement amounts paid or payable to HealthSmart under our management services agreement. The majority of the operating
costs were attributable to payroll expenses in 2014 prior to the management services agreement. HealthSmart began
managing our ancillary network business under our management services agreement on November 1, 2014, at which time
HealthSmart hired substantially all our employees dedicated to our ancillary network business.
Shared Services
Shared services include the common costs
related to both the urgent and primary care and ancillary network lines of business such as the salaries of our Chief Executive
Officer, Chief Financial Officer, Chief Information Officer and the remainder of the executive management team, whose time is allocable
across both business segments. The following functions are also included in shared services: finance and accounting; human resources;
legal; marketing; information technology; and general administration.
In
addition, all strategic functions, including but not limited to transactional activities and the related integration of
the acquired businesses, are included in shared services. As of September 30, 2015 and 2014, shared services included
22 and 17 full-time employees, respectively. Certain 2014 expenses
were reclassified to conform to the 2015 shared services presentation. Shared services expenses totaled $1,558,000
and $1,807,000 for the three months ended September 30, 2015 and September 30, 2014, respectively. The increase in
the current-year period costs relates, among other things, to the transition of the Company to owning and operating urgent
and primary care centers.
Interest Expense, Warrant
Gain
We issued warrants to individuals who provide
guarantees in connection with our credit agreements. The warrant fair value at date of grant has been capitalized as deferred loan
fees and is being amortized over the term of credit agreement and a warrant liability was established. These warrants are considered
derivative warrants because they contain exercise-price adjustment features. Accordingly, the warrant liability is adjusted to
its fair market value at the end of each reporting period. For the quarter ended September 30, 2015, the gain due to change in
warrant liability amounted to $548,000 and amortization of deferred loan fees amounted to $447,000, resulting in an income
effect of $101,000.
Nine months Ended September 30, 2015 Compared to Nine
months Ended September 30, 2014
The following table summarizes our results
of operations for the nine months ended September 30, 2015 and 2014 (in thousands) (certain prior period amounts have been
reclassified for comparability purposes):
| |
Nine Months |
| |
September 30, 2015 | |
September 30, 2014 | |
Change |
| |
Urgent and Primary Care | |
Ancillary Network | |
Shared Services | |
Total | |
Urgent and Primary Care | |
Ancillary Network | |
Shared Services | |
Total | |
$ | |
% |
Net revenues | |
$ | 7,251 | | |
$ | 15,640 | | |
$ | - | | |
$ | 22,891 | | |
$ | 1,581 | | |
$ | 16,161 | | |
$ | - | | |
$ | 17,742 | | |
$ | 5,149 | | |
| 29 | % |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ancillary network provider payments | |
| - | | |
| 11,598 | | |
| - | | |
| 11,598 | | |
| - | | |
| 11,562 | | |
| - | | |
| 11,562 | | |
| 36 | | |
| 0 | % |
Ancillary network administrative fees | |
| - | | |
| 799 | | |
| - | | |
| 799 | | |
| - | | |
| 805 | | |
| - | | |
| 805 | | |
| (6 | ) | |
| -1 | % |
Ancillary network other operating costs | |
| - | | |
| 2,985 | | |
| - | | |
| 2,985 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,985 | | |
| N/A | |
Ancillary network prepaid write-off | |
| - | | |
| 487 | | |
| - | | |
| 487 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 487 | | |
| N/A | |
Salaries, wages, contract medical professional fees and related expenses | |
| 5,512 | | |
| - | | |
| 2,819 | | |
| 8,331 | | |
| 1,071 | | |
| 2,597 | | |
| 1,845 | | |
| 5,505 | | |
| 2,818 | | |
| 51 | % |
Facility expenses | |
| 772 | | |
| - | | |
| 276 | | |
| 1,048 | | |
| 117 | | |
| - | | |
| 357 | | |
| 474 | | |
| 574 | | |
| 121 | % |
Medical supplies | |
| 623 | | |
| - | | |
| - | | |
| 623 | | |
| 93 | | |
| - | | |
| - | | |
| 93 | | |
| 530 | | |
| 570 | % |
Other operating expenses | |
| 2,044 | | |
| - | | |
| 3,300 | | |
| 5,344 | | |
| 249 | | |
| 774 | | |
| 2,039 | | |
| 3,070 | | |
| 2,282 | | |
| 75 | % |
Intangible asset impairment | |
| 520 | | |
| - | | |
| - | | |
| 520 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| N/A | |
Depreciation and amortization | |
| 422 | | |
| 435 | | |
| - | | |
| 857 | | |
| 122 | | |
| 506 | | |
| - | | |
| 628 | | |
| 229 | | |
| 36 | % |
Total operating expenses | |
$ | 9,893 | | |
$ | 16,304 | | |
$ | 6,395 | | |
$ | 32,592 | | |
$ | 1,652 | | |
$ | 16,244 | | |
$ | 4,241 | | |
$ | 22,137 | | |
$ | 9,935 | | |
| 45 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
$ | (2,642 | ) | |
$ | (664 | ) | |
$ | (6,395 | ) | |
$ | (9,701 | ) | |
$ | (71 | ) | |
$ | (83 | ) | |
$ | (4,241 | ) | |
$ | (4,395 | ) | |
$ | (4,786 | ) | |
| 109 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other (income) expense: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gain on cancellation of acquisition promissory note | |
| | | |
| | | |
| | | |
| (289 | ) | |
| | | |
| | | |
| | | |
| - | | |
| (289 | ) | |
| | |
Interest expense: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| | | |
| | | |
| | | |
| 277 | | |
| | | |
| | | |
| | | |
| 37 | | |
| 240 | | |
| | |
(Gain)/loss on warrant liability, net of deferred loan fee amortization | |
| | | |
| | | |
| | | |
| (489 | ) | |
| | | |
| | | |
| | | |
| 24 | | |
| (513 | ) | |
| | |
Total other income (loss) and
interest expense | |
| | | |
| | | |
| | | |
| (501 | ) | |
| | | |
| | | |
| | | |
| 61 | | |
| (562 | ) | |
| 921 | % |
Loss before income taxes | |
| | | |
| | | |
| | | |
$ | (9,200 | ) | |
| | | |
| | | |
| | | |
$ | (4,456 | ) | |
$ | (4,744 | ) | |
| 106 | % |
Our Urgent and Primary Care Business
Our urgent and primary care business
segment reported an operating loss of $2,642,000 during nine months ended September 30, 2015. Because we entered the urgent
and primary care business in May 2014, and owned only two centers for the nine-month period ended September 30, 2014,
a comparison of the results for the nine months ended September 30, 2015 with those for the nine months ended September
30, 2014 would not be meaningful.
Net Revenues
For the nine months ended September 30,
2015, our urgent and primary care business experienced, in the aggregate, approximately 64,000 patient visits which generated net
revenues of approximately $7,251,000. We averaged 23 patient visits per day per center, resulting in average net revenue per patient
visit of approximately $113 for the nine months ended September 30, 2015.
Salaries, Wages, Contract
Medical Professional Fees, and Related Expenses
Salaries, wages, benefits and taxes
are the most significant operating expense components of our urgent and primary care business. For the nine months ended
September 30, 2015, salaries, wages, benefits, and taxes represented, in the aggregate, approximately 76% of net revenue,
which includes approximately $417,000 of labor costs paid or payable to our contracted (not
employed) medical professionals for the nine months ended September 30, 2015.
Facility Expenses
Facility expenses consist of our urgent and primary care
centers' rent, property tax, insurance, utilities, telephone, and internet expenses. For the nine months ended September 30,
2015, facility expenses were 11% of net revenue.
Medical Supplies
Medical supplies expenses consist of medical,
pharmaceutical, and laboratory supplies used at our ten urgent and primary care center locations. For the nine months ended
September 30, 2015, medical supplies were 9% of net revenue.
Other Operating Expenses
Other operating expenses primarily
consist of radiology and laboratory fees, premiums paid for medical malpractice and other insurance, marketing, information
technology, non-medical professional fees, including accounting and legal, and amounts paid to our third-party revenue cycle
manager to bill and collect our urgent and primary care revenue. For the nine months ended September 30, 2015, other operating expenses
were 28% of net revenue.
Intangible Asset Impairment
At the time we purchased one of our urgent
and primary care centers, we allocated $600,000 of the purchase price to a contract held by the acquired center that related to
non-urgent care services. During the nine months ended September 30, 2015 we suspended our provision of services under that contract
and have recorded a one-time impairment charge of $520,000 relating to the unamortized balance of that intangible asset.
Our Ancillary Network Business
Our ancillary network business segment reported
operating losses of $664,000 and $83,000 for the nine months ended September 30, 2015 and 2014, respectively.
Net Revenues
During the nine months ended September 30,
2015, net revenue decreased 3%. We believe we will continue to experience declines in revenue in our ancillary network business.
Provider Payment and Administrative
Fees
We make payments to our providers and pay
administrative fees to our clients for converting claims to electronic data interchange and routing them to both the Company for
processing and to their payors for payment. Payments to providers are the most significant cost and they consist of our payments
for ancillary care services in accordance with contracts negotiated separately with providers for specific ancillary services.
| · | Provider payments. Provider payments represent 74% and 72% of revenues for the nine months ended September 30, 2015 and 2014,
respectively. |
| · | Administrative fees. Administrative fees paid to clients as a percent of net revenue were 5% for the nine-month period ended
September 30, 2015 and 5% for the comparable period in 2014. |
Other Operating Costs
Ancillary network other operating
costs amounted to $2,985,000 for the nine months ended September 30, 2015. This amount represents profit sharing and expense
reimbursement amounts paid or payable to HealthSmart under the management services agreement. The majority of the operating
costs were attributable to payroll expenses in 2014 prior to the management services agreement. HealthSmart began managing
our ancillary network business under our management services agreement on November 1, 2014, at which time HealthSmart
hired substantially all our employees dedicated to our ancillary network business.
Network Prepaid Write-Off
During the first quarter of 2014, we
advanced $500,000 to one of our ancillary network customers, which was to be withheld from future administrative fees earned
by the customer. During the nine months ended September 30, 2015, the customer terminated its contract with us and filed
bankruptcy. Accordingly, we have recorded a one-time charge of $487,000 to write-off the remaining balance of this asset that was
recorded as prepaid expense and other non-current assets.
Shared Services
As of September 30, 2015, shared
services included 22 full-time employees compared to 17 at September 30, 2014. Certain expenses for the nine months ended
September 30, 2014 were reclassified to conform to the shared services presentation for the nine months ended September 30,
2015. Shared services expenses totaled $6,395,000 and $4,241,000 for the nine months ended September 30, 2015 and
September 30, 2014, respectively. The increase was primarily due to the expansion of our infrastructure to operate
and grow our urgent and primary care business, including interim staffing and accounting costs related to personnel changes
and relocation of our corporate office to Atlanta, Georgia.
Interest Expense, Warrant
Gain
We issued warrants to individuals who provide
guarantees in connection with our credit agreements. The warrant fair value at date of grant has been capitalized as deferred loan
fees and is being amortized over the term of credit agreement and a warrant liability was established. These warrants are considered
derivative warrants because they contain exercise-price adjustment features. Accordingly, the warrant liability is adjusted to
its fair market value at the end of each reporting period. For the nine months ended September 30, 2015, the gain due to change
in warrant liability amounted to $1,877,000 and amortization of deferred loan fees amounted to $1,388,000, resulting in an
income effect of $489,000.
Liquidity and Capital Resources
We had negative working capital of $8,112,000
at September 30, 2015 compared to negative working capital of $1,181,000 at December 31, 2014. The increase in negative
working capital in the nine months ended September 30, 2015 was due to additional operating losses. We expect to
incur additional operating losses until we acquire or develop sufficient centers to generate positive operating income.
Our cash and cash equivalents balance decreased
to approximately $197,000 as of September 30, 2015 compared to $1,020,000 at December 31, 2014. Our available borrowing
capacity under existing lines of credit was $1,000,000 and $6,284,000 at September 30, 2015 and December 31, 2014, respectively. At
November 16, 2015 our available borrowing capacity was $1,000,000.
On July 30, 2014, we entered into the July
2014 credit agreement with Wells Fargo providing for a $5,000,000 revolving line of credit, which we used primarily to fund our
urgent and primary care acquisitions. Our obligation to repay advances under the July 2014 credit agreement is evidenced by a credit
note, with a fluctuating interest rate per annum of 1.75% above daily one month LIBOR, as in effect from time to time. The credit
note matures on June 1, 2016, and all borrowings under the July 2014 credit agreement are due and payable on that date.
Borrowings under the July 2014 credit agreement
are secured by guarantees provided by certain individuals then serving as officers and directors of the Company and two stockholders
who were not at that time officers or directors of the Company. On July 30, 2014, we issued warrants to the guarantors to purchase
an aggregate of 800,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The warrants vested immediately and are exercisable any time prior to
their expiration on October 30, 2019.
To further our ability to execute our strategy
of acquiring urgent care and primary care facilities and operations, on December 4, 2014, we entered into the December 2014 credit
agreement with Wells Fargo providing for a $6,000,000 line of credit. Our obligation to repay advances under the December 2014
credit agreement is evidenced by a credit note, with a fluctuating interest rate per annum of 1.75% above daily one month LIBOR,
as in effect from time to time. On August 12, 2015, we increased the line of credit to $7,000,000 and extended the maturity date
to October 1, 2016, and all borrowings are due and payable on that date.
Borrowings under the December 2014 credit
agreement are secured by guarantees provided by two directors of the Company and a third party who is not an officer or director
of the Company. On December 4, 2014, we issued warrants to the guarantors to purchase an aggregate of 960,000 shares of our common
stock in consideration of their guaranteeing such
indebtedness. The warrants vested immediately and are exercisable any time prior to their expiration on December 4, 2019. In connection
with the $1,000,000 increase in the line of credit under the December 2014 credit agreement, we issued warrants to the guarantors
to purchase an additional 300,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The warrants vested immediately and are exercisable at any time prior
to their expiration on August 12, 2020.
The obligations under the July 2014
credit agreement and the December 2014 credit agreement and the credit notes are also secured by all the assets of the
Company and its subsidiaries. The credit agreements include customary covenants related to, among other things, additional
debt, further encumbrances, sales of assets, and investments and lending.
The
exercise prices of the warrants to purchase 800,000 shares of our common stock that were issued on July 30, 2014 at an initial
exercise price of $3.15 per share and to purchase 960,000 shares of our common stock that were issued on December 4, 2014 at an
initial exercise price of $2.71 per share and the warrant to purchase 50,010 shares issued on August 12, 2015 to an individual
who is not an officer or director of the Company have been adjusted downward to $1.46 per share to reflect the closing price of
our common stock on August 28, 2015, the date restricted stock was awarded to our directors pursuant to our director compensation
plan. The adjustment resulted from our issuing such restricted stock at a price per share less than the exercise price of such
warrants. The adjusted exercise price of the December 4, 2014 warrants and the warrant for 50,010 shares issued on August 12,
2015 are subject to additional adjustments under certain circumstances. If our stockholders approve certain anti-dilution provisions
of the August 12, 2015 warrants to purchase 249,990 shares issued to Mr. Pappajohn and Mr. Oman, the exercise price of those warrants
will also be adjusted to $1.46 per share and the adjusted exercise price is subject to additional adjustments under certain
circumstances. We intend to seek such stockholder approval at our 2016 annual meeting of stockholders. In connection with the
$1.0 million increase in August 2015 in the line of credit under the December 2014 credit agreement, we and Messrs. Pappajohn
and Oman have entered into a security and inter-creditor clarification agreement in order to clarify and reaffirm the parties’
respective rights and obligations under the inter-creditor agreement, including the indebtedness contemplated by the December
2014 credit agreement and the $1.0 million extension in credit thereunder.
As of September 30, 2015, we had outstanding
borrowings of $5,000,000 and $5,800,000 under our July 2014 and December 2014 credit agreements, respectively. As of September
30, 2015, the weighted-average interest rate on these borrowings was 1.94%. The July 2014 credit agreement matures on
June 1, 2016, and the December 2014 credit agreement matures on October 1, 2016.
In connection with the acquisitions of our
urgent and primary care centers in 2014, our wholly-owned subsidiaries issued promissory notes to the sellers in
the transactions in the aggregate original principal amount of $1,500,000, as follows:
ACSH Urgent Care of Georgia,
LLC, or ACSH Georgia, issued a promissory note in the principal amount of $500,000 to CorrectMed, LLC and other sellers. The
note provided for simple interest at a fixed rate of 5% per annum, matured on May 8, 2015 and the full amount due thereunder has
been paid.
ACSH Urgent Care of
Florida, LLC issued three promissory notes in the aggregate principal amount of $700,000 to Bay Walk-In Clinic, Inc. One
promissory note in the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum and is payable in
two installments: $110,000 on August 29, 2015 and $105,000 on August 29, 2016. The second promissory note also in
the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum and is payable in 24 equal monthly
installments of $8,776.51 each, beginning on September 30, 2014. The third promissory note in the original principal amount
of $300,000 was cancelled due to the death of the note's holder.
ACSH Urgent Care Holdings,
LLC issued a promissory note in the principal amount of $150,000 to Jason Junkins, M.D. The note is guaranteed by American
CareSource Holdings, Inc. and is payable in two equal principal installments of $75,000, plus accrued interest at the rate of 5%
per annum, on the first and second annual anniversaries of the closing date, September 12, 2014.
ACSH Georgia issued a promissory
note in the amount of $100,000 to Han C. Phan, M.D. and Thinh D. Nguyen, M.D. The note matures on the one-year anniversary of the
closing date, October 31, 2014.
ACSH Urgent Care of Virginia,
LLC issued a promissory note in the principal amount of $50,000 to Stat Medical Care, P.C. (d/b/a Fair Lakes Urgent Care Center)
and William and Teresa Medical Care, Inc. (d/b/a Virginia Gateway Urgent Care Center). The note bears simple interest at a fixed
rate of 5% annum, matures on December 31, 2015, and is subject to a working capital adjustment as set forth in the purchase agreement.
In connection with the Medac Asset
Acquisition, we are to assume or enter into new leases for four centers and then sublease them to Medac. The purchase price
for the assets is $5,600,000, with $5,040,000 payable in cash at closing and the balance of $560,000 payable in the form of a
promissory note with interest at 5% per annum and maturing 18 months after the closing. The asset purchase agreement provides
that consummation of the transaction is subject to the satisfaction or waiver of certain conditions, including ACHS
Management having received financing in an amount no less than $5,600,000. On October 20, 2015, we agreed, subject to certain
customary conditions, to close the Medac Asset Acquisition no later than November 20, 2015 and provided a nonrefundable
$150,000 deposit towards the purchase price. As of the date of this report, we do not have funds sufficient to consummate the
Medac Asset Acquisition by November 20, 2015, and there is no assurance that we will obtain sufficient funds by such date or
that Medac will extend the closing date beyond November 20, 2015.
Because we have continued to incur losses from operations and have
limited working capital to pursue our business strategies, we will need significant funding to continue operations, satisfy our
obligations and fund the future expenditures that will be required to operate our urgent and primary care centers and acquire and
open new centers. In light of our historical performance, as well as our inability to date to raise capital on terms satisfactory
to us pursuant to the Form S-1 Registration Statement that we filed in February 2015, such additional funding, particularly in
the public market, may not be available, may not be available on reasonable terms, and, if available, could result in significant
additional dilution to our stockholders. If we raise funds through the incurrence of additional debt or the issuance of debt securities,
the lenders or purchasers of debt securities may require security that is senior to the rights of our common stockholders or impose
covenants that further restrict our operations or limit our ability to achieve our business objectives. If we do not obtain required
additional equity or debt funding, our cash resources will be depleted and we could be required to materially reduce or suspend
operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties
with whom we have business relationships, at least until additional funding is obtained.
Our management intends to attempt to secure additional required funding
through equity or debt financings. However, there can be no assurance that we will be able to obtain any required additional funding. If we do not have sufficient funds to continue operations, we could be required to
seek to sell assets or other alternatives that could result in our stockholders losing some or all of their investment in us.
Critical Accounting Policies and Estimates
There have been no material changes to our
critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the year ended December
31, 2014.
Forward-Looking Statements
Statements in this Management's Discussion
and Analysis and elsewhere in this Quarterly Report on Form 10-Q that are forward-looking are based upon current expectations,
and actual results or future events may differ materially. Therefore, the inclusion of such forward-looking information should
not be regarded as a representation by us that our objectives or plans will be achieved. Words such as “expects,”
“believes,” “anticipates,” “intends,” “should,” “plans,” and variations
of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained
herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results or future events
to differ materially, including, but not limited to, our ability to attract or maintain patients, clients or providers or achieve
our financial results, changes in national healthcare policy, federal or state regulation, and/or rates of reimbursement, including
without limitation due to the impact of the Patient Protection and Affordable Care Act, Health Care and Educational Affordability
Reconciliation Act and medical loss ratio regulations, general economic conditions (including economic downturns and increases
in unemployment), the Company's ability to successfully implement our growth strategy for the urgent and primary care business,
the Company's ability to identify and acquire target centers, increased competition in the urgent care and primary care market,
the Company's ability to recruit and retain qualified physicians and other healthcare professionals, reduction in reimbursement
rates from governmental payors, lower than anticipated demand for services, pricing, market acceptance or preference, changes
in the business relationship with significant clients, term expirations of contracts with significant clients, increased competition,
the Company's inability to maintain a network of ancillary service providers that is adequate to generate significant claims volume,
increased competition in the ancillary network business, the Company's inability to manage growth, implementation and performance
difficulties, and other risk factors detailed from time to time in the Company's periodic filings with the Securities and Exchange
Commission. Except as otherwise required by law, the Company undertakes no obligation to update or revise these forward-looking
statements.
Item 3. Quantitative And Qualitative Disclosures About Market
Risk.
Pursuant to permissive authority under Rule
305 of Regulation S-K, we have omitted Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls And Procedures.
Evaluation of Disclosure Controls and Procedures
Management
(with the participation of our Acting Chief Executive Officer (CEO) and Interim Chief Financial Officer (CFO)), carried out
an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of September 30, 2015.
Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of
the period covered in this report, our disclosure controls and procedures along with the related internal controls over
financial reporting were not effective to provide reasonable assurance that the information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. Please refer to Item 9A “Controls and Procedures” in our
Annual Report on Form 10K for the year ended December 31, 2014 for a complete description of our control deficiencies and our
remediation plan.
Changes in Internal Control over Financial Reporting
There were no changes
in our internal control over financial reporting during the three months ended September 30, 2015 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Status of Remediation Plan
We are training our
new employees. We are also using outside consulting services when the scope and complexity of our internal control needs exceed
our internal capabilities.
We expect to have addressed
and fully remediated our significant deficiencies and material weaknesses by December 31, 2015, but we cannot assure you that our
current remediation plan can resolve all of our material weaknesses. If not, we will need to implement additional remedial measures.
Subsequent to quarter end, management is in the process of implementing new processes and controls over financial reporting to
promote effective remediation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no
material developments in the legal proceeding described in Part II, Item 1, of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2015.
Item 1A. Risk Factors.
There have been no
material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31,
2014 except as set forth below:
We are currently subject to the listing requirements of The NASDAQ Capital Market
, but we may not be able to continue to satisfy those listing requirements.
Our common stock is currently listed on The NASDAQ Capital Market,
and we are therefore subject to its continued listing requirements, including requirements with respect to minimum stockholders'
equity, the market value of publicly-held shares and minimum bid price per share.
On May 21, 2015, we received a letter from NASDAQ indicating that
as of March 31, 2015 our reported stockholders’ equity of $407,000 did not meet the $2.5 million minimum required to maintain
continued listing, as set forth in NASDAQ Listing Rule 5550(b)(1). The letter further stated that as of May 20, 2015 we did not
meet either of the alternatives of market value of listed securities or net income from continuing operations. Under NASDAQ rules,
we submitted a plan to NASDAQ to regain compliance, which NASDAQ accepted, granting us until November 17, 2015 to evidence compliance.
However, because we have not been able to raise equity capital as we anticipated, we believe that it is highly unlikely that we
will be able to evidence compliance with NASDAQ Listing Rule 5550(b)(i) by November 17. If we are unable to evidence such compliance
by that date, we expect the NASDAQ staff to notify us that our common stock will be delisted. In the event of such notification,
we may appeal the NASDAQ staff's determination to delist our common stock to a NASDAQ Hearings Panel, but there is no assurance
that our request for continued listing will be granted.
Delisting from The NASDAQ Capital Market may adversely affect our
ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability
of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also could
have other negative results, including the potential loss of employee confidence, the loss of institutional investor interest and
fewer business development opportunities.
If we are not able to continue our listing on The NASDAQ Capital Market
or to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink
sheets.” As a result, we could face significant adverse consequences including, among others:
• | | a limited availability of market quotations for our
securities; |
• | | a determination that our common stock is a “penny
stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a
reduced level of trading activity in the secondary trading market for our securities; |
• | | a limited amount of news and little or no analyst coverage
for us; and |
• | | a decreased ability to issue additional securities (including
pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future. |
If our common stock becomes subject to the penny stock rules, it would become more
difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other
than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation
systems, provided that current price and volume information with respect to transactions in such securities is provided by the
exchange or system. If we do not retain a listing on The NASDAQ Capital Market and are unable to list our common stock on another
exchange, our common stock will be deemed a penny stock because the market price of our common stock is less than $5.00. The penny
stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before
effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of
the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed
and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity
in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
We may be unable to complete our
planned acquisition of certain assets of Medac, on currently anticipated terms, or at all.
On July 31, 2015,
we entered into an asset purchase agreement to acquire certain assets of Medac. The agreement, as amended, provides that the transaction
will close, if at all, by November 20, 2015. The total consideration for the acquisition is $5,600,000, subject to certain adjustments
set forth in the asset purchase agreement. As of the date of this report, we do not have funds sufficient to consummate the Medac
Asset Acquisition by November 20, 2015, and there is no assurance that we will obtain sufficient funds by such date or that Medac
will extend the closing date beyond November 20, 2015. Failure to complete the acquisition on currently anticipated terms, or
at all, could have a material adverse effect on our results from operation, financial condition and the trading price of our common
stock.
Failure to complete the Medac Asset
Acquisition could negatively impact our stock price and our future operations and financial results.
If the Medac Asset
Acquisition is not completed, our ongoing business may be adversely affected as a result of the following factors, among others:
• | | having to pay certain costs relating to the proposed Medac Asset Acquisition, such
as legal, accounting, financial advisory and other expenses; |
• | | focusing our management on the Medac Asset Acquisition, which could lead to the disruption
of our ongoing business or inconsistencies in its services, standards, controls, procedures and policies, any of which could adversely
affect the ability of the Company to maintain relationships with patients, regulators, vendors and employees, or could otherwise
adversely affect our operations and financial results, without realizing any of the benefits of having the Medac Asset Acquisition
completed; and |
• | | foregoing other potentially beneficial opportunities in favor of the Medac Asset Acquisition,
without realizing any of the benefits of having the Medac Asset Acquisition completed could impair our ability to execute our
expansion plan. |
If the Medac Asset Acquisition is not completed,
we cannot assure you that these risks will not materialize and will not materially affect our operations, financial results, and
stock price.
Our subleases, management services agreement and other
contractual arrangements may not result in our realizing the financial benefits of direct ownership of Medac and may not be as
effective as direct ownership in providing managerial control over Medac.
There is a risk that state
authorities in some jurisdictions, including North Carolina, may find that certain of our contractual relationships,
including those we expect to enter into if we complete the Medac Asset Acquisition, violate laws prohibiting the corporate
practice of medicine and fee-splitting arrangements, which could have a material adverse effect on our business, financial
condition, results of operations, cash flows and the trading price of our common stock. These laws are generally intended to
prevent unlicensed persons or entities from interfering with or inappropriately influencing a physician’s professional
judgment and may prevent or limit the sharing or assignment of income generated by certain of our physicians.
Under applicable state law, we are prohibited
from directly owning an interest in a medical practice in North Carolina, including Medac. Accordingly, we intend to realize the
benefit of the Medac Asset Acquisition though our subleases, management services agreement and other contractual arrangements,
each of which remains subject to negotiation of the parties and will become effective, if at all, at the closing of the Medac Asset
Acquisition. These arrangements may not be as effective as direct ownership in providing us with the financial benefits of or managerial
control over Medac. For example, with limited exceptions, the annual consideration due to us under the subleases, management services
agreement and other contractual arrangements must be set in advance, which could result in our receipt of less than all of Medac’s
annual earnings. In the event we or our contractual arrangements are found to violate applicable North Carolina law, such contractual
arrangements could be deemed void and unenforceable as a matter of law, which may have a material adverse effect on our business,
operating results, cash flow and financial condition.
If we had direct ownership of Medac, we
would be able to exercise our rights as an equity holder directly to effect changes to the board of directors of Medac, which could
effect changes at the management and operational levels. With contractual arrangements, we may not be able to directly change the
members of the board of directors of Medac and would have to rely on the rights provided in our subleases, management services
agreement and other contractual arrangements for such purposes. The parties to our subleases, management services agreement and
other contractual arrangements may have conflicts of interest with us or our stockholders, and they may not act in our best interests
or may not perform their obligations under these contracts. Such risks would exist throughout the period in which we intend to
manage Medac through such contractual arrangements unless a change in the law is effected. If any dispute relating to such contracts
remained unresolved, we would have to enforce our rights under these contracts under state law through arbitration, litigation
and other legal proceedings and therefore will be subject to uncertainties in the legal system. Any such dispute could result in
the ultimate termination of such contracts, which would require that we identify a new medical company to operate the clinical
aspects of the business. Therefore, our subleases, management services agreement and other contractual arrangements may not be
as effective in ensuring our financial rights or control over the relevant portion of Medac’s business operations as direct
ownership would be.
If we fail to effectively and timely transition to the
ICD-10 coding system, our operations could be adversely affected.
CMS has adopted final rules that
require all healthcare providers covered by HIPAA, including our centers, to transition to the new ICD-10 coding system. Use
of the ICD-10 coding system is required beginning October 1, 2015. The ICD-10 coding system greatly expands the number and
detail of billing codes used for claims compared to the existing International Classification of Diseases, Ninth Revision, or
ICD-9, coding system. Transition to the ICD-10 system may require significant investment to train staff and physicians on the
updated coding practices. In addition, it is possible that our centers could experience disruption or delays in reimbursement
due to technical or coding errors or other implementation issues involving our systems, the systems or processes of our
revenue cycle vendors, or those of our payors. Further, the ICD-10 coding system could result in decreased reimbursement if
the use of ICD-10 codes results in our patients being assigned lower levels of reimbursement than were assigned under the
ICD-9 coding system.
Item 6. |
Exhibits |
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|
Exhibit
Number |
Description |
|
|
|
|
31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
101 |
The following financial statements and footnotes from the American CareSource Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations; (ii) Consolidated Balance Sheets; (iii) Consolidated Statement of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements
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. |
|
|
|
|
|
Date: |
November 23, 2015 |
By: |
/s/ John Pappajohn |
|
|
|
|
John Pappajohn |
|
|
|
|
Acting Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
|
|
Date: |
November 23, 2015 |
By:/ |
/s/ Adam S. Winger |
|
|
|
|
Adam S. Winger |
|
|
|
|
Interim Chief Financial Officer (Principal Financial Officer) |
|
Exhibit Index
Exhibit Number |
|
Description |
|
|
|
|
|
|
31.1 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following financial statements and footnotes from the American CareSource Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations; (ii) Consolidated Balance Sheets; (iii) Consolidated Statement of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Consolidated Financial Statements. |
40
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, John Pappajohn, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
American CareSource Holdings, Inc.;
2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: November 23, 2015 |
By: |
/s/ John Pappajohn |
|
|
John Pappajohn |
|
|
Acting Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Adam S. Winger, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of
American CareSource Holdings, Inc.;
2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
Date: November 23, 2015 |
By: |
/s/ Adam S. Winger |
|
|
Adam S. Winger |
|
|
Interim Chief Financial Officer |
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. section 1350, the undersigned
officer of American CareSource Holdings, Inc. (the “Company”), hereby certifies, to such officer’s knowledge,
that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company:
|
|
|
|
|
Dated: |
November 23, 2015 |
|
By: /s/ John Pappajohn |
|
|
|
John Pappajohn |
|
|
|
Acting Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
This certification is made solely for the purpose
of 18 U.S.C Section 1350 and not for any other purpose.
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. section 1350, the undersigned
officer of American CareSource Holdings, Inc. (the “Company”), hereby certifies, to such officer’s knowledge,
that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (the “Report”) fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company:
|
|
|
|
|
Dated: |
November 23, 2015 |
|
By: /s/ Adam S. Winger |
|
|
|
Adam S. Winger |
|
|
|
Interim Chief Financial Officer (Principal Financial Officer) |
|
|
|
|
This certification is made solely for the purpose
of 18 U.S.C Section 1350 and not for any other purpose.
American CareSource (CE) (USOTC:GNOW)
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American CareSource (CE) (USOTC:GNOW)
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