Attached files
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8-K/A - 8-K/A - Healthcare Corp of America | v345380_8ka.htm |
EX-99.3 - EXHIBIT 99.3 - Healthcare Corp of America | v345380_ex99-3.htm |
EX-99.2 - EXHIBIT 99.2 - Healthcare Corp of America | v345380_ex99-2.htm |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES |
Index to Financial Statements |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-1 | |
Restated Consolidated Balance Sheet: | ||
December 31, 2011 and 2012 | F-2 | |
Restated Consolidated Statements of Operations: | ||
Year ended December 31, 2011 and 2012 | F-3 | |
Restated Consolidated Statement of Stockholders Equity | ||
December 31, 2011 and 2012 | F-4 | |
Restated Consolidated Statements of Cash Flows: | ||
Year ended December 31, 2011 and 2012 | F-5 | |
Restated Notes to Financial Statements: | ||
December 31, 2012 | F-6 |
THOMAS J. HARRIS
CERTIFIED PUBLIC ACCOUNTANT
3901 STONE WAY N., SUITE 202
SEATTLE, WA 98103
206.547.6050
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Healthcare Corporation of America & Subsidiaries
We have audited the accompanying balance sheets of Healthcare Corporation of America & Subsidiaries as of December 31, 2011(Restated) and December 31, 2012 (Restated) and the related restated statements of operations, stockholders’ equity and cash flows for each of the years ended December 31, 2012 (Restated), and December 31, 2011 (Restated). Healthcare Corporation of America & Subsidiaries management is responsible for these financial statements. 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. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Healthcare Corporation of America & Subsidiaries as of December 31, 2011(Restated) and 2012 (Restated), and the restated results of its operations and cash flows for the periods then ended in conformity with generally accepted accounting principles in the United States of America.
As discussed in Note 2 to the financial statements, the 2011 and 2012 financial statements have been restated to correct a misstatement.
/s/ Thomas J. Harris
Seattle, Washington
February 28, 2013
May 15, 2013 as to Note 2 and restatement
F-1 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES |
Consolidated Balance Sheet |
Audited |
Restated | Restated | |||||||
December 31, | December 31, | |||||||
2011 | 2012 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 3,354,385 | $ | 1,791,089 | ||||
Accounts receivable | 451,180 | 572,637 | ||||||
Rebates receivable | 1,323,474 | |||||||
Other receivable | 40,867 | |||||||
Inventory | 285,708 | 573,540 | ||||||
Prepaid Loan Fees | 488,229 | |||||||
Total current assets | 4,091,273 | 4,789,836 | ||||||
Property and equipment, net of accumulated depreciation, restated | 824,284 | 1,114,055 | ||||||
Other assets: | ||||||||
Security deposits | 66,131 | 66,131 | ||||||
Other | 33,488 | 58,743 | ||||||
99,619 | 124,874 | |||||||
Other Assets | ||||||||
Total Other Assets | — | |||||||
Total assets | $ | 5,015,176 | $ | 6,028,765 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accrued Compensation | $ | — | ||||||
Accounts payable | $ | 6,301,691 | $ | 4,520,223 | ||||
Accrued expenses | 207,100 | 453,057 | ||||||
Accrued taxes payable | 6,391 | 11,071 | ||||||
Note payable | 4,947,613 | |||||||
Reedemable preferred stock | 458,800 | |||||||
Warrant liability | 518,587 | |||||||
Current portion of long term debt | 78,800 | 137,703 | ||||||
Total current liabilities | 6,593,982 | 11,047,054 | ||||||
Long-term liabilities: | ||||||||
Convertible Notes Payable | — | |||||||
Total long-term liabilities | — | |||||||
Total current liabilities | 6,593,982 | 11,047,054 | ||||||
Long term liabilities: | ||||||||
Deferred rent | 48,296 | 64,133 | ||||||
Leases payable | 439,953 | 399,382 | ||||||
Total long term liabilities | 488,249 | 463,515 | ||||||
Total Liabilities | 7,082,231 | 11,510,569 | ||||||
STOCKHOLDERS' DEFICIT | ||||||||
Common stock, no par value, 50,000,000 authorized, | ||||||||
37,879,809 and 40,000,009 shares issued and outstanding | 3,525,294 | 3,556,056 | ||||||
Stock redemption | (100,000 | ) | ||||||
Accumulated deficit, restated | (5,592,349 | ) | (8,937,860 | ) | ||||
Total stockholders' equity | (2,067,055 | ) | (5,481,804 | ) | ||||
Total liabilities and stockholders equity | $ | 5,015,176 | $ | 6,028,765 |
The accompanying notes are an integral part of these statements.
F-2 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES |
Consolidated Statement of Operations |
Audited |
Restated | Restated | |||||||
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2011 | 2012 | |||||||
Sales | $ | 24,928,065 | $ | 28,663,284 | ||||
Cost of Sales | 23,919,518 | 24,068,906 | ||||||
Gross Profit | 1,008,547 | 4,594,378 | ||||||
General and administrative expenses: | ||||||||
Wages and taxes | 1,795,693 | 3,166,830 | ||||||
Commissions | 376,566 | 1,286,842 | ||||||
Advertising and marketing | 12,196 | 78,466 | ||||||
Legal and professional | 123,395 | 467,246 | ||||||
Computer and internet | 35,735 | 13,649 | ||||||
Travel and entertainment | 47,347 | 153,384 | ||||||
Insurance | 105,104 | 626,456 | ||||||
Office and postage | 55,721 | 184,365 | ||||||
Rent | 217,499 | 182,455 | ||||||
Depreciation and amortization | 64,236 | 205,997 | ||||||
Bad debts | 1,931,310 | 695,833 | ||||||
Other office and miscellaneous | 116,462 | 238,080 | ||||||
Total operating expenses | 4,881,264 | 7,299,603 | ||||||
Income/(Loss) from operations | (3,872,717 | ) | (2,705,225 | ) | ||||
Other income (expense): | ||||||||
Interest income | 1,017 | |||||||
Interest (expense) | (8,274 | ) | (634,319 | ) | ||||
Other (expense) | (6,984 | ) | ||||||
Income/(Loss) before taxes | (3,880,991 | ) | (3,345,511 | ) | ||||
Provision/(credit) for taxes on income | - | - | ||||||
Net Income/(loss) | $ | (3,880,991 | ) | $ | (3,345,511 | ) | ||
Basic earnings/(loss) per common share | $ | (0.10 | ) | $ | (0.09 | ) | ||
Weighted average number of shares outstanding | 37,879,809 | 38,939,909 |
The accompanying notes are an integral part of these statements.
F-3 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES |
Consolidated Statement of Stockholders' Deficit |
Audited |
Common stock | Stock | Accumulated | ||||||||||||||||||
Shares | Amount | Redemption | Deficit | Totals | ||||||||||||||||
Balance, December 31, 2010 (audited), restated | 21,878,450 | $ | 1,529,060 | $ | (1,711,358 | ) | $ | (182,298 | ) | |||||||||||
Stock-based compensation | 10,469,109 | 410,529 | 410,529 | |||||||||||||||||
Common stock cancelled | (1,392,000 | ) | (57,500 | ) | (57,500 | ) | ||||||||||||||
Common stock issued | 6,924,250 | 1,643,205 | 1,643,205 | |||||||||||||||||
Net (loss) for the period | (3,880,991 | ) | (3,880,991 | ) | ||||||||||||||||
Balance, December 31, 2011 (audited), restated | 37,879,809 | 3,525,294 | (5,592,349 | ) | (2,067,055 | ) | ||||||||||||||
Common and preferred shares issued | 2,120,200 | 30,762 | 30,762 | |||||||||||||||||
Stock redemption | (100,000 | ) | (100,000 | ) | ||||||||||||||||
Net (loss) for the period | (3,345,511 | ) | (3,345,511 | ) | ||||||||||||||||
Balance, December 31, 2012 (audited), restated | 40,000,009 | $ | 3,556,056 | $ | (100,000 | ) | $ | (8,937,860 | ) | $ | (5,481,804 | ) |
The accompanying notes are an integral part of these statements.
F-4 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES |
Consolidated Statement of Cash Flows |
Audited |
Restated | Restated | |||||||
December 31, | December 31, | |||||||
2011 | 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (3,880,991 | ) | $ | (3,345,511 | ) | ||
Adjustments to reconcile net (loss) to cash | ||||||||
provided (used) by operating activities: | ||||||||
Common stock issued for services | 410,529 | |||||||
Depreciation and amortization, restated | 64,236 | 205,997 | ||||||
Change in current assets and liabilities: | ||||||||
Accounts receivable | (439,069 | ) | (121,457 | ) | ||||
Rebates | (1,323,474 | ) | ||||||
Other receivables | (40,867 | ) | ||||||
Inventory | (284,419 | ) | (287,832 | ) | ||||
Prepaid expenses and other current assets | (45,349 | ) | (513,484 | ) | ||||
Other assets | ||||||||
Accounts payable and accrued expenses | 5,915,286 | (1,530,823 | ) | |||||
Deferred rent, restated | 56,402 | 16,478 | ||||||
Net cash flows from operating activities | 1,796,625 | (6,940,973 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assets, restated | (880,761 | ) | (495,768 | ) | ||||
Net cash flows from investing activities | (880,761 | ) | (495,768 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock | 1,643,205 | 30,762 | ||||||
Proceeds from notes payable | 4,947,613 | |||||||
Redeemable preferred stock | 458,800 | |||||||
Warrants issued | 518,587 | |||||||
Redemption of common stock | (57,500 | ) | (100,000 | ) | ||||
Proceeds/(payments) from capital leases, restated | 510,647 | 17,683 | ||||||
Net cash flows from financing activities | 2,096,352 | 5,873,445 | ||||||
Net cash flows | 3,012,216 | (1,563,296 | ) | |||||
Cash and equivalents, beginning of period | 342,169 | 3,354,385 | ||||||
Cash and equivalents, end of period | $ | 3,354,385 | $ | 1,791,089 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR: | ||||||||
Interest | $ | (8,274 | ) | $ | (231,262 | ) | ||
Income taxes | $ | - |
The accompanying notes are an integral part of these statements.
F-5 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
Note 1 - Summary of Significant Accounting Policies
General Organization and Business
Healthcare Corporation of America (“HCCA”) and its subsidiaries, are New Jersey Corporations. The consolidated companies are primarily engaged in the health benefits industry which provides benefit management services and mail order pharmacy fulfillment. The subsidiaries are Prescription Corporation of America Benefits (“PCB”) and Prescription Corporation of America (“PCA”). HCCA was incorporated on February 26, 2008, PCB was incorporated on October 7, 2010, and PCA was incorporated on January 11, 2008.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Changes in classification of 2011 amounts have been made to conform to current presentations.
Basis of consolidated
The consolidated financial statements include the accounts of HCCA and its wholly-owned subsidiaries PCA and PCB, (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be cash equivalents. For cash management purposes, the Company concentrates its cash holdings in multiple checking accounts at Chase Bank. The balances in these accounts may exceed the federally insured limit of $250,000 by the Federal Deposit Insurance Corporation in case of bank failure. At December 31, 2012, the Company had $1,040,836 in excess of the insurance limit at this bank.
Property and Equipment
The Company values its investment in property and equipment at cost less accumulated depreciation. Depreciation is computed primarily by the straight line method over the estimated useful lives of the assets ranging from five to thirty-nine years.
Inventory
Inventory is recorded at lower of cost or market; cost is computed on a first-in first-out basis. The inventory consists of finished goods. Inventory at year end was $573,540.
F-6 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
Accounts receivable
Trade receivables are carried at original invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method. Management determines uncollectible accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions and by using historical experience applied to an aging of accounts. Recoveries of trade receivables previously written off are recorded when received.
Revenue recognition
Benefit management services revenues are recognized over the period in which members are entitled to receive benefits. Mail order pharmacy fulfillment sales consist of amounts due from third party payors and member copayment.
Rebates received from the pharmaceutical manufacturers are recorded as reduction of cost of revenues and the portion of the rebate payable to customers is treated as reduction of revenue.
Stock-based compensation
The Company accounts for equity awards based on the fair value of the common stock at the date of issue. Expense is recognized upon vesting.
Fair value of financial instruments and derivative financial instruments
We have adopted Accounting Standards Codification regarding Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. The carrying amounts of cash, accounts payable, accrued expenses, and other current liabilities approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of foreign exchange, commodity price or interest rate market risks.
Federal income taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with Accounting Standards Codification regarding Accounting for Income Taxes, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred taxes are provided for the estimated future tax effects attributable to temporary differences and carryforwards when realization is more likely than not.
Net Income Per Share of Common Stock
We have adopted Accounting Standards Codification regarding Earnings per Share, which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. We do not compute fully diluted earnings per share because they are antidilutive.
F-7 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
Internal Website Development Costs
Under ASC350-50, Website Development Costs, costs and expenses incurred during the planning and operating stages of the Company's website are expensed as incurred. Under ASC 350-50, costs incurred in the website application and infrastructure development stages are capitalized by the Company and amortized to expense over the website's estimated useful life or period of benefit.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated. During 2012, the Company incurred $689,264 in offering costs which were capitalized and amortized over the life of the loan.
Common Stock Registration Expenses
The Company considers incremental costs and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
Risk Concentration
The Company grants unsecured credit to its customers. The Company continuously monitors the payment performance of its customers to ensure collections and minimize losses. Management does not believe that significant credit risks exist at December 31, 2012. Management has determined that an allowance for doubtful accounts is not necessary at December 31, 2012 since no losses have been incurred to date.
Advertising
The Company expenses all costs of advertising as incurred. The advertising costs included in general and administrative expenses for the year ended December 31, 2011 and 2012 were $12,196 and $78,466, respectively
Note 2 – Restatement
The financial statements have been revised to correct an error in accounting for the Company’s sales, accounts receivable, cost of sales, accounts payable, capital leases, accrued rent and accrued taxes. In accordance with U.S. GAAP, the Company calculated and recognized adjustments accordingly.
F-8 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
The following table represents the effects of the restated statements as of December 31, 2011 and 2012.
Restated | Original | Restated | Original | |||||||||||||
12/31/2011 | 12/31/2011 | 12/31/2012 | 12/31/2012 | |||||||||||||
Accounts receivable | $ | - | $ | 572,637 | $ | 1,220,065 | ||||||||||
Rebates Receivable | $ | - | $ | - | $ | 1,323,474 | $ | 1,638,000 | ||||||||
Property and Equipment, net | $ | 824,284 | $ | 338,631 | $ | - | $ | - | ||||||||
Accounts payable | $ | 6,301,691 | $ | 2,559,592 | $ | 4,520,223 | $ | 1,514,857 | ||||||||
Leases payable | $ | 510,647 | $ | - | $ | - | $ | - | ||||||||
Deferred rent | $ | 56,402 | $ | - | $ | - | $ | - | ||||||||
Accrued taxes | $ | 6,391 | $ | - | $ | - | $ | - | ||||||||
Sales | $ | 24,928,065 | $ | 28,226,088 | $ | 28,663,284 | $ | 38,401,140 | ||||||||
Cost of Sales | $ | 23,919,518 | $ | 25,406,749 | $ | 24,068,906 | $ | 31,650,232 | ||||||||
General and Administrative expenses | $ | 4,881,266 | $ | 2,876,835 | $ | - | $ | - | ||||||||
Accumulated deficit | $ | (5,592,349 | ) | $ | (1,762,462 | ) | $ | (8,937,860 | ) | $ | (4,970,540 | ) |
Note 3 – Commitments and Contingencies
Operating leases:
The Company leases office space in Denville, New Jersey and office equipment. The office lease requires the following minimum rental payments:
Minimum Rental Payments | ||||
Premise | ||||
2013 | $ | 202,140 | ||
2014 | 212,888 | |||
2015 | 207,733 | |||
2016 | 219,270 | |||
2017 | 36,630 | |||
Thereafter | - | |||
$ | 878,661 |
Rent expense for the period ended December 31, 2011 and 2012 was $217,499 and $182,455.
F-9 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
The Company also has a deferred rental agreement with their landlord. The Company has recorded deferred rent at December 31, 2011 of $56,402 and $72,888 on December 31, 2012. The deferral amortizes over the life of the lease that expires in February 2017.
Note 4 – Employment Agreements
In 2012, the Company entered into employment agreements with four of its senior officers. The agreements specify an aggregate guaranteed salaries of $930,000 each year of employment. The agreements allow the Company to terminate these individuals for cause. At December 31, 2012 the Company has four remaining agreements.
Note 5 – Litigation
During 2012, the Company filed suit against its past adjudicator of claims for overcharges, over payment on claims, errors and misclassifications, and rebates owed from drug manufacturers for over $5 million. The Company’s General Counsel has advised management that the outcome of this lawsuit is undeterminable, and as a result, the Company has not recorded any receivable and will record any revenue when and if received. The adjudicator of claims filed a counterclaim in the amount of $2.9 million for amounts it claims are owed to it by the Company
On August 14, 2012, the Company entered into a settlement with a shareholder to buy back 500,000 shares of common stock for $100,000. The settlement also called for the Company to pay $50,000 to the shareholder to settle claims against the company . As of December 31, 2012, the Company had not received the 500,000 shares of common stock but had paid the settlement. The Company received these shares in February 2013. A stock redemption was recorded on December 31, 2012 in the amount of $100,000.
Note 6 - Common Stock
During 2011, the Company issued 10,469,109 shares of common stock with a fair value range of $0.03 to $0.31 to its full-time employees and consultants in recognition of their efforts to assist and develop the Company. Stock-based compensation costs amounted to $410,529. These shares vested immediately and are freely tradable.
During 2012, the Company issued 2,120,200 shares of common stock with a fair value range of $0.01 to $0.31. These shares are freely tradable.
During 2012, the Company settled a suit with a shareholder to repurchase 500,000 shares of its common stock. These shares were recorded as a stock redemption for $100,000 and the shares were received in February 2013.
F-10 |
Note 7 – Property and Equipment
The Company values its investment in property and equipment at cost less accumulated depreciation.
Following is a detailed break-out of the Company’s property and equipment:
2011 | 2012 | |||||||
Furniture and fixtures | $ | 883,195 | $ | 1,374,126 | ||||
Leasehold improvements | 5,325 | 10,162 | ||||||
888,520 | 1,384,288 | |||||||
Accumulated depreciation | (64,236 | ) | (270,233 | ) | ||||
Net property and equipment | $ | 824,284 | $ | 1,114,055 |
The Company recorded depreciation expense of $64,236 and $205,997 for the years ended December 31, 2011 and 2012, respectively.
F-11 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
Note 8 – Long Term Debt – Leases
Long-term debt at December 31, 2012 is summarized as follows:
Due within | Due after | Total | ||||||||||
One year | One Year | 12/31/2012 | ||||||||||
Note payable in monthly installments | ||||||||||||
of $2,140 including 8% interest, secured | ||||||||||||
by equipment | $ | 22,416 | $ | 123,592 | $ | 146,008 | ||||||
Note payable in monthly installments | ||||||||||||
of $1,712 including 8% interest, secured | ||||||||||||
by equipment | 17,932 | 137,370 | 155,302 | |||||||||
Note payable in monthly installments | ||||||||||||
of $1,117 including 12% interest, secured | ||||||||||||
by equipment | 8,952 | 32,049 | 41,001 | |||||||||
Note payable in monthly installments | ||||||||||||
of $1,764 including 12% interest, secured | ||||||||||||
by equipment | 17,939 | 16,694 | 34,633 | |||||||||
Note payable in monthly installments | ||||||||||||
of $1,672 including 12% interest, secured | ||||||||||||
by equipment | 17,008 | 15,828 | 32,836 | |||||||||
Note payable in monthly installments | ||||||||||||
of $764 including 7% interest, secured | ||||||||||||
by equipment | 7,757 | 15,715 | 23,472 | |||||||||
Note payable in monthly installments | ||||||||||||
of $1,383 including 6.2% interest, secured | ||||||||||||
by equipment | 15,089 | 16,053 | 31,142 | |||||||||
Note payable in monthly installments | ||||||||||||
of $212 including 7% interest, secured | ||||||||||||
by equipment | 2,169 | 4,182 | 6,351 | |||||||||
Note payable in monthly installments | ||||||||||||
of $1,159 including 6.9% interest, secured | ||||||||||||
by equipment | 11,869 | 22,853 | 34,722 | |||||||||
Note payable in monthly installments | ||||||||||||
of $763 including 6.9% interest, secured | ||||||||||||
by equipment | 7,818 | 15,046 | 22,864 | |||||||||
$ | 128,949 | $ | 399,382 | $ | 528,331 |
F-12 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
Future maturities of long term debt are as follows: | ||||
December 31, 2013 | $ | 123,819 | ||
December 31, 2014 | 85,531 | |||
December 31, 2015 | 46,700 | |||
December 31, 2016 | 68,810 | |||
December 31, 2017 | 74,522 | |||
$ | 399,382 |
Note 9 - Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 2011 and 2012, were as follows:
Year Ended December 31, | ||||||||
2011 | 2012 | |||||||
Current Tax Provision: | ||||||||
Federal- | ||||||||
Taxable income | $ | - | $ | - | ||||
Total current tax provision | $ | - | $ | - | ||||
Deferred Tax Provision: | ||||||||
Federal- | ||||||||
Loss carryforwards | $ | 1,319,537 | $ | 1,137,473 | ||||
Change in valuation allowance | (1,319,537 | ) | (1,137,473 | ) | ||||
Total deferred tax provision | $ | - | $ | - |
The Company had deferred income tax assets as of December 31, 2011, and 2012, as follows:
December 31, | ||||||||
2011 | 2012 | |||||||
Loss carryforwards | $ | 1,901,399 | $ | 3,038,872 | ||||
Less - Valuation allowance | (1,901,399 | ) | (3,038,872 | ) | ||||
Total net deferred tax assets | $ | - | $ | - |
The Company provided a valuation allowance equal to the deferred income tax assets for the years ended December 31, 2011, and 2012, because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
F-13 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
As of December 31, 2011, and 2012, the Company had approximately $5,592,349 and $8,937,859, respectively, in tax loss carryforwards that can be utilized in future periods to reduce taxable income, and will begin to expire in the year 2035.
Note 10 – Note Payable and Preferred Stock
On September 19, 2012, the Company entered into a bridge loan agreement that created debt of $5,925,000, which is shown on the Balance Sheet as Note Payable of $5,466,200, Warrant Liability of $518,587 and Redeemable Preferred Stock of $458,800. Additionally, warrants were attached to the note payable allowing the holders to purchase 296,250 shares of common stock of Selway Capital Acquisition Corporation (“Selway”). The warrants have a strike price of $15 per share and have a life of 4 years. The Company has valued these warrants at $1.7505 using the Black Scholes pricing method.
In the event that the merger does not take place the preferred stock is valued at zero or convertible to 3.7% of the outstanding common shares of HCA stock. As of December 31, 2012, there were 40,000,009 outstanding shares, 3.7% of which would be 1,480,000 shares. The last recorded transaction for sales of HCA common stock was in June 2012 at $0.31 per share. Due to a lack of marketability and liquidity, The Company has determined this to be a conservative value for the Redeemable Preferred Stock.
The Company incurred $689,264 in offering related costs which are being amortized over the life of the loan. The note payable will be converted into 592,500 of merging company common shares as part of the merger agreement dated January 25, 2013.
Note 11 – Prior Period Adjustment
During 2011, management determined that an error had been made in prior year consolidated financial statements. The Company recorded the issuance of common stock of 2,900,000 shares in 2011 erroneously. This error resulted in the understatement of common stock by $100,000 on the December 31, 2010 financials. The Company also adjusted the fair market value of shares issued to full-time employees and outside consultants in December 2010. This error resulted in an overstatement of common stock of $206,080. The net adjustment to correct the consolidated financial statements amounted to $106,080.
These adjustments corrected net loss for the year ended December 31, 2010 to $912,449 from $1,012,137.
Note 12 – Subsequent Events
On January 25, 2013, the Company signed a definitive merger agreement to merge the Company with and into Selway. Pursuant to the agreement, Selway agreed to acquire all of the issued and outstanding securities in exchange for 5,200,000 shares of stock and 1,185,000 shares in exchange for the outstanding preferred stock and note payable. On April 10, 2013, the transactions contemplated by the agreement closed.
The contract also has an earn out component that requires the Company to achieve certain financial goals. The determination shall be based on the combined company’s audited financial statements.
1. | 1.4 million shares shall be issued if the combined company achieves consolidated revenue of at least $150 million for the 12 month period ending June 30, 2014. |
2. | 1.4 million shares shall be issued based if the combined company achieves consolidated revenue of at least $300 million for the 12 month period ending June 30, 2015. |
a. | Should #1 not be achieved but #2 is achieved, the full 2.8 million shares will be issued. |
3. | Cash Flow Note: Shareholders of record of HCCA prior to the merger shall receive a $10 million note from the company with the following provision. 25% of all free cash flow after the first $2 million of free cash flow based on audited financials will be distributed to those shareholders. The note has no expiration date. |
F-14 |
HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
RESTATED NOTES TO FINANCIAL STATEMENTS
December 31, 2012
4. | In the case of a sale of the combined company at a price per share of at least $15 per share, all shares will be issued immediately prior to the closing and the remaining balance due on the cash flow note will be paid immediately. |
The foregoing targets are to be met on an all-or-nothing basis, and there shall be no partial awards.
In addition, at the time of the merger certain members of HCCA’s management received an aggregate of 1,500,000 shares of Selway common stock, which shares were fully vested but placed in escrow to be released in three equal installments of 500,000 shares on each September 30, 2013, June 30, 2014 and June 30, 2015. HCCA expects to record a one-time expense reflecting the estimated market value of these shares at the time of the merger.
F-15 |