UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934.
For the
quarterly period ended March 31, 2009
OR
o
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission
File Number 1-33094
AMERICAN
CARESOURCE HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
|
20-0428568
|
(State
or other jurisdiction of
|
|
(I.R.S.
employer
|
incorporation
or organization)
|
|
identification
no.)
|
5429
LYNDON B. JOHNSON FREEWAY
SUITE
850
DALLAS,
TEXAS
75240
(Address
of principal executive offices)
(Zip
code)
(972)
308-6830
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the
preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
o
|
|
|
Non-accelerated
filer
o
(do not
check if a smaller reporting company)
|
|
Smaller
Reporting Company
x
|
Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.) Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
The
number of shares of common stock of registrant outstanding on May 4, 2009 was
15,421,305.
TABLE OF
CONTENTS
AMERICAN
CARESOURCE HOLDINGS, INC.
FORM
10-Q
FOR THE
QUARTER ENDED MARCH 31, 2009
Part
I
|
Financial
Information
|
1
|
Item
1.
|
Financial
Statements
|
1
|
|
Consolidated
Statements of Operations (unaudited)
|
1
|
|
Consolidated
Balance Sheets (unaudited)
|
2
|
|
Consolidated
Statements of Stockholders’ Equity (unaudited)
|
3
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
4
|
|
Notes
to Unaudited Consolidated Financial Statements
|
5
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
10
|
Item
4.
|
Evaluation
of Disclosure Controls and Procedures
|
15
|
Part
II
|
Other
Information
|
16
|
Item
1A.
|
Risk
Factors
|
16
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
16
|
Item
6.
|
Exhibits
|
16
|
Signatures
|
|
17
|
PART
I. FINANCIAL INFORMATION
ITEM 1.
Financial Statements
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(Unaudited)
|
|
|
|
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
16,055,649
|
|
|
$
|
11,505,675
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
Provider
payments
|
|
|
11,935,835
|
|
|
|
8,390,610
|
|
Administrative
fees
|
|
|
815,526
|
|
|
|
701,676
|
|
Fixed
costs
|
|
|
1,004,573
|
|
|
|
708,835
|
|
Total
cost of revenues
|
|
|
13,755,934
|
|
|
|
9,801,121
|
|
Contribution
margin
|
|
|
2,299,715
|
|
|
|
1,704,554
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,900,678
|
|
|
|
1,112,854
|
|
Depreciation
and amortization
|
|
|
112,797
|
|
|
|
92,067
|
|
Total
operating expenses
|
|
|
2,013,475
|
|
|
|
1,204,921
|
|
Operating
income
|
|
|
286,240
|
|
|
|
499,633
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
40,962
|
|
|
|
40,668
|
|
Interest
expense
|
|
|
(312
|
)
|
|
|
(1,838
|
)
|
Other
expense
|
|
|
(24,482
|
)
|
|
|
-
|
|
Total
other income, net
|
|
|
16,168
|
|
|
|
38,830
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
302,408
|
|
|
|
538,463
|
|
Income
tax provision
|
|
|
23,349
|
|
|
|
17,045
|
|
Net
income
|
|
$
|
279,059
|
|
|
$
|
521,418
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
15,418,433
|
|
|
|
14,880,266
|
|
Diluted
weighted average common shares
outstanding
|
|
|
18,287,409
|
|
|
|
17,255,201
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
December
31,
|
|
|
|
(Unaudited)
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,346,294
|
|
|
$
|
10,577,829
|
|
Accounts
receivable, net
|
|
|
6,173,110
|
|
|
|
5,788,457
|
|
Prepaid
expenses and other current assets
|
|
|
539,844
|
|
|
|
489,928
|
|
Deferred
income taxes
|
|
|
5,886
|
|
|
|
5,886
|
|
Total
current assets
|
|
|
17,065,134
|
|
|
|
16,862,100
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,119,527
|
|
|
|
915,224
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
243,959
|
|
|
|
243,959
|
|
Other
non-current assets
|
|
|
783,299
|
|
|
|
883,155
|
|
Intangible
assets, net
|
|
|
1,248,640
|
|
|
|
1,280,656
|
|
Goodwill
|
|
|
4,361,299
|
|
|
|
4,361,299
|
|
|
|
$
|
24,821,858
|
|
|
$
|
24,546,393
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Due
to service providers
|
|
$
|
5,796,503
|
|
|
$
|
5,964,392
|
|
Accounts
payable and accrued liabilities
|
|
|
2,942,368
|
|
|
|
3,100,839
|
|
Current
maturities of long-term debt
|
|
|
11,287
|
|
|
|
11,023
|
|
Total
current liabilities
|
|
|
8,750,158
|
|
|
|
9,076,254
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
374,174
|
|
|
|
-
|
|
Long-term
debt
|
|
|
127
|
|
|
|
3,053
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 1
0,000,000 shares authorized,
none
issued
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.01 par value; 40,000,000 shares authorized;
15,420,116 and 15,406,972 shares issued and outstanding in
2009
and 2008, respectively
|
|
|
154,201
|
|
|
|
154,069
|
|
Additional
paid-in capital
|
|
|
19,055,309
|
|
|
|
19,046,367
|
|
Accumulated
deficit
|
|
|
(3,512,111
|
)
|
|
|
(3,733,350
|
)
|
Total
shareholders' equity
|
|
|
15,697,399
|
|
|
|
15,467,086
|
|
|
|
$
|
24,821,858
|
|
|
$
|
24,546,393
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance
at December 31, 2008
|
|
|
15,406,972
|
|
|
$
|
154,069
|
|
|
$
|
19,046,367
|
|
|
$
|
(3,733,350
|
)
|
|
$
|
15,467,086
|
|
Cumulative
effect of change in accounting principle-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1, 2009 reclassification of embedded feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
equity-linked financial instrument to derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liability
|
|
|
-
|
|
|
|
-
|
|
|
|
(316,376
|
)
|
|
|
(57,820
|
)
|
|
|
(374,196
|
)
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
279,059
|
|
|
|
279,059
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
259,748
|
|
|
|
-
|
|
|
|
259,748
|
|
Issuance
of common stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
6,000
|
|
|
|
60
|
|
|
|
1,845
|
|
|
|
-
|
|
|
|
1,905
|
|
Issuance
of common stock upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock warrants
|
|
|
7,144
|
|
|
|
72
|
|
|
|
63,725
|
|
|
|
-
|
|
|
|
63,797
|
|
Balance
at March 31, 2009
|
|
|
15,420,116
|
|
|
$
|
154,201
|
|
|
$
|
19,055,309
|
|
|
$
|
(3,512,111
|
)
|
|
$
|
15,697,399
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
Three
months ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
279,059
|
|
|
$
|
521,418
|
|
Adjustments
to reconcile net income to net cash
provided by
operations:
|
|
|
|
|
|
|
|
|
Stock-based compensation
expense
|
|
|
259,748
|
|
|
|
157,525
|
|
Depreciation and
amortization
|
|
|
112,797
|
|
|
|
92,067
|
|
Other non-cash
charges
|
|
|
24,482
|
|
|
|
-
|
|
Amortization of long-term client
agreement
|
|
|
62,500
|
|
|
|
-
|
|
Client administration fee expense
related to warrants
|
|
|
28,011
|
|
|
|
13,228
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(384,653
|
)
|
|
|
402,624
|
|
Prepaid expenses and other
assets
|
|
|
(40,570
|
)
|
|
|
41,761
|
|
Accounts payable and accrued
liabilities
|
|
|
(119,179
|
)
|
|
|
(31,073
|
)
|
Due to service
providers
|
|
|
(167,889
|
)
|
|
|
365,611
|
|
Net cash provided by operating
activities
|
|
|
54,306
|
|
|
|
1,563,161
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Investment in
software development costs
|
|
|
(113,842
|
)
|
|
|
(28,084
|
)
|
Additions to property
and equipment
|
|
|
(171,242
|
)
|
|
|
(66,642
|
)
|
Net cash used in investing
activities
|
|
|
(285,084
|
)
|
|
|
(94,726
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term
debt
|
|
|
(2,662
|
)
|
|
|
(13,564
|
)
|
Proceeds from
exercise of stock options
|
|
|
1,905
|
|
|
|
129,725
|
|
Net cash provided by (used in)
financing activities
|
|
|
(757
|
)
|
|
|
116,161
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(231,535
|
)
|
|
|
1,584,596
|
|
Cash
and cash equivalents at beginning of period
|
|
|
10,577,829
|
|
|
|
4,272,498
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
10,346,294
|
|
|
$
|
5,857,094
|
|
American
CareSource Holdings, Inc.
Notes to
Condensed Financial Statements
(Unaudited)
(tables
in thousands, except per share data)
(1)
|
Description
of Business and Basis of
Presentation
|
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.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) interim reporting requirements of Form 10-Q and Rule 8-03
of Regulation S-X of the rules and regulations of the Securities and Exchange
Commission (“SEC”). Consequently, financial information and disclosures normally
included in financial statements prepared annually in accordance with GAAP have
been condensed or omitted. Balance sheet amounts are as of March 31,
2009 and December 31, 2008 and operating result amounts are for the three months
ended March 31, 2009 and 2008, and include all normal and recurring adjustments
that we consider necessary for the fair, summarized presentation of our
financial position and operating results. As these are condensed
financial statements, readers of this report should, therefore, refer to the
consolidated financial statements and the notes included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on
March 31, 2009.
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,
“Disclosures About Segments of an Enterprise and Related Information,” the
Company uses the “management approach” for reporting information about segments
in annual and interim financial statements. The management approach
is based on the way the chief operating decision-maker organizes segments within
a company for making operating decisions and assessing
performance. Reportable segments are based on products and services,
geography, legal structure, management structure and any other manner in which
management disaggregates a company. Based on the “management
approach” model, the Company has determined that its business is comprised of a
single operating segment.
Our
interim results of operations are not necessarily indicative of results of
operations that will be realized for the full fiscal year.
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. The Company does not have any
general inventory risk, as its business is not related to the manufacture,
purchase or delivery of goods and it does not purchase in advance any of the
services to be provided by the ancillary healthcare service providers. While the
absence of this risk would be one indicator in support of net revenue reporting,
as described in detail above, the Company has carefully evaluated all of the key
indicators detailed in EITF No. 99-19 and has concluded that its circumstances
are most consistent with those key indicators that support gross revenue
reporting.
If the
Company were to report its revenues net of provider payments rather than on a
gross reporting basis, for the three months ended March 31, 2009 and March 31,
2008, its net revenues would have been approximately $4.1 million and
approximately $3.1 million, respectively.
During
the three months ended March 31, 2009 and 2008,
two of
the Company
’s
customers
comprised
a significant portion of the Company’s
revenues. The following is a summary of the approximate amounts of
the Company’s revenue and accounts receivable contributed by each of those
customers as of the dates and for the periods presented:
|
|
As of March
31,
2009
|
|
|
Three
months ended
March 31, 2009
|
|
|
As
of March
31, 2008
|
|
|
Three
months ended
March 31, 2008
|
|
|
|
Accounts
|
|
|
|
|
|
%
of Total
|
|
|
Accounts
|
|
|
|
|
|
%
of Total
|
|
|
|
receivable
|
|
|
Revenue
|
|
|
Revenues
|
|
|
receivable
|
|
|
Revenue
|
|
|
Revenues
|
|
Customer
A
|
|
$
|
3,289
|
|
|
$
|
8,738
|
|
|
|
54
|
%
|
|
$
|
1,833
|
|
|
$
|
7,067
|
|
|
|
61
|
%
|
Customer
B
|
|
|
2,335
|
|
|
|
6,446
|
|
|
|
40
|
%
|
|
|
1,188
|
|
|
|
4,015
|
|
|
|
35
|
%
|
Others
|
|
|
549
|
|
|
|
872
|
|
|
|
6
|
%
|
|
|
228
|
|
|
|
424
|
|
|
|
4
|
%
|
|
|
$
|
6,173
|
|
|
$
|
16,056
|
|
|
|
100
|
%
|
|
$
|
3,249
|
|
|
$
|
11,506
|
|
|
|
100
|
%
|
(3)
|
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 re-price 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 periods presented:
|
|
|
|
|
|
|
|
|
Three months ended March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Beginning
balance
|
|
$
|
200
|
|
|
$
|
190
|
|
Provisions
for losses - accounts receivable
|
|
|
-
|
|
|
|
168
|
|
Deduction
for accounts charged off
|
|
|
(31
|
)
|
|
|
-
|
|
Ending
balance
|
|
$
|
169
|
|
|
$
|
358
|
|
The
following table details the reconciliation of basic earnings per share to
diluted earnings per share:
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
Net
income
|
|
$
|
279
|
|
|
$
|
521
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average
basic common shares outstanding
|
|
|
15,418
|
|
|
|
14,880
|
|
Assumed
conversion of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
1,051
|
|
|
|
860
|
|
Warrants
|
|
|
1,818
|
|
|
|
1,515
|
|
Potentially
dilutive common shares
|
|
|
2,869
|
|
|
|
2,375
|
|
Denominator
for diluted earnings
|
|
|
|
|
|
|
|
|
per
share - Adjusted weighted average shares
|
|
|
18,287
|
|
|
|
17,255
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
(5)
|
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 recognized the $1,000,000 fee as a prepaid
expense which is being amortized over the term of the
agreement. During the three months ended March 31, 2009, we recorded
amortization related to the agreement of $62,500. At March 31, 2009,
$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 $687,500 balance was classified as a long-term
other asset at March 31, 2009.
In June
2008, the Financial Accounting Standards Board (“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. 109,095 warrants issued by the Company contain a
strike price adjustment feature, which upon adoption of EITF 07-5, resulted in
the instruments no longer being considered indexed to the Company’s own
stock. Accordingly, adoption of EITF 07-5 changed the current
classification (from equity to liability) and the related accounting for these
warrants outstanding as of January 1, 2009. As of that date, we
reclassified the warrants, based on a fair value of $3.43 per warrant, as
calculated using the Black–Scholes–Merton valuation
model. During the first quarter of 2009, the liability was
adjusted for warrants exercised and the change in fair value of the
warrants. In accordance with EITF 07-5, a liability of $374,174
related to the stock warrants is included in other liabilities in our
consolidated balance sheet as of March 31, 2009. During the three
months ended March 31, 2009, we recorded other expense of $24,482 related to the
change in fair value of the warrants.
(7)
|
Financial
Instruments
|
As a
result of the adoption of EITF 07-5, the Company is required to disclose the
fair value measurements required by SFAS No. 157, “Fair Value Measurements.” The
other liabilities recorded at fair value in the balance sheet as of
March 31, 2009 are categorized based upon the level of judgment associated
with the inputs used to measure their fair value. Hierarchical levels, defined
by SFAS No. 157 are directly related to the amount of subjectivity associated
with the inputs to fair valuation of these liabilities are as
follows:
Level 1
—
|
Inputs
are unadjusted, quoted prices in active markets for identical assets or
liabilities at the measurement date;
|
|
|
Level 2
—
|
Inputs
other than Level 1 inputs that are either directly or indirectly
observable; and
|
|
|
Level
3 —
|
Unobservable
inputs, for which little or no market data exist, therefore requiring an
entity to develop its own
assumptions.
|
The
following table summarizes the financial liabilities measured at fair value on a
recurring basis as of March 31, 2009, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair
value:
|
|
|
|
|
|
Quoted
prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
active
markets for
|
|
|
Significant
other
|
|
|
Significant
|
|
|
|
|
|
|
|
identical
assets
|
|
|
observable
inputs
|
|
|
unobservable
inputs
|
|
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Other
liabilities
|
|
$
|
374
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
374
|
|
Equity-linked
financial instruments consist of stock warrants issued by the Company that
contain a strike price adjustment feature, as described in Note 6 in the Notes
to the Consolidated Financial Statements. In accordance with EITF
07-5, we calculated the fair value of the warrants using the
Black–Scholes–Merton valuation model. During the three months ended
March 31, 2009, we recognized approximately $24,000 of unrealized losses related
to the change in the fair value of the financial instruments. Those
unrealized losses were classified as Other Expense on the Statement of
Operations.
The
assumptions used in the Black-Scholes-Merton valuation model were as
follows:
|
|
January
1,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2009
|
|
Fair
value
|
|
$
|
3.43
|
|
|
$
|
3.64
|
|
Expected
volatility
|
|
|
73.4
|
%
|
|
|
6.9
|
%
|
Expected
life (years)
|
|
|
2.13
|
|
|
|
1.89
|
|
Risk
free interest rate
|
|
|
0.8
|
%
|
|
|
2.5
|
%
|
Forfeiture
rate
|
|
|
-
|
|
|
|
-
|
|
Dividend
rate
|
|
|
-
|
|
|
|
-
|
|
The
following table reflects the activity for liabilities measured at fair value
using Level 3 inputs for the three months ended March 31,
2009:
Initial
recognition of equity-linked financial instruments as of January 1,
2009
|
|
$
|
374
|
|
Transfers
into level 3
|
|
|
—
|
|
Transfers
out of level 3
|
|
|
—
|
|
Sales
of equity-linked financial instruments
|
|
|
24
|
|
Unrealized
losses related to the change in fair value
|
|
|
(24
|
)
|
Balance
as of March 31, 2009
|
|
$
|
374
|
|
FORWARD-LOOKING
STATEMENTS
This
discussion includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “intend”, “anticipate,”
“believe,” “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 the Company’s future opportunities, performance and results,
including, for example, information with respect to potential margin expansion,
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, including, but not limited to, risks of market acceptance of, or
preference for, the Company’s systems and services, competitive forces, the
impact of geopolitical events and changes in government regulations, general
economic conditions and economic factors in the country and the healthcare
industry, and other risk factors as may be listed from time to time in the
Company’s filings with the SEC. In evaluating such forward-looking statements,
investors should specifically consider the matters set forth under the caption
“Risk Factors” appearing in our Annual Report on Form 10-K for the year ended
December 31, 2008 which was filed with the SEC on March 31, 2009, as well as any
other cautionary language contained in this quarterly report, any of which could
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. Except to the extent required by
applicable securities laws and regulations, we disclaim any obligation to update
or revise information contained in any forward-looking statement contained
herein to reflect events or circumstances occurring after the date of this
quarterly report.
ITEM
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Management’s
discussion and analysis provides a review of the Company’s operating results for
the three months ended March 31, 2009 and its financial condition at March 31,
2009. The focus of this review is on the underlying business reasons for
significant changes and trends affecting the revenues, net income and financial
condition of the Company. This review should be read in conjunction with the
accompanying unaudited consolidated financial statements and the audited
consolidated financial statements and the notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2008.
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 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.
|
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 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
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.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of our
financial condition and results of operations
is
based upon our condensed financial
statements. These condensed financial statements have been prepared
following the requirements of accounting principles generally accepted in the
United States (“GAAP”) for interim periods and require us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition and amortization and potential
impairment of intangible assets and goodwill and stock-based compensation
expense. As these are condensed financial statements, one should also
read expanded information about our critical accounting policies and estimates
provided in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations
” under the heading
“Critical Accounting Policies
,” included in our
Annual Report on
Form 10-K for the year ended
December 31, 2008. There have been no material changes to our critical
accounting policies and estimates from the information provided in our
Form
10-K for the year ended December 31,
2008.
ANALYSIS
OF RESULTS OF OPERATIONS
The
following table sets forth a comparison of our revenues for the periods
presented ended March 31:
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2009
|
|
2008
|
|
$
|
|
%
|
Net
revenues
|
|
$
|
16,056
|
|
|
$
|
11,506
|
|
|
$
|
4,550
|
|
|
|
40
|
%
|
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 three months
ended March 31, 2009 as compared to the same period in 2008 is due to the
progression of our client relationships, which 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 ancillary service provider
network. Revenues generated from existing clients, i.e., those that
were already our clients in the first quarter of 2008, increased $3.7 million,
or 33%, in the first three months of 2009 compared to the same prior year
period. During 2008, we added seven new clients (one of which is an
affiliate of one of our two existing significant customers), which were
responsible for approximately $800,000 of incremental revenues in the first
quarter of 2009. In, addition, during the first quarter of 2009, the
number of billed claims increased by 46% compared to the first quarter of
2008. Existing clients accounted for 36% of the increase in billed
claims.
Conversely,
revenues were negatively impacted in the first quarter of
2009
compared to previous quarters due to the seasonal resetting of co-pays and
deductibles with typical health insurance plans as well as a broad based
reduction in healthcare spending due to the current economic
conditions.
The
Company will continue to seek growth in the number of client payor and service
provider relationships by focusing on providing in-network services for its
payors and aggressively pursuing additional PPOs, TPAs and other direct payors
as its primary sales target. The Company believes that this strategy should
increase the volume of claims the Company can process, as well as expand the
number of lives that are eligible to receive ancillary health care
benefits. No assurances can be given that the Company can expand its
service provider or payor relationships, nor that any such expansion will result
in an improvement in the results of operations of the Company.
Cost of Revenues and
Contribution Margin
The
following table sets forth a comparison of the components of our cost of
revenues, for the periods presented ending March 31:
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
|
|
|
|
($
in thousands)
|
|
2009
|
|
|
revenues
|
|
|
2008
|
|
|
revenues
|
|
|
$
|
|
|
%
|
Provider
payments
|
|
$
|
11,936
|
|
|
|
74
|
%
|
|
$
|
8,390
|
|
|
|
73
|
%
|
|
$
|
3,546
|
|
|
|
42
|
%
|
Administrative
fees
|
|
|
815
|
|
|
|
5
|
|
|
|
702
|
|
|
|
6
|
|
|
|
113
|
|
|
|
16
|
|
Fixed
costs
|
|
|
1,005
|
|
|
|
6
|
|
|
|
709
|
|
|
|
6
|
|
|
|
296
|
|
|
|
42
|
|
Total
cost of revenues
|
|
$
|
13,756
|
|
|
|
86
|
%
|
|
$
|
9,801
|
|
|
|
85
|
%
|
|
$
|
3,955
|
|
|
|
40
|
%
|
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 provider 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 the first quarter of 2009, cost of revenues
related to payments to providers increased as compared to the first quarter of
2008 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
74.3% during the first quarter of 2009 and 72.9% during the same period in
2008. The increase is due to a change in product mix and a shift in
revenue to clients that carry inherently lower margins on claims. The
increase in administrative fees was due to increased claim volume as a result of
expanded relationships with existing clients. Conversely, the
decrease in administrative fees as a percent of net revenues in the first
quarter of 2009 compared to the corresponding prior year period is due to a
shift in revenues to clients that carry lower contracted administrative fee
rates. Fixed costs increased due to increased salaries and benefits
related to headcount additions, primarily in our provider development and
information technology groups. Our provider development group is
responsible for developing our network of ancillary healthcare service
providers, which includes contracting with providers to be included in the
network, credentialing new service providers and maintaining a relationship with
existing providers, all for the purpose of enhancing our ancillary service
provider network offering to our client payors. In addition,
during 2008, we implemented an employee incentive plan and commenced matching
employee contributions to our defined contribution plan, we incurred
provider-specific marketing expenses related to the development of our network
and we incurred incremental rent expense related to additional lease space to
accommodate growth, all of which contributed to the increase in fixed costs in
the first quarter of 2009 compared to the corresponding quarter last
year.
The
following table sets forth a comparison of contribution margin percentage for
the periods presented ending March 31:
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
Change
|
|
|
2009
|
|
2008
|
|
%
pts
|
Contribution
margin percentage
|
|
|
14.3
|
%
|
|
|
14.8
|
%
|
|
|
(0.5
|
)
%
|
Contribution
margin percentage is calculated by dividing the difference between net revenues
and total cost of revenues by net revenues. The decline in
contribution margin percentage reflected in the above table is attributable
primarily to fluctuations in the mix of services provided by the
Company. Our contribution margin percentage fluctuates from quarter
to quarter due to changes in the prices we charge our client payors as compared
to the financial terms of our provider agreements, changes in fixed costs and
changes in the mix of services we provide. There can be no assurances that we
will be able to maintain contribution margin at current levels, either in
absolute or in percentage terms.
S
elling,
General and Administrative Expenses
The
following table sets forth a comparison of our selling, general and
administrative (“SG&A”) expenses for the periods presented ending March
31:
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
Change
|
($
in thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
%
|
Selling,
general and
|
|
$
|
1,901
|
|
|
$
|
1,113
|
|
|
$
|
788
|
|
|
|
71
|
%
|
administrative
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of total net revenues
|
|
|
11.8
|
%
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
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, reflected in the above table is
primarily related to increased headcount, primarily in our sales and marketing
and client development groups, increased costs related to the
implementation of an employee incentive plan and the commencement of matching
employee contributions to our defined contribution plan, increased stock-based
compensation expense, increased recruiting fees related to attracting and hiring
talented employees to facilitate the Company’s growth and the amortization of
the fees paid associated with the amendment to the contract with one of our
significant clients, as discussed in Note 5 in the Notes to the Consolidated
Financial Statements. In addition, during the first quarter 2009,
marketing expenses increased related to strategic marketing initiatives as
compared to the same prior year period.
SG&A
expenses as a percentage of net revenues increased over the prior year period as
a result of SG&A expenses growing more rapidly than our net revenues (71% as
compared to 40%), which is primarily the result of positioning the Company for
future growth, including in connection with the expenses identified in the
paragraph above.
Depreciation and
Amortization
The
following table sets forth a comparison of depreciation and amortization for the
periods presented ending March 31:
|
|
First
Quarter
|
|
|
Change
|
|
($
in thousands)
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Depreciation
|
|
$
|
81
|
|
|
$
|
39
|
|
|
$
|
42
|
|
|
|
108
|
%
|
Amortization
|
|
|
32
|
|
|
|
53
|
|
|
|
(21
|
)
|
|
|
(40
|
)
%
|
Total
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
$
|
113
|
|
|
$
|
92
|
|
|
$
|
21
|
|
|
|
23
|
%
|
Amortization
of intangibles consists of amortization of $32,000 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. The balance is being
amortized using the straight-line method over its expected useful life, which is
15 years for provider contracts. Amortization in the first quarter of
2008 included amortization of approximately $21,000 related to the value
assigned to software as part of the aforementioned transaction. The
balance became fully amortized as of December 31, 2008.
The
increase in depreciation expense is due to increased capital expenditures
(primarily internally developed software) during 2008 and early 2009 due to
growth and expansion.
For the
three months ended March 31, 2009 and 2008, a provision for income taxes of
$
23,349
and
$17,045
was recorded, respectively. The provision for the
aforementioned periods represents our estimated margin tax liability in the
State of Texas. Due to the existence of our net operating loss
carryforward, which was approximately $5.0 million at December 31, 2008, we have
no federal income tax liability for the three months ended March 31,
2009.
FINANCIAL
CONDITION AND LIQUIDITY
As of
March 31, 2009, the Company had a working capital surplus of $8.3 million
compared to $7.8 million at December 31, 2008. In addition, our cash
and cash equivalents balance decreased to $10.3 million as of March 31, 2009
compared to $10.6 million at December 31, 2008. The decrease in cash is
primarily related to the payment of 2008 performance bonus compensation during
the first quarter of 2009 and capital expenditures of approximately
$285,000.
For the
three months ended March 31, 2009, operating activities provided net cash of
approximately $54,000, the primary components of which were net income of
approximately $279,000, adjusted for non-cash charges of share-based
compensation expense of approximately $260,000, depreciation and amortization of
approximately $113,000 offset by a use of cash from net operation assets, and
amortization of the costs associated with the amendment to the contract with one
of our significant clients of $62,500, as well as, an increase in net operating
assets and liabilities of approximately $712,000, compared to the corresponding
prior year quarter. Net operating assets and liabilities increased
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 and payment of 2008
performance bonus compensation.
Investing
activities in the quarter ended March 31, 2009 were comprised of investments in
software development costs of approximately $114,000 and in property and
equipment of approximately $171,000. The software development costs
relate primarily to enhancements to our internal billing system, while the
increase in property and equipment relates primarily to investments in computer
equipment and leasehold improvements made to our expanded lease space to
accommodate continued growth and increased headcount.
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 $10.3 million as of March 31, 2009 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 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. However, as a result of the tightening in
the credit markets, low level of liquidity in many financial markets and extreme
volatility in fixed income, credit, currency and equity markets, there can be
assurances that, if necessary, we would be successful in obtaining sufficient
capital financing on commercially reasonable terms or at all.
INFLATION
Inflation
did not have a significant impact on the Company’s costs during the quarters
ended March 31, 2009 and March 31, 2008, 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 March 31, 2009 or
March 31, 2008 or for the periods then ended.
ITEM
4. Evaluation of Disclosure Controls and Procedures
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 March 31, 2009. 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 15d-15(e)
under the Securities Exchange Act of
1934, as
amended
) are effective to ensure that information required to the
disclosed by us in reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosures.
Changes in Internal Controls Over
Financial Reporting
. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer
,
has concluded that there were no changes in the
Company’s internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended
) since the last fiscal quarter
that have materially affected the Company’s internal controls over financial
reporting or are reasonably likely to materially affect internal controls over
financial reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II.
OTHER INFORMATION
ITEM
1A. Risk Factors
In
addition to the other information set forth in this report, one should carefully
consider the discussion of various risks and uncertainties contained in Part I,
“Item 1A. Risk Factors” in our 2008 Annual Report on Form 10-K. We
believe those risk factors are the most relevant to our business and could cause
our results to differ materially from the forward-looking statements made by
us. Please note, however, that those are not the only risk factors
facing us. Although the Company has not experienced a decline in its
operations as a result of the current 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 (with two customers accounting for in excess of 94% of our revenue
during the three months ended March 31, 2009) could have a corresponding adverse
effect on us. Additional risks that we do not consider material, or
of which we are not currently aware, may also have an adverse impact on
us. Our business, financial condition and results of operations could
be seriously harmed if any of these risks or uncertainties actually occur or
materialize. In that event, the market price for our common stock
could decline, and our shareholders may lose all or part of their
investment. During the three months ended March 31, 2009, there were
no material changes in the information regarding risk factors contained in our
Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM
2. Unregistered Sales of Equity Securities and Use of
Proceeds
On
January 20, 2009, the Company issued an aggregate of 7,144 shares of its common
stock in connection with an exercise by an accredited investor of restricted
warrants to purchase an aggregate of 7,144 shares for an aggregate exercise
price of $39,292, which has been received in December 2008.
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 public offerings of
securities and involved a sale made to an accredited investor.
ITEM 6. Exhibits
|
Exhibit
31.1
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
Exhibit
31.2
|
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Certifications
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
AMERICAN
CARESOURCE HOLDINGS, INC.
|
|
|
|
|
|
|
By:
|
/s/ David
S. Boone
|
|
|
|
David
S. Boone
|
|
|
|
President
and Chief Executive Officer (principal executive officer and an authorized
signatory)
|
|
|
By:
|
/s/ Steven
J. Armond
|
|
|
|
Steven
J. Armond
|
|
|
|
Chief
Financial Officer (principal financial officer and an authorized
signatory)
|
|
|
By:
|
/s/ Matthew
D. Thompson
|
|
|
|
Matthew
D. Thompson
|
|
|
|
Controller
(principal accounting officer and an authorized signatory)
|
|
Date: May
7, 2008