UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL REPORT UNDER SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended December
31, 2008
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___
to ___
Commission File
Number: 001-33094
AMERICAN CARESOURCE HOLDINGS,
INC.
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(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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20-0428568
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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5429 Lyndon B. Johnson Freeway,
Suite
850
,
Dallas
,
Texas
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75240
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(Address of principal executive
offices)
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(Zip
Code)
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(972)
308-6830
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(Registrant’s telephone number,
including area code)
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Securities registered pursuant to
Section 12(b) of the Exchange
Act:
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Title of Each
Class
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Name of Each Exchange on Which
Registered
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Common Stock, par value $.01 per
share
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The NASDAQ Capital
Market
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Securities registered pursuant to
Section 12(g) of the Exchange Act:
None
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Indicate by checkmark if the
Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act of 1933 (the “Securities Act”).
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Yes
o
No
x
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Indicate by checkmark if the
Registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the “Exchange
Act”).
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Yes
o
No
x
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Indicate by checkmark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90
days.
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Yes
x
No
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Indicate by checkmark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained in this form, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
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x
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Indicate by checkmark whether the
Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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o
Large Accelerated
Filer
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Accelerated
Filer
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Non-Accelerated
Filer
x
Smaller Reporting
Company
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Indicate by checkmark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
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The aggregate market value of the
voting and nonvoting Common Stock held by non-affiliates of the Registrant
was $35,241,842, computed by reference to the price at which the Common
Stock was last sold on The NASDAQ Capital Market on the last business day
of the Registrant’s most recently completed second fiscal quarter (June
30, 2008).
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The number of shares of the
Registrant’s Common Stock, par value $.01 per share, outstanding as of
March 23, 2008 was 15,419,442.
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DOCUMENTS INCORPORATED BY
REFERENCE
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Portions of the definitive proxy
statement for the annual meeting of stockholders of American CareSource
Holdings, Inc. to be held on May 19, 2009 and to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later
than April 30, 2009, are incorporated by reference into Part III of this
Form 10-K.
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AMERICAN
CARESOURCE HOLDINGS, INC.
FORM
10-K
TABLE
OF CONTENTS
PART
I
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Item
1.
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1
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Item
1A.
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7
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Item
2.
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12
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Item
3.
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12
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Item
4.
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12
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PART
II
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Item
5.
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12
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Item
7.
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13
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Item
8.
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20
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Item
9.
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20
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Item
9A
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20
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Item
9B
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21
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PART
III
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Item
10.
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21
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Item
11.
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22
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Item
12.
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22
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Item
13.
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23
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Item
14.
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23
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PART
IV
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Item
15.
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Index
to Financial Statements
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F-1
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F-2
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F-3
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F-4
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F-5
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F-6
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Special
Note Regarding Forward-Looking Statements
Some
information contained in this Annual Report on Form 10-K for the
year ended December 31, 2008 constitutes forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “intend”, “anticipate,”
“believe,” “contemplate,” “estimate” and “continue” or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future operating results or of
our financial condition, or state other “forward-looking”
information.
We
believe it is important to communicate to our stockholders and potential
investors not only the Company’s current condition, but management’s forecasts
about our future opportunities, performance and results, including, for example,
information with respect to revenues, growth, margins, cash reserves and other
financial items, and our strategies and prospects. However, forward-looking
statements are based on current expectations and assumptions and are subject to
substantial risks and uncertainties that could cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Events may occur in the future that we cannot accurately
predict or over which we have no control. Risks and uncertainties
include, but are not limited to, those relating to demand for our services,
pricing, market acceptance, timing, issues relating to client implementation,
the effect of economic conditions, our ability to attract and maintain
providers, our ability to manage growth, risks in product development, the
ability to complete transactions, competition and other risks identified in this
Annual Report on Form 10-K and our other reports filed with the Securities and
Exchange Commission, risks of market acceptance of, or preference for, the
Company’s systems and services, competitive forces, the impact of geopolitical
events and regulatory changes, general economic conditions and economic factors
in the country and the healthcare industry. Therefore, in evaluating
such forward-looking statements, you should specifically consider the various
risks, uncertainties and events set forth in the section entitled “Risk Factors”
in Item 1A of Part I of this Annual Report on Form 10-K and cautionary language
appearing elsewhere in this report.
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. All forward-looking
statements included herein are expressly qualified in their entirety by the
cautionary statements contained or referred to in this
section. Unless otherwise indicated, the information in this annual
report is as of December 31, 2008. Except to the extent required by
applicable securities laws and regulations, we undertake no obligation to update
or revise these forward-looking statements to reflect events or circumstances
after the date of this document or to reflect the occurrence of unanticipated
events.
Item
1. Business.
Overview
American
CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,”
“us,” or “our,”) is an ancillary benefits management company that offers cost
effective access to a comprehensive national network of ancillary healthcare
service providers. The Company’s healthcare payor customers, which
include
preferred provider
organizations (“PPOs”), third party administrators (“TPAs”), insurance
companies, large self-funded organizations and Taft-Hartley union plans (i.e.,
employee benefit plans that are self-administered under collective bargaining
agreements)
, engage the Company to provide them with a complete
outsourced solution designed to manage each customer’s obligations to its
covered persons. The Company offers its customers this solution
by:
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providing
payor customers with a comprehensive network of ancillary healthcare
services providers that is tailored to each payor customer’s specific
needs and is available to each payor customer’s covered persons for
covered services;
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providing
payor customers with claims management, reporting, and processing and
payment services;
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performing
network/needs analysis to assess the benefits to payor customers of adding
additional/different service providers to the payor customer-specific
provider networks; and
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credentialing
network service providers for inclusion in the payor customer-specific
provider networks.
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Ancillary
healthcare services encompass a broad array of services that supplement or
support the care provided by hospitals and physicians and include the services
listed under “--
Services and
Capabilities--Ancillary care services”
below.
ACS was
incorporated under the laws of the State of Delaware on November 24, 2003 as a
wholly-owned subsidiary of Patient Infosystems, Inc. (“Patient Infosystems”) in
order to facilitate Patient Infosystems’ acquisition of substantially all of the
assets of American CareSource Corporation. American CareSource
Corporation had been in operation since 1997. The predecessor company
to American CareSource Corporation, Physician’s Referral Network, had been in
operation since 1995. On December 23, 2005, the Company became an
independent company when Patient Infosystems distributed by dividend to its
stockholders substantially all of its shares of the Company. Ancillary Care
Services, Inc. is a wholly owned subsidiary of the Company.
The
Company’s principal executive offices are located at 5429 Lyndon B. Johnson
Freeway, Suite 850, Dallas, TX 75240. Our Common Stock is listed on The NASDAQ
Capital Market under the symbol “ANCI.” Our telephone number is (972)
308-6830. Our Internet address is www.anci-care.com.
Services
and Capabilities
Ancillary
care services
Ancillary
healthcare services include a broad array of services that supplement or support
the care provided by hospitals and physicians, including the non-hospital,
non-physician services associated with surgery centers, free-standing diagnostic
imaging centers, home health and infusion, supply of durable medical equipment,
orthotics and prosthetics, laboratory and other services.
Ancillary
healthcare services include, but are not limited to, the following
categories:
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Acupuncture
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Long-term Acute
Care
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Cardiac Monitoring
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Massage Therapy
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Chiropractor
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Occupational Therapy
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Diagnostic Imaging
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Pain Management
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Dialysis
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Physical Therapy
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Durable Medical
Equipment
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Podiatry
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Genetic Testing
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Rehab: Outpatient
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Hearing Aids
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Rehab: Inpatient
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Home Health
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Sleep
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Hospice
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Skilled Nursing
Facility
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Implantable Devices
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Surgery
Center
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Infusion
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Transportation
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Lab
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Urgent Care
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Lithotripsy
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Vision
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The
Company’s clients are healthcare payors including PPOs, TPAs, insurance
companies, large self-funded organizations and Taft-Hartley union plans (i.e.,
employee benefit plans that are self-administered under collective bargaining
agreements). The Company has agreements with approximately 2,500
ancillary healthcare service providers operating in approximately 25,000 sites
nationwide. The Company is able to offer its clients cost savings by
functioning as a single point of contact for managing a comprehensive array of
ancillary healthcare services. The Company’s services include
analyzing the needs of client payors and creating a custom network for them,
credentialing providers, processing provider claims submitted to the payors and
forwarded by the payors to ACS, submitting the processed claims to its client
payors for payment and performing client service functions for its clients and
contracted providers, including monthly reporting
services. Contracting with the Company provides its clients the
capability of marketing comprehensive, efficient and affordable ancillary
healthcare services to their participants.
Provider
Network
The
Company views its ability to manage, organize and maintain its provider network
and to recruit new providers as critical elements in its long term success
because its network is one of the most important reasons healthcare payors
engage the Company.
The
Company has contractual agreements with its network of ancillary healthcare
service providers for the purpose of meeting its contractual obligations to its
healthcare payors to make available a comprehensive and customer-specific
ancillary healthcare provider network. The agreements define the
scope of services to be provided to covered persons by each ancillary healthcare
provider and the amounts to be charged for those services and are negotiated
independent of the agreements reached with the Company’s client
payors.
The terms of each agreement between the Company and
ancillary healthcare service providers make it clear that the Company is solely
obligated to the service provider under the contract between them and do not
contemplate any contractual relationship between the service providers and the
Company’s payor customers or permit the service providers to pursue claims
directly against the Company’s payor customers.
The network is comprised of
approximately 2,500 ancillary healthcare service providers that are located in
25,000 sites nationwide.
When
providers initially enter the ACS provider network, the Company credentials them
for inclusion in the payor-specific provider network. The Company
also re-credentials its providers on a periodic basis. From time to
time, the Company reviews its provider relationships to determine whether any
changes to the relationship are appropriate. The Company believes
that credentialing providers represents a valuable service to both its clients
and the providers in the network, who would, in the absence of such service, be
forced to undergo the credentialing process with respect to each client with
whom they enter into a service relationship.
Our
Model
The
Company’s business model, illustrating the relationships among the persons
involved, directly or indirectly, in the Company’s business and its generation
of revenue and expenses is depicted below:
Our
clients route healthcare claims to us after service has been performed by
participant providers in our network. We process those claims and
charge the client/payor according to its contractual rate for the services
according to our contract with the client/payor. In processing the
claim, we are paid directly by the client or the insurer for the
service. We then pay the provider of service according to its
independently-negotiated contractual rate. We assume the risk of
generating positive margin, the difference between the payment we receive for
the service and the amount we are obligated to pay the provider of
service.
The
Company may also receive a claims submission from a client either electronically
or via a paper based claim. As part of its relationship with its
clients, the Company may pay an administrative fee to its clients for the
modifications that may be required to the client’s technology, systems and
processes to create electronic connectivity with the Company, as well as for the
aggregation of claims and the electronic transmission of those claims to
us.
How
We Deliver Services
Ancillary network
analysis
. The Company performs an analysis of the available
claims history from each client payor and develops a specific plan to meet each
client’s needs. This analysis identifies service providers that are
not already in our network. We attempt to enter into agreements with
such service providers to maximize discount levels and capture a significant
volume of previously out-of-network claims
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Ancillary custom
network
. ACS customizes its network to meet the needs of
each client. In particular, when a new client joins and periodically
for each of our clients, we review the client’s “out-of-network” claims history
through our network analysis service and develop a strategy to create a network
that efficiently serves the client’s needs. This may involve adding
additional service providers for a client or removing service providers if we
determine it is beneficial for them to be excluded from the client’s
network.
Ancillary network
management
. The Company manages ancillary service provider
contracts, reimbursement and credentialing for its clients. This not
only provides administrative benefits to our clients, but reduces the burden on
our contracted service providers who typically must supply credentialing
documentation to payors and engage in contract negotiations with separate
payors.
Ancillary systems
integration
. The Company has created a proprietary software
system that enables us to manage many different customized accounts and includes
the following modules:
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Provider
network management
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Data
transfer management/electronic data
interface
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Multi-level
reimbursement management
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Posting,
Explanation of Benefits, check, and e-funds
processes
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Client
service management
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Advanced
data reporting
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Ancillary
reporting
. ACS offers a complete suite of reports to each
client on a monthly basis. These reports cover contracting efforts
and capture rates, client savings, volumes by service category and complete
claims and utilization reports and other information of value to the
client.
Ancillary healthcare claims
management
. The Company can manage ancillary healthcare claims
flow, both electronic and paper based, and integrate with a client’s process
electronically or through paper claims. The Company has the
capability of performing a number of customized processes that may add
additional value for each client. As part of the claims management
process, we manage the documentation requirements specific to each
payor. In the event claims are submitted to us by a payor without the
complete required documentation, we will work with the payor and/or service
provider to obtain the required documentation so that the claim will be accepted
by the payor. This service provides a labor cost savings to our
clients.
Ancillary claims collections
management.
The Company facilitates an expedited claims
collection process by ensuring receipt of the claim by the client payor,
providing information to the client payor required for processing the claim,
tracking the status of the claim throughout the process and maintaining a team
of customer service representatives to resolve any issues that might delay the
collections process. The Company believes that the providers in its
network are paid more effectively and efficiently than would otherwise be the
case.
Ancillary data
insights
. The Company has developed and continues to develop
an extensive database of ancillary healthcare claims history. The
data provides insights into utilization and pricing across a wide variety of
service categories, geographies, and service providers. The Company
intends to market this data as a value added service to its clients in the
design of custom networks, and the development of ancillary healthcare
management programs.
Business
Strategy
The
Company’s focus is strictly on the ancillary healthcare services market, a
growing market that now accounts for almost 30% of total annual healthcare
spending in the United States and is estimated at $574 billion (as derived from
2006 data published by the Center for Medicare and Medicaid Services, National
Health Statistics Group, U.S. Department of Commerce and Bureau of Economic
Analysis and Census). Ancillary healthcare services are cost
effective alternatives to physician and hospital-based services and ancillary
providers offer services in 28 different categories, including those listed
under “--
Services and
Capabilities--Ancillary care services.”
While most efforts are placed on
managing outcomes and reducing healthcare costs associated with patient care in
hospitals and in physician offices, the ancillary healthcare service market is
an often over-looked, but very important emerging segment of the overall United
States healthcare system. As more and more care is delivered in
highly cost effective out-patient and ancillary care settings, the need for
better organization and cost containment will only increase over the next
several years. We believe that companies who understand the nuances
of the ancillary healthcare market and develop the expertise to manage this new,
de-centralized system of patient care, are able to capitalize on this market
opportunity. For example, contracting with ancillary healthcare
service providers is difficult without a specific focus on the
market. This is due to the disparate nature of ancillary healthcare
services and the fact that these services are offered by a wide array of
providers, ranging from small independent practitioners, regional specialty
practices as well as national providers. Since this market is so
diverse, it has not been a focus of the major health plans and
payors. The Company believes that because it has developed a
substantial network of providers, it has established a sustainable advantage in
this market by becoming an aggregator of these services for health plans, and
because it has been retained by substantial payors, it can offer healthcare
providers a substantial number of patients who are entitled to receive services
from payors.
Because
the Company is solely focused on the nation-wide ancillary healthcare system
designed specifically to help regional and mid-market payors across the country,
expanding and maintaining a nation-wide, high-quality, multiple specialty
ancillary provider network is a critical component of the Company’s
strategy. The Company has invested to develop its ancillary service
provider network both proactively, across geographical and healthcare
specialties, and reactively to address specific client needs. While
we have a national footprint of service providers, our intention is to focus on
specific geographic markets where we can have a significant impact on a service
provider’s patient load. With market strength in specific geographic
areas, the Company has been able to develop favorable rates with ancillary
service providers and create an attractive product offering (healthcare cost
savings) to regionally-based clients.
In order
to enhance its ability to recruit and manage its network of providers, the
Company offers a suite of value added services specifically designed to help
ancillary care service providers lower their cost of doing business by assuming
the responsibility for the most complex and costly interactions with
payors. The services include those listed under “--
Services and Capabilities--Ancillary
care services.”
The Company believes that by becoming an
indispensable business partner to the ancillary healthcare service provider
community, it will continue to grow its ancillary healthcare service provider
network and continue to derive favorable contracting terms from these service
providers.
The
Company markets its services to PPOs, TPAs, insurance companies, large
self-funded organizations and Taft-Hartley union plans (i.e., employee benefit
plans that are self-administered under collective bargaining
agreements). The Company believes that there is a large
market opportunity involved in providing a highly competitive ancillary care
solution to the standard service offered by the major national insurers in
select regional markets across the country. The combination of our
regionally specific networks of providers and the resulting contractual cost
savings we are able to generate helps ACS’ payor customers compete more
effectively against the major national insurers in their local
markets.
As of
early 2009, the Company’s contracts span approximately 18 million covered
lives. As a rapid aggregator of significant patient volume, the
Company believes that it will be able to continue to drive favorable contracting
terms from the selected service providers in the ACS Network by directing
patient volume to their practices and it will have the ability to negotiate
exclusive contracts that will allow the Company to manage the full spectrum of a
payor client’s ancillary healthcare benefit offerings.
Sales
and Marketing
The
Company markets its services to PPOs, TPAs, insurance companies, large
self-funded organizations and Taft-Hartley union plans (i.e., employee benefit
plans that are self-administered under collective bargaining
agreements). The Company utilizes both a new business sales
organization of three senior sales professionals as well as a Client Development
group of six account management professionals to contract with new payor
organizations and then maximize the revenue and margin potential of each new
client. The new business sales team uses a variety of channels to
reach potential customers including professional relationships, direct marketing
efforts, attendance at industry-specific trade shows and conferences and through
strategic partnerships with market partners, independent brokers, and
consultants. The Client Development team gets engaged with each new
client to help manage the implementation process. In addition, an
Account Manager is generally assigned to each new customer organization and is
responsible for all aspects of the Company’s relationship with the entity
including the expanded utilization of the Company’s services over
time.
In early
2009, the Company invested in a Sales Force Automation/Customer Relationship
Management (“SFA/CRM”) software program to help improve the reach and efficiency
of both of these marketing groups. The SFA component will be used to
help track, analyze, and optimize the New Business Sales team’s direct sales
efforts and will provide a strategic account management tool for the Client
Development team. In addition, the CRM component will be utilized for
targeted direct marketing campaigns to prospective and current customers by both
organizations.
In 2009,
the Company committed to regular sales and account management training sessions
for it’s New Business Sales, Client Development, and Provider Development
teams. The training sessions span ACS product knowledge, new business
and exiting customer sales techniques, and major account
management.
The
Company invests in on-going market research with its customers and maintains an
informal customer advisory group with a number of senior leaders in managed care
organizations. In the first quarter of 2009, the Company
engaged a strategic marketing services company to conduct a “Market Pulse” which
involved in-depth interviews with senior managers/decision-makers in current ACS
customer organizations. The purpose of the “Market Pulse” was to gain
customer feed-back on the Company’s optimal product messaging by market segment,
differentiated “go-to-market” strategies, and new product ideas. The
outcome from these sessions was used to formulate a solid base of sales,
marketing and new product priorities for the next several years.
Customers
The
Company’s healthcare payor customers engage the Company to manage a
comprehensive array of ancillary healthcare services that the healthcare payors
have agreed to make available to their insureds or beneficiaries or for which
they have agreed to provide insurance coverage. The typical services
the healthcare payor customers require the Company to provide
include:
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providing
a comprehensive network of ancillary healthcare services providers that is
available to the payor’s covered persons for covered
services;
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·
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providing
claims management, reporting, and processing and payment
services;
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·
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performing
network/needs analysis to assess the benefits to payor customers of adding
additional/different service providers to the payor customer-specific
provider networks; and
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·
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credentialing
network service providers for inclusion in the payor customer-specific
provider networks.
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The terms
of the agreement between the Company and its payor customers do not contemplate
that the payor customers will have any relationship with the service providers
and, in fact, prohibit payor customers from claiming directly against the
service providers. The agreements between the Company and its payor
customers provide that it is the Company’s obligation to deliver or make
available the agreed-upon services. The Company is responsible
irrespective of the existence or terms of any agreement the Company has with the
service providers. The terms of the Company-payor customer agreement
provide that the Company is obligated to provide or arrange for the provision of
all of the service under the Company-payor customer agreement and the Company is
responsible for ensuring that the contractual terms are met and such services
are provided (whether the services are those performed directly by the Company,
such as claims management, processing and payment service, network/needs
analysis and credentialing, or those performed by a service provider contracted
by the Company).
The
Company’s most significant clients include (i) HealthSmart (“HealthSmart”),
which consists of HealthSmart and its affiliates, American Administrative Group
(“AAG”), Interplan Health Group (“IHG”), and Emerald Healthcare, and (ii) Viant
Holdings Inc., consisting of Texas True Choice, Inc. and Beech Street
Corporation. For the year ended December 31, 2008, ACS derived 59% of
its total revenue from HealthSmart (including its affiliates) and 39% of its
total revenue from Viant Holdings, Inc. (including its affiliates).
For the year ended December 31, 2007, ACS derived 65% of its total
revenue from HealthSmart and 28% of its total revenue from Viant Holdings,
Inc.
In 2008, the Company added seven new
clients, including an affiliate of Viant Holdings.
On
December 31, 2008, the Company entered into an amendment to its provider service
agreement with HealthSmart. The purpose of this amendment was, among
other things, to facilitate and accelerate the integration into the Company’s
business model of IHG, with which HealthSmart became affiliated in September
2007, adjust the administrative fees outlined in the previous amendment, define
and clarify the exclusivity and levels of cooperation contemplated by the
previous amendments, and extend the partnership between the Company and
HealthSmart and the duration of their provider service agreement to December 31,
2012. Under a strategic contracting plan that the amendment requires
the parties to develop, the Company would be the exclusive outsourced ancillary
contracting and network management provider for HealthSmart’s group health
clients and any third party administrators (TPAs).
As part
of the amendment, the Company agreed to pay HealthSmart $1,000,000 for costs
incurred in connection with the integration of and access to the Company’s
network by members of the IHG network, including, but not limited to, costs
associated with salaries, benefits, and third party contracts over the extended
contract term through 2012. The amendment specifies that
payment of such amount will be made within 90 days of December 31,
2008. The Company will continue to pay a service fee to HealthSmart
designed to reimburse and compensate HealthSmart for the work that it is
required to perform to support the Company’s program. The Amendment
provides for adjustments to such fee upon certain events.
Competition
The
Company faces four types of direct competitors.
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·
|
The
first group of competitors consists of larger, national health plans and
insurers such as Aetna, Blue Cross/Blue Shield plans, Cigna, Humana, and
United HealthCare. These larger carriers offer nation-wide,
standardized products and often compete on a local level based of the
cost-effectiveness of their national
contracts.
|
|
·
|
The
second group of competitors is more regionally-focused and consists of
smaller regional PPOs, payors and community-based provider-owned
networks. These regional competitors are generally managing
their own home-grown network of ancillary care providers and are more
likely to offer customized products and services tailored to the needs of
the local community. These regional groups will often use their
ownership and/or management of the full continuum of care in a local
market to direct patients to the provider groups within their
network.
|
|
·
|
The
third type of competitors focus on managing patients within a single
ancillary specialty (e.g. dialysis, imaging or infusion), and offer
comprehensive payor and provider services within their chosen ancillary
category.
|
|
·
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The
fourth group of competitors is our own clients. Our clients
have selected us based on our extensive network of service providers and
cost-savings potential. However, they may choose to develop
their own network instead of outsourcing ancillary management services to
us in the future.
|
Research
and Development
The
company invests in its information technology infrastructure to enhance the
capabilities of its databases, data retrieval tools, data exchange capabilities
and claims processing engine. In addition, the Company believes that
its extensive claims database of ancillary healthcare services and costs is a
strategic asset. The Company’s capitalized development costs totaled
approximately $490,000 during 2008.
Government
Regulation
The
healthcare industry is extensively regulated by both the Federal and state
governments. A number of states have extensive licensing and other
regulatory requirements applicable to companies that provide healthcare
services. Additionally, services provided to health benefit plans in
certain cases are subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”).
Furthermore,
state laws govern the confidentiality of patient information through statutes
and regulations that safeguard privacy rights. The Company is subject
to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”),
which provides national standards for electronic health information transactions
and the data elements used in such transactions. ACS and its clients
may be subject to Federal and state laws and regulations that govern financial
and other arrangements among healthcare providers. Furthermore, the
Company and its clients may be subject to federal and state laws and regulations
governing the submission of false healthcare claims to the government and
private payors, mail pharmacy laws and regulations, consumer protection laws and
regulations, legislation imposing benefit plan design restrictions, various
licensure laws, such as managed care and third party administrator licensure
laws, drug pricing legislation and Medicare and Medicaid reimbursement
regulations. Possible sanctions for violations of these laws and
regulations include minimum civil penalties of between $5,000-$10,000 for each
false claim and treble damages.
Proposed
changes to the U.S. healthcare system, including potential national healthcare
reform, may increase governmental involvement in healthcare and ancillary
healthcare services, and otherwise change the way payors, networks and service
providers conduct their businesses. Healthcare organizations may react to these
proposals and the uncertainty surrounding them by reducing or delaying purchases
of cost control mechanisms and related services such as those provided by the
Company.
The
Company must continually adapt to new and changing regulations in the healthcare
industry. If we fail to comply with these applicable laws, we may be subject to
fines, civil penalties, or criminal prosecution. If an enforcement
action were to occur, our business and financial condition may be adversely
affected.
Employees
As of
March 23, 2009, the Company had 59 full-time employees and no part-time
employees.
The
Company’s stockholders and any potential investor in the Company’s Common Stock
should carefully review and consider each of the following risk factors, as well
as all other information appearing in this Annual Report on Form 10-K, relating
to investment in our Common Stock. The Company’s business faces
numerous risks and uncertainties, the most significant of which are described
below. If any of the following risks actually occur, the business,
financial condition, results of operations or cash flows of the Company could be
materially adversely affected, the market price of the Company’s Common Stock
could decline significantly, and a stockholder could lose all or part of an
investment in the Company’s Common Stock.
The
Company has a history of losses and has only achieved profitability in the past
year.
Although
the Company was profitable in 2008, it incurred losses in each year between its
inception in December 2003 and December 2007 and has an accumulated deficit of
approximately $3.7 million as of December 31, 2008. The Company will
need to maintain similar levels of claims volume and revenue as it had in 2008
in order to maintain profitability. No assurances can be given that
the Company will be able to continue to grow at the current pace or to continue
to operate profitably in the future. The Company’s prospects must be
considered in light of the numerous risks, expenses, delays and difficulties
frequently encountered in an industry characterized by intense competition, as
well as the risks inherent in the development of new programs and the
commercialization of new services, particularly given its operating history
through 2007.
The
Company has a limited number of clients, a few of which account for a
substantial portion of its business, and failure to retain such clients could
have a material adverse effect on its business and results of
operations.
Our two
largest clients, HealthSmart Preferred Care, Inc. (“HealthSmart”) and Viant
Holdings, Inc. (“Viant”), accounted for an aggregate of approximately 98% of our
revenue during 2008; 59%
of our revenue during
2008 was derived from HealthSmart. In 2007, our two largest clients
accounted for 93% of our revenue, and 65% of our revenue during 2007 was
generated from HealthSmart. The loss of either one of these clients or
significant declines in the level of use of our services by one or more of these
clients (as would be the case, for example, if our clients decide to contract
directly with ancillary healthcare service providers), without replacement by
new business, would have a material adverse effect on the Company’s business and
results of operations.
The
client contract with Viant expires on May 20, 2011 and automatically renews for
successive one-year periods unless either party delivers a written notice of
non-renewal at least 90 days prior to expiration. Such contract may
be terminated for convenience by Viant upon two years notice to us or upon
thirty (30) days’ notice in the event of a breach. The client
contract with HealthSmart, which was set to expire on July 31, 2009, was amended
on December 31, 2008. The term was extended four years and will
expire on December 31, 2012. There can be no assurance that any
client will maintain its contract with us or after the expiration of the
then-current term that it will renew its contract on terms favorable to
us. Consequently, the Company’s failure to retain such clients could
have a material adverse effect on our business and results of
operations. Additionally, an adverse change in the financial
condition of any of these clients, particularly HealthSmart or Viant, including
an adverse change as a result of a change in governmental or private
reimbursement programs, could have a material adverse effect on our
business.
The
current financial crisis may reduce our revenue and profitability and harm our
growth prospects.
While the
Company has not experienced a decline in its operations as a result of the
recent financial crisis, it may be affected in the future in at least two ways.
First, to the extent that there are significant increases in unemployment, fewer
people may participate in insurance programs with our customers. Second, plan
participants, seeking to make their operations more cost effective, could make
less frequent use of some ancillary services. In either case, we may receive
less revenue and our profitability and growth could be adversely affected,
depending on the extent of the declines. Finally, as with any business, the
deterioration of the financial condition of our significant customers could have
a corresponding adverse effect on us.
Large
competitors in the healthcare industry could choose to compete with us, reducing
our margins. Some of these potential competitors may be our current
clients.
Traditional
health insurance companies, specialty provider networks, and specialty
healthcare services companies are potential competitors of the
Company. These entities include well-established companies that may
have greater financial, marketing and technological resources than we have.
Pricing pressure caused by competition has caused many of these companies to
reduce the prices charged to clients for core services and to pass on to clients
a larger portion of the formulary fees and related revenues received from
service providers. Increased price competition from such companies’
entry into the market could reduce our margins and have a material adverse
effect on our financial condition and results of operations. In fact,
our clients could choose to establish their own network of ancillary care
providers. As a result, we would not only lose the benefit of revenue
from such clients, but we could face additional competition in our
market.
The
Company is dependent upon payments from third party payors who may reduce rates
of reimbursement.
The
Company’s profitability depends on payments provided by third-party
payors. Competition for patients, efforts by traditional third-party
payors to contain or reduce healthcare costs and the increasing influence of
managed care payors, such as health maintenance organizations, have resulted in
reduced rates of reimbursement in recent years. If continuing, these trends
could adversely affect the Company’s results of operations unless it can
implement measures to offset the loss of revenues and decreased profitability.
In addition, changes in reimbursement policies of private and governmental
third-party payors, including policies relating to the Medicare and Medicaid
programs, could reduce the amounts reimbursed to the Company’s clients for the
Company’s services provided through the Company, and consequently, the amount
these clients would be willing to pay for the Company’s services.
The
Company is dependent upon its network of qualified providers and its provider
agreements may be terminated at any time.
The
development of a network of qualified providers is an essential component of our
business strategy. The typical form of agreement from ancillary
healthcare providers provides that these agreements may be terminated at any
time by either party with or without cause. If these agreements are
terminated, such ancillary healthcare providers could enter into new agreements
with our competitors which would have an adverse effect on our ability to
continue our business as it is currently conducted.
For
any given claim, the Company is subject to the risk of paying more to the
provider than it receives from the customer.
The
Company’s agreements with its payor customers, on the one hand, and the service
providers, on the other, are negotiated separately. The Company has
complete discretion in negotiating both the prices it charges its payor
customers and the financial terms of its agreements with the
providers. As a result, the Company’s profit is primarily a function
of the spread between the prices it has agreed to pay the service providers and
the prices the Company’s payor customers have agreed to pay the
Company. The Company bears the pricing/margin risk because it is
responsible for providing the agreed-upon services to its payor customers,
whether or not it is able to negotiate fees and other agreement terms with
service providers that result in a positive margin for the
Company. For example, during 2007, approximately 11% of claims were
“loss claims” (that is, where the amount paid by the Company to the provider
exceeded the amount received by the Company from the corresponding payor for
that particular claim) and these loss claims, in the aggregate, comprised
approximately $460,000, or 56% of the Company’s net loss in
2007. During 2008, the aggregate loss on loss claims was
approximately $998,000.
The loss claims
represent 9% of all claims in 2008. There can be no assurances that
the loss claim percentage will not be higher in future periods. If a
higher percentage of the Company’s claims resulted in a loss, its results of
operations and financial position would be adversely affected.
The
Company has significantly increased in size and may not be able to effectively
process the claims submitted by its providers in a timely manner.
Our size
and the volume of claims has increased dramatically in the last few
years. As a result, we have had to increase the size of our
processing capabilities and our staff. If we are unable to
effectively increase our processing speed and integrate new providers, we may be
unable to process properly all claims submitted and this could have a negative
impact on our relationships with clients, which in turn could lead to a loss of
business.
An
interruption of data processing capabilities and telecommunications could
negatively impact the Company’s operating results.
Our
business is dependent upon our ability to store, retrieve, process and manage
data and to maintain and upgrade our data processing capabilities. An
interruption of data processing capabilities for any extended length of time,
loss of stored data, programming errors, other computer problems or
interruptions of telephone service could have a material adverse effect on our
business.
Changes
in state and federal regulations could restrict our ability to conduct our
business.
Numerous
state and federal laws and regulations affect our business and operations. These
laws and regulations include, but are not necessarily limited to:
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·
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healthcare
fraud and abuse laws and regulations, which prohibit illegal referral and
other payments;
|
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·
|
the
Employee Retirement Income Security Act of 1974 and related regulations,
which regulate many healthcare
plans;
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·
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mail
pharmacy laws and regulations;
|
|
·
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privacy
and confidentiality laws and
regulations;
|
|
·
|
consumer
protection laws and regulations;
|
|
·
|
legislation
imposing benefit plan design
restrictions;
|
|
·
|
various
licensure laws, such as managed care and third party administrator
licensure laws;
|
|
·
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drug
pricing legislation;
|
|
·
|
Medicare
and Medicaid reimbursement regulations;
and
|
|
·
|
Health
Insurance Portability and Accountability Act of
1996.
|
We
believe we are operating our business in substantial compliance with all
existing legal requirements material to the operation of our business. There
are, however, significant uncertainties regarding the application of many of
these legal requirements to our business, and there cannot be any assurance that
a regulatory agency charged with enforcement of any of these laws or regulations
will not interpret them differently or, if there is an enforcement action, that
our interpretation would prevail. In addition, there are numerous proposed
healthcare laws and regulations at the federal and state levels, many of which
could materially affect our ability to conduct our business or adversely affect
our results of operations.
If
the Company fails to comply with the requirements of HIPAA, it could face
sanctions and penalties.
HIPAA
provides safeguards to ensure the integrity and confidentiality of health
information. Violation of the standards is punishable by fines and, in the case
of wrongful disclosure of individually identifiable health information, fines or
imprisonment, or both. Although we intend to comply with all applicable laws and
regulations regarding medical information privacy, failure to do so could have
an adverse effect on our business.
Limited
barriers to entry into the ancillary healthcare services market could result in
greater competition.
There are
limited barriers to entering our market, meaning that it is relatively easy for
other companies to replicate our business model and provide the same or similar
services that we currently provide. Major benefit management companies and
healthcare companies not presently offering ancillary healthcare services may
decide to enter the market. These companies may have greater financial,
marketing and other resources than are available to us. Competition
from other companies may have a material adverse effect on our financial
condition and results of operations.
The
Company’s inability to react effectively to changes in the healthcare industry
could adversely affect its operating results.
In recent
years, the healthcare industry has undergone significant change driven by
various efforts to reduce costs, including trends toward managed care, cuts in
Medicare reimbursements, and horizontal and vertical consolidation within the
healthcare industry. Proposed changes to the U.S. healthcare system,
including potential national healthcare reform, may increase governmental
involvement in healthcare and ancillary healthcare services, and otherwise
change the way payors, networks and service providers conduct their businesses.
Healthcare organizations may react to these proposals and the uncertainty
surrounding them by reducing or delaying purchases of cost control mechanisms
and related services such as those provided by the Company. Other
legislative or market-driven changes in the healthcare system that the Company
cannot anticipate could also materially adversely affect our business. We cannot
predict whether any healthcare reform efforts will be enacted and what effect
any such reforms may have on our business or our clients. Our
inability to react effectively to changes in the healthcare industry may result
in a material adverse effect on our business and operating results.
The
continued services and leadership of the Company’s senior management is critical
to its ability to maintain growth and any loss of key personnel could adversely
affect its business.
The
future of our business depends to a significant degree on the skills and efforts
of our senior executives, in particular our Chief Executive Officer, David S.
Boone, and our Chief Financial Officer, Steven J. Armond. If we lose
the services of any of our senior executives, and especially if any of our
executives joins a competitor or forms a competing company, our business and
financial performance could be seriously harmed. We have an
employment agreement with Mr. Boone, which automatically renews on April 30
th
of each
year for another one-year term. We have an employment agreement with
Mr. Armond, which automatically renews on October 12 of each year for another
one-year term. While we are in the process of obtaining life
insurance coverage for Mr. Boone, we currently have no such coverage for
him. A loss of any of our executive officers’ skills, knowledge of
the industry, contacts and expertise could cause a setback to our operating plan
and strategy.
The
Company may be unsuccessful in hiring and retaining skilled
employees.
The
future growth of our business depends on our ability to hire and retain skilled
employees. The Company may be unable to hire and retain the skilled
employees needed to succeed in our business. Qualified employees are
in great demand throughout the healthcare industry. Our failure to attract and
retain sufficient skilled employees may limit the rate at which our business can
grow, which will result in harm to our financial performance.
An
inability to adequately protect our intellectual property could harm the
Company’s competitive position.
We
consider our methodologies, processes and know-how to be proprietary. We seek to
protect our proprietary information through confidentiality agreements with our
employees, as well as our clients and contracted service
providers. The Company’s policy is to have its employees enter into a
confidentiality agreement at the time employment begins, with the
confidentiality agreement containing provisions prohibiting the employee from
disclosing our confidential information to anyone outside of the Company,
requiring the employee to acknowledge, and, if requested, assist in confirming
the Company’s ownership of new ideas, developments, discoveries or inventions
conceived by the employee during his or her employment with the Company, and
requiring the assignment by the employee to the Company of proprietary rights to
such matters that are related to our business. There can be no assurance that
the steps taken by the Company to protect its intellectual property will be
successful. If the Company does not adequately protect its intellectual
property, its competitors may be able to use its technologies and erode or
negate the Company’s competitive advantage in the market.
Fluctuations
in the number and types of claims processed by the Company could make it more
difficult to predict the Company’s revenues from quarter to
quarter.
Monthly
fluctuations in the number of claims we process and the types of claims we
process will impact the quarterly and annual results of the
Company. Our margins vary depending on the type of ancillary
healthcare service provided, the rates associated with those services and the
overall mix of these claims, each of which will impact our
profitability. Consequently, it may be difficult to predict our
revenue from one quarter to another quarter.
Future
sales of the Company’s Common Stock, or the perception that these sales may
occur, could depress the price of the Company’s Common Stock.
Sales of
substantial amounts of our Common Stock, or the perception in the public that
such sales may occur, could cause the market price of the Company’s Common Stock
to decline. This could also impair the Company’s ability to raise
additional capital through the sale of equity securities. As of March
23, 2009, the Company had 15,419,442 shares of its Common Stock
outstanding. Of the outstanding shares, 10,669,353 are freely
tradable without restriction or further registration under the Securities Act,
unless the shares are held by one of our “affiliates” as such term is defined in
Rule 144 of the Securities Act. An additional 4,750,089 shares are
“restricted shares” as that term is defined under the Securities Act and may be
sold from time to time pursuant to a registration statement on Form S-3 (No.
333-133110), which was declared effective on February 8, 2007 by the Securities
and Exchange Commission (the “SEC”), or in reliance upon an exemption from
registration available under the Securities Act. At March 23, 2008,
warrants to purchase 2,065,645 shares of Common Stock of the Company were
outstanding, and options to purchase 2,355,200 shares of Common Stock of the
Company had been granted and were outstanding under the Company’s Amended and
Restated 2005 Stock Option Plan. In addition, 393,292 shares of the
Common Stock of the Company remain available for future grants of options to
purchase shares of the Common Stock of the Company under the Company’s Amended
and Restated 2005 Stock Option Plan. If all of the outstanding
warrants are exercised and all options available under the Company’s Amended and
Restated 2005 Stock Option Plan are issued and exercised, there will be
approximately 20,233,579 shares of Common Stock of the Company
outstanding.
Some
of our existing stockholders can exert control over us and may not make
decisions that further the best interests of all stockholders.
As of
March 23, 2009, our officers, directors and principal stockholders (greater than
5% stockholders) together control beneficially approximately 60.5% of the
outstanding Common Stock of the Company. As a result, these
stockholders, if they act individually or together, may exert a significant
degree of influence over our management and affairs and over matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Furthermore, the interests of
this concentration of ownership may not always coincide with our interests or
the interests of other stockholders and, accordingly, they could cause us to
enter into transactions or agreements which we would not otherwise
consider. In addition, this concentration of ownership of the
Company’s Common Stock may delay or prevent a merger or acquisition resulting in
a change in control of the Company and might affect the market price of our
Common Stock, even when such a change in control may be in the best interest of
all of our stockholders.
We
are subject to the listing requirements of the Nasdaq Capital Market and there
can be no assurances that we will continue to satisfy these listing
requirements.
Our
common stock is listed on The Nasdaq Capital Market, and we are therefore
subject to continued listing requirements, including requirements with respect
to the market value of publicly-held shares and minimum bid price per share,
among others, and requirements relating to board and audit committee
independence. If we fail to satisfy one or more of the
requirements, we may be delisted from The Nasdaq Capital Market. If
we are delisted from The Nasdaq Capital Market and we are not able to list our
common stock on another exchange, our common stock could be quoted on the OTC
Bulletin Board or on the “pink sheets”. As a result, we could face significant
adverse consequences including, among others, a limited availability of market
quotations for our securities and a decreased ability to issue additional
securities or obtain additional financing in the future.
The
Company occupies a total of 16,449 square feet of office space, all of which is
leased. The leased space comprises our principal executive offices,
which is located at 5429 Lyndon B. Johnson Freeway, Suite 850, Dallas, TX 75240,
pursuant to a lease that expires on March 31, 2013. Included in the 16,449
square feet are 7,100 square feet of space added to our original lease by means
of an amendment to the lease executed in February 2009.
The Company does not own
or lease any other real property and believes its offices are suitable to meet
its current needs.
Item
3.
Legal
Proceedings.
None.
Item
4.
Submission
of Matters to a Vote of Security Holders.
No
matters were submitted to a vote of the Company’s stockholders during the
quarter ended December 31, 2008.
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of
Equity
Securities.
Market
Information
The
Company’s Common Stock has traded on The NASDAQ Capital Market (“NASDAQ”) under
the symbol ANCI since September 29, 2008. Between October 19, 2006 and
September 26, 2008, our stock traded on the American Stock Exchange (“Amex”)
under the symbol XSI and between December 28, 2005 and October 19, 2006, public
trading for our Common Stock occurred on the OTC Bulletin Board.
The
following table sets forth, for the fiscal periods indicated, the range of the
high and low sales prices for our Common Stock on the Amex from January 1, 2007
through September 26, 2008 and the high and low sales prices for our Common
Stock on NASDAQ from September 29, 2008 through December 31,
2008.
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High
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Low
|
|
2008
|
|
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Fourth Quarter Ended December
31(NASDAQ)
|
$9.50
|
|
$4.02
|
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Third Quarter Ended September 30
(NASDAQ)
|
$9.50
|
|
$4.40
|
|
Second Quarter Ended June 30
(Amex)
|
$4.75
|
|
$2.85
|
|
First Quarter Ended March 31
(Amex)
|
$3.60
|
|
$2.40
|
|
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2007
|
|
|
|
|
Fourth Quarter Ended December
31(Amex)
|
$4.30
|
|
$2.32
|
|
Third Quarter Ended September 30
(Amex)
|
$2.60
|
|
$1.40
|
|
Second Quarter Ended June 30
(Amex)
|
$2.10
|
|
$1.56
|
|
First Quarter Ended March 31
(Amex)
|
$2.53
|
|
$1.45
|
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The
closing price on NASDAQ for our Common Stock on March 23, 2009 was
$7.99.
Holders
As of
March 23, 2009, in accordance with the records of our transfer agent, there were
156 record holders of ACS Common Stock.
Dividends
We have
not declared cash dividends on our Common Stock. We intend to retain
all earnings to finance future growth and do not anticipate that we will pay
cash dividends for the foreseeable future.
Repurchases
of Securities
There
were no repurchases of the Common Stock of the Company by or on behalf of the
Company or any affiliated purchasers during the fourth quarter of the Company’s
fiscal year ended December 31, 2008.
Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities.
On
October 8, 2008, the Company issued 326 shares of its common stock in connection
with a cashless exercise by an accredited investor of restricted warrants to
purchase an aggregate of 1,000 shares. The Holder of the warrant
forfeited the right to acquire 674 shares of its common stock under the warrant
as consideration for this cashless exercise. This share issuance was
not registered under the Securities Act of 1933, as amended (the “Securities
Act”). The issuance was exempt from registration pursuant to Section
4(2) of the Securities Act and Regulation D thereunder, as it was a transaction
by the issuer that did not involve a public offering of securities and involved
a sale made to an accredited investor. There were no proceeds to the
Company pursuant to such issuance.
Item
7.
Management’s
Discussion and Analysis of Financial Condition and
Results of Operations.
The focus
of the following discussion is on the underlying business reasons for
significant changes and trends affecting the revenues, net losses and financial
condition of ACS. The following discussion should be read in
conjunction with our consolidated financial statements, which present our
results of operations for the twelve month periods ended December 31, 2008 and
2007 as well as our financial positions at December 31, 2008 and 2007, contained
elsewhere in this Annual Report on Form 10-K Some of the information
contained in this discussion and analysis or set forth elsewhere in this Annual
Report on Form 10-K, including information with respect to our plans and
strategy for our business, includes forward-looking statements that involve
risks and uncertainties. You should review the “Special Note Regarding Forward
Looking Statements” and “Risk Factors” sections of this Annual Report for a
discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Overview
American
CareSource Holdings, Inc. (the “Company”, “ACS”, “we”, “us”, or “our”) is an
ancillary benefits management company that offers cost effective access to a
comprehensive national network of ancillary healthcare service providers. The
Company’s customers include self-insured employers, indemnity insurers, PPOs,
HMOs, third-party administrators and federal and local governments that engage
the Company to provide them with a complete outsourced solutions designed to
manage each customer’s obligations to its covered persons. The
Company offers its customers this solution by:
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providing
payor customers with a comprehensive network of ancillary healthcare
services providers that is available to their covered persons for covered
services;
|
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·
|
providing
payor customers with claims management, reporting, and processing and
payment services;
|
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·
|
performing
network/needs analysis to assess the benefits to payor customers of adding
additional/different service providers to the payor customer-specific
provider networks; and
|
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·
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credentialing
network service providers for inclusion in the payor customer-specific
provider networks.
|
The
Company’s business model, illustrating the relationships among the persons
involved, directly or indirectly, in the Company’s business and its generation
of revenue and expenses is depicted below:
Our
clients route healthcare claims to us after service has been performed by
participant providers in our network. We process those claims and
charge the client/payor according to its contractual rate for the services
according to our contract with the client/payor. In processing the
claim, we are paid directly by the client or the insurer for the
service. We then pay the provider of service according to its
contractual rate. We assume the risk of generating positive margin,
the difference between the payment we receive for the service and the amount we
are obligated to pay the original provider of service or member of its
proprietary network.
The
Company recognizes revenues for ancillary healthcare services when services by
providers have been authorized and performed, the claim has been billed to the
payor and collections from payors are reasonably assured. Cost of
revenues for ancillary healthcare services consist of amounts due to providers
for providing ancillary health care services, client administration fees paid to
our client payors to reimburse them for routing the claims to us for processing,
and the Company’s related direct labor and overhead of processing invoices,
collections and payments. The Company is not liable for costs incurred by
independent contract service providers until payment is received by us from the
payors. The Company recognizes actual or estimated liabilities to independent
contract service providers as the related revenues are recognized.
The
Company markets its products to preferred provider organizations (“PPOs”), third
party administrators (“TPAs”), insurance companies, large self-funded
organizations and Taft-Hartley union plans, such as employee benefit plans that
are self-administered under collective bargaining agreements.
The year
ended December 31, 2008 marks the first full year in which we realized a
profit. Our net income for year ended December 31, 2008 was
$3,638,463, compared to a net loss of $820,230 for the year ended December 31,
2007. The Company is seeking continuing growth in the number of client payor and
service provider relationships by focusing on providing in-network services for
its payors and aggressively pursuing additional PPOs, TPAs and other direct
payors as its primary sales target. The Company believes that this strategy
should increase the volume of claims the Company can process in addition to the
expansion in the number of lives that are eligible to receive ancillary health
care benefits. No assurances can be given that the Company can expand
its service provider or payor relationships, nor that any such expansion will
result in an improvement in the results of operations of the
Company.
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net
Revenues
The
following table sets forth a comparison of our revenues for the following years
ended December 31:
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
Net
Revenues
|
|
$58,289
|
|
$23,488
|
|
$34,801
|
|
148%
|
The
Company’s net revenues are generated from ancillary healthcare service
claims. Revenue is recognized when we bill our client payors for
services performed. The increase in revenue for the year ended
December 31, 2008 as compared to 2007 is due to the addition of five new clients
(two of which are affiliates of our two existing significant customers) during
2007, the addition of seven new clients in 2008 (one of which is an affiliate of
one of our existing significant customers) and the expansion of our
relationships with our two largest customers, which relationships were
established in 2006 and early 2007. The five clients added in 2007
added incremental revenues of $22.1 million during 2008 compared to
2007. The seven new clients added in 2008 generated incremental
revenues of approximately $680,000 during 2008. In addition, we
recognized $13.4 million of incremental revenues during 2008 from our largest
client. The progression of these relationships allowed the Company
access to a greater number of payors and allowed us to benefit from the external
growth and expansion of our clients. In addition, revenues were
positively impacted by growth in our service provider network. The
increases were offset by declines in revenue generated from certain other client
accounts, as one of our clients had entered into agreements directly with
service providers, which was described in previous filings. The
decline in revenue from these accounts was approximately $1.2 million in 2008
compared to 2007.
The
Company will continue to seek growth in the number of client payor and service
provider relationships by focusing on providing in-network services for its
payors and aggressively pursuing additional PPOs, TPAs and other direct payors
as its primary sales target. The Company believes that this strategy should
increase the volume of claims the Company can process in addition to the
expansion in the number of lives that are eligible to receive ancillary health
care benefits. No assurances can be given that the Company can expand
its service provider or payor relationships, nor that any such expansion will
result in an improvement in the results of operations of the
Company.
Cost of Revenue
s
and Contribution
Margin
The
following table sets forth a comparison of the key components of our cost of
revenues, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2008
|
|
%
of revenue
|
|
2007
|
|
%
of revenue
|
|
$
|
|
%
|
Provider
payments
|
|
$42,603
|
|
73%
|
|
$17,206
|
|
73%
|
|
$25,397
|
|
148%
|
Administrative
fees
|
|
3,395
|
|
6
|
|
1,251
|
|
5
|
|
2,144
|
|
171%
|
Fixed
costs
|
|
3,255
|
|
6
|
|
2,145
|
|
9
|
|
1,110
|
|
52%
|
Total
cost of revenues
|
|
$49,253
|
|
84%
|
|
$20,602
|
|
88%
|
|
$28,651
|
|
139%
|
Cost of
revenues is comprised of payments to our providers, administrative fees paid to
our client payors for converting claims to electronic data interchange and
routing them to both the Company for processing and to their payors for payment,
and the fixed costs of our network development and claims administration
organizations. Payments to providers is the largest component of our
cost of revenues and it consists of our payments for ancillary care services in
accordance with contracts negotiated separately with providers for specific
ancillary services. In 2008, cost of revenues related to payments to
providers increased as compared to 2007 as a result of increased claims volume
and increased revenues, and the fluctuation in the mix of types of services
provided by the Company. Payments made to providers as a percent of
net revenues were 73.1% during 2008 and 73.3% during 2007. The
increase in administration fees was due to increased claim volume as a result of
expanded relationships with existing clients. Fixed costs increased
due to increased salaries and benefits related to headcount additions and the
implementation of an employee incentive plan in early 2008 and increased costs
associated with software development and infrastructure
expansion. The software development and infrastructure expansion
includes enhancements to our internal billing and collection systems which allow
us to more effectively and efficiently provide services to our client
payors.
The
following table sets forth a comparison of contribution margin percentage for
the years presented ended December 31:
|
|
2008
|
|
2007
|
|
Change
% pts
|
Contribution
margin
|
|
15.5%
|
|
12.3%
|
|
3.2%
|
Contribution
margin is calculated by dividing the difference between net revenues and total
costs of revenues by net revenues. The increase in contribution
margin reflected in the above table is attributable primarily to net revenues
growing at a greater pace than our cost of revenues, offset by a variety of
factors, including fluctuations in the mix of services provided by the Company
and increased administration fees payable to clients as result of higher claim
volume. The Company anticipates that it will continue to experience
margin expansion as the rate of client volume increases over time resulting in
improved leverage of its fixed cost infrastructure.
Selling, General and
Administrative Expenses
The
following table sets forth a comparison of our selling, general and
administrative (“SG&A”) expenses for the periods ended December
31:
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
Selling,
general and administrative expenses
|
|
$5,095
|
|
$3,754
|
|
$1,341
|
|
36%
|
Percentage
of total net revenues
|
|
8.7%
|
|
16.0%
|
|
|
|
|
Selling,
general and administrative (“SG&A”) expenses consist primarily of salaries
and related benefits, travel costs, sales commissions, sales materials, other
marketing related expenses, costs of corporate operations, finance and
accounting, human resources and other general operating expenses of the
Company. The increase in SG&A, on an absolute dollar basis,
reflected in the above table is primarily related to increased professional
expenses, specifically accounting, legal and consulting fees, accrued bonuses
related to improved operating results compared to the prior year periods,
increased stock-based compensation expense, increased recruiting fees related to
attracting and hiring talented employees to facilitate the Company’s growth and
sales commissions commensurate with our increased revenues. For 2008,
the increase was offset by the effect of the severance costs incurred during
2007 related to our former Chief Executive Officer, who resigned effective June
30, 2007. Those costs were approximately $338,000.
SG&A
expenses as a percentage of net revenues decreased over the prior year periods
as a result of net revenues growing more rapidly than our SG&A expenses,
which is primarily the result of the achievement of economies of scale as our
revenues increased.
Depreciation and
Amortization
The
following table sets forth a comparison of depreciation and amortization for the
periods ended December 31:
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
Depreciation
|
|
$202
|
|
$116
|
|
$86
|
|
74%
|
Amortization
|
|
213
|
|
213
|
|
-
|
|
-%
|
Total
Depreciation and amortization
|
|
$415
|
|
$329
|
|
$86
|
|
26%
|
Amortization
of intangibles consists of $85,000 of amortization of certain software
development costs and $128,000 in amortization of the capitalized value of
provider contracts that were acquired in the 2003 acquisition of the assets of
our predecessor, American CareSource Corporation by Patient Infosystems (now
CareGuide, Inc.), our former parent corporation. Each of these items
is being amortized using the straight-line method over its expected useful life,
which is five years for software and 15 years for provider
contracts. As of December 31, 2008, the intangible asset related to
software development costs was fully amortized.
The
increase in depreciation expense is a direct result of an increase in capital
expenditures, which increased approximately 333% in 2008 compared to
2007. A significant portion of those expenditures in 2008 related to
the continued development of our technology infrastructure.
Interest Income (Expense),
net
The
following table sets forth a comparison of the components of interest income
(expense), net for the periods ended December 31:
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2008
|
|
2007
|
|
$
|
|
%
|
Interest
income
|
|
$183
|
|
$201
|
|
$(18)
|
|
(9)%
|
Interest
expense
|
|
(5)
|
|
(11)
|
|
6
|
|
(55)%
|
Debt
issuance costs
|
|
-
|
|
(46)
|
|
46
|
|
-%
|
Total
interest income, net
|
|
$178
|
|
$144
|
|
$34
|
|
24%
|
During
2008, interest (income) expense, net increased compared to the prior year period
due to the amortization of debt issuance costs of $46,300, which was amortized
during 2007. Those costs were fully amortized as of December 31,
2007.
Income Tax
Provision
For 2008,
a provision for income taxes of approximately $65,000 was recorded, as compared
to an income tax benefit that was recorded in the prior year periods of
approximately $233,000. The provision for 2008 represents our
estimated margin tax liability in the State of Texas. Due to the
existence of our net operating loss carryforward, we have no federal income tax
liability for the year ended December 31, 2008.
During
2008, the Company generated net income which began to reduce the net operating
loss carryforward and the resulting valuation allowance. The Company
evaluated the need for the valuation allowance and determined that a full
allowance was needed for all net assets other than its Texas tax credit
carryforward, which is a margin tax. Such Texas tax credit
carryforward will be utilized over a 18-year period. The Company will
evaluate the need to reduce the valuation allowance based on continued positive
income performance.
Liquidity
and Capital Resources
As of
December 31, 2008, the Company had a working capital surplus of $7.8 million
compared to $3.6 million at December 31, 2007. In addition, our cash
and cash equivalents balance increased to $10.6 million as of December 31, 2008
compared to $4.3 at December 31, 2007. The increase is primarily the
result of net cash provided by operating activities of $6.5 million and
approximately $579,000 of proceeds from the exercise of stock options and
warrants during 2008. That increase was offset by capital
expenditures of approximately $785,000 during the same period.
During
2008, operating activities provided net cash of $6.5 million, the primary
components of which were net income of $3.6 million, adjusted for non-cash
charges of share-based compensation expense, an administrative fee expense of
approximately $781,000, depreciation and amortization of approximately $415,000
and a $1.6 million change in operating assets and liabilities. Net
operating assets and liabilities provided cash due to the timing of collection
of claims paid to us by our clients and payments made by us to the service
providers in our network in addition to the accrual made for performance related
bonuses during the year ended December 31, 2008.
Investing
activities during 2008 were comprised of investments in software development
costs of approximately $492,000 and in property and equipment of approximately
$292,000. The software development costs relate primarily to
enhancements to our business intelligence capabilities, while the increase in
property and equipment relates primarily to investments in computer equipment to
facilitate our growth and increases in headcount. During 2008, we
retired our outstanding note payable. As a condition to the issuance
of the note, we were required to hold a restricted certificate of deposit in the
amount of $145,000. Subsequent to the retirement of the debt, the
restriction on the balance was lifted and the certificate of deposit was
redeemed.
Financing
activities during 2008 produced cash of approximately $488,000, compared to cash
used of approximately $291,000 in the corresponding period in
2007. Cash generated in financing activities was primarily comprised
of proceeds of approximately $452,000, from the exercise of employee stock
options, approximately $130,000 of which was received from the exercise of
399,007 stock options by the former Chief Executive Officer of the
Company. In addition, approximately $127,000 was generated from the
exercise of stock warrants, which resulted in the issuance of 23,177 shares of
the Company’s common stock.
Historically,
we have relied on external sources of capital, including indebtedness or
issuance of equity securities to fund our operations. We believe our
current cash balance of $10.6 million as of December 31, 2008 and expected
future cash flows from operations will be sufficient to meet our anticipated
cash needs for working capital, capital expenditures and other activities
through at least the next twelve months. If operating cash flows are
not sufficient to meet our needs, we believe that credit or access to capital
through issuance of equity would be available to us. We do not have
any lines of credit, credit facilities or outstanding bank indebtedness as of
December 31, 2008.
Inflation
Inflation
did not have a significant impact on the Company’s costs during the years ended
December 31, 2008 and December 31, 2007, respectively. The Company
continues to monitor the impact of inflation in order to minimize its effects
through pricing strategies, productivity improvements and cost
reductions.
Off-Balance
Sheet Arrangements
The
Company does not have any off-balance sheet arrangements at December 31, 2008 or
December 31, 2007 or for the periods then ended.
Critical
Accounting Policies
Critical
accounting policies are those that require application of management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.
The
Company’s significant accounting policies are described in Note 1 to the
financial statements located elsewhere in this Annual Report on Form 10-K. Not
all of these significant accounting policies require management to make
difficult, subjective or complex judgments or estimates. However, the following
accounting policies are deemed to be critical by our management:
Intangible
Assets.
Intangible
assets consist of provider contracts and internally developed claims payment and
billing software. Each of these items is being amortized using the
straight-line method over its expected useful life of five years for the
software and fifteen years for the provider contracts. Our experience
to date is that we have approximately 4% annual turnover or attrition of
provider contracts. The provider contracts are being accounted for on
a pooled basis and the actual cancellation rates of provider contracts that were
acquired will be monitored for potential impairment or amortization adjustment,
if warranted. As of December 31, 2008, there is no impairment of this
intangible asset. The cost of adding additional providers is
considered an ongoing operating expense.
Impairment of Long-Lived
Assets.
The
Company records impairment losses on long-lived assets used in operations when
events and circumstances indicate that the assets might be impaired and the
undiscounted future cash flows estimated to be generated by those assets are
less than the carrying amount of those assets. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of the asset to
future net cash flows expected to be generated by the asset. If the asset is
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset. If the actual value is significantly less than the estimated
value, impairment is incurred.
Revenue
recognition.
The
Company recognizes revenue on the services that it provides, 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 services providers
for inclusion in the cleint payor-specific provider networks. Revenue is
recognized when services are delivered, which occurs after processed claims are
billed to the client payors and collections are reasonably
assured. The Company estimates 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.
The
Company presents its revenues in accordance with EITF No. 99-19 "Reporting Gross
Revenue as a Principal vs. Net as an Agent" (EITF 99-19), which requires the
determination of whether the Company is acting as a principal or an agent in the
fulfillment of the services rendered. After careful evaluation of the
key indicators detailed in EITF No. 99-19, the Company acknowledges that while
the determination of gross versus net reporting is highly judgmental in nature,
the Company has concluded that its circumstances are most consistent with those
key indicators that support gross revenue reporting.
Following are the key indicators that
support the Company’s conclusion that it acts as a principal under EITF No.
99-19 when settling claims for service providers through its contracted service
provider network:
|
·
|
The Company is the primary
obligor in the arrangement
. The Company has assessed its
role as primary obligor as a strong indicator of gross reporting as
described in EITF No. 99-19. The Company believes that it is
the primary obligor in its transactions because it is responsible for
providing the services desired by its client payors. The
Company has distinct, separately negotiated contractual relationships with
its client payors and with the ancillary health care providers in its
networks. The Company does not negotiate “on behalf of” its
client payors and does not hold itself out as the agent of the client
payors when negotiating the terms of the Company’s ancillary healthcare
service provider agreements. The Company’s agreements
contractually prohibit client payors and service providers from entering
into direct contractual relationships with one another. The
client payors have no control over the terms of the Company’s agreements
with the service providers. In executing transactions, the
Company assumes key performance-related risks. The client
payors hold the Company responsible for fulfillment, as the provider, of
all of the services the client payors are entitled to receive under their
contracts; client payors do not look to the service providers for
fulfillment. In addition, the Company bears the pricing/margin
risk as the principal in the transactions. Because the
contracts with the client payors and service providers are separately
negotiated, the Company has complete discretion in negotiating both the
prices it charges its client payors and the financial terms of its
agreements with the service providers. Since the Company’s
profit is generally the spread between the amounts received from the
client payors and the amount paid to the service providers, it bears
significant pricing/margin risk. There is no guaranteed mark-up
payable to the Company on the amount the Company has
contracted. Thus, the Company bears the risk that amounts paid
to the service provider will be greater than the amounts received from the
client payors, resulting in a loss or negative
claim.
|
|
·
|
The Company
has latitude in establishing pricing.
The Company has
complete latitude in negotiating the price to be paid to the Company by
each client payor and the price to be paid to each contracted service
provider. This type of pricing latitude may indicate that the
Company has the risks and rewards normally attributed to a principal in
the transactions.
|
|
·
|
The Company
changes the product or performs part of the
services.
The Company provides the benefits associated
with the relationships it builds with the client payors and the service
providers. While the parties could deal with each other
directly, the client payors would not have the benefit of the Company’s
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
client payors of adding additional/different service providers to the
client payor-specific provider networks, and in credentialing network
service providers.
|
|
·
|
The Company
has discretion in supplier selection.
The Company has
complete discretion in supplier selection. One of the key
factors considered by client payors who engage the Company 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 the Company and its client payors, the payors identify
their obligations to their respective covered persons and then work with
the Company to determine the types of ancillary healthcare services
required in order for the payors to meet their obligations. The
Company 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.
The Company works with its client payors
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, the Company is customizing the
product through its efforts and ability to assemble a comprehensive
network of providers for its customers that is tailored to each client
payor’s specific needs. In addition, as part of its claims
processing and payment services, the Company works with the client payors,
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
. The Company believes it has
some level of credit risk, but that risk is mitigated because the Company
does not remit payments to providers unless and until it has received
payment from the relevant client payors following the processing of a
claim by the Company.
|
|
·
|
The amount
that the Company earns is not fixed.
The
Company
does not earn
a fixed amount per transaction nor does it realize a per-person,
per-mo
nth charge for
its services.
|
The
Company has evaluated the other indicators under EITF 99-19, including whether
or not the Company has general inventory risk (a key indicator that may support
gross revenue reporting). The Company believes that this indicator is not
applicable to its situation, as its business is not related to the delivery of
goods and inventory is not an important factor from an operational or financial
point of view.
If the
Company were to report its revenues net of provider payments rather than on a
gross reporting basis, for the years ended December 31, 2008 and December 31,
2007, its net revenues would have been $15,685,967 and $6,282,260,
respectively.
Pending
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board issued SFAS No. 141(R)
“Business Combinations.” SFAS No. 141(R) changes the accounting for
business combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer’s income tax valuation allowance. SFAS No. 141(R) is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. The Company does not expect the adoption
of SFAS No. 141(R) to have an impact on its financial position or results of
operations.
In April
2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”). This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R), “Business Combinations,” and
other U.S. generally accepted accounting principles. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited. Accordingly, the FSP is effective for the
Company on January 1, 2009. The Company does not expect the adoption
of this Statement will have a material impact on its financial position or
results of operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
nongovernmental entities. Prior to the issuance of SFAS No. 162, the GAAP
hierarchy was defined in the American Institute of Certified Public Accountants
(“AICPA”) Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles”.
SFAS No. 162 is effective 60 days following the Securities and Exchange
Commission’s (“SEC’s”) approval of the Public Company Accounting Oversight Board
(“PCAOB”) Auditing amendments to AU Section 411, The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles. The Company does
not expect the adoption of SFAS No. 162 to have an impact on its financial
position or results of operations.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to Entity’s
Own Stock (“EITF 07-5”). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature is
indexed to the entity’s own stock. It is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, which is our first quarter of 2009. 109,095 warrants issued by
the Company contain a strike price adjustment feature, which upon adoption of
EITF 07-5, will result in the instruments no longer being considered indexed to
the Company’s own stock. Accordingly, adoption of EITF 07-5 will
change the current classification (from equity to liability) and the related
accounting for these warrants outstanding at that date. The Company
is currently evaluating the impact the adoption of EITF 07-5 will have on it
financial position, results of operations or cash flows.
Item
8.
Financial
Statement and Supplementary Data.
The
Company’s financial statement and supplementary data required to be filed
pursuant to this Item 8 are located at the end of this Annual Report on Form
10-K, beginning on page F-1.
Item
9.
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures as of December 31, 2008. Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and
15(d)-15(e) under the Exchange Act) are effective for the recording, processing,
summarizing and reporting of the information that the Company is required to
disclose in the reports it files under the Exchange Act, within the time periods
specified in the SEC’s rules and forms.
Management’s
Annual Report on Internal Control over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting by the
Company.
“Internal
control over financial reporting
“
is defined in Rule
13a-15(f) and Rule 15d-15(f) under the Exchange Act, as amended, as a process
designed by, or under the supervision of, the Company’s principal executive and
principal financial officers, or persons performing similar functions, and
effected by the Company’s Board of Directors, management and other personnel 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 and includes those policies and
procedures that:
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditure of the issuer are
being made only in accordance with authorizations of management and
directors of the Company; and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Internal
control over financial reporting has inherent limitations and may not prevent or
detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in
Internal Control – Integrated
Framework
. Management reviewed the results of its assessment with the
Audit Committee of the Company’s Board of Directors. Based on this
assessment, management believes that, as of December 31, 2008, the Company has
maintained effective internal control over financial reporting.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
Changes
in Internal Control over Financial Reporting
There
were no significant changes in the Company’s internal controls over financial
reporting or in other factors that have materially affected our internal
controls over financial reporting or are reasonably likely to materially affect
our internal controls over financial reporting subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item
9B.
Other
Information
None.
Item
10. Directors,
Executive Officers and Corporate Governance
Apart
from certain information concerning our Code of Ethics which is set forth below,
the information required by this Item 10 is incorporated herein by reference to
the applicable information contained in the definitive proxy statement for our
annual meeting of stockholders to be held on or about May 19, 2009, which will
be filed with the SEC pursuant to Regulation 14A not later than 120 days after
the Company’s fiscal year ended December 31, 2008.
The Board
of Directors of the Company has adopted a Code of Ethics, attached to our annual
report on Form 10-K for the year ended December 31, 2007 as Exhibit 14.1, which
defines the ethical principles that govern the conduct of all senior officers of
the Company, including our chief executive officer, chief operating officer,
chief financial officer and principal accounting officer. The Code of
Ethics is available to stockholders at our website,
www.anci-care.com.
The
information required by this Item 11 is incorporated herein by reference to the
applicable information contained in the definitive proxy statement for our
annual meeting of stockholders to be held on or about May 19, 2009, which will
be filed with the SEC pursuant to Regulation 14A not later than 120 days after
the Company’s fiscal year ended December 31, 2008.
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The
following table provides information with respect to the equity securities that
are authorized for issuance under our equity compensation plans as of December
31, 2008:
Equity Compensation Plan
Information at December 31, 2008
|
|
|
|
Plan
Category
|
|
Number of securities to be issued
upon
exercise of outstanding options,
warrants and rights, (a)
|
|
|
Weighted-average exercise price of
outstanding options, warrants and rights
(b)
|
|
|
Number of securities remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved
by security holders
|
|
2,489,492
|
|
|
$3.08
|
|
|
—
|
|
Equity compensation plans not
approved by security holders
|
|
106,708
|
|
|
6.89
|
|
|
393,292
|
|
Total
|
|
2,355,200
|
|
|
$3.25
|
|
|
393,292
|
|
In
addition, warrants to purchase 2,065,645 shares of Common Stock of the Company
are issued and outstanding as compensation to certain guarantors (including two
of our directors) of Company debt that has since been retired by the Company, as
part of compensation to the placement agent in connection with a March 2006
private placement of the Company’s Common Stock, and to a client of the Company
as partial compensation for services performed.
|
|
Shares of Common
Stock issuable under outstanding warrants
|
|
|
Weighted-average exercise price of
outstanding warrants
|
|
|
|
|
|
|
|
|
Series A
(1)
|
|
|
1,096,491
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Series B
(2)
|
|
|
635,059
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
Series C
(3)
|
|
|
109,095
|
|
|
$
|
5.50
|
|
|
|
|
|
|
|
|
|
|
Series D
(4)
|
|
|
225,000
|
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
|
Total Warrants
Outstanding
|
|
|
2,065,645
|
|
|
$
|
0.85
|
|
(1)
|
Series
A warrants were granted on January 20, 2005 to John Pappajohn and Derace
L. Schaffer in conjunction with the personal guarantees associated with
the Company’s $3,000,000 line of credit with Wells Fargo Bank,
NA.
|
(2)
|
Series
B warrants were granted on August 9, 2005 to John Pappajohn, Derace L.
Schaffer and Matthew P. Kinley in conjunction with increasing the
Company’s line of credit with Wells Fargo Bank, NA from $3,000,000 to
$4,000,000 and the associated increase in the personal
guarantees.
|
(3)
|
Service
warrants were granted as part of the compensation to Laidlaw and Company
in connection with the Company’s March 2006 private
placement.
|
(4)
|
These
warrants were granted on May 21, 2007 to Corporate Health Plans of
America, Inc., an affiliate of the Company’s client, Texas True Choice,
Inc. (“Texas True Choice”), as partial compensation to Texas True Choice
for services to be performed by it pursuant to an ancillary care services
network access agreement between the Company and Texas True
Choice.
|
The other
information required by this Item 12 is incorporated herein by reference to the
applicable information contained in the definitive proxy statement for our
annual meeting of stockholders to be held on or about May 20, 2008, which will
be filed with the SEC pursuant to Regulation 14A not later than 120 days after
the Company’s fiscal year ended December 31, 2007.
Item
13.
Certain
Relationships and Related Transactions, and Director
Independence
The
information required by this Item 13 is incorporated herein by reference to the
applicable information contained in the definitive proxy statement for our
annual meeting of stockholders to be held on or about May 19, 2009, which will
be filed with the SEC pursuant to Regulation 14A not later than 120 days after
the Company’s fiscal year ended December 31, 2008.
Item
14.
Principal
Accounting Fees and Services
The
information required by this Item 14 is incorporated herein by reference to the
applicable information contained in the definitive proxy statement for our
annual meeting of stockholders to be held on or about May 19, 2009, which will
be filed with the SEC pursuant to Regulation 14A not later than 120 days after
the Company’s fiscal year ended December 31, 2008.
Item
15. Exhibits
and Financial Statement Schedules
(a)
|
The
following documents are filed as part of this Annual Report on Form
10-K:
|
The
following financial statements are set forth in Item 8 hereof:
Document
|
Pages
|
|
|
Report of Independent Registered
Public Accounting Firm
|
F-1
|
|
|
Consolidated Statements of
Operations for the Years Ended December 31, 2008 and
2007
|
F-2
|
Consolidated Balance Sheets as of
December 31, 2008 and 2007
|
F-3
|
Consolidated Statements of
Stockholders’ Equity for the Years Ended December 31, 2008 and
2007
|
F-4
|
Consolidated Statements of Cash
Flows for the Years Ended December 31, 2008 and
2007
|
F-5
|
Notes to Consolidated Financial
Statements
|
F-6
|
(2)
|
Financial
Statement Schedules
|
None.
Reference
is made to the Exhibit Index following this Annual Report on Form
10-K.
Report
of
Independent
Registered Public Accounting Firm
To the Board of Directors and
Stockholders
American CareSource Holdings,
Inc.
We have audited the accompanying
consolidated balance sheets of American CareSource Holdings, Inc. and
subsidiaries as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders
’
equity, and cash flows for each of
years then ended. These financial statements are the responsibility
of the Company
’
s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board
(
United States
). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of American CareSource Holdings, Inc. and subsidiaries as
of December 31, 2008 and 2007, and the results of their operations and their
cash flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.
We were not engaged to examine
management
’
s assessment of the effectiveness of
American CareSource Holdings, Inc.
’
s internal control over financial
reporting as of December 31, 2008, included in the accompanying
Annual Report on
Form 10-K
for the year
ended then
and, accordingly, we do not express an
opinion thereon.
Des Moines
,
Iowa
March 31, 2009
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the years ended December
31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
58,288,775
|
|
|
$
|
23,487,911
|
|
Cost of
revenues:
|
|
|
|
|
|
|
|
|
Provider
payments
|
|
|
42,602,808
|
|
|
|
17,205,652
|
|
Administrative
fees
|
|
|
3,395,085
|
|
|
|
1,250,386
|
|
Fixed costs
|
|
|
3,255,140
|
|
|
|
2,145,562
|
|
Total cost of
revenues
|
|
|
49,253,033
|
|
|
|
20,601,600
|
|
|
|
|
|
|
|
|
|
|
Contribution
margin
|
|
|
9,035,742
|
|
|
|
2,886,311
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
5,094,580
|
|
|
|
3,754,175
|
|
Depreciation and
amortization
|
|
|
415,459
|
|
|
|
328,839
|
|
Total operating
expenses
|
|
|
5,510,039
|
|
|
|
4,083,014
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
3,525,703
|
|
|
|
(1,196,703
|
)
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
182,976
|
|
|
|
200,719
|
|
Interest
expense
|
|
|
(4,883
|
)
|
|
|
(10,700
|
)
|
Debt issuance
costs
|
|
|
-
|
|
|
|
(46,300
|
)
|
Total interest income (expense),
net
|
|
|
178,093
|
|
|
|
143,719
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes
|
|
|
3,703,796
|
|
|
|
(1,052,984
|
)
|
Income tax
provision
|
|
|
65,333
|
|
|
|
(232,754
|
)
|
Net income
(loss)
|
|
$
|
3,638,463
|
|
|
$
|
(820,230
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
0.21
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average common
shares outstanding
|
|
|
15,083,827
|
|
|
|
14,546,796
|
|
Diluted weighted average common
shares outstanding
|
|
|
17,735,576
|
|
|
|
14,546,796
|
|
CONSOLIDATED
BALANCE SHEETS
December
31
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,577,829
|
|
|
$
|
4,272,498
|
|
Accounts
receivable, net
|
|
|
5,788,457
|
|
|
|
3,651,203
|
|
Prepaid
expenses and other current assets
|
|
|
489,928
|
|
|
|
403,559
|
|
Deferred
income taxes
|
|
|
5,886
|
|
|
|
5,886
|
|
Total
current assets
|
|
|
16,862,100
|
|
|
|
8,333,146
|
|
|
|
|
|
|
|
|
|
|
Property
and equipmet, net
|
|
|
915,224
|
|
|
|
332,450
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Certificate
of deposit, restricted
|
|
|
-
|
|
|
|
145,000
|
|
Deferred
income taxes
|
|
|
243,959
|
|
|
|
255,731
|
|
Other
assets
|
|
|
883,155
|
|
|
|
237,246
|
|
Intangible
assets, net
|
|
|
1,280,656
|
|
|
|
1,494,238
|
|
Goodwill
|
|
|
4,361,299
|
|
|
|
4,361,299
|
|
|
|
$
|
24,546,393
|
|
|
$
|
15,159,110
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Due
to service providers
|
|
$
|
5,964,392
|
|
|
$
|
3,344,278
|
|
Accounts
payable and accrued liabilities
|
|
|
3,100,839
|
|
|
|
1,320,036
|
|
Current
maturities of long-term debt
|
|
|
11,023
|
|
|
|
55,697
|
|
Total
current liabilities
|
|
|
9,076,254
|
|
|
|
4,720,011
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,053
|
|
|
|
50,348
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 10,000,000 shares autorized
none
issued
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.01 par value; 40,000,000 shares autorized;
15,406,972
and 14,668,416 shares issued and outstanding in
2008
and 2007, respectively
|
|
|
154,069
|
|
|
|
146,684
|
|
Additional
paid-in capital
|
|
|
19,046,367
|
|
|
|
17,613,880
|
|
Accumulated
deficitt
|
|
|
(3,733,350
|
)
|
|
|
(7,371,813
|
)
|
Total
shareholders’ equity
|
|
|
15,467,086
|
|
|
|
10,388,751
|
|
|
|
$
|
24,546,393
|
|
|
$
|
15,159,110
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
For
the years ended December 2008 and 2007
|
|
|
|
Common
Stck
|
|
|
Additional
Paid-in Capital
|
|
|
Debt
Issuance Costs
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’ Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
Balance
at December 31, 2006
|
|
|
14,484,115
|
|
|
$
|
144,841
|
|
|
$
|
17,034,201
|
|
|
$
|
(46,300
|
)
|
|
$
|
(6,551,583
|
)
|
|
$
|
10,581,159
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(820,230
|
)
|
|
|
(820,230
|
)
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
418,058
|
|
|
|
-
|
|
|
|
-
|
|
|
|
418,058
|
|
Issuance
of common stock upon exercise of stock options
|
|
|
184,301
|
|
|
|
1,843
|
|
|
|
55,796
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,639
|
|
Amortization
of warrants associated with debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46,300
|
|
|
|
-
|
|
|
|
46,300
|
|
Issuance
of common stock warrants for payment of client management
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
105,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,825
|
|
Balance
at December 31, 2007
|
|
|
14,668,416
|
|
|
$
|
146,684
|
|
|
$
|
17,613,880
|
|
|
$
|
-
|
|
|
$
|
(7,371,813
|
)
|
|
$
|
10,388,751
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,638,463
|
|
|
|
3,638,463
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
698,863
|
|
|
|
-
|
|
|
|
-
|
|
|
|
698,863
|
|
Issuance
of common stock upon exercise of stock options
|
|
|
700,630
|
|
|
|
7,006
|
|
|
|
445,244
|
|
|
|
-
|
|
|
|
-
|
|
|
|
452,250
|
|
Issuance
of common stock upon exercise of stock warrants
|
|
|
23,177
|
|
|
|
232
|
|
|
|
127,196
|
|
|
|
-
|
|
|
|
-
|
|
|
|
127,428
|
|
Issuance
of common stock upon net warrant exercises
|
|
|
14,749
|
|
|
|
147
|
|
|
|
(147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance
of common stock warrants for payment of client management
fees
|
|
|
-
|
|
|
|
-
|
|
|
|
161,331
|
|
|
|
-
|
|
|
|
-
|
|
|
|
161,331
|
|
Balance
at December 31, 2008
|
|
|
15,406,972
|
|
|
$
|
154,069
|
|
|
$
|
19,046,367
|
|
|
$
|
-
|
|
|
$
|
(3,733,350
|
)
|
|
$
|
15,467,086
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,638,463
|
|
|
$
|
(820,230
|
)
|
Adjustments
to reconcile net income (loss) to net cash
provided
by (used in) operations:
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
698,863
|
|
|
|
418,058
|
|
Depreciation
and amortization
|
|
|
415,462
|
|
|
|
328,839
|
|
Amortization
of debt issuance costs
|
|
|
-
|
|
|
|
46,300
|
|
Client
administration fee expense related to warrants
|
|
|
82,478
|
|
|
|
35,276
|
|
Deferred
income taxes
|
|
|
11,772
|
|
|
|
(255,731
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,137,254
|
)
|
|
|
(2,316,253
|
)
|
Prepaid
expenses and other assets
|
|
|
346,575
|
|
|
|
(542,626
|
)
|
Accounts
payable and accrued liabilities
|
|
|
780,803
|
|
|
|
558,110
|
|
Due
to service providers
|
|
|
2,620,114
|
|
|
|
2,267,104
|
|
Net
cash provided by (used in) operating activities
|
|
|
6,457,276
|
|
|
|
(281,153
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment
in software development costs
|
|
|
(492,185
|
)
|
|
|
-
|
|
Additions
to property and equipment
|
|
|
(292,469
|
)
|
|
|
(181,153
|
)
|
Redemption
of certificate of deposit
|
|
|
145,000
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(639,654
|
)
|
|
|
(181,153
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(91,969
|
)
|
|
|
(348,215
|
)
|
Proceeds
from exercise of stock warrants
|
|
|
127,428
|
|
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
452,250
|
|
|
|
57,639
|
|
Net
cash provided by (used in) financing activities
|
|
|
487,709
|
|
|
|
(290,576
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
6,305,331
|
|
|
|
(752,882
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
4,272,498
|
|
|
|
5,025,380
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
10,577,829
|
|
|
$
|
4,272,498
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for taxes
|
|
$
|
15,423
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
non-cash financing activity:
|
|
|
|
|
|
|
|
|
Warrants
issued as payment of client management fees
|
|
$
|
161,331
|
|
|
$
|
105,825
|
|
NOTE
1.
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
Description
of Business
American
CareSource Holdings, Inc. (“ACS,” “Company,” the “Registrant,” “we,”
“us,” or “our,”) is an ancillary benefits management company that offers cost
effective access to a comprehensive national network of ancillary healthcare
service providers. The Company’s healthcare payor customers, which
include
preferred provider
organizations (“PPOs”), third party administrators (“TPAs”), insurance
companies, large self-funded organizations and Taft-Hartley union plans (i.e.,
employee benefit plans that are self-administered under collective bargaining
agreements)
, engage the Company to provide them with a complete
outsourced solution designed to manage each customer’s obligations to its
covered persons. The Company offers its customers this solution
by:
|
·
|
providing
payor customers with a comprehensive network of ancillary healthcare
services providers that is tailored to each payor customer’s specific
needs and is available to each payor customer’s covered persons for
covered services;
|
|
·
|
providing
payor customers with claims management, reporting, and processing and
payment services;
|
|
·
|
performing
network/needs analysis to assess the benefits to payor customers of adding
additional/different service providers to the payor customer-specific
provider networks; and
|
|
·
|
credentialing
network service providers for inclusion in the payor customer-specific
provider networks.
|
ACS was
incorporated in Delaware in 2003 as a wholly-owned subsidiary of Patient
Infosystems, Inc. (“Patient Infosystems”) in order to facilitate Patient
Infosystems’ acquisition of substantially all of the assets of American
CareSource Corporation. American CareSource Corporation had been in
operation since 1997, and its predecessor company, Physician’s Referral Network,
had been in operation since 1995. In December 2005, Patient
Infosystems distributed substantially all of its shares of the Company to its
then-current stockholders through a dividend, and since that time ACS has been
an independent, publicly-traded company.
Public
trading of the Company’s common stock commenced on December 28, 2005 under the
symbol ACSH.OB on the Over the Counter Bulletin Board Market (“OTC Bulletin
Board”). The Company’s common stock was listed for trading on the
American Stock Exchange on October 19, 2006 under the symbol “XSI”.
During
the third quarter of 2008, the Company’s Board of Directors approved the
decision to move the listing of the Company’s common stock to The NASDAQ Stock
Market (“the NASDAQ”) from the American Stock Exchange. Trading of
the Company’s common stock commenced on the NASDAQ on September 29, 2008 under
the stock symbol “ANCI”.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
one wholly-owned subsidiary, Ancillary Care Services, Inc. All
material intercompany accounts and transactions are eliminated in
consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash and cash equivalents include
amounts in deposit accounts in excess of federally insured limits of
$250,000. The Company has not experienced any losses in such
accounts.
Revenue
Recognition
The
Company recognizes revenue on the services that it provides, 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 what additional/different service providers to the
client-specific provider networks and (iv) providing credentialing of network
services 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 client payors and collections are reasonably
assured. The Company estimates 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.
The
Company presents its revenues in accordance with EITF No. 99-19 "Reporting Gross
Revenue as a Principal vs. Net as an Agent" (EITF 99-19), which requires the
determination of whether the Company is acting as a principal or an agent in the
fulfillment of the services rendered. After careful evaluation of the
key indicators detailed in EITF No. 99-19, the Company acknowledges that while
the determination of gross versus net reporting is highly judgmental in nature,
the Company has concluded that its circumstances are most consistent with those
key indicators that support gross revenue reporting.
Following
are the key indicators that support the Company’s conclusion that it acts as a
principal under EITF No. 99-19 when settling claims for service providers
through its contracted service provider network:
|
·
|
The Company is the primary
obligor in the arrangement
. The Company has assessed its
role as primary obligor as a strong indicator of gross reporting as
described in EITF No. 99-19. The Company believes that it is
the primary obligor in its transactions because it is responsible for
providing the services desired by its client payors. The
Company has distinct, separately negotiated contractual relationships with
its client payors and with the ancillary health care providers in its
networks. The Company does not negotiate “on behalf of” its
client payors and does not hold itself out as the agent of the client
payors when negotiating the terms of the Company’s ancillary healthcare
service provider agreements. The Company’s agreements
contractually prohibit client payors and service providers to enter into
direct contractual relationships with one another. The client
payors have no control over the terms of the Company’s agreements with the
service providers. In executing transactions, the Company
assumes key performance-related risks. The client payors hold
the Company responsible for fulfillment, as the provider, of all of the
services the client payors are entitled to under their contracts; client
payors do not look to the service providers for fulfillment. In
addition, the Company bears the pricing/margin risk as the principal in
the transactions. Because the contracts with the client payors
and service providers are separately negotiated, the Company has complete
discretion in negotiating both the prices it charges its client payors and
the financial terms of its agreements with the service
providers. Since the Company’s profit is the spread between the
amounts received from the client payors and the amount paid to the service
providers, it bears significant pricing/margin risk. There is
no guaranteed mark-up payable to the Company on the amount the Company has
contracted. Thus, the Company bears the risk that amounts paid
to the service provider will be greater than the amounts received from the
client payors, resulting in a loss or negative
claim.
|
|
·
|
The Company has latitude in
establishing pricing
. As stated above, the Company has
complete latitude in negotiating the price to be paid to the Company by
each client payor and the price to be paid to each contracted service
provider. This type of pricing latitude indicates that the
Company has the risks and rewards normally attributed to a principal in
the transactions.
|
|
·
|
The Company changes the
product or performs part of the services
. The Company
provides the benefits associated with the relationships it builds with the
client payors and the services providers. While the parties
could deal with each other directly, the client payors would not have the
benefit of the Company’s 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 client payors of adding
additional/different service providers to the client payor-specific
provider networks, and in credentialing network service
providers.
|
|
·
|
The Company has discretion in
supplier selection
. The Company has complete discretion
in supplier selection. One of the key factors considered by
client payors who engage the Company 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 the
Company and its client payors, the payors identify their obligations to
their respective covered persons and then work with the Company to
determine the types of ancillary healthcare services required in order for
the payors to meet their obligations. The Company 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
. The
Company works with its client payors 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, the Company is customizing the product through its efforts and
ability to assemble a comprehensive network of providers for its customers
that is tailored to each client payor’s specific needs. In
addition, as part of its claims processing and payment services, the
Company works with the client payors, 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
. The Company believes it has
some level of credit risk, but that risk is mitigated because the Company
does not remit payment to providers unless and until it has received
payment from the relevant client payors following the Company’s processing
of a claim.
|
|
·
|
The amount that the Company
earns is not fixed.
The Company does not earn a fixed
amount per transaction nor does it realize a per person per month charge
for its services.
|
The
Company has evaluated the other indicators under EITF 99-19, including whether
or not the Company has general inventory risk (a key indicator that may support
gross revenue reporting). The Company believes that this indicator is not
applicable to its situation, as its business is not related to the delivery of
goods and inventory is not an important factor from an operational or financial
point of view.
If the
Company were to report its revenues net of provider payments rather than on a
gross reporting basis, for the years ended December 31, 2008 and December 31,
2007, its net revenues would have been $15,685,967 and $6,282,260,
respectively.
Provider Payments
Payments
to providers is the largest component of our cost of revenues and it consists of
our payments for ancillary care services in accordance with contracts negotiated
separately with providers for specific ancillary services.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“GAAP”) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those
estimates.
Property
and Equipment, Net
Property
and equipment are recorded at original cost and increased by the cost of any
significant improvements after purchase. The Company expenses
maintenance and repairs when incurred. Depreciation and amortization
is calculated using the straight-line method over the shorter of the asset’s
estimated useful life or the term of the lease in the case of leasehold
improvements. For income tax purposes, the Company uses accelerated
depreciation methods as allowed by tax laws.
Research
and Development
Research
and development costs are expensed as incurred. The Company
capitalizes costs associated with internal software development in accordance
with SOP 98-1, “Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use”. During 2008, we capitalized $492,185 of
internally developed software costs. Those costs are amortized over a
useful life of 5-years.
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred taxes arise because of different treatment between
financial statement accounting and tax accounting, known as “temporary
differences”. The Company records the tax effect of these temporary
differences as “deferred tax assets” (generally items that can be used as a tax
deduction of credit in the future periods) and “deferred tax liabilities”
(generally items that we received a tax deduction for, which have not yet been
recorded in the income statement). The deferred tax assets and
liabilities are measured using enacted tax rules and laws that are expected to
be in effect when the temporary differences are expected to be recovered or
settled. A valuation allowance would be established to reduce
deferred tax assets if it is likely that a deferred tax assets if it is likely
that a deferred tax asset will not be realized.
Stock
Compensation
The
Company records all share-based payments to employees in the financial
statements based on their estimated fair values in accordance with Statement
Financial Accounting Standards (“SFAS”) No. 123 (Revised
2004). Additional information about the Company’s share-based payment
plan is presented in Note 6.
Segment
and Related Information
The
Company uses the “management approach” for reporting information about segments
in annual and interim financial statements in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information”. The
management approach is based on the way the chief operating decision-maker
organizes segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services,
geography, legal structure, management structure and any other manner in which
management disaggregates a company. Based on the “management approach”
model, the Company has determined that its business is comprised of a single
operating segment.
Goodwill
and Intangible Assets
Intangible
assets consist of provider contracts and internally developed claims payment and
billing software. Each of these items is being amortized using the
straight-line method over its expected useful life of 5-years for the software
and 15-years for the provider contracts. Our experience to date is
that we have approximately 4% annual turnover or attrition of provider
contracts. The provider contracts are being accounted for on a pooled
basis and the actual cancellation rates of provider contracts that were acquired
will be monitored for potential impairment or amortization adjustment, if
warranted. As of December 31, 2008, there is no impairment of this
intangible asset. The cost of adding additional providers is
considered an ongoing operating expense.
Under
SFAS No. 142, “Goodwill and Other Intangible Assets,” we will evaluate goodwill
for impairment annually as of December, or more frequently if impairment
indicators arise. An impairment loss is recognized to the extent that
the carrying amount exceeds the asset’s fair value. As of December
31, 2008 and 2007, we have determined that no impairment of Goodwill or Other
Intangible Assets exists.
The
following is a summary of our intangible assets as of December 31 for the years
presented:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Provider
contracts
|
|
$
|
1,920,984
|
|
|
$
|
1,920,984
|
|
Software
|
|
|
427,581
|
|
|
|
427,581
|
|
|
|
|
2,348,565
|
|
|
|
2,348,565
|
|
Accumulated
amortization
|
|
|
(1,067,909
|
)
|
|
|
(854,327
|
)
|
Acquisition
intangibles, net
|
|
$
|
1,280,656
|
|
|
$
|
1,494,238
|
|
Amortization
expense was approximately $214,000 for each of the years ended December 31, 2008
and 2007. Amortization expense is estimated at $128,000 per year
through 2018.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and long-term
debt. The fair value of instruments is determined by reference to
various market data and other valuation techniques, as
appropriate. Unless otherwise disclosed, the fair value of short-term
financial instruments approximates their recorded values due to the short-term
nature of the instruments. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities, the fair value of long-term debt approximates its carrying
value.
Concentration
of Revenues
The
Company has two customers that each comprise a significant portion of the
Company’s revenue. The following is a summary of the approximate
amounts of the Company’s revenue and accounts receivable contributed by each of
these customers as of and for the years ended December 31:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
3,059,000
|
|
|
$
|
34,275,000
|
|
|
|
59
|
%
|
|
$
|
1,964,000
|
|
|
$
|
15,195,000
|
|
|
|
65
|
%
|
Customer B
|
|
|
2,369,000
|
|
|
|
22,688,000
|
|
|
|
39
|
%
|
|
|
1,473,000
|
|
|
|
6,633,000
|
|
|
|
28
|
%
|
All
Others
|
|
|
360,000
|
|
|
|
1,326,000
|
|
|
|
2
|
%
|
|
|
214,000
|
|
|
|
1,660,000
|
|
|
|
7
|
%
|
|
|
$
|
5,788,000
|
|
|
$
|
58,289,000
|
|
|
|
100
|
%
|
|
$
|
3,651,000
|
|
|
$
|
23,488,000
|
|
|
|
100
|
%
|
Customer A
includes four entities
and
Customer B
includes two
entities.
Allowance
for Doubtful Accounts
We
maintain an allowance for doubtful accounts which are provided at the time
revenue is recognized. Co-payments, deductibles and co-insurance
payments can all impact the collectability of each individual claim submitted to
payors for payment. While the Company is able to process a claim and
estimate the cash it 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. The Company records an allowance against
gross revenue to better estimate collectability. The allowance is
applied specifically for each payor and is adjusted to reflect the Company’s
collection experience on a quarterly basis.
The
following table summarizes the changes in the allowance for doubtful accounts
for the years ended December 31:
|
|
2008
|
|
|
2007
|
|
Beginning
balance
|
|
$
|
189,556
|
|
|
$
|
224,540
|
|
Provisions
for losses - accounts receivable
|
|
|
85,444
|
|
|
|
155,016
|
|
Deduction
for accounts charged off
|
|
|
(75,000
|
)
|
|
|
(190,000
|
)
|
Ending
balance
|
|
$
|
200,000
|
|
|
$
|
189,556
|
|
Earnings
(Loss) per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings (loss) per share reflects the potential dilution that could
occur if options or warrants to purchase common stock were exercised. For
purposes of this calculation, outstanding stock options and stock warrants are
considered common stock equivalents using the treasury stock method, and are the
only such equivalents outstanding. During 2007, 4,123,065 commons
stock equivalents were not included in the calculation as their affect would
have been anti-dilutive.
Pending
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board issued SFAS No. 141(R)
“Business Combinations.” SFAS No. 141(R) changes the accounting for
business combinations including the measurement of acquiror shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer’s income tax valuation allowance. SFAS No. 141(R) is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. The Company does not expect the adoption
of SFAS No. 141(R) to have an impact on its financial position or results of
operations.
In April
2008, the FASB issued Staff Position No. 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP 142-3”). This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R), “Business Combinations,” and
other U.S. generally accepted accounting principles. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years and early
adoption is prohibited. Accordingly, the FSP is effective for the
Company on January 1, 2009. The Company does not expect the adoption
of FSP 142-3 will have a material impact on its financial position or results of
operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with U.S. generally accepted accounting principles for
nongovernmental entities. Prior to the issuance of SFAS No. 162, the GAAP
hierarchy was defined in the American Institute of Certified Public Accountants
(“AICPA”) Statement on Auditing Standards (“SAS”) No. 69, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles”.
SFAS No. 162 is effective 60 days following the Securities and Exchange
Commission’s (“SEC’s”) approval of the Public Company Accounting Oversight Board
(“PCAOB”) Auditing amendments to AU Section 411, The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles. The Company does
not expect the adoption of SFAS No. 162 to have an impact on its financial
position or results of operations.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5,
“Determining Whether an Instrument (or Embedded Feature) Is Indexed to Entity’s
Own Stock (“EITF 07-5”). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature is
indexed to the entity’s own stock. It is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, which is our first quarter of 2009. 109,095 warrants issued by
the Company contain a strike price adjustment feature, which upon adoption of
EITF 07-5, will result in the instruments no longer being considered indexed to
the Company’s own stock. Accordingly, adoption of EITF 07-5 will
change the current classification (from equity to liability) and the related
accounting for these warrants outstanding at that date. The Company
is currently evaluating the impact the adoption of EITF 07-5 will have on it
financial position, results of operations or cash flows.
Note
2. Property and Equipment, Net
Property
and equipment, net consist of the following:
|
|
Useful
Lives (years)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
3-5
|
|
|
$
|
378,791
|
|
|
$
|
257,938
|
|
Software
– purchased
|
|
3-5
|
|
|
|
328,996
|
|
|
|
188,274
|
|
Software
– internally developed
|
|
5
|
|
|
|
535,859
|
|
|
|
43,674
|
|
Furniture
and fixtures
|
|
5
|
|
|
|
146,125
|
|
|
|
122,382
|
|
Leasehold
improvements
|
|
7
|
|
|
|
40,300
|
|
|
|
33,149
|
|
|
|
|
|
|
|
1,430,071
|
|
|
|
645,417
|
|
Accumulated
depreciation and amortization
|
|
|
|
|
|
(514,847
|
)
|
|
|
(312,967
|
)
|
Property
and equipment, net
|
|
|
|
|
$
|
915,224
|
|
|
$
|
332,450
|
|
Note
3. Income Taxes
Income
tax expense for the years ended December 31 differed from the U.S. federal
income tax rate of 35% approximately in the amounts indicated as a result of the
following:
|
|
2008
|
|
|
2007
|
|
Computed
“expected” tax provision (benefit)
|
|
$
|
1,273,000
|
|
|
$
|
(365,000
|
)
|
Change
in the valuation allowance for deferred tax assets
|
|
|
(1,217,000
|
)
|
|
|
371,000
|
|
Texas
margin tax credit carryforward
|
|
|
-
|
|
|
|
(262,000
|
)
|
State
taxes
|
|
|
65,000
|
|
|
|
29,000
|
|
Other
|
|
|
(56,000
|
)
|
|
|
(6,000
|
)
|
Total
income tax provision (benefit)
|
|
$
|
65,000
|
|
|
$
|
(233,000
|
)
|
Differences
between financial accounting principles and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting purposes and
tax purposes. The 2007 income tax benefit is the result of the Company
filing for the Texas margin tax credit that is available due to the change in
the Texas taxation method. Based on the method that the new tax is
calculated and the credit that is available the Company now believes that this
amount will be realized for financial statement purposes.
The tax
effects of these differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities under SFAS No. 109 and consisted of the
following components:
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Operating
loss carryforward
|
|
$
|
815,000
|
|
|
$
|
2,022,000
|
|
Accounts
receivable allowance
|
|
|
70,000
|
|
|
|
64,000
|
|
Warrants
|
|
|
176,000
|
|
|
|
143,000
|
|
Texas
tax credit carryforward
|
|
|
250,000
|
|
|
|
262,000
|
|
Stock
option compensation
|
|
|
395,000
|
|
|
|
205,000
|
|
Accrued
expenses
|
|
|
285,000
|
|
|
|
194,000
|
|
Total
deferred tax assets
|
|
|
1,991,000
|
|
|
|
2,894,000
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(322,000
|
)
|
|
|
(195,000
|
)
|
Fixed
assets
|
|
|
(199,000
|
)
|
|
|
-
|
|
Prepaid
expense
|
|
|
(21,000
|
)
|
|
|
(21,000
|
)
|
Total
deferred tax liabilities
|
|
|
(542,000
|
)
|
|
|
(216,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
1,449,000
|
|
|
|
2,678,000
|
|
Valuation
allowance
|
|
|
(1,199,000
|
)
|
|
|
(2,416,000
|
)
|
Deferred
tax assets, net of valuation allowance
|
|
$
|
250,000
|
|
|
$
|
262,000
|
|
The
valuation allowance decreased $1,217,000 during the year ended December 31, 2008
and increased $371,000 during the year ended December 31, 2007.
The
Company has a net operating loss carryforward of approximately $5,013,000 which
expires in 2024 through 2027. Included in the net operating loss
carryforward is approximately $2,693,000 which relates to the excess tax
benefits for stock options exercised which will result in a credit into
additional paid-in capital of approximately $941,000 when the associated tax
deduction results in a reduction in income taxes payable.
During
2008, the Company generated net income which began to reduce the net operating
loss carryforward and the resulting valuation allowance. The Company
evaluated the need for the valuation allowance and determined that a full
allowance was needed for all net assets other than its Texas tax credit
carryforward which is a margin tax which will be utilized over an 18-year
period. The Company will evaluate the need to reduce the valuation
allowance based on continued positive income performance.
The
income tax expense (benefit) shown on the statement of operations for the years
ended December 31, 2008 and 2007 consisted of the following:
|
|
2008
|
|
|
2007
|
|
Current
|
|
$
|
53,561
|
|
|
$
|
22,977
|
|
Deferred
|
|
|
11,772
|
|
|
|
(255,731
|
)
|
|
|
$
|
65,333
|
|
|
$
|
(232,754
|
)
|
On
January 1, 2007, the Company adopted Financial Accounting Standards Board
(FASB) Interpretation (FIN) 48, “Accounting for Uncertainty in Income
Taxes.” The Company has identified Federal and Texas as major tax jurisdictions
which remain open to examination for periods subsequent to December 31,
2004.
Note
4. Commitments and Contingencies
Operating
leases
The
Company leases certain equipment and office space under non-cancelable lease
agreements, which expire at various dates through March 2013.
At
December 31, 2008 minimum annual lease payments for operating leases are
approximately as follows:
|
|
Operating
Leases
|
|
|
|
|
|
2009
|
|
$
|
332,000
|
|
2010
|
|
|
411,000
|
|
2011
|
|
|
414,000
|
|
2012
|
|
|
408,000
|
|
2013
|
|
|
104,000
|
|
Thereafter
|
|
|
—
|
|
|
|
|
|
|
Total
minimum lease payments
|
|
$
|
1,669,000
|
|
Rent
expense related to operating leases was approximately $154,000 and $172,000 for
the years ended December 31, 2008 and 2007, respectively.
Note
5. Stock Options
Stock
Option Incentive Plan
American
CareSource Holdings, Inc. has an Employee Stock Option Plan (the “Stock Option
Plan”) for the benefit of certain employees, non-employee directors, and key
advisors. On May 16, 2005, the stockholders approved the Stock Option
Plan which (i) authorized options to purchase 2,249,329 shares and (ii)
established the class of eligible participants to include employees, nominees to
the Board of Directors of American CareSource Holdings and consultants engaged
by American CareSource Holdings, limited to 50,000 the number of shares of
Common Stock underlying the one-time grant of a Non-Qualified Option to which
non-employee directors or non-employee nominees of the Board of Directors may be
entitled. The Company filed a registration statement on Form S-8
registering the issuance of 2,249,329 of the Stock Option Plan shares on April
7, 2006. Stock options granted under the Stock Option Plan may be of two
types: (1) incentive stock options and (2) nonqualified stock
options. The option price of such grants shall be determined by a
Committee of the Board of Directors (the “Committee”), but shall not be less
than the estimated fair value of the common stock at the date the option is
granted. The Committee shall fix the terms of the grants with no
option term lasting longer than ten years. The ability to exercise
such options shall be determined by the Committee when the options are
granted.
On May
24, 2007, the Company amended the Stock Option Plan to increase the maximum
number of shares of Common Stock that may be issued pursuant to the Stock Option
Plan. The American CareSource Holdings, Inc. Amended and Restated
2005 Stock Option Plan (the “Amended and Restated Plan”) increased the shares
available for issue under the Stock Option Plan by 1,000,000 shares to a total
of 3,249,329 shares. The Company filed a registration statement on
Form S-8 registering the issuance of the additional shares on June 14,
2007.
In
November 2008, the Company again amended the Plan to increase the number of
shares under the plan by 500,000 to a total of 3,749,329 shares, which amendment
is subject to the approval of the stockholders of the Company to be solicited at
its Annual Meeting to be held on May 19, 2009.
Shares of
common stock reserved for future grants under the plan were 393,292 and 948,559
at December 31, 2008 and 2007, respectively.
Under the
Stock Option Plan, the compensation cost that has been charged against income
for the year ended December 31, 2008 and 2007 was $698,863 and $418,058,
respectively. No income tax benefit has been recognized in the
consolidated statement of operations for share-based compensation arrangements
for the years ended December 31, 2008 and 2007 due to the fact that the Company
has net operating loss carryforwards for which a full valuation allowance has
been established. At the time the tax benefit of those net operating
loss carryforwards is realized, approximately $941,000 of such benefit related
to the share based compensation deduction will be credited directly to
additional paid in capital.
The
non-qualified options granted to employees and outside directors under American
CareSource Holdings, Inc.’s Stock option incentive plan become exercisable in
cumulative installments over periods of one to four years and expire after 10
years. The fair value of each option award granted is estimated on
the date of grant using the Black-Scholes-Merton valuation model that uses the
assumptions noted in the following table. Volatility is calculated
using an analysis of historical volatility. The Company believes that
the historical volatility of the Company’s stock is the best method for
estimating future volatility. The expected lives of options are
determined based on the Company’s historical share option exercise experience
using a rolling one-year average. The Company believes the historical
experience method is the best estimate of future exercise patterns currently
available. The risk-free interest rates are determined using the
implied yield currently available for zero-coupon U.S. government issues with a
remaining term equal to the expected life of the options. The
expected dividend yields are based on the approved annual dividend rate in
effect and current market price of the underlying common stock at the time of
grant.
|
|
2008
|
|
|
2007
|
|
Weighted
average grant date fair value
|
|
$2.82
|
|
|
$1.17
|
|
Weighted
average assumptions used
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
65.8%
|
|
|
66.0%
|
|
Expected
lives
|
|
5.3
years
|
|
|
3.2
years
|
|
Risk
free interest rate
|
|
2.7%
|
|
|
5.7%
|
|
Forfeiture
rate
|
|
24.3%
|
|
|
24.3%
|
|
Dividend
rate
|
|
--
|
|
|
--
|
|
A summary
of stock option activity follows:
|
|
|
|
|
Weighted-Average
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2006
|
|
|
1,848,192
|
|
|
$0.90
|
|
|
|
|
|
|
|
|
|
Options
granted during the year ended December 31, 2007
|
|
|
779,488
|
|
|
$2.38
|
|
|
|
|
|
|
|
|
|
Options
forfeited by holders during the year
|
|
|
|
|
|
|
|
ended
December 31, 2007
|
|
|
(442,816)
|
|
|
$1.45
|
|
|
|
|
|
|
|
|
|
Options
exercised during the year ended December 31, 2007
|
|
|
(184,301)
|
|
|
$0.31
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
|
2,000,563
|
|
|
$1.41
|
|
|
|
|
|
|
|
|
|
Options
granted during the year ended December 31, 2008
|
|
|
1,114,500
|
|
|
$4.88
|
|
|
|
|
|
|
|
|
|
Options
forfeited by holders during the year
|
|
|
|
|
|
|
|
ended
December 31, 2008
|
|
|
(59,233)
|
|
|
$2.82
|
|
|
|
|
|
|
|
|
|
Options
exercised during the year ended December 31, 2007
|
|
|
(700,630)
|
|
|
$0.65
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
|
2,355,200
|
|
|
$3.25
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2008
|
|
|
971,805
|
|
|
$1.53
|
|
As of
December 31, 2008, the weighted average remaining contractual life of the
options outstanding was 8.5 years and the weighted average remaining contractual
life of the outstanding exercisable options was 7.4 years.
The
following table summarizes information concerning outstanding and exercisable
options at December 31, 2008:
|
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
Average
|
|
|
|
|
Average
|
|
Range
of
|
|
|
Number
|
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Exercise
Price
|
|
|
Outstanding
|
|
|
Life
|
|
Price
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
$1.00
|
|
|
|
446,450
|
|
|
|
6.4
|
|
|
$0.34
|
|
|
|
|
445,324
|
|
|
$0.34
|
|
$1.00
- $2.00
|
|
|
|
385,750
|
|
|
|
8.3
|
|
|
$1.86
|
|
|
|
|
324,663
|
|
|
$1.86
|
|
$2.01
- $3.00
|
|
|
|
340,000
|
|
|
|
8.7
|
|
|
$2.60
|
|
|
|
|
86,541
|
|
|
$2.55
|
|
$3.01
- $4.00
|
|
|
|
490,000
|
|
|
|
9.1
|
|
|
$3.37
|
|
|
|
|
68,055
|
|
|
$3.50
|
|
$4.01
- $5.00
|
|
|
|
221,000
|
|
|
|
9.4
|
|
|
$4.17
|
|
|
|
|
--
|
|
|
$ --
|
|
$5.01
- $6.00
|
|
|
|
50,000
|
|
|
|
7.1
|
|
|
$5.60
|
|
|
|
|
47,222
|
|
|
$5.60
|
|
$6.01
- $7.00
|
|
|
|
238,000
|
|
|
|
9.9
|
|
|
$6.88
|
|
|
|
|
--
|
|
|
$ --
|
|
Greater
than $7.01
|
|
|
|
184,000
|
|
|
|
9.8
|
|
|
$7.60
|
|
|
|
|
--
|
|
|
$ --
|
|
The total
intrinsic value of options outstanding at December 31, 2008 and 2007 was
$9,027,819 and $3,583,650, respectively. The total intrinsic value of
the options that are exercisable at December 31, 2008 and 2007 was $5,331,531
and $2,925,782, respectively. The total intrinsic value of options
exercised during the year ended December 31, 2008 and 2007 was $2,577,827 and
$296,562, respectively.
As of
December 31, 2007, there was approximately $2,594,419 of total unrecognized
compensation cost related to non-vested share based compensation arrangements
granted under the plan. The cost is expected to be recognized over a
weighted average period of 3.2 years.
Note
6. Earnings (Loss) per Share
Basic
earnings and diluted earnings per share data were computed as
follows:
|
|
2008
|
|
|
2007
|
|
Numerator
for basic and diluted earnings per share
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,638,463
|
|
|
$
|
(820,230
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average
basic common shares outstanding
|
|
|
15,083,827
|
|
|
|
14,546,796
|
|
Assumed
conversion of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
1,002,709
|
|
|
|
—
|
|
Warrants
|
|
|
1,649,040
|
|
|
|
—
|
|
Potentially
dilutive common shares
|
|
|
2,651,749
|
|
|
|
—
|
|
Denominator
for diluted earnings per share – Adjusted weighted-average
shares
|
|
|
17,735,576
|
|
|
|
14,546,796
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
0.21
|
|
|
$
|
(0.06
|
)
|
Note
7. Stock Warrants
In
January 2005, the Company issued Series A warrants to purchase 1,096,491 shares
of common stock to two directors of the Company in exchange for a guarantee of
the Company’s $3,000,000 line of credit. In addition, in August 2005,
we issued Series B warrants to purchase 641,059 shares of common stock to two
directors and a stockholder of the Company to increase the associated line of
credit. The total number of warrants issued in exchange for the
guarantee of debt was 1,737,550. Under the Black-Scholes Merton value
method, the warrants were valued at $376,646 as of the dates of the grants using
the fair value method. The exercise price of these warrants ranges
from $0.40 - $0.49. These deferred debt issuance costs were amortized
to expense over the life of the guarantee.
The
Company also issued warrants to purchase up to 159,952 shares of common stock
with an exercise price of $5.50, in connection with the Private Placement
financing completed in March of 2006, to Laidlaw as part of their compensation
for the financing. The warrants were valued at $463,861 as of the
date of the grant using the Black-Scholes Merton fair value method.
On July
2, 2007, the Company announced that it had signed an Ancillary Care Services
Network Access Agreement (the “Ancillary Care Services Agreement”) effective as
of May 21, 2007 (the “Effective Date”) with a new customer, Texas True Choice,
Inc. (“Texas True Choice”), a Texas-based preferred provider organization
network, and certain subsidiaries of Texas True Choice. As partial compensation
to Texas True Choice under the Ancillary Care Services Agreement, the Company
issued to Corporate Health Plans of America, Inc., an affiliate of Texas True
Choice, warrants to purchase a total of 225,000 shares of the Company’s common
stock at an exercise price of $1.84, the closing price of the common stock of
the Company as reported on the American Stock Exchange on the Effective Date.
The Company is valuing the warrants when a measurement dates is reached which is
based on the cancellation notice that is required under the
agreement. Utilizing the Black-Scholes Merton valuation method,
112,500 warrants were valued at $0.94 in May 2007, 56,250 warrants were valued
at $2.87 at June 2008 and the remaining 56,250 will be valued in June
2009.
A summary
of stock warrant activity is as follows:
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2006
|
|
1,897,502
|
|
|
$0.88
|
|
|
|
|
|
|
|
|
Warrants
granted during the year ended December 31, 2007
|
|
225,000
|
|
|
$1.84
|
|
|
|
|
|
|
|
|
Warrants
forfeited by holders during the year
|
|
|
|
|
|
|
ended
December 31, 2007
|
|
—
|
|
|
$ —
|
|
|
|
|
|
|
|
|
Warrants
exercised during the year ended December 31, 2007
|
|
—
|
|
|
$ —
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2007
|
|
2,122,502
|
|
|
$0.96
|
|
|
|
|
|
|
|
|
Warrants
granted during the year ended December 31, 2008
|
|
|
|
|
$ —
|
|
|
|
|
|
|
|
|
Warrants
forfeited by holders during the year
|
|
|
|
|
|
|
ended
December 31, 2008
|
|
|
|
|
$ —
|
|
|
|
|
|
|
|
|
Warrants
exercised during the year ended December 31, 2008
|
|
(56,857)
|
|
|
$5.06
|
|
|
|
|
|
|
|
|
Warrants
outstanding at December 31, 2008
|
|
2,065,645
|
|
|
$0.85
|
|
In
accordance with EITF 96-18, “Accounting for Equity Instruments That Are Issue to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services”, we recorded the value of warrants as deferred costs as they vest and
are amortizing over the related contract term. As of December 31,
2008 and 2007, the current and long-term portions of the costs were included as
Prepaid and Other Current Assets and Other Assets,
respectively. These warrants vested as to 25% of the shares on the
Effective Date, shall vest an additional 25% on each anniversary date of the
Effective Date, and have an expiration date of May 20, 2012. In the event of an
early termination of the Ancillary Care Services Agreement, the warrants
terminate with respect to all unvested shares at the time of such early
termination.
As of
December 31, 2008, there was approximately $150,000 of total unrecognized cost
related to non-vested warrants. Additional costs related to the
warrants will be valued at their respective measurement dates. These
warrants expire five years after issuance. The weighted average
remaining life of the warrants is 1.6 years.
Note
8. Significant Client Agreements
On
December 31, 2008, we entered into an amendment (the “Amendment”) to our
Provider Service Agreement with one of our significant clients.
The
purpose of the Amendment is, among other things, to facilitate and accelerate
the integration into the Company’s business model of one of the client’s
affiliates, adjust the administrative fees outlined in the previous amendment,
define and clarify the exclusivity and levels of cooperation contemplated by the
previous amendments, and extend the partnership between the Company and the
client and the duration of their Provider Service Agreement to December 31,
2012. Under a strategic contracting plan that the Amendment requires
the parties to develop, the Company will be the exclusive outsourced ancillary
contracting and network management provider for the client’s group health
clients and any third party administrators (TPAs).
As part
of the Amendment, the Company agreed to pay to the client $1,000,000 for costs
incurred in connection with the integration of and access to the Company’s
network by members of the affiliate’s network, including, but not limited to,
costs associated with salaries, benefits, and third party
contracts. The Amendment specifies that payment of such amount
will be made within 90 days of December 31, 2008. The Company will
continue to pay a service fee to the client designed to reimburse and compensate
for the work that it is required to perform to support the Company’s
program. The Company has recognized the $1,000,000 fee as a prepaid
expense which will be amortized over the term of the agreement. At
December 31, 2008, $250,000 was classified as a current asset on the
consolidated balance sheet representing the amount to be amortized during the
subsequent twelve-month period. The remaining $750,000 balance was
classified as a long-term other asset at December 31, 2008.
Note
9. Employee Benefit Plans
Commencing
in 2008, we provide a defined contribution plan for our employees meeting
minimum service requirements. Employees can contribute up to 100% of
their current compensation to the plan subject to certain statutory
limitations. We contribute up to a maximum of 2% of an employee’s
compensation to the plan during 2008. In 2009, we increased the
contribution rate to a maximum of 3.5%. We made contributions to the
plan and charged operations approximately $39,000 during the year ended December
31, 2008.
Note
10. Restricted Stock Units
On March
10, 2009, certain employees of the Company were granted 82,419 restricted stock
units (“RSUs”). The RSUs vest monthly over a two-year period,
commencing April 10, 2009. The RSUs were valued at $7.02, which was
the closing market price of the Company’s common stock on March 10,
2009. The RSUs have an aggregate value of $578,581.The Company will
recognize the expense related to the RSUs ratably over the service
period.
The
allocation of the compensation expense to the service period is as
follows:
|
|
Total
Cost
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award
vesting ratably over 24-months
|
|
$
|
578,581
|
|
|
$
|
216,968
|
|
|
$
|
289,291
|
|
|
$
|
72,322
|
|
Note
11. Quarterly Financial Information (unaudited)
The
following table (presented in thousands except per share amounts) contains
selected financial information from unaudited statements of operations for each
quarter of 2008 and 2007.
|
|
Quarters
Ended
|
|
|
2008
|
|
2007
|
|
|
Dec.
31
|
|
Sept.
30
|
|
June
30
|
|
Mar.
31
|
|
Dec.
31
|
|
Sept.
30
|
|
June
30
|
|
Mar.
31
|
Net
revenues
|
|
$
|
17,660
|
|
|
$
|
16,111
|
|
|
$
|
13,012
|
|
|
$
|
11,506
|
|
|
$
|
10,125
|
|
|
$
|
7,088
|
|
|
$
|
4,008
|
|
|
$
|
2,267
|
|
Contribution
margin
|
|
|
2,873
|
|
|
|
2,556
|
|
|
|
1,902
|
|
|
|
1,705
|
|
|
|
1,194
|
|
|
|
997
|
|
|
|
530
|
|
|
|
165
|
|
Income
(loss) before income taxes
|
|
|
1,498
|
|
|
|
1,028
|
|
|
|
640
|
|
|
|
538
|
|
|
|
86
|
|
|
|
188
|
|
|
|
(716
|
)
|
|
|
(611
|
)
|
Net
income (loss)
|
|
|
1,495
|
|
|
|
1,001
|
|
|
|
621
|
|
|
|
521
|
|
|
|
319
|
|
|
|
188
|
|
|
|
(716
|
)
|
|
|
(611
|
)
|
Earnings
(loss) per diluted share
|
|
|
0.08
|
|
|
|
0.06
|
|
|
|
0.04
|
|
|
|
0.03
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
(0.05
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing diluted earnings (loss) per share
|
|
|
18,208
|
|
|
|
18,045
|
|
|
|
17,435
|
|
|
|
17,225
|
|
|
|
17,253
|
|
|
|
16,889
|
|
|
|
14,493
|
|
|
|
14,487
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN CARESOURCE HOLDINGS,
INC.
|
|
|
|
|
|
By: /s/ David S.
Boone
|
|
March 31,
2009
|
David S. Boone
Chief Executive
Officer
Director
(Principal Executive
Officer)
|
|
Date
|
|
|
Pursuant to the requirements the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
By: /s/ Edward B.
Berger
|
|
March 31,
2009
|
Edward B.
Berger
Executive Chairman and
Director
|
|
Date
|
|
|
|
By: /s/ David S.
Boone
|
|
March 31,
2009
|
David S. Boone
Chief Executive
Officer
Director
(Principal Executive
Officer)
|
|
Date
|
|
|
|
By: /s/ Steven J.
Armond
|
|
March 31,
2009
|
Steven J.
Armond
Chief Financial
Officer
(Principal
Financial Officer)
|
|
Date
|
|
|
|
By: /s/ Matthew D.
Thompson
|
|
March 31,
2009
|
Matthew D.
Thompson
Controller, Principal Accounting
Officer
(Principal
Accounting Officer)
|
|
Date
|
|
|
|
By: /s/ Sam S.
Abbasi
|
|
March 31,
2009
|
Sam S. Abbasi
Director
|
|
Date
|
|
|
|
By: /s/ Kenneth S.
George
|
|
March 31,
2009
|
Kenneth S.
George
Director
|
|
Date
|
|
|
|
By: /s/ John N.
Hatsopoulos
|
|
March 31,
2009
|
John N.
Hatsopoulos
Director
|
|
Date
|
|
|
|
By: /s/ Derace L.
Schaffer
|
|
March 31,
2009
|
Derace L.
Schaffer
Director
|
|
Date
|
|
|
|
By: /s/ John
Pappajohn
|
|
March 31,
2009
|
John Pappajohn
Director
|
|
Date
|
|
|
|
By: /s/ John W.
Colloton
|
|
March 31,
2009
|
John W.
Colloton
Director
|
|
Date
|
EXHIBIT
INDEX
Exhibit #
|
Description of
Exhibits
|
|
|
3.1(1)
|
Certificate of Incorporation of
American CareSource Holdings, Inc.
|
|
|
3.2(1)
|
By-Laws
|
|
|
3.3(2)
|
Amendment to the Certificate of
Incorporation of American CareSource Holdings, Inc., dated May 25,
2005
|
|
|
3.4(2)
|
Amendment to the Certificate of
Incorporation of American CareSource Holdings, Inc., dated June 2,
2005
|
|
|
3.5(3)
|
Amendment to the Certificate of
Incorporation of American CareSource Holdings, Inc., dated November 14,
2005
|
|
|
3.6(4)
|
Certificate of Incorporation of
Ancillary Care Services – Group Health, Inc.
|
|
|
3.7(4)
|
Certificate of Incorporation of
Ancillary Care Services – Medicare, Inc.
|
|
|
3.8(4)
|
Certificate of Incorporation of
Ancillary Care Services – Worker’s Compensation,
Inc.
|
|
|
3.9(4)
|
Certificate of Incorporation of
Ancillary Care Services, Inc.
|
|
|
4.1(6)
|
Amended and Restated 2005 Stock
Option Plan
|
|
|
4.2(2)
|
Specimen Stock
Certificate
|
|
|
10.02(2)*
|
Employment Agreement dated May 1,
2005, between American CareSource Holdings, Inc. and David
Boone
|
|
|
10.03(7)*
|
Employment Agreement dated
September 1, 2006 between American CareSource Holdings, Inc. and Kurt
Fullmer
|
|
|
10.04(7)*
|
Employment Agreement dated
February 19, 2007 between American CareSource Holdings, Inc. and Maria
Baker
|
|
|
10.05(7)*
|
Employment Agreement dated
February 19, 2007 between American CareSource Holdings, Inc. and Jennifer
Boone
|
|
|
10.06(9)*
|
Employment Agreement dated October
12, 2007 between American CareSource Holdings, Inc. and Steven J.
Armond
|
|
|
10.07(8)*
|
Separation Agreement and General
Release dated July 12, 2007 between American CareSource Holdings, Inc. and
Wayne Schellhammer
|
|
|
10.08*
|
Employment Letter dated January
29, 2008 between American CareSource Holdings, Inc. and Cornelia
Outten
|
|
|
10.09*
|
Employment Letter dated March 6,
2008 between American CareSource Holdings, Inc. and Rost
Ginevich
|
10.10(4)
|
Form of Registration Rights
Agreement used in March 2006 private placement
|
|
|
10.11(4)
|
Form of Subscription Agreement
used in March 2006 private
placement
|
10.12(4)
|
Amended and Restated Stock
Purchase Warrant dated March 30, 2006 by and among American CareSource
Holdings, Inc. and John Pappajohn (amends Stock Purchase Warrant dated
January 27, 2005).
|
|
|
10.13(4)
|
Amended and Restated Stock
Purchase Warrant dated March 29, 2006 by and among American CareSource
Holdings, Inc. and Derace L. Schaffer (amends Stock Purchase Warrant dated
January 27, 2005).
|
|
|
10.14(4)
|
Amended and Restated Stock
Purchase Warrant dated March 29, 2006 by and among American CareSource
Holdings, Inc. and John Pappajohn (amends Stock Purchase Warrant dated
August 15, 2005).
|
|
|
10.15(4)
|
Amended and Restated Stock
Purchase Warrant dated March 29, 2006 by and among American CareSource
Holdings, Inc. and Derace L. Schaffer (amends Stock Purchase Warrant dated
August 15, 2005).
|
|
|
10.16(4)
|
Amended and Restated Stock
Purchase Warrant dated March 30, 2006 by and among American CareSource
Holdings, Inc. and Matthew P. Kinley (amends Stock Purchase Warrant dated
August 15, 2005).
|
|
|
10.17(5)
|
Lease dated June 14, 2006, between
American CareSource Holdings, Inc. and TR LBJ Campus Partners,
L.P.
|
|
|
10.18**
|
First Amendment to Office Lease,
dated December 1, 2008, between American CareSource Holdings, Inc. and TR
LBJ Campus Partners, L.P.
|
|
|
10.19**,
***
|
Provider Services Agreement, dated
as of August 1, 2002, by and among the Company, HealthSmart Holdings, Inc.
and HealthSmart Preferred Care II, L.P, and Amendment No. 1, 3 and 4
thereto, dated January 1, 2007, July 31, 2007 and December 20, 2008,
respectively.
|
|
|
10.20*, **
|
Employment Letter dated November
10, 2008 between American CareSource Holdings, Inc. and James
Robinson.
|
|
|
10.21**,***
|
Ancillary Care Services Network
Access Agreement, dated as of July 2, 2007, by and between the Company and
Texas True Choice, Inc. and its subsidiaries.
|
|
|
14.1(4)
|
Code of
Ethics
|
|
|
20.1(5)
|
Governance and Nominating
Committee Charter
|
|
|
20.2(5)
|
Audit Committee
Charter
|
|
|
20.3(5)
|
Compensation Committee
Charter
|
|
|
21.1
|
Subsidiaries
|
|
|
23.1
|
Consent of McGladrey & Pullen
LLP
|
|
|
31.1
|
Certification of the Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Certification of the Chief
Financial Officer and Chief Operating Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification pursuant to Section
906 of the Sarbanes-Oxley Act of
2002.
|
*
Designates a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report pursuant to Item 15(a)(3) of this
report.
** Filed herewith
***
Certain confidential portions of this exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 24b-2 of the Securities Exchange Act of
1934.
(1)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to Amendment No. 1 to the
Form SB-2 filed May 13, 2005 and incorporated herein
byreference.
|
(2)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to Amendment No. 5 to the
Form SB-2 filed August 12, 2005 and incorporated herein by
reference.
|
(3)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to Amendment No.
8 to the Form SB-2 filed November 18, 2005 and incorporated
herein by reference.
|
(4)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to the Form 10-KSB filed
March 31, 2006 and incorporated herein by
reference.
|
(5)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to the Form 10-QSB filed
August 11, 2006 and incorporated herein by
reference.
|
(6)
|
Previously filed with the
Securities and Exchange Commission as Exhibit A to Amendment No. 1 to the
Proxy Statement for the 2007 Annual Meeting of Stockholders filed May 1,
2007 and incorporated herein by
reference.
|
(7)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to the Form 10-QSB filed
May 15, 2007 and incorporated herein by
reference.
|
(8)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to the Form 8-K filed
July 17, 2007 and incorporated herein by
reference.
|
(9)
|
Previously filed with the
Securities and Exchange Commission as an exhibit to the Form 10-QSB filed
November 13, 2007 and incorporated herein by
reference.
|