As filed with the Securities and Exchange Commission on February 6, 2015

Registration No. 333-    

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form S–1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

AMERICAN CARESOURCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		8090		20-0428568
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

1170 Peachtree Street, Suite 2350
Atlanta, Georgia 30309
(404) 465-1000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

 

Richard W. Turner
Chief Executive Officer
American CareSource Holdings, Inc.
1170 Peachtree Street, Suite 2350
Atlanta, Georgia 30309
(404) 465-1000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

B. G. Minisman, Jr., Esq. Lori B. Metrock, Esq. Baker, Donelson, Bearman, Caldwell & Berkowitz, PC 1400 Wells Fargo Tower 420 20th Street North Birmingham, AL 35203 (205) 328-0480		Adam S. Winger General Counsel, Vice President of Acquisitions American CareSource Holdings, Inc. 1170 Peachtree Street, Suite 2350 Atlanta, GA 30309		Yvan-Claude Pierre, Esq. Daniel I. Goldberg, Esq. Reed Smith LLP 599 Lexington Avenue New York, NY 10022 (212) 521-5400

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 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. (check one)

Large Accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company x

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered		Proposed Maximum Aggregate Offering Price(1)				Amount of Registration Fee(2)
Common Stock, par value $0.01 per share(3)		$	15,000,000			$	1,743

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

PRELIMINARY PROSPECTUS		SUBJECT TO COMPLETION		DATED FEBRUARY 6, 2015

     Shares
Common Stock

We are offering      shares of our common stock.

Our common stock is listed on The NASDAQ Capital Market under the symbol “ANCI.” On February 5, 2015, the last reported sale price of our common stock on The NASDAQ Capital Market was $3.39 per share.

Investing in our common stock involves significant risks. See “Risk Factors” on page 14 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

		Per Share				Total
Public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Offering proceeds to us, before expenses		$				$

We have granted a 45-day option to the representatives of the underwriters to purchase up to an additional     shares of common stock solely to cover over-allotments, if any.

The underwriters expect to deliver the shares against payment therefor on or about            .

Roth Capital Partners           Aegis Capital Corp

           , 2015

TABLE OF CONTENTS

		Page
PROSPECTUS SUMMARY			1
RISK FACTORS			14
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS			38
USE OF PROCEEDS			39
MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			40
DILUTION			42
CAPITALIZATION			43
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			44
BUSINESS			61
MANAGEMENT			80
EXECUTIVE COMPENSATION			85
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			95
PRINCIPAL STOCKHOLDERS			97
DESCRIPTION OF INDEBTEDNESS			99
DESCRIPTION OF CAPITAL STOCK			102
UNDERWRITING			107
LEGAL MATTERS			114
EXPERTS			114
WHERE YOU CAN FIND MORE INFORMATION			114
INDEX TO FINANCIAL STATEMENTS			F-1

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No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Industry and Market Data

Market data and other statistical information contained in this registration statement are based on independent industry publications, government publications, reports by market research firms, and other published independent sources. Some data are also based on our good faith estimates, which are derived from other relevant statistical information, as well as the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.

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RISK FACTORS

Any investment in our common stock involves significant risks. You should consider carefully the risks and uncertainties described below, together with the other information contained in this prospectus, before you decide whether to purchase our common stock. If any of the following risks or uncertainties actually occurs, our business, financial condition, results of operations and prospects would likely suffer, possibly materially. In addition, the trading price of our common stock could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.

General Risks

We have incurred losses in most of our years of operation, and we may never be profitable again.

With the exception of the years 2008, 2009 and 2010, we have incurred losses in each year of our existence. As of September 30, 2014, we had an accumulated deficit of approximately $19,300,000. The Company’s prospects in our ancillary network business must be considered in light of the numerous risks, expenses, delays and difficulties frequently encountered in an industry characterized by intense competition, as well as the risks inherent in our new management arrangement with HealthSmart. No assurances can be given that the current operating volumes in our ancillary network business will not continue to decline in the future. Our continuing losses will also continue to reduce our available cash. We have recently changed our business strategy and are focusing on developing and operating an urgent and primary care business. No assurances can be given that we will be successful in this effort and that it will not cause us to incur additional losses. If we are unable to reduce or eliminate the losses in our ancillary network business and operate our urgent and primary care business profitability, we might be required to seek access to additional capital either through debt or equity markets. If additional financing is required, there can be no assurance that we would be successful in obtaining sufficient capital financing on commercially reasonable terms or at all, or, if we did obtain capital financing, that it would not be dilutive to current stockholders.

The lingering effects of the economic recession could materially adversely affect our financial position, results of operations or cash flows.

The U.S. economy continues to experience the negative effects from a severe economic recession. Although certain healthcare spending is considered non-discretionary and may not be significantly impacted by economic downturns, other types of healthcare spending may be adversely impacted by such conditions. When patients are experiencing personal financial difficulties or have concerns about general economic conditions, they may choose:

We are unable to determine the specific impact of these economic conditions on our business at this time, but we believe that the lingering effects of the economic recession could have an adverse impact on our operations and could impact not only the healthcare decisions of our patients, but also the solvency of ancillary service providers and other counterparties to transactions with us.

We depend on our senior management and may not be able to retain those employees or recruit additional qualified personnel.

We depend on our senior management team. We rely on the extensive experience of our management team across the healthcare, retail and hospitality sectors as well as extensive knowledge of healthcare operations and center acquisitions. The loss of services of any of the members of our senior management team could adversely affect our business until a suitable replacement can be found. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms.

Our business depends on numerous complex information systems, and any failure to successfully maintain these systems or implement new systems could materially harm our operations.

We depend on complex, integrated information systems and standardized procedures for operational and financial information. We may not have the necessary resources to enhance existing information systems or

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implement new systems where necessary to handle our needs. Furthermore, we may experience unanticipated delays, complications and expenses in implementing, integrating and operating our systems. Any interruptions in operations during periods of implementation would adversely affect our ability to properly allocate resources and process information in a timely manner, which could result in customer dissatisfaction and delayed cash flow. In addition, our technology systems, or a disruption in the operation of such systems, could be subject to physical or electronic break-ins, and similar disruptions from unauthorized tampering. The failure to successfully implement and maintain operational, financial and billing information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our profit margins.

A failure in or a breach of our operational or security systems or infrastructure, or those of the third party vendors and other service providers or other third parties with which we transact business, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs or cause losses.

We rely on communications and information systems to conduct our business. Information security risks have generally increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct transactions, and the increased sophistication and activities of organized crime, hackers, and terrorists, activists, and other external parties. Our business, financial, accounting, and data processing systems, or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control.

Although we have information security procedures and controls in place, our technologies, systems and networks and our payors’ systems may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss, or destruction of our or our payors’ or other third parties’ confidential information.

Although we have disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if, they do occur, that they will be adequately addressed. We may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate information security vulnerabilities. Disruptions or failures in the physical infrastructure or operating systems that support our business, or cyber attacks or security breaches of our networks, systems or devices could have a material adverse effect on our business, results of operations or financial condition.

We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business, or to defend successfully against intellectual property infringement claims by third parties.

Our ability to compete effectively depends in part upon our intellectual property rights, including but not limited to our trademarks. Our use of contractual provisions, confidentiality procedures and agreements, and trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights, or to defend against claims by third parties that the conduct of our businesses or our use of intellectual property infringes upon such third party's intellectual property rights. Any intellectual property litigation or claims brought against us, whether or not meritorious, could result in substantial costs and diversion of our resources, and there can be no assurances that favorable final outcomes will be obtained in all cases. The terms of any settlement or judgment may require us to pay substantial amounts to the other party or cease exercising our rights in such intellectual property, including ceasing the use of certain trademarks used by us to distinguish our services from those of others or ceasing the exercise of our rights in copyrightable works. In addition, we may have to seek a license to continue practices found to be in violation of a third party's rights, which may not be available on reasonable terms, or at all. Our business, financial condition, or results of operations could be adversely affected as a result.

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The credit agreements governing our indebtedness contain restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

Our credit agreements contain restrictive covenants that limit our ability to, among other things:

The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business.

If we are unable to comply with the restrictions and covenants in our credit agreements, there could be an event of default under the terms of such agreements, which could result in an acceleration of repayment.

If we are unable to comply with the restrictions and covenants in our credit agreements there could be an event of default. Our ability to comply with these restrictions and covenants may be affected by events beyond our control. As a result, we cannot assure that we will be able to comply with these restrictions and covenants. In the event of a default under our credit agreements, the lender could terminate its commitment to lend or accelerate the loan and declare all amounts borrowed due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend our credit agreements or obtain needed waivers on satisfactory terms.

Our borrowing under our credit agreements exposes us to interest rate risk.

Our results of operations are exposed to interest rate risk associated with borrowing under our credit agreements, which bear interest at daily one month London Interbank Offered Rate, or LIBOR, plus 1.75%. If interest rates increase, so will our interest costs, which may have a material adverse effect on our results of operations and financial condition.

Risks Related to Our Urgent and Primary Care Business

We may not be able to implement successfully our growth strategy for our urgent and primary care business on a timely basis or at all, which could harm our business, financial condition and results of operations.

The growth of our urgent and primary care business depends on our ability to open and acquire new centers. Our strategy is to increase the number of our urgent and primary care centers through both acquisition and our opening of new centers. Our ability to acquire and open profitable centers depends on many factors, including our ability to:

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Further, additional federal or state legislative or regulatory restrictions or licensure requirements could negatively impact our ability to operate both new and existing centers.

Accordingly, we may not be able to achieve our planned growth or, even if we are able to grow our center base as planned, any new centers may not be profitable or otherwise perform as planned. Failure to implement successfully our growth strategy would likely have an adverse impact on our business, financial condition or results of operations.

The long-term success of our urgent and primary care business is highly dependent on our ability to successfully identify and acquire target centers.

To achieve our growth strategy, we will need to acquire and open new centers and operate them on a profitable basis. We expect this to be the case for the foreseeable future. We take into account numerous factors in identifying target markets where we can enter or expand.

The number and timing of new centers acquired and opened during any given period may be negatively impacted by a number of factors including, without limitation:

If we are unable to find and secure attractive target centers to expand in existing markets or enter new markets, our revenues and profitability may be harmed, we may not be able to implement our growth strategy and our financial results may be negatively affected.

Our acquisition and opening of centers in new markets exposes us to various risks and may require us to develop new business models.

Our growth and profitability depend on our ability to implement our growth strategy by expanding the number of centers we operate in both new and existing markets. We cannot assure you our efforts to expand into new markets, particularly where we do not currently operate, will succeed. To operate in new markets, we may be required to modify our existing business model and cost structure to comply with local regulatory or other requirements, which may expose us to new operational, regulatory or legal risks.

We may be unable to acquire target centers within our current price ranges. This may reduce the pace of our growth and increase the need for additional debt and equity capital. The patient population of centers we acquire may be loyal to existing ownership, making it difficult to maintain pre-closing revenue and profit levels. The re-branding of acquired centers may have an adverse market effect in local communities.

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Integrating existing operations into our model may present unanticipated operational challenges. Our brand may not be received as favorably in the local communities as we anticipate.

Growing our business through acquisitions will require additional personnel. There can be no assurance that these demands will not have a material adverse effect on our business, financial condition, and results of operations, nor can there be any assurance that we will be able to attract or retain competent personnel and improve our operational systems sufficiently to support the expansion of our operations.

Also important to our success will be our ability to achieve additional economies of scale in order to improve operating margins. There can be no assurance that we will be able to achieve such economies of scale, and the failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

Centers we open in new markets may take longer to reach expected revenue and profit levels on a consistent basis. The cost of opening and operating new centers may exceed our budget, thereby affecting our overall profitability. New markets may have competitive conditions, consumer preferences, and healthcare spending patterns that are more difficult to predict, identify or satisfy than our existing markets. We may need to make greater investments than we originally planned in advertising and promotional activity in new markets and after closing acquisitions to build brand awareness. We may find it more difficult in new markets to hire, and we may not be able to retain and motivate qualified physicians, nurse practitioners, physician assistants, medical technologists and other personnel. We may need to augment our labor model to meet regulatory requirements and the overall cost of labor may increase or be higher than anticipated.

As a result, any new or acquired centers may be less successful and may not achieve target profit margins at the same rate or at all. If any steps taken to expand our existing business model into new markets are unsuccessful, we may not be able to achieve our growth objectives and our business, financial condition and results of operations could be adversely affected.

We may require additional capital to fund our operating and expansion costs, and our inability to obtain such capital could harm our business.

Although we currently operate ten urgent and primary care centers, our administrative, corporate and general organizational infrastructure is designed to support numerous additional centers. Consequently, we expect that our monthly expenses will continue to exceed our monthly cash receipts until we significantly increase the number of our urgent and primary care centers. Depending on the results of this offering and certain other factors, including the results of operations of our ancillary network business, we may need to raise additional capital to cover our operating costs.

To support our expansion strategy, we must have sufficient capital to continue making investments in new and existing centers. Current funding sources and cash generated by our operations may not be sufficient to allow us to sustain our expansion efforts. If this is the case, we may need additional equity or debt financing to provide the funds required to operate and expand our business. If such financing is not available on satisfactory terms or at all, we may be unable to expand our business or acquire new centers at our projected rate and our operating results may suffer. Debt financing increases expenses and must be repaid regardless of operating results and may impose restrictions on the manner in which we operate our business. Equity financing, or debt financing that is convertible into equity, could result in additional dilution to our existing stockholders. Furthermore, if we are unable to obtain adequate capital, whether in the form of equity or debt, to fund our business and growth strategies we may be required to delay, scale back or eliminate some or all of our expansion plans, which may have a material adverse effect on our business, operating results, financial condition, or prospects.

The centers that we acquire or open may not meet our expectations.

In general, our growth strategy involves the acquisition and opening of strategically-located centers. Centers that we acquire and open may not meet our revenue or profit targets or may take longer than anticipated to do so. If our acquired or new centers do not perform as planned, our business and future

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prospects could be harmed. If we are unable to manage successfully the potential difficulties associated with acquiring and opening new centers, we may not be able to capture the efficiencies and opportunities that we expect from our expansion strategy. Our inability to capture expected efficiencies of scale, maintain patient volumes, improve our systems and equipment, continue our cost discipline, and retain appropriate physician and overall labor levels, could have a material adverse effect on our business, financial condition and results of operations.

If we open new centers in existing markets, revenue at our existing centers may be affected negatively.

The catchment area of our centers varies by location and depends on a number of factors, including population density, other available convenient medical services, area demographics and geography. As a result, the opening of a new center in or near markets in which we already have centers could adversely affect the revenues of those existing centers. Existing centers could also make it more difficult to build our patient base for a new center in the same market. We may selectively open new centers in and around areas of existing centers that are operating at or near capacity to serve effectively our patients, but revenue cannibalization between our centers may become significant in the future as competition increases and as we continue to expand our operations. This could adversely affect our revenue growth, which could, in turn, adversely affect our business, financial condition, or results of operations.

We may be required to make capital expenditures in connection with our acquisitions to implement our growth strategy.

In order to maintain brand consistency across our centers, we may need to make significant capital expenditures to the interior and exterior of our centers. This may include making real property improvements and upgrading our medical equipment to serve our patients and remain competitive. Changing competitive conditions or the emergence of significant advances in medical technology could require us to invest significant capital in additional equipment or capacity in order to remain competitive. Along these lines, if the systems and technology of our target centers differ from those we have chosen to utilize, we may be required to invest significant capital to either convert, terminate, or integrate the varying technology platforms. If we are unable to fund any such investment or otherwise fail to make necessary capital expenditures, our business, financial condition, or results of operations could be materially and adversely affected.

Damage to our reputation or our brand in existing or new markets could negatively impact our business, financial condition and results of operations.

We must grow the value of our brand to be successful. We intend to develop a reputation based on the high quality of our medical services, physicians, and operating personnel, as well as on our unique culture and the experience of our patients in our centers. If we do not make investments in areas such as marketing and advertising, as well as the day-to-day investments required for center operations, equipment upgrades, and personnel training, the value of our brand may not increase or may be diminished. Any incident, real or perceived, regardless of merit or outcome, that adversely affects our brand, such as, but not limited to, patient disability or death due to medical malpractice or allegations of medical malpractice, failure to comply with federal, state, or local regulations, including allegations or perceptions of non-compliance or failure to comply with ethical and operational standards, could significantly reduce the value of our brand, expose us to negative publicity and damage our overall business and reputation.

Our marketing activities may not be successful.

We incur costs and expend other resources in our marketing efforts to attract and retain patients. Our marketing activities are principally focused on increasing brand awareness in the communities in which we provide services. As we open and acquire new centers, we expect to undertake aggressive marketing campaigns to increase community awareness about our presence and our service capabilities. We plan to conduct our targeted marketing efforts in neighborhoods through channels such as direct mail, billboards, radio advertisements, physician open houses, community sponsorships and various social media. If we are not successful in these efforts, we will have incurred expenses without materially increasing revenue.

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The urgent and primary care market is highly competitive, including competition for patients, strategic relationships, and commercial payor contracts, each of which could adversely affect our contract and revenue base.

The market for providing urgent care and primary care services is highly competitive, and all of our centers face and will face competition, in varying degrees, from existing walk-in clinics, hospital emergency rooms, private doctors’ offices, freestanding emergency centers, independent laboratories, occupational medicine clinics, and hospital- and payor-supported urgent care facilities. We compete with national, regional, and local enterprises, some of which have greater financial and other resources available to them, greater access to physicians or greater access to potential patients. Our centers compete on the basis of accessibility, including evening and weekend hours, walk-in care, as well as varying appointment opportunities. We also compete on the basis of our multistate, regional footprint, which we believe will be of value to both employers and third-party payors. As a result of the differing competitive factors within the markets in which we operate and will operate, the individual results of our centers may be volatile. If we are unable to compete effectively with any of these entities or groups we may be unable to implement our business strategies successfully, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

We may not be able to recruit and retain qualified physicians and other healthcare professionals for our urgent and primary care centers.

Our success depends upon our ability to recruit and retain qualified physicians, nurse practitioners, physician assistants, nurses, medical technologists and other staff. There is currently a national shortage of certain of these healthcare professionals. To the extent a significant number of physicians within an individual community or market decide to partner with competing urgent care or primary care providers or hospitals and not with us, we may not be able to operate our centers in such community. We face competition for such personnel from existing operators, hospital systems, entrepreneurial start-ups, and other organizations. This competition may require us to enhance wages and benefits to recruit and retain qualified personnel. Our inability to recruit and retain these professionals could have a material adverse effect on our ability to grow or be profitable.

We may not be able to prohibit or limit our physicians and other healthcare professionals from competing with us in our local markets.

In certain states in which we operate or intend to operate, non-compete, non-solicitation, and other negative covenants applicable to employment or ownership are judicially or statutorily limited in their effectiveness or are entirely unenforceable against physicians and other healthcare professionals. As a result, we may not be able to protect our operational processes, procedures, and general trade secrets or limit insiders from using competitive information against us or competing with us, which could have a material adverse effect on our ability to remain competitive.

We may be unable to enter into or maintain contracts for our urgent and primary care centers on favorable terms with commercial payors.

A significant portion of our existing net patient service revenue is derived from nongovernmental, third-party payors, or commercial payors, such as managed care organizations, commercial insurance providers and employer-sponsored healthcare plans. These commercial payors use a variety of methods for reimbursement depending on the arrangement involved. These arrangements include fee-for-service, PPOs and health maintenance organizations, as well as prepaid and discounted medical service packages and capitated, or fixed fee, contracts. Rates for health maintenance organization benefit plans are typically lower than those for PPOs or other benefit plans that offer broader provider access.

Frequently, commercial payors classify or may reclassify us as either a primary care or urgent care provider. Such distinctions may result in different payment and reimbursement structure. Such differences may affect costs to the patient through increased copayments, deductibles and other cost-sharing mechanisms and, accordingly, patient choice of provider.

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There is often pressure to renegotiate reimbursement levels, including, in particular, in connection with changes to Medicare. Typically, commercial payors reimburse us based upon contracted discounts to our established base rates. If managed care organizations and other commercial payors reduce their rates or we were to experience a significant shift in our revenue mix toward Medicare or Medicaid reimbursements, then our revenue and profitability would be adversely affected and our operating margins would be reduced. Commercial payors often demand discounted fee structures, and the trend toward consolidation among commercial payors tends to increase their bargaining power over fee structures. Because some commercial payors rely on all or portions of Medicare fee schedules to determine payment rates, changes to government healthcare programs that reduce payments under these schedules may negatively impact payments from commercial payors. Other healthcare providers may impact our ability to negotiate increases and other favorable terms in our reimbursement arrangements with commercial payors. For example, some of our competitors may negotiate exclusivity provisions with commercial payors or otherwise restrict the ability of commercial payors to contract with us. We may be excluded from participating in commercial payor networks, making it more expensive for certain patients to receive treatment at our centers. Our results of operations will depend, in part, on our ability to retain and renew managed care contracts as well as enter into new managed care contracts on terms favorable to us. Our inability to maintain suitable financial arrangements with commercial payors could have a material adverse impact on our business.

As various provisions of the Patient Protection and Affordable Care Act, or the ACA, are implemented, commercial payors may increasingly demand fee reductions. In addition, there is a growing trend for commercial payors to take steps to shift the primary cost of care to the plan participant by increasing co-payments, co-insurance and deductibles, and these actions could discourage such patients from seeking treatment at our centers. Patient volumes could be negatively impacted if we are unable to enter into or maintain acceptable contracts with such commercial payors, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

Government healthcare programs may reduce reimbursement rates.

In recent years, new legislation has been proposed and adopted at both the federal and state level that is effecting major changes in the healthcare system. Any change in the laws, regulations, or policies governing the healthcare system could adversely affect reimbursement rates and our operations and financial condition. Enacted in March 2010, the ACA seeks to expand healthcare coverage, while increasing quality and limiting costs. The ACA substantially changes the way healthcare is financed by both governmental and commercial payors. As a result of the ACA or the adoption of additional federal and state healthcare reforms measures there could be limits to the amounts that federal and state governments will pay for healthcare services, which could result in reduced demand or profitability of our services.

Furthermore, if due to an allegation of fraud or any other reason one or more of our physicians or other licensed healthcare providers are no longer entitled to bill and receive payment for services rendered to patients whose treatment is paid in whole or in part by a governmental payor, our revenue may be negatively impacted, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

If payments from commercial or governmental payors are significantly delayed, are reduced or eliminated, our business, prospects, results of operations and financial condition could be adversely affected.

We depend upon compensation from third-party payors for the services provided to patients in our centers. The amount that our centers receive in payment for their services may be adversely affected by factors we do not control, including federal or state regulatory changes, cost-containment decisions and changes in reimbursement schedules of third-party payors and legislative changes. Any reduction or elimination of these payments could have a material adverse effect on our business, prospects, results of operations and financial condition.

Additionally, the reimbursement process is complex and can involve lengthy delays. Although we recognize revenue when healthcare services are provided, there can be delays before we receive payment. In addition, third-party payors may disallow, in whole or in part, requests for reimbursement based on

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determinations that certain amounts are not reimbursable under plan coverage, that services provided were not medically necessary, or that additional supporting documentation is necessary. Retroactive adjustments by third-party payors may be difficult or cost prohibitive to appeal, and such changes could materially reduce the actual amount we receive from those payors. Delays and uncertainties in the reimbursement process may be out of our control and may adversely affect us.

Significant changes in our payor mix resulting from fluctuations in the types of patients seen at our centers could have a material adverse effect on our business, prospects, results of operations and financial condition.

Our results may change from period to period due to fluctuations in payor mix or other factors relating to the type of treatment performed by physicians at our centers. Payor mix refers to the relative amounts we receive from the mix of persons or entities that pay or reimburse us for healthcare services. Because, we generally receive relatively higher payment rates from commercial payors than from governmental payors or self-pay patients, a significant shift in our payor mix toward a higher percentage of self-pay or patients whose treatment is paid in whole or part by a governmental payor, which could occur for reasons beyond our control, could have a material adverse effect on our business, prospects, results of operations and financial condition.

Failure to bill timely or accurately for our services could have a negative impact on our net revenues, bad debt expense and cash flow.

Billing for our services is often complex and time consuming. The practice of providing medical services in advance of payment or prior to assessing a patient's ability to pay for such services may have a significant negative impact on our patient service revenue, bad debt expense and cash flow. We bill numerous and varied payors, including self-pay patients and various forms of commercial insurance providers. Billing requirements that must be met prior to receiving payment for services rendered often vary by payor. Self-pay patients and third-party payors may fail to pay for services even if they have been properly billed. Reimbursement is typically dependent on our providing the proper procedure and diagnosis codes.

Additional factors that could affect our collections for the services we render include:

The complexity associated with billing for our services causes many delays in our cash collections, resulting in increased carrying costs associated with the aging of our accounts receivable as well as the increased potential for bad debt expense.

A successful challenge by tax authorities to our treatment of certain healthcare providers as independent contractors or the elimination of an existing safe harbor could materially increase our costs relating to these healthcare providers.

Certain of our physicians and other licensed healthcare providers are engaged as independent contractors by our state-level operating subsidiaries. Because these personnel are treated as independent contractors rather than as employees, our state-level operating subsidiaries do not (i) withhold federal or state income or other employment related taxes from their compensation, (ii) make federal or state unemployment tax or Federal Insurance Contributions Act payments with respect to them, (iii) provide workers compensation insurance with respect to them (except in states where they are required to do so for independent contractors), or (iv) allow them to participate in benefits and retirement programs available to employees. Although we have contracts with these physicians and other licensed healthcare providers obligating them to pay these taxes and other

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costs, if a challenge to our treatment of these physicians and other licensed healthcare providers as independent contractors by federal or state authorities were successful and they were treated as employees instead of independent contractors, we could be liable for taxes, penalties and interest. In addition, there are currently, and have been in the past, proposals made to eliminate an existing safe harbor that would potentially protect us from the imposition of taxes in these circumstances, and similar proposals could be made in the future. If such a challenge were successful or if the safe harbor were eliminated, this could cause a material increase in our costs relating to these physicians and other personnel and, have a material adverse effect on our business, financial condition and results of operations.

Currently, our centers are located in Georgia, Florida, Alabama and Virginia, making us particularly sensitive to regulatory, economic, and other conditions in those states.

Our current centers are located in Georgia, Florida, Alabama and Virginia. If there were an adverse regulatory, economic or other development in any of those states, our patient volume could decline, our ability to operate our centers under our existing business model could be impacted, or there could be other unanticipated adverse impacts on our business that could have a material adverse effect on our business, prospects, results of operations and financial condition.

Our business is seasonal, which impacts our results of operations.

Our centers’ patient volumes are sensitive to seasonal fluctuations in urgent care and primary care activity. Typically, winter months see a higher occurrence of influenza, bronchitis, pneumonia and similar illnesses; however, the timing and severity of these outbreaks can vary dramatically. Additionally, as consumers shift toward high deductible insurance plans, they are responsible for a greater percentage of their bill, particularly in the early months of the year before other healthcare spending has occurred, which may lead to lower than expected patient volume or an increase in bad debt expense during that period. Our quarterly operating results may fluctuate significantly in the future depending on these and other factors.

We could be subject to lawsuits for which we are not fully insured.

Healthcare providers have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories such as negligent hiring, supervision and credentialing. Some of these lawsuits involve large claim amounts and substantial defense costs. We generally procure professional liability insurance coverage for our affiliated medical professionals and professional and corporate entities. We are currently insured under policies in amounts management deems appropriate, based upon the nature and risk of our business. Nevertheless, there are exclusions and exceptions to coverage under each insurance policy that may make coverage for any claim unavailable, future claims could exceed the limits of available insurance coverage, existing insurers could become insolvent and fail to meet their obligations to provide coverage for such claims, and such coverage may not always be available with sufficient limits and at reasonable cost to insure us adequately and economically in the future. One or more successful claims against us not covered by, or exceeding the coverage of, our insurance could have a material adverse effect on our business, prospects, results of operations and financial condition. Moreover, in the normal course of our business, we may be involved in other types of lawsuits, claims, audits and investigations, including those arising out of our billing and marketing practices, employment disputes, contractual claims and other business disputes for which we may have no insurance coverage. The outcome of these matters could have a material adverse effect on our financial position, results of operations, and cash flows.

Insurance coverage for some of our losses may be inadequate and may be subject to the credit risk of commercial insurance providers.

We maintain insurance coverage for our centers through various third-party insurers. To the extent we hold policies to cover certain groups of claims or rely on insurance coverage obtained by third parties to cover such claims, we may be responsible for those losses if the insurance coverage is inadequate or the insurer rejects our claim for payment. Furthermore, for our losses that are insured or reinsured through commercial insurance providers, we are subject to the financial viability of those insurance companies. Although we believe our commercial insurance providers are currently creditworthy, they may not remain so in the future.

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Risks Related to Our Ancillary Network Business

We have one client which accounts for a substantial portion of our ancillary network business. Revenue from this client could likely continue to decline during 2015 and thereafter.

HealthSmart, our largest client and now our manager, accounted for approximately 34% of our net revenue in 2014, 22% of our net revenue in 2013 and 31% of our net revenue during 2012. The loss of this client or significant declines in the level of use of our services by this client, without replacement by new business, would have a material adverse effect on our business and results of operations. Although we have entered into a management agreement with HealthSmart to manage our ancillary network business, there is no assurance that it will continue to use our ancillary network services at the same or greater level as it did in 2014.

Large competitors in the healthcare industry may choose to compete with us, reducing our margins. Some of these potential competitors may be our current clients.

Traditional health insurance companies, specialty provider networks, and specialty healthcare services companies are potential competitors of the Company’s ancillary network business. These entities include well-established companies that may have greater financial, marketing and technological resources than we have. Pricing pressure caused by competition has caused many of these companies to reduce the prices charged to clients for core services and to pass on to clients a larger portion of the formulary fees and related revenues received from service providers. Increased price competition from such companies’ entry into the market could reduce our margins and have a material adverse effect on our financial condition and results of operations. In fact, our clients could choose to establish their own network of ancillary care providers. As a result, we would not only lose the benefit of revenue from such clients, but we could face additional competition in our market.

Fluctuations in the number and types of claims we process in our ancillary network business could make it more difficult to predict our net revenues in our ancillary network business from quarter to quarter.

Monthly fluctuations in the number of claims we process and the types of claims we process will impact our quarterly and annual results. Our margins vary depending on the type of ancillary healthcare service provided, the rates associated with those services and the overall mix of these claims, each of which will impact our profitability. Consequently, it may be difficult to predict the net revenue from our ancillary network business from one quarter to another quarter.

Limited barriers to entry into the ancillary healthcare services market could result in greater competition.

There are limited barriers to entering the market for ancillary service providers, meaning that it is relatively easy for other companies to replicate our ancillary network business model and provide the same or similar services that we currently provide. Major benefit management companies and healthcare companies not presently offering ancillary healthcare services may decide to enter the market. These companies may have greater financial, marketing and other resources than are available to us. Competition from other companies may have a material adverse effect on our financial condition and results of operations.

Our ancillary network business is dependent upon payments from third party payors which may reduce rates of reimbursement.

Our ability to achieve profitability in our ancillary network business depends, in part, on payments provided by third-party payors. Competition for patients, efforts by traditional third party payors to contain or reduce healthcare costs and the increasing influence of managed care payors, such as health maintenance organizations, have resulted in reduced rates of reimbursement in recent years. If continuing, these trends could adversely affect our results of operations unless we can implement measures to offset the loss of revenues and decreased profitability. In addition, changes in reimbursement policies of private and governmental third-party payors, including policies relating to the Medicare and Medicaid programs, could reduce the amounts reimbursed to our clients for the services provided through us, and consequently, the amount these clients would be willing to pay for our services. Also, under the medical loss ratio, or MLR, regulations included in the ACA, it is possible that a portion of the fees our existing and prospective payors are contractually required to pay us and that do not qualify as “incurred claims” may not be included as

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expenditures for activities that improve health care quality. Such a determination may make it more difficult for us to retain existing clients or add new clients, because our clients’ or prospective clients’ MLR may otherwise not meet the specified targets. This may reduce our net revenues and profit margins.

We are dependent upon our network of qualified providers, and our provider agreements may be terminated at any time.

A network of qualified providers is an essential component of our ancillary network business. The typical form of agreement from ancillary healthcare providers provides that these agreements may be terminated at any time by either party with or without cause. If these agreements are terminated, particularly with our significant providers, such ancillary healthcare providers could enter into new agreements with our competitors which would have an adverse effect on our ability to continue our ancillary network business as it is currently conducted.

For any given claim, we are subject to the risk of paying more to the provider than we receive from the payor.

Our agreements with our payors, on the one hand, and our ancillary network service providers, on the other, are negotiated separately. We have complete discretion in negotiating both the prices we charge our payors and the financial terms of our agreements with the providers. As a result, our profit is primarily a function of the spread between the prices we have agreed to pay our ancillary network service providers and the prices our payors have agreed to pay us. We bear the pricing risk because we are responsible for providing the agreed-upon services to our payors, whether or not we are able to negotiate fees and other agreement terms with our ancillary network service providers that result in a positive margin for us. There can be no assurances that these pricing arrangements will not result in losses to us.

The length of the current sales cycle may impede our efforts to add new client accounts.

Over the past several years, we have experienced a lengthening of the period between identification of a prospective payor client and that prospect becoming a new client. Despite efforts to strategically improve our implementation process and our new management arrangement with HealthSmart, we can give no assurances that the process of converting a sales prospect into a new client account will not be lengthy and that our revenues will not continue to decline due to the lack of new client accounts.

We are dependent on our manager to operate our ancillary network business.

We are dependent on HealthSmart to operate our ancillary network business. We have no employees in our ancillary network business and the individuals who perform services for us are employees of our manager. We are subject to the risk that our manager will terminate the management agreement and that we will not be able to find a suitable replacement for our manager in a timely manner, at a reasonable cost, or at all. We are also subject to the risk that our manager will not manage our ancillary network business in a manner that is in our best interests, particularly because HealthSmart operates its own preferred provider network that competes for clients with our ancillary network.

We pay our manager cash fees for operating our ancillary network business.

We pay our manager cash fees for the services it provides in managing our ancillary network business. The payment of these fees may impact the amount of cash available for investment in our urgent and primary care business.

Our manager may be subject to conflicts of interest.

Our manager has potential conflicts of interest in its management of our ancillary network business. Circumstances under which a conflict could arise between us and our manager include:

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Our manager will not be liable to us for any acts or omissions performed in accordance with the management agreement.

Pursuant to our management agreement, our manager will not assume any responsibility other than to render the services called for thereunder in good faith. Our manager, its members, managers, officers and employees will not be liable to us for any acts or omissions by our manager, its members, managers, officers or employees, except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our manager’s duties under our management agreement. We will, to the full extent lawful, reimburse, indemnify and hold our manager, its members, managers, officers and employees and each other person, if any, controlling our manager harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in performance of our manager’s duties under our management agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our manager’s duties under our management agreement.

Risks Related to Healthcare Regulation

The healthcare industry is heavily regulated, and if we fail to comply with these laws and government regulations we could incur penalties or be required to make significant changes to our operations.

The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services, our contractual relationships with our physicians, vendors, patients and clients, our marketing activities and other aspects of our operations. If we fail to comply with these laws and regulations, we could be exposed to civil and criminal penalties such as fines, damages, overpayment recoupment, loss of enrollment status and exclusion from government healthcare programs. Any action against us for violation of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Our physicians and other licensed healthcare providers, are also subject to ethical guidelines and operating standards of professional and private accreditation agencies.

The laws, regulations and standards governing the provision of healthcare services may change significantly in the future, and these changes may materially and adversely affect our business. Furthermore, a review of our business by regulatory or accreditation authorities could result in determinations that could adversely affect our operations.

Our urgent and primary care centers are and will be subject to numerous statutes and regulations in the states in which we operate or intend to operate, and the failure to comply with these laws and regulations could result in civil or criminal sanctions.

The operation of urgent and primary care centers subjects us, and will subject us, to many state laws and regulations. In general, states, whether directly or through boards, agencies or other delegated authorities, regulate the ownership and dispensing of controlled substances, the retention and storage of medical records, patient privacy and protection of health information, the licensure of healthcare providers, and the clinical supervision by physicians of nurse practitioners and physicians assistants, among other aspects of our operations. All such laws and regulations, and the applicable interpretations of such laws and regulations, are subject to change.

Additional regulation of centers such as ours has been proposed in several states. The adoption of any such regulations in the states in which we operate or intend to operate could force us to change our operational or transactional approach or lead to a finding by regulators that our centers do not meet legal requirements. We may be subject to criminal prosecution, regulatory fines, penalties or other sanctions if our operations or centers are found to not comply with applicable laws and regulations. In addition, we may be required to refund all funds received from patients and third-party payors during the period of noncompliance.

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State regulation of the expansion of urgent and primary care centers could prevent us from reaching our expansion objectives.

Many states have certificate of need programs that require some level of prior approval for the development, acquisition or expansion of certain healthcare facilities. Although the state where our current centers operate do not require that we obtain a certificate of need to acquire or operate our centers, in the event we choose to acquire or open centers in a state that does require such approval, we may be required to obtain a certificate of need before the acquisition or opening occurs. If we are unable to obtain such approvals, we may not be able to move forward with the planned activity.

Only a few states, including Florida, currently require the licensure of centers such as ours. The lack of a specific licensure process for our centers in the vast majority of states may lead state legislators or regulators to regulate aggressively the growth of our industry, potentially seeking to treat our industry in a manner similar to hospitals or freestanding emergency departments. Further, the growing number of urgent care centers and freestanding emergency departments may lead to legislation or regulations requiring us to change substantially our operations or cease our operations in that state entirely. Any such requirements could have a material adverse effect on our prospects and growth strategy.

Our urgent and primary care centers are subject to comprehensive laws and regulations that govern the manner in which we bill and are paid for our services by third-party payors, and the failure to comply with these requirements can result in civil or criminal sanctions, including exclusion from federal and state healthcare programs.

A substantial portion of our urgent and primary care services are paid for by commercial payors and governmental payors. These third-party payors typically have differing and complex billing and documentation requirements. If we fail to meet these requirements, we may not be paid for our services or payment may be substantially delayed or reduced.

Numerous state and federal laws also apply to our claims for payment, including but not limited to (i) “coordination of benefits” rules that dictate which payor must be billed first when a patient has coverage from multiple payors, (ii) requirements that overpayments be refunded within a specified period of time, (iii) “reassignment” rules governing the ability to bill and collect professional fees on behalf of other providers, (iv) requirements that electronic claims for payment be submitted using certain standardized transaction codes and formats, and (v) laws requiring all health and financial information of patients in a manner that complies with applicable security and privacy standards.

Third-party payors carefully monitor compliance with these and other applicable rules. Our failure to comply with these rules could result in our obligation to refund amounts previously paid for such services or non-payment for our services.

Additionally, on January 16, 2009, the United States Department of Health and Human Services, or HHS, released the final rule mandating that providers covered by the Administrative Simplification Provisions of HIPAA, including our centers, must implement the International Classification of Diseases, 10^th Edition, or ICD-10, for medical coding on October 1, 2013. Although the deadline for implementation of ICD-10 codes has been delayed until October 15, 2015, the ICD-10 codes will require significantly more information than the International Classification of Diseases, 9^th Edition, or ICD-9, codes currently used for medical coding and will require covered entities to code with much greater detail and specificity than with ICD-9 codes. We may incur additional costs to implement these changes.

If we are found to have violated any of these or any of the other laws or regulations which govern our activities, the resulting penalties, damages, fines or other sanctions could adversely affect our ability to operate our business and our financial results.

Changes in coverage and the rates or methods of third-party reimbursements may adversely affect our urgent and primary care revenue and operations.

A substantial portion of our urgent and primary care revenue is derived from direct billings to patients and third-party payors. As a result, any changes in the rates or methods of reimbursement for the services we provide could have a material adverse effect on our revenue and financial results. Reimbursement rates can

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vary depending on whether our center is an in-network or out-of-network provider. Each of our centers may be out-of-network for some patients. When acting as an out-of-network provider, reimbursement rates may be lower, co-payments and deductibles may be higher and we may have difficulties complying with the billing requirements of certain third-party payors. Additionally, the continued implementation of the ACA could result in substantial changes in coverage and reimbursement, including changes in coverage and amounts paid by private payors, which could have an adverse impact on our revenue from those sources.

Past and future healthcare reform legislation and other changes in the healthcare industry could adversely affect our business, financial condition and results of operations.

The healthcare industry is subject to changing political, regulatory and other influences. In March 2010, the President signed the ACA into law, which made major changes in how healthcare is delivered and reimbursed and increased access to health insurance benefits to the uninsured and underinsured population of the United States.

Because of the continued uncertainty about the implementation of various provisions of the ACA, we cannot predict with any certainty the impact of the ACA on our business models, prospects, financial condition or results of operations. Also, Congress and state legislatures may continue reviewing and assessing alternative healthcare delivery and payment systems and may in the future adopt legislation making additional fundamental changes in the healthcare system. There is no assurance that such changes will not have a material adverse effect on our business, financial condition or results of operations. Continued efforts to shift healthcare costs to the patient (through co-payments, deductibles, and other mechanisms) could adversely affect our business, financial condition and results of operations.

If we are required to restructure our arrangements with physicians because of current or future laws, we may incur additional costs, lose contracts or suffer a reduction in net revenue.

Various laws bear on our relationships with the physicians staffing our urgent and primary care centers. Authorities in some states could find that our contractual relationships with our physicians violate laws prohibiting the corporate practice of medicine and fee-splitting. These laws are generally intended to prevent unlicensed persons or entities from interfering with or inappropriately influencing the physician's professional judgment, but they may also prevent the sharing of professional services income with non-professional or business interests. Approximately 30 states have some form of corporate practice of medicine restrictions, and, as we continue to expand into new markets, our current business model may implicate these restrictions. One of the states in which we currently operate, Georgia, has adopted certain corporate practice of medicine restrictions against non-professional entities. Although we believe we are currently in material compliance with applicable law, including with respect to the corporate practice of medicine and fee-splitting, regulatory authorities or other parties, including our employed and contracted physicians, or our physicians, may assert that, among other things, our state-level operating subsidiaries are impermissibly engaged in the practice of medicine. In that event, we could be subject to adverse judicial or administrative interpretations, to civil or criminal penalties, our contracts could be found legally invalid and unenforceable or we could be required to modify our organizational structure, any of which could have a material adverse effect on our business and our ability to execute our growth strategy. Moreover, if we are required to modify our structure and organization to comply with these laws and rules, our financing agreements may prohibit such modifications and require us to obtain the consent of the holders of such debt or require the refinancing of such debt.

We are subject to the data privacy, security and breach notification requirements of HIPAA, HITECH and other data privacy and security laws, and the failure to comply with these rules, or allegations that we have failed to do so, could result in civil or criminal sanctions.

Numerous federal and state laws and regulations, including HIPAA and HITECH, govern the collection, dissemination, security, use and confidentiality of patient-identifiable health information. As required by HIPAA, HHS has adopted standards to protect the privacy and security of this health-related information. The HIPAA privacy regulations contain detailed requirements concerning the use and disclosure of individually identifiable health information and the grant of certain rights to patients with respect to such information by “covered entities.” The Company and each of our centers is considered a covered entity under HIPAA. We have taken actions to comply with the HIPAA privacy regulations including the creation and implementation of policies and procedures, staff training, execution of HIPAA-compliant contractual arrangements with certain

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service providers and various other measures. Although we believe we are in substantial compliance, ongoing implementation and oversight of these measures involves significant time, effort and expense.

In addition to the privacy requirements, HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality and availability of certain electronic health-related information received, maintained, or transmitted by covered entities or their business associates. Although we have taken actions in an effort to be in compliance with these security regulations, a security incident that bypasses our information security systems causing an information security breach, loss of protected health information, or PHI, or other data subject to privacy laws or a material disruption of our operational systems could have a material adverse effect on our business, along with fines. Furthermore, ongoing implementation and oversight of these security measures involves significant time, effort and expense.

Further, HITECH, as implemented in part by an omnibus final rule published in the Federal Register on January 25, 2013, further requires that patients be notified of any unauthorized acquisition, access, use, or disclosure of their unsecured PHI that compromises the privacy or security of such information. HHS has established the presumption that all unauthorized uses or disclosures of unsecured PHI constitute breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. HITECH and implementing regulations specify that such notifications must be made without unreasonable delay and in no case later than 60 calendar days after discovery of the breach. Breaches affecting 500 patients or more must be reported immediately to HHS, which will post the name of the breaching entity on its public website. Furthermore, breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS of such breaches at least annually. These breach notification requirements apply not only to unauthorized disclosures of unsecured PHI to outside third parties but also to unauthorized internal access to or use of such PHI.

The scope of the privacy and security requirements under HIPAA was substantially expanded by HITECH, which also increased penalties for violations. Currently, violations of the HIPAA privacy, security and breach notification standards may result in civil penalties ranging from $100 to $50,000 per violation, subject to a cap of $1,500,000 in the aggregate for violations of the same standard in a single calendar year. The amount of penalty that may be assessed depends, in part, upon the culpability of the applicable covered entity or business associate in committing the violation. Some penalties for certain violations that were not due to “willful neglect” may be waived by the Secretary of HHS in whole or in part, to the extent that the payment of the penalty would be excessive relative to the violation. HITECH also authorized state attorneys general to file suit on behalf of residents of their states. Applicable courts may be able to award damages, costs and attorneys' fees related to violations of HIPAA in such cases. HITECH also mandates that the Secretary of HHS conduct periodic compliance audits of a cross-section of HIPAA covered entities and business associates. Every covered entity and business associate is subject to being audited, regardless of the entity's compliance record.

State laws may impose more protective privacy restrictions related to health information and may afford individuals a private right of action with respect to the violation of such laws. Both state and federal laws are subject to modification or enhancement of privacy protection at any time. We are subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These statutes vary and could impose additional requirements on us and more severe penalties for disclosures of health information. If we fail to comply with HIPAA, similar state laws or any new laws, including laws addressing data confidentiality, security or breach notification, we could incur substantial monetary penalties and substantial damage to our reputation.

States may also impose restrictions related to the confidentiality of personal information that is not considered PHI under HIPAA, including certain identifying information and financial information of our patients. Theses state laws may impose additional notification requirements in the event of a breach of such personal information. Failure to comply with such data confidentiality, security and breach notification laws may result in substantial monetary penalties.

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HIPAA and HITECH also include standards for common healthcare electronic transactions and code sets, such as claims information, plan eligibility and payment information. Covered entities such as the Company and each of our centers are required to conform to such transaction set standards.

Our centers participate in the federal Medicare program and, as a result, we must comply with a number of additional federal regulatory requirements.

Our centers participate as providers the federal Medicare program. As participants in the Medicare program, we are directly subject to certain federal regulatory requirements, including the Stark Law and the Anti-Kickback Statute. Furthermore, the Medicare program is particularly susceptible to statutory and regulatory changes, retroactive and prospective rate adjustments, spending freezes, federal and state funding reductions and administrative rulings and interpretations concerning, without limitation, patient eligibility requirements, funding levels and the method of calculating payments or reimbursements.

Since 1992, Medicare has paid for the “medically necessary” services of physicians, non-physician practitioners, and certain other suppliers under a physician fee schedule, a system that pays for covered physicians’ services furnished to a person with Medicare Part B. Under the physician fee schedule, relative values are assigned to each of more than 7,000 services to reflect the amount of work, the direct and indirect (overhead) practice expenses, and the malpractice expenses typically involved in furnishing that service. Each of these three relative value components is multiplied by a geographic adjustment factor to adjust the payment for variations in the costs of furnishing services in different localities. The resulting relative value units, or RVUs, are summed for each service and then are multiplied by a fixed-dollar conversion factor to establish the payment amount for each service. The higher the number of RVUs assigned to a service, the higher the payment. Under the Medicare fee-for-service payment system, an individual can choose any licensed physician enrolled in Medicare and use the services of any healthcare provider or facility certified by Medicare.

CMS is required to limit the growth in spending under the physician fee schedule by a predetermined sustained growth rate, or SGR. If implemented as mandated, the SGR would result in significant payment reductions under the physician fee schedule. Every year since 2003, Congress has delayed application of the SGR, but we cannot predict with certainty whether it will continue to do so. Congress most recently delayed application of the SGR in the Protecting Access to Medicare Act of 2014, or PAMA, which became effective on April 1, 2014. In March of 2014 (prior to the passage of PAMA), CMS announced that the estimated physician fee schedule update for 2014 would be reduced by 20.9% due to the SGR formula. PAMA provides for the continuation of the 0.5% reimbursement increase to the physician payment schedule through December 31, 2014 (originally provided under the Pathway for SGR Reform Act of 2013), and also provides for no change to the physician fee schedule through March 31, 2015. Although several recent legislative proposals have sought to impose permanent or semi-permanent solutions to the SGR reductions, we cannot predict with certainty whether the SGR will be repealed or if another formula would be substituted and what form that might take. Repeal of the SGR could be offset by further reductions in Medicare payments, and any such reductions could have a material adverse effect on our business.

Furthermore, the ACA reduces annual payment updates for certain providers and reduces Medicare payments for certain procedures, and the Budget Control Act of 2011, or BCA, requires automatic spending reductions for each fiscal year through 2021. As a result of the BCA and subsequent activity in Congress, a $1.2 trillion sequester (across-the-board spending cuts) in discretionary programs took effect in 2013. In particular, a 2% reduction in Medicare payments took effect on April 1, 2013 and has recently been extended for an additional two years beyond the original expiration date of 2021.

We are subject to CMS’ RAC program.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003, or MMA, introduced on a trial basis the use of RACs for the purpose of identifying and recouping Medicare overpayments and underpayments. Any overpayment received from Medicare is considered a debt owed to the federal government. In October 2008, CMS made the RAC program permanent. RACs review Medicare claims to determine whether such claims were appropriately reimbursed by Medicare. RACs engage in an automated review and in a complex review of claims. Automated reviews are conducted when a review of the medical record is not required and there is certainty that the service is not covered or is coded incorrectly. Complex reviews involve the review of all underlying medical records supporting the claim, and are generally

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conducted where there is a high likelihood, but not certainty, that an overpayment has occurred. RACs are paid a contingency fee based on overpayments identified and collected.

A Medicare administrative contractor, or MAC, may suspend Medicare payments to a provider if it determines that an overpayment has occurred. When a Medicare claim for payment is filed, the MAC will notify the patient and the provider of its initial determination regarding reimbursement. The MAC may deny the claim for one of several reasons, including the lack of necessary information or lack of medical necessity for the services rendered. Providers may appeal any denials for claim payments.

Any such reviews under the RAC program or denials by the MAC could have a material adverse effect on our results of operations.

We are subject to the Anti-Kickback Statute, Stark Law, FCA, Civil Monetary Penalties statute and analogous provisions of applicable state laws and could face substantial penalties if we fail to comply with such laws.

Anti-Kickback Statute

The Anti-Kickback Statute prohibits the knowing and willful offer, payment, solicitation or receipt of remuneration, directly or indirectly, in return for the referral of patients or arranging for the referral of patients, or in return for the recommendation, arrangement, purchase, lease or order of items or services that are covered, in whole or in part, by a federal healthcare program such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value such as gifts, discounts, rebates, waiver of payments or providing anything at less than its fair market value. The ACA amended the intent requirement of the Anti-Kickback Statute such that a person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violation the statute. Further, the ACA now provides that claims submitted in violation of the Anti-Kickback Statute constitute false or fraudulent claims for purposes of the FCA, including the failure to timely return an overpayment. Many states have adopted similar prohibitions against kickbacks and other practices that are intended to influence the purchase, lease or ordering of healthcare items and services reimbursed by a governmental health program or state Medicaid program. Some of these state prohibitions apply to remuneration for referrals of healthcare items or services reimbursed by any third-party payor, including commercial payors.

Because we currently accept funds from governmental health programs, we are and will be subject to the Anti-Kickback Statute. Violations of the Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental programs as well as civil and criminal penalties, such as $25,000 per violation and up to three times the remuneration involved. If in violation, we may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require substantial payments to the government in exchange for the government to release its claims, and may also require entry into a corporate integrity agreement, or CIA. Any such sanctions or obligations contained in a CIA could have a material adverse effect on our business, financial condition and results of operations.

Stark Law

The Stark Law prohibits a physician from referring a patient to a healthcare provider for certain “designated health services” reimbursable by Medicare if the physician (or close family members) has a financial relationship with that provider, including an ownership or investment interest, a loan or debt relationship or a compensation relationship. The designated health services covered by the law include, among others, laboratory and imaging services and the provision of durable medical equipment. Some states have self-referral laws similar to the Stark Law for Medicaid claims and commercial claims.

We have entered into several types of financial relationships with physicians who staff our urgent and primary care centers, including compensation arrangements. We believe that the compensation arrangements under our employment agreements and independent contractor agreements satisfy one or more exceptions to the Stark Law. Although we believe that the compensation provisions included in our written physician agreements, which are the result of arm’s length negotiations, result in fair market value payments for medical services rendered or to be rendered, an enforcement agency could nevertheless challenge the level of compensation that we pay our medical directors.

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The ownership of our stock by any of our physicians will constitute a “financial relationship” for purposes of the Stark Law. As a result, in order to bill Medicare for the designated health services referred by such physician stockholder, we must qualify for one or more exceptions to the Stark Law. Although an exception exists for publicly traded securities, we will not qualify until our stockholders' equity exceeds $75,000,000 at the end of our most recent fiscal year or on average during the previous three years. If we are unable to qualify for another exception to the Stark Law, we will not be entitled to bill Medicare for services rendered by a physician stockholder. As a result, we may suffer losses to our net revenue. Further, it may become necessary for us to perform regular compliance tests to determine which, if any, of our physicians own our stock, and, if so, to determine whether or not we meet an applicable exception to the Stark Law. Such efforts could have a material adverse effect on our business and our ability to compensate physicians, and could result in damage to our reputation.

Violation of the Stark Law may result in prohibition of payment for services rendered, a refund of any Medicare payments for services that resulted from an unlawful referral, $15,000 civil monetary penalties for specified infractions, criminal penalties, and potential exclusion from participation in government healthcare programs, and potential false claims liability. The repayment provisions in the Stark Law are not dependent on the parties having an improper intent; rather, the Stark Law is a strict liability statute and any violation is subject to repayment of all amounts arising out of tainted referrals. If physician self-referral laws are interpreted differently or if other legislative restrictions are issued, we could incur significant sanctions and loss of revenues, or we could have to change our arrangements and operations in a way that could have a material adverse effect on our business, prospects, damage to our reputation, results of operations and financial condition.

False Claims Act

The federal civil FCA prohibits providers from, among other things, (1) knowingly presenting or causing to be presented, claims for payments from the Medicare, Medicaid or other federal healthcare programs that are false or fraudulent; (2) knowingly making, using or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the federal government; or (3) knowingly making, using or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. The “qui tam” or “whistleblower” provisions of the FCA allow private individuals to bring actions under the FCA on behalf of the government. These private parties are entitled to share in any amounts recovered by the government, and, as a result, the number of “whistleblower” lawsuits that have been filed against providers has increased significantly in recent years. Defendants found to be liable under the FCA may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each separate false claim.

There are many potential bases for liability under the FCA. The government has used the FCA to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, and providing care that is not medically necessary or that is substandard in quality. The ACA also provides that claims submitted in connection with patient referrals that results from violations of the Anti-Kickback Statute constitute false claims for the purpose of the FCA, and some courts have held that a violation of the Stark law can result in FCA liability, as well. In addition, a number of states have adopted their own false claims and whistleblower provisions whereby a private party may file a civil lawsuit in state court. We are required to provide information to our employees and certain contractors about state and federal false claims laws and whistleblower provisions and protections.

Civil Monetary Penalties Statute

The federal Civil Monetary Penalties statute prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person or entity knows or should know is likely to influence the beneficiary’s selection of a particular provider or supplier of items or services reimbursable by a federal or state healthcare program.

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The scope and enforcement of each of these laws is uncertain and subject to constant change. Federal and state enforcement entities have significantly increased their scrutiny of healthcare companies and providers which has led to investigations, prosecutions, convictions and large settlements. Although we intend to conduct our business in compliance with all applicable federal and state fraud and abuse laws, many of these laws are broadly worded and may be interpreted or applied in ways that cannot be predicted with any certainty. Therefore, we cannot assure you that our arrangements or business practices will not be subject to government scrutiny or will be found to be in compliance with applicable fraud and abuse laws. Further, responding to investigations can be time consuming and result in significant legal fees and can potentially divert management’s attention from the Company.

If we fail to effectively and timely implement electronic health record systems, our operation could be adversely affected.

As required by the American Recovery and Reinvestment Act of 2009, the Secretary of HHS has developed and implemented an incentive payment program for eligible healthcare professionals that adopt and meaningfully use electronic health record, or EHR, technology. HHS uses the Provider Enrollment, Chain and Ownership System, or PECOS, to verify Medicare enrollment prior to making EHR incentive program payments. If our employed professionals are unable to meet the requirements for participation in the incentive payment program, including having an enrollment record in PECOS, we will not be eligible to receive incentive payments that could offset some of the costs of implementing EHR systems. Further, healthcare professionals that fail to demonstrate meaningful use of certified EHR technology are subject to reduced payments from Medicare. System conversions to comply with EHR could be time consuming and disruptive for physicians and employees. Failure to implement EHR systems effectively and in a timely manner could have a material adverse effect on our financial position and results of operations.

We are in process of converting certain of our clinical and patient accounting information system applications to newer versions of existing applications or altogether new applications. In connection with our implementation and conversions, we have incurred capitalized costs and additional training and implementation expenses.

If we fail to comply with laws and regulations related to the protection of the environment and human health and safety, we could incur substantial penalties and fines.

We are subject to various federal, state and local and regulations relating to the protection of the environment and human health and safety, including those governing the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace. Some of our operations include the use, generations and disposal of hazardous materials. We also plan to acquire ownership in new facilities and properties, some of which may have had a history of commercial or other operations. We may, in the future, incur liability under environmental statutes and regulations with respect to contamination of sites we own or operate, including contamination caused by prior owners or operators of such sites, abutters or other persons, and the off-site disposal of hazardous substances. Violations of these laws and regulations may result in substantial civil penalties or fines.

Risks Related to Our Common Stock and this Offering

Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.

In the future, we may issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes, resulting in the dilution of the ownership interests of our stockholders at that time. The future issuance of any such additional shares of common stock may create downward pressure on the trading price of the common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are currently traded on The NASDAQ Capital Market, and now investors could gain rights superior to those of our stockholders at that time.

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Your ownership may be diluted by exercises of outstanding and future options and warrants and other forms of equity.

As of September 30, 2014, we had outstanding options to purchase an aggregate of 1,294,849 shares of our common stock at a weighted average exercise price of $3.63 per share and warrants to purchase an aggregate of 822,222 shares of our common stock at a weighted average exercise price of $3.11 per share and 156,093 shares issuable on the conversion of RSUs awarded to officers and directors. The exercise of such outstanding options and warrants and the conversion of such RSUs will result in further dilution of your investment.

Our current principal stockholders have significant influence over us and they could delay, deter or prevent a change of control or other business combination or otherwise cause us to take action with which you might not agree.

Our executive officers, directors, and holders of greater than 5% of our outstanding common stock together beneficially own approximately 61.2% of our outstanding common stock. As a result, our executive officers, directors and holders of greater than 5% of our outstanding common stock will have the ability to significantly influence all matters submitted to our stockholders for approval, including:

This concentration of ownership of shares of our common stock could delay or prevent proxy contests, mergers, tender offers, open market purchase programs, or other purchases of shares of our common stock that might otherwise give you the opportunity to realize a premium over the then prevailing market price of our common stock. The interests of our executive officers, directors, and holders of greater than 5% of our outstanding common stock may not always coincide with the interests of the other holders of our common stock. This concentration of ownership may also adversely affect our stock price.

The market price of our common stock may be volatile and this may adversely affect our stockholders.

The price at which our common stock trades may be volatile. The stock market can experience significant price and volume fluctuations that have affect the market prices of securities, including securities of healthcare companies. The market price of our common stock may be influenced by many factors, including:

In addition, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of healthcare companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our financial condition, results from operations, business or prospects. In the past, securities class-action litigation has often

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been brought against companies following periods of volatility in the market price of their respective securities. We may become involved in this type of litigation in the future. Litigation of this type is often expensive to defend and may divert our management team’s attention as well as resources from the operation of our business. There is no assurance that the market price of our common stock will not fall in the future.

We do not anticipate paying dividends on our common stock in the foreseeable future and, consequently, your ability to achieve a return on your investment will depend solely on any appreciation in the price of our common stock.

We do not pay dividends on our shares of common stock and intend to retain all future earnings to finance the continued growth and development of our business and for general corporate purposes. In addition, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our Board of Directors.

We are subject to the listing requirements of The NASDAQ Capital Market and there can be no assurances that we will satisfy these listing requirements on an ongoing basis.

Our common stock is listed on The NASDAQ Capital Market, and we are therefore subject to its continued listing requirements, including requirements with respect to the market value of publicly-held shares and minimum bid price per share, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from The NASDAQ Capital Market.

We recently determined that awards of RSUs we made to our directors in 2009, 2013 and 2014 were not and would not be in compliance with the terms of our 2009 Equity Incentive Plan. See “Executive Compensation—Director Compensation.” Because of such noncompliance, awards of RSUs to our directors and issuance of our common stock upon vesting of those RSUs have not been approved by our stockholders, and, accordingly, the issuance of our common stock thereunder was not and would not be in compliance with NASDAQ Listing Rule 5635(c). On November 5, 2014, we notified The NASDAQ Stock Market LLC, or NASDAQ, of these events and advised it that our Board of Directors has determined that we would suspend the issuance of additional common stock under the RSUs awarded in 2009 and would not issue any common stock under the RSUs awarded in 2013 or 2014 until stockholder approval of such awards is obtained and stockholders approve an amendment of the 2009 Equity Plan to permit the award of RSUs to our directors. We also notified NASDAQ that we would seek such stockholder approval at our 2015 annual meeting of stockholders. On November 25, 2014, we received a letter from NASDAQ notifying us that NASDAQ had determined that we had violated NASDAQ Listing Rule 5635(c). In its November 25, 2014 letter, NASDAQ granted us an extension of time until May 26, 2015 to obtain such approvals and notify NASDAQ of such action. In the event we do not obtain stockholder approval of the RSU awards and an amendment to our 2009 Equity Incentive Plan to permit the award of RSUs to our directors, NASDAQ may delist our common stock.

If we are delisted from The NASDAQ Capital Market and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:

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The market price of our common stock in the future may be affected by different factors than in the past.

With our entry into the urgent and primary care line of business and our plans to transform the Company over the next few years into primarily an urgent and primary care business, the market price of our common stock in the future may be impacted by different factors than those that have affected the market price of our common stock in the past.

Anti-takeover provisions of our certificate of incorporation, our bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of our board and management.

Certain provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of our board of directors. These provisions also could limit the price that investors might be willing to pay in the future for our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. These provisions, among other things:

In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from merging or combining with us for a prescribed period of time.

We cannot predict what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.

An inactive market may impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. We cannot predict with any certainty the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our common stock may fall.

Reports published by securities or industry analysts, including projections in those reports that exceed our actual results, could adversely affect our common stock price and trading volume.

Securities research analysts, including those affiliated with our underwriters, may establish and publish their own periodic projections for our business. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may decline if our actual results do not match securities research analysts’ projections. Similarly, if one or more of the analysts who writes reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, our stock price or trading volume could decline. While we expect securities research analyst coverage, if no securities or industry analysts begin to cover us, the trading price for our stock and the trading volume could be adversely affected.

You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.

Because the price per share of our common stock being offered is higher than the net tangible book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on the public offering price of $     per share, and after

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deducting the underwriting discount and estimated offering expenses payable by us, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $     per share in the net tangible book value of the common stock. If the underwriters exercise their over-allotment option, or if outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution. See the section entitled “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.

We may sell shares of our common stock in the future at a price that is less than the price per share of our common stock in this offering.

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in this offering. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by investors in this offering.

Our management will have broad discretion in allocating the net proceeds of this offering and may use the proceeds in ways with which you disagree.

Our management has significant flexibility in applying the net proceeds we expect to receive in this offering. Because the net proceeds are not required to be allocated to any particular investment or transaction, investors in this offering may not agree with how the net proceeds are used. The failure by our management to apply these funds in an effective manner could have a material adverse effect on our business, results of operations and financial condition. See “Use of Proceeds” for a description of how we presently intend to apply the net proceeds from this offering.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements can be identified by forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate” and “continue” or similar words and discuss our strategy, future operations, future financial position, prospects and future development or contain other “forward-looking” information.

Such forward-looking statements are based on current information, assumptions and belief of management, and are not guarantees of future performance. Substantial risks and uncertainties could cause actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to:

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Risk Factors” section. Although the forward-looking statements in this prospectus reflect our good faith judgment, based on currently available information, they involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries’ actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” contained in this prospectus. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus, to conform these statements to actual results, or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $    , or approximately $    if the underwriters exercise their over-allotment option in full, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. A $    increase (decrease) in the assumed public offering price of $    per share would increase (decrease) the expected net cash proceeds of the offering to us by approximately $    . A      increase (decrease) in the assumed number of shares sold in this offering would increase (decrease) the expected net cash proceeds of the offering to us by approximately $    .

We expect to use the net proceeds to acquire and open urgent and primary care centers and for general corporate purposes.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition, which could change in the future as our plans and business conditions evolve. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above.

The amount and timing of our actual expenditures will depend upon numerous factors, including the timing of our closing of any acquisition of urgent and primary care centers, and our ability to identify, negotiate and close future urgent and primary care transactions. As a result, our management will have broad discretion over the use of the net proceeds from this offering.

Pending the use of the proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short- and intermediate-term interest bearing obligations, investment grade instruments, certificates of deposit or U.S. government securities.

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MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

Market Information

Our common stock is traded on The NASDAQ Capital Market under the symbol ANCI.

The following table sets forth, for the fiscal periods indicated, the range of the high and low sales prices for our common stock on The NASDAQ Capital Market from January 1, 2013 through February 5, 2015.

		High				Low
2015
First Quarter (through February 5, 2015)		$	3.48			$	2.27
2014
Fourth Quarter		$	3.11			$	2.06
Third Quarter		$	3.99			$	2.89
Second Quarter		$	3.75			$	1.61
First Quarter		$	2.32			$	1.54
2013
Fourth Quarter		$	1.85			$	1.32
Third Quarter		$	2.01			$	1.50
Second Quarter		$	2.10			$	1.62
First Quarter		$	2.01			$	1.50

The closing price on The NASDAQ Capital Market for our common stock on February 5, 2015 was $3.39.

On September 21, 2011, we received a letter from NASDAQ stating that for 30 consecutive business days immediately preceding the date of the letter, our common stock did not maintain a minimum closing bid price of $1.00 per share, as required by NASDAQ Listing Rule 5550(a)(2) and, therefore, our common stock was subject to delisting. We were given 180 calendar days, or until March 19, 2012, to regain compliance with the minimum bid price requirement.

In a letter dated March 20, 2012, NASDAQ stated that although we had not regained compliance with the minimum bid price requirement, we were eligible for an additional 180-day compliance period, or until September 17, 2012, based on the Company meeting the continued listing requirements for market value of publicly held shares and all other applicable standards for initial listing on The NASDAQ Capital Market (except for the minimum bid price requirement) and having notified NASDAQ of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

With the requisite approval of our stockholders, on August 31, 2012 we amended our Certificate of Incorporation to effect a 1-for-3 reverse stock split of our common stock effective September 4, 2012. On that date, every three shares of our common stock then issued and outstanding were automatically combined into one share of common stock. Stockholders left with fractional shares as a result of the reverse split received cash in lieu of the fractional shares. In addition, any options, warrants and RSUs outstanding were adjusted accordingly. As a result of the reverse split, we had 5,706,443 shares of common stock issued and outstanding as of December 31, 2012.

On September 18, 2012, we received notification from NASDAQ that we were in compliance with the minimum bid price requirement.

We recently determined that awards of RSUs we made to our directors in 2009, 2013 and 2014 were not and would not be in compliance with the terms of our 2009 Equity Incentive Plan. See “Executive Compensation — Director Compensation.” Because of such noncompliance, awards of RSUs to our directors and issuance of our common stock upon vesting of those RSUs have not been approved by our stockholders, and, accordingly, the issuance of our common stock thereunder was not and would not be in compliance with NASDAQ Listing Rule 5635(c). On November 5, 2014, we notified NASDAQ of these events and advised it

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that our Board of Directors has determined that we would suspend the issuance of additional common stock under the RSUs awarded in 2009 and would not issue any common stock under the RSUs awarded in 2013 or 2014 until stockholder approval of such awards is obtained and stockholders approve an amendment of the 2009 Equity Plan to permit the award of RSUs to our directors. We also notified NASDAQ that we would seek such stockholder approval at our 2015 annual meeting of stockholders. On November 25, 2014, we received a letter from NASDAQ notifying us that NASDAQ had determined that we had violated NASDAQ Listing Rule 5635(c) that provides, in relevant part, that stockholder approval is required prior to the issuance of securities when equity compensation arrangements are made pursuant to which stock may be acquired by officers, directors, employees or consultants. The November 25, 2014 notification from NASDAQ has no immediate effect on the listing of our common stock. In its November 25, 2014 letter, NASDAQ granted us an extension of time until May 26, 2015 to obtain such approvals and notify NASDAQ of such action. In the event we do not obtain stockholder approval of the RSU awards and an amendment to our 2009 Equity Incentive Plan to permit the award of RSUs to our directors, NASDAQ may delist our common stock.

Holders

As of December 31, 2014, according to the records of our transfer agent, we had 154 record holders of our common stock. The number of record holders is based on the actual number of holders registered on the books of our transfer agent and does not reflect holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.

Dividend Policy

Historically, we have not paid dividends on our common stock, and we currently do not intend to pay any dividends on our common stock after the completion of this offering. We currently plan to retain any earnings to support the operation, and to finance the growth, of our urgent and primary care business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our Board of Directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources.”

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DILUTION

After giving effect to this offering and the receipt of $    of estimated net proceeds from this offering, the pro forma net tangible book value of our common stock as of September 30, 2014, would have been $    , or $    per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities adjusted by the assumed proceeds of this offering, divided by the sum of the total number of shares of common stock outstanding, as of September 30, 2014, and the assumed shares from this offering. This amount represents an immediate increase in net tangible book value of $    per share to the existing stockholders and an immediate dilution in net tangible book value of $    per share to purchasers of our common stock in this offering. Dilution is determined by subtracting pro forma net tangible book value per share after this offering from the amount of cash paid by a new investor for a share of common stock. The new investors will have paid $    per share even though the per share value of our tangible assets after subtracting our liabilities is only $    . The following table illustrates such dilution on a per share basis:

Assumed public offering price per share						$
Historical net tangible book value per share as of September 30, 2014						$	(0.29	)
Increase per share attributable to this offering
Pro forma net tangible book value per share after this offering
Dilution per share to new investors						$

If the underwriter exercises its overallotment option in full, the pro forma net tangible book value per share after the offering would be $    , or $    per share. This amount represents an immediate increase in net tangible book value of $    per share to the existing stockholders and an immediate dilution in net tangible book value of $    per share to purchasers of our common stock in this offering. If any shares are issued upon exercise of outstanding options or warrants, new investors will experience further dilution.

The foregoing discussion is based on 6,713,960 shares of our common stock outstanding as of September 30, 2014 and excludes:

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2014:

		As of September 30, 2014
		(unaudited)
		Actual				Pro Forma				Pro Forma as Adjusted
(in thousands except per share amounts)
Cash and cash equivalents		$	2,462			$	2,462			$
Long-term debt:
Senior secured credit facility(1)			2,834				4,942
Capital lease obligations			517				517
Notes payable			799				799
Total long-term debt			4,150				6,258
Stockholders’ equity:
Preferred stock, $0.01 par value; 10,000 shares authorized, none issued			—				—				—
Common stock, $0.01 par value; 40,000 shares authorized, 6,714 shares issued and outstanding, actual and pro forma; 40,000 shares authorized,      shares issued and outstanding, pro forma as adjusted for this offering			67				67
Additional paid-in capital			25,505				25,505
Accumulated deficit			(19,330	)			(19,330	)
Total stockholders’ equity			6,242				6,242
Total capitalization		$	10,392			$	12,500			$

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Overview

We operate two lines of business: our urgent and primary care business and our traditional ancillary network business. These lines of business are operated and managed through shared services.

Urgent and Primary Care

We own and operate healthcare centers offering a wide array of services for non-life-threatening medical conditions. We strive to improve access to quality medical care by offering extended hours and weekend service and also by accepting patients by appointment and on a walk-in basis.

Our centers offer a broad range of medical services generally falling within the classification of urgent care, primary care, family practice and occupational medicine. Specifically, we offer non-emergent, out-patient medical care for the treatment of acute, episodic, and some chronic medical problems. When hospitalization or specialty care is needed, referrals to appropriate specialists are made.

Patients typically visit our centers when their condition is either beyond the scope or availability of their regular primary care provider and are not severe enough to warrant an emergency room visit. The services provided at our centers include, but are not limited to, the following:

We draw distinctions between our various service lines based on whether the patient encounter is on a walk-in or appointment basis, and whether the patient is an employee or contractor of one of our occupational medicine clients. Our service lines include urgent care, primary care and family care, and occupational medicine. Although such distinction is generally only of importance for internal reporting purposes, certain commercial payors reimburse at differing rates depending on whether the treatment rendered is considered to be urgent care or primary care. For patients whose services are paid by Medicare, we are paid based on the same physician fee schedule regardless how the treatment is classified.

For centers in which we maintain contracts for both urgent care and primary care services, we generally treat and bill walk-in patients under urgent care contracts and appointment-based patients under primary care contracts. The scope of care rendered in the urgent care and primary care contexts are generally the same, although we anticipate that the urgent care service line may include the performance of additional procedures and may involve a higher acuity in patient visits. Where we are able, we dispense limited quantities of medication to patients at our centers.

The U.S. healthcare system continues to struggle with challenges relating to access to care, rising costs, the shortage of primary care providers and heavier patient demands resulting from ACA mandates. We believe that urgent and primary care centers are now and will continue to be, a meaningful part of the solution and an essential part of the delivery of healthcare services in the communities in which we operate.

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We intend to grow the urgent and primary care business through the acquisition of existing centers and by opening new centers in the areas surrounding those we acquire on an opportunistic basis. We are primarily focused in the eastern and southeastern United States.

Ancillary Network

Our ancillary network business offers cost containment strategies to our clients, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers. This service is marketed to a number of healthcare companies including TPAs, insurance companies, large self-funded organizations, various employer groups and PPOs. We offer payors this solution by:

We have assembled a network of ancillary healthcare service providers that supplement or support the care provided by hospitals and physicians and includes 32 service categories.

We secure contracts with ancillary service providers by offering them the following:

Payors route healthcare claims to us after service has been performed by participant providers in our network. We process those claims and charge the payor according to its contractual rate for the services according to our contract with the payor. In processing the claim, we are paid directly by the payor 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.

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Results of Operations

Three and Nine Months Ended September 30, 2014 Compared to September 30, 2013

The following tables set forth a comparison of operations for the following periods presented for our two lines of business and shared services (certain prior year amounts have been reclassified for comparability purposes):

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Urgent and Primary Care

Acquisition Activity

On May 8, 2014, ACSH Urgent Care of Georgia, LLC, or ACSH Georgia, purchased from CorrectMed, LLC and other sellers substantially all the assets of two urgent care centers located in Locust Grove, Georgia and Decatur, Georgia. The aggregate purchase price was $2,700,000 with $2,200,000 paid in cash at closing and the remainder paid by delivery of a promissory note in the principal amount of $500,000. The note bears simple interest at a fixed rate of 5% per annum. The note matures on May 8, 2015, and all principal and interest is due and payable on that date. The principal amount of the note may be increased or decreased by a working capital adjustment as set forth in the purchase agreement.

On August 29, 2014, ACSH Urgent Care of Florida, LLC, or ACSH Florida, purchased from Bay Walk-In Clinic, Inc. and other sellers substantially all the assets of two urgent care centers located in Panama City, Florida and Panama City Beach, Florida. The aggregate purchase price was $2,200,000, with $1,500,000 paid in cash at closing and the remainder paid by the delivery of three promissory notes in the aggregate principal amount of $700,000. One promissory note in the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum. Payment of principal and interest on this note is due in two installments: $110,000 is due and payable on August 29, 2015, and $105,000 is due and payable on August 29, 2016. The principal amount of the note may be increased or decreased by a purchase price adjustment as set forth in the purchase agreement. Another promissory note also in the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum. Payment of principal and interest on this note is due in 24 equal monthly installments of $8,776.51 each, beginning on September 30, 2014. The principal amount of this note may be increased or decreased by a purchase price adjustment as set forth in the purchase agreement. A third promissory note in the principal amount of $300,000 is non-interest bearing and is due and payable in 30 equal monthly installments of $10,000 each, beginning on September 30, 2014.

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On September 12, 2014, ACSH Urgent Care Holdings, LLC, or ACSH Urgent Care, purchased from Jason C. Junkins, M.D. all of the issued and outstanding shares of common stock of Mid-South Urgent Care, Inc., which operates an urgent care, walk-in medical business at three urgent care centers located in Alabama. The aggregate purchase price for the transaction was $1,500,000 (subject to certain adjustments set forth in the purchase agreement), with $1,350,000 paid in cash at closing and the remainder paid by delivery of a promissory note in the principal amount of $150,000. The note is payable in two equal principal installments of $75,000, plus accrued interest at the rate of 5% per annum, on the first and second annual anniversaries of the closing date. In connection with the transaction, we entered into a guaranty in favor of Dr. Junkins, pursuant to which we agreed to guarantee all payment and performance obligations of ACSH Urgent Care under the note.

On October 29, 2014, ACSH Georgia purchased from Thinh D. Nguyen and Han C. Phan all of the issued and outstanding membership interests of MedHelp, LLC, a Georgia limited liability company, or MedHelp, which operates an urgent care, walk-in medical business in Alpharetta, Georgia. The aggregate purchase price for the transaction was $880,000 (subject to certain adjustments set forth in the purchase agreement), with $780,000 paid in cash at closing and the remainder paid by the delivery of a promissory note in the amount of $100,000. The outstanding balance of the principal and interest (accruing at a rate of 5% per annum) under the promissory note is payable in full on the one-year anniversary of the closing date.

On December 31, 2014, our wholly-owned subsidiary, ACSH Urgent Care of Virginia, LLC, or ACSH Virginia, purchased from Stat Medical Care, P.C. (d/b/a Fair Lakes Urgent Care Center) and William and Teresa Medical Care, Inc. (d/b/a Virginia Gateway Urgent Care Center), substantially all of the assets of two urgent care centers located in Fairfax, Virginia and Gainesville, Virginia for an aggregate purchase price of $1,378,000. ACSH Virginia paid the purchase price, in part, by the issuance of a promissory note in the principal amount of $50,000. The note bears simple interest at a fixed rate of 5% annum. The note matures on December 31, 2015, and all unpaid principal and all accrued but unpaid interest is due and payable on that date. The principal amount of the note may be increased or decreased by a working capital adjustment as set forth in the purchase agreement. The remainder of the purchase price was paid in cash.

On July 30, 2014, we entered into a credit agreement with Wells Fargo, National Association, or Wells Fargo, for a $5,000,000 revolving line of credit, or the July 2014 credit agreement. We borrowed $4,983,841 under the July 2014 credit agreement to fund the cash portion of the purchase prices for the Bay Walk-In Clinic, Inc., the Mid-South Urgent Care, Inc., the MedHelp, the Stat Medical Care, P.C. and the William and Teresa Medical Care, Inc. acquisitions. On December 4, 2014, we entered into an additional credit agreement with Wells Fargo for a $6,000,000 revolving line of credit, or the December 2014 credit agreement. There is currently no indebtedness outstanding under the December 2014 credit agreement.

Net Revenues

We have agreements with governmental and other third-party payors that provide for payments to us based on contractual adjustments to the payors’ established rates. Net revenue is reported at the estimated net realizable amounts at the time services are rendered from patients, third-party payors and others for services rendered, including estimated contractual adjustments pursuant to agreements with third-party payors. Contractual adjustments are accrued on an estimated basis in the period the related services are rendered, and adjusted in future periods as final settlements are determined.

Our urgent and primary care business, through the seven sites that were operated by us at September 30, 2014, generated net revenues of approximately $1,100,000 for the three months ended September 30, 2014 and $1,600,000 for the nine months ended September 30, 2014. For the three months ended September 30, 2014, we experienced, in the aggregate, approximately 8,800 patient visits, which resulted in an average of 175 patient visits per day. For the nine months ended September 30, 2014, we experienced in the aggregate approximately 12,800 patient visits, which resulted in an average of 180 patient visits per day. The average reimbursement per patient visit was approximately $126 for the three month period ended September 30, 2014 and $124 for the nine month period ended September 30, 2014.

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Salaries, Wages, Benefits and Taxes

Salaries, wages and benefits primarily consist of compensation and benefits to our clinical providers and staff at our centers. We employ a staffing model at each facility that includes at least one board-certified physician, one or more physicians assistants or nurse practitioners and, at a minimum, one front office staff member on-site at all times. Salaries, wages, benefits and taxes are the most significant operating expense components of our urgent and primary care business. For the three months ended September 30, 2014, salaries, wages and associated benefits and taxes aggregated approximately 69.8% of net revenue and aggregated approximately 65.7% for the nine month period ended September 30, 2014. For the three months ended September 30, 2014, we made personnel investments at certain sites in preparation for future growth.

Other Operating Expenses

Other operating expenses primarily consist of marketing, facility and operating lease costs, medical and laboratory supplies, radiology fees and facility maintenance, utilities, medical malpractice and other insurance, training and development, travel, office and computer expenses. Our marketing activities are principally focused on building awareness in the community to drive patient volume. We utilize targeted marketing efforts within local neighborhoods, through channels such as direct mail, billboards, radio advertisements, physician open houses, community sponsorships and an online/social media presence. For the three and nine months ended September 30, 2014, the Company incurred approximately $29,000 of non-recurring costs related to the acquired sites.

Ancillary Network

Net Revenues

Our net revenues from the ancillary network business are generated from ancillary healthcare service claims. Revenue is recognized when we bill our client payors for services performed and collection is reasonably assured. We estimate revenues using average historical collection rates. When estimating collectability, we assess the impact of items such as non-covered benefits, payments made directly to the service provider by the client payor, denied claims, deductibles and co-payments. Periodically, revenues and related estimates are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected. There are no assurances that actual cash collections will meet or exceed estimated cash collections.

There can be variations in revenue from period-to-period due to the demand for various ancillary service specialties by our clients’ members. The variations can impact revenue, revenue per claim, collectability and margins after payments made to the ancillary service providers. Although we focus on attaining the most advantageous contractual rates possible with our clients and ancillary service providers, we have minimal control over the mix of ancillary service specialties billed and the ancillary service providers that are utilized.

During the three and nine months ended September 30, 2014, net revenue declined due to the deterioration of billed claims volume from our legacy clients compared to the same prior year periods. Billed claims volume declined 11.0% during the three months ended September 30, 2014 and 13.5% during the nine months ended September 30, 2014, compared to the same prior year periods. The decline in claims volume was the result of following:

The declines in net revenue were partially offset by the contributions of two third-party administrators, which were acquired by our largest client in late-2013 and early-2014. We partnered with our client to implement new books of business in early-2014, which contributed revenue of approximately $1,000,000 during the three months ended September 30, 2014 and $2,700,000 during the nine months ended September 30, 2014.

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Provider payments

Decreases in provider payments of 18.3% for the third quarter ended September 30, 2014 and 25.6% for the nine month period ended September 30, 2014 are consistent with the revenue declines discussed above. The decrease in provider payments as a percentage of net revenues compared to the same prior year period is primarily due to the combination of the mix of clients that utilized our network of ancillary service providers and the mix of ancillary service categories utilized. The mix of clients and service categories shifted to those that historically contribute higher margins relative to other clients and categories.

Administrative fees

Administrative fees paid to clients as a percent of net revenues were 4.9% for the three months ended September 30, 2014 and 4.1% for the comparable period in 2013. Administrative fees paid to clients as a percent of net revenues were 5.0% for the nine months ended September 30, 2014 and 4.2% for the comparable period in 2013. The increase is due to a change in mix to clients with higher administrative fees from clients with lower administrative fees, primarily the new clients implemented in the first quarter of 2014.

Professional fees

The decrease in professional fees is primarily the result of strategic sales consulting costs incurred in the three and nine months ended September 30, 2013. Those consulting arrangements were eliminated and there were no similar costs incurred during the same periods in 2014.

Other operating expenses

The decrease in other expenses is primarily the result of less marketing, travel and meals and entertainment incurred in the three and nine months ended September 30, 2014, as compared to the same prior year periods.

Management Services Agreement

On October 1, 2014, we entered into a management services agreement with HealthSmart. HealthSmart is a comprehensive benefits management company and is the largest independent administrator of health plans for self-funded employers in the United States. HealthSmart has several provider networks that include hospitals, physicians and other healthcare providers and facilities. It contracts with over 600,000 providers across the United States and tailors its various provider network solutions to meet its customers’ needs and to help control their healthcare costs. In addition, HealthSmart provides claims and benefits administration, pharmacy benefits management services, business intelligence, onsite employer clinics and care management. Under the management services agreement, HealthSmart has assumed responsibility for the operation of our ancillary network business, subject to the supervision of a five-person oversight committee comprised of three members selected by us and two members selected by HealthSmart. As part of the management arrangement, HealthSmart hired substantially all of our ancillary network business employees, purchased substantially all of our furniture, fixtures and equipment located in our former Dallas, Texas office and assumed our lease for that office. As a result of this arrangement, we no longer employ the workforce of our ancillary network business. Under the management services agreement, HealthSmart manages and operates our ancillary network business for a fee equal to the sum of 120% of the direct costs incurred by HealthSmart in providing management services. Any net profit derived from the operation of our ancillary network business (after reduction for the management fee) is divided such that 35% of the net profit accrues to HealthSmart and 65% accrues to us. During the term of the agreement, HealthSmart is responsible for the payment of all expenses incurred in providing the management services with respect to our ancillary network business, including personnel salaries and benefits, the cost of supplies and equipment and rent. The initial term of the management services agreement is three years, and it renews annually thereafter for one year terms unless either party gives notice of termination at least 90 days prior to the end of the then-current term.

At any time after October 1, 2016 and during the remaining term of the management services agreement, HealthSmart may purchase, or we may require that HealthSmart purchase, our ancillary network business for a price equal to $6,500,000 less the aggregate sum of net profit received by us since the beginning of the management arrangement. Consummation of the transaction will be subject to the satisfaction of certain conditions currently including stockholder approval of the sale. In the event HealthSmart purchases our ancillary network business, the urgent and primary care business will be our only business line following

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completion of that transaction. If for any reason the sale of our ancillary network business to HealthSmart is not consummated during or at the end of the term of the management services agreement, we expect to then either re-assume management of that line of business, seek to sell that business on the most favorable terms we are able to obtain or phase out that line of business.

Shared Services

Shared services include the common costs related to both the urgent and primary care and ancillary network lines of business. Shared services includes the Chief Executive Officer, the Chief Financial Officer, the Chief Information Officer and the executive management team whose time is allocable across both lines of business. The following functions are also included in shared services:

In addition, all strategic functions, including but not limited to transactional activities and the related integration of the acquired businesses, are included in shared services. As of September 30, 2014, shared services included 17 full-time employees. Because we were organized in one business segment in 2013, there were no shared services for that period. We believe that by centralizing personnel, processes and technology, we will gain the following:

During the three months ended September 30, 2014, shared services costs included approximately $111,000 of costs related to acquisitions and various strategic initiatives, including the negotiation and finalization of the management services agreement with HealthSmart. Costs incurred consisted primarily of professional fees paid to attorneys and accountants. In addition, shared services costs reflect various marketing investments, which included website development and branding activities.

Year Ended December 31, 2013 Compared to December 31, 2012

The following table sets forth a comparison of our results of operations for the following periods presented (in thousands):

										Change
		2013				2012				$				%
Net revenue		$	26,751			$	34,902			$	(8,151	)			(23.4	)%
Variable costs:
Provider payments			19,762				25,660				5,898				23.0
Administrative fees			1,083				1,551				468				30.2
Total variable costs			20,845				27,211				6,366				23.4
Percent of net revenue			77.9%				78.0%
Variable flow through			5,906				7,691				(1,785	)			(23.2	)
Variable margin			22.1%				22.0%

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										Change
		2013				2012				$				%
Non-variable costs:
Claims administration			2,106				2,232				126				5.6
Provider development			599				800				201				25.1
Sales & marketing			1,900				2,268				368				16.2
Finance & administration			4,266				4,573				307				6.7
Total non-variable costs			8,871				9,873				1,002				10.1
Percent of net revenue			33.2%				28.3%
Loss before depreciation, amortization, and income taxes			(2,965	)			(2,182	)			(783	)			(35.9	)
Percent of net revenue			(11.1)%				(6.3)%
Depreciation and amortization			795				878				83				9.5
Income tax provision			25				31				6				(19.4	)
Net loss		$	(3,785	)		$	(3,091	)		$	(694	)			(22.5	)%

The following discussion compares the historical results of operations on a basis consistent with GAAP for the years ended December 31, 2013 and 2012.

Net Revenues

The Company’s net revenues are generated from ancillary healthcare service claims. Revenue is recognized when we bill our client payors for services performed and collection is reasonably assured. The Company estimates revenues using average historical collection rates. When estimating collectability, we assess the impact of items such as non-covered benefits, denied claims, deductibles and co-payments. Periodically, revenues and related estimates are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected. There are no assurances that actual cash collections will meet or exceed estimated cash collections.

The following table sets forth a comparison of our net revenues and billed claims for the years ended December 31, (in thousands):

		Net Revenue																Billed Claims Volume
										Change																Change
(in thousands)		2013				2012				$				%				2013				2012				Claims				%
Legacy clients:
Significant Client Relationship		$	5,905			$	10,704			$	(4,799	)			(45	)%			19				35				(16	)			(46	)%
MultiPlan, Inc. (formerly Viant Holdings, Inc.)			1,008				2,941				(1,933	)			(66	)			4				14				(10	)			(71	)
All other clients			20,125				21,533				(1,408	)			(7	)			99				111				(12	)			(11	)
Total gross revenue			27,038				35,178				(8,140	)			(23	)			122				160				(38	)			(24	)
Provision for refunds			(287	)			(276	)			(11	)			4				—				—				—				nm
Net Revenue		$	26,751			$	34,902			$	(8,151	)			(23	)%			122				160				(38	)			(24	)%

In addition, the following table sets forth a comparison of processed and billed claims for the years ended December 31, (in thousands):

										Change
(in thousands)		2013				2012				Claims				%
Processed			149				201				(52	)			(26	)%
Billed			122				160				(38	)			(24	)

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Following is a discussion of the changes in net revenue for the year ended December 31, 2013 as compared to 2012:

Significant Client Relationship

The decline in billed claims volume from our relationship with one of our significant clients for the year ended December 31, 2013 is due to, among others, the following factors:

The performance of the client account during 2013 was, and will continue to be, affected by attrition in its own network client base, its internal strategic initiatives and the actual utilization of our network of ancillary healthcare providers over other networks the client has access to. Despite the new agreement the Company and this client entered into on December 31, 2012, and our continued efforts to secure new revenue-generating opportunities, we cannot be certain of any level of continued volume from this client.

MultiPlan, Inc. (formerly Viant Holdings, Inc.)

The decline in net revenue and billed claims volume from our relationship with MultiPlan, Inc., or MultiPlan, is due to the acquisition by MultiPlan of Viant Holdings, Inc. As part of that transition, MultiPlan moved its payors and employer groups to its existing networks. While we did not receive a formal termination notice from MultiPlan, the transition was substantially completed as of December 31, 2012. We recognized $1,000,000 in revenue in 2013 as the final employer groups transitioned to MultiPlan networks. MultiPlan was not a significant client in 2014, and we do not expect it to be a significant client in 2015 or thereafter.

All Other Clients

Our other clients consist of various relationships with PPOs, TPAs, insurance companies and direct payors which we have contracted from 2005 through the current period. Through our client service group, we maintain contact with these clients to determine if opportunities exist to serve the accounts and generate incremental revenue. Such opportunities include the addition of incremental employer groups by our clients that previously did not access our network of ancillary service provider, addressing system and work-flow issues that will improve claims volume and/or collections, focusing sales efforts on certain specialties that provide greater savings for our clients and development of our ancillary service provider network to address specific client needs.

For the year ended December 31, 2013, revenue for this client group decreased 7%, or $1,400,000, when compared to the prior year. The decrease in revenue for this client group during 2013 is due to the following factors:

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The aforementioned declines were partially offset by the following:

The following tables detail the change in revenue generated from different client types for the years ended December 31,:

		2013												2012												Change
($ in thousands)		Count				Revenue				% of revenue				Count				Revenue				% of revenue				$				%
TPAs*			28			$	15,591				57.7	%			27			$	17,379				49.4	%		$	(1,788	)			(10	)%
PPOs			11				7,565				28.0				11				14,845				42.2				(7,280	)			(49	)
Direct/Insurance Companies			2				3,679				13.6				3				2,800				8.0				879				31
Other			3				203				0.7				2				154				0.4				49				32
Gross revenue, before provision for refunds						$	27,038				100.0	%						$	35,178				100.0	%		$	(8,140	)			(23	)%

Variable Costs

Variable costs are comprised of payments to our providers and administrative fees paid to our clients for converting claims to electronic data interchange and routing them to both the Company for processing and to their payors for payment. Payments to providers are the most significant variable cost and it consists of our payments for ancillary care services in accordance with contracts negotiated separately with providers for specific ancillary services.

The following tables set forth a comparison of the variable cost components of our cost of revenues, for the periods presented ended December 31,:

($ in thousands)		2013				% of net revenue				2012				% of net revenue				Change
																		$				%
Provider payments		$	19,762				73.9	%		$	25,660				73.5	%		$	(5,898	)			(23	)%
Administrative fees			1,083				4.0				1,551				4.4				(468	)			(30	)
Total variable costs		$	20,845				77.9	%		$	27,211				77.9	%		$	(6,366	)			(23	)%

Provider payments

The 23% decrease in provider payments in 2013 is consistent with the decline in revenue as discussed above. The decrease in provider payments as a percentage of net revenues compared to the same prior year period is primarily due to the combination of the mix of clients that utilized our network of ancillary service providers and the mix of ancillary service categories utilized. The mix of clients and service categories shifted to those that historically contribute higher margins relative to other clients and categories.

Administrative fees

Administrative fees paid to clients as a percent of net revenues declined to 4.0% in 2013 compared to 4.4% in 2012. The decrease is due to a change in mix from clients with higher administrative fees to clients with lower administrative fees.

Non-variable Costs

Non-variable costs are those that are not contingent on claims activity and are primarily fixed in nature, but can be adjusted. They are comprised of such expenses as salaries and benefits, professional fees,

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consulting costs, non-cash equity compensation costs and travel and entertainment expenses. A significant driver of these costs are headcount, as payroll, commissions and related benefits (including non-cash equity compensation) accounted for approximately 59% of our non-variable cost structure during 2013. Our average headcount of full-time employees, or FTEs, was 49 and 56 at December 31, 2013 and 2012, respectively.

Following is a discussion of the changes in non-variable costs and related drivers:

Claims administration

Our claims administration function consists of our operations and information technology groups. Our operations group is responsible for most aspects of claims management and processing, including billing and quality assurance. In addition, our operations group is responsible for credentialing contracted ancillary service providers. The cost of our operations group is adjusted consistent with the level of claims we process and bill. Our information technology group is responsible for maintaining and enhancing the technological capabilities and applications of the claims management process, is not solely driven by claims volume.

During the twelve months ended December 31, 2013, the costs related to the claims administration function decreased 6% partially due to a decrease in outsourced claims processing costs of $52,000, consistent with the decline in claims volume. Additionally, headcount decreased by one FTE, through natural attrition, within the information technology group, which contributed to the reduction in costs year-over-year.

Provider Development

Our provider development function is responsible for developing our network of ancillary healthcare service providers, which includes contracting with providers to be included in the network and maintaining a relationship with existing providers, all for the purpose of enhancing our ancillary service provider network for our client payors. We customize networks for our clients, thus as new client contracts are secured, our recruiting activities will increase.

The 25% decrease in costs related to the provider development function during the year ended December 31, 2013 as compared to the year ended December 31, 2012 is primarily the result of a headcount reduction of one FTE, through natural attrition, reduced legal fees and travel expenses.

Sales and Marketing

Our sales and marketing function consists of our sales and client services groups, as well as the strategic development group. Our sales group is primarily responsible for securing new client contracts, while our client services group maintains our existing client relationships, as well as attempts to generate incremental growth from those relationships. The strategic development group is responsible for executing the strategic objectives as dictated by the Board of Directors and executive management.

The 16% decrease in costs related to sales and marketing during the twelve months ended December 31, 2013 as compared to the same prior year period was the result of a reduction in total consulting fees of approximately $123,000 and a headcount reduction of two FTEs, when compared to the same prior year period.

Finance and Administration

Our finance and administration function consists primarily of human resources, finance and accounting, and performance management as well as our former Chief Executive Officer, former President and Chief Operating Officer and Chief Financial Officer.

For the year ended December 31, 2013, costs related to the finance and administration function decreased 7%, as compared to the same prior year period. A decrease of approximately $307,000, year-over-year, is the result of a reduction in professional fees related to strategic consulting, audit fees, legal consultation regarding employment issues and legal review of various client contracts. A severance charge of approximately $216,000 was recorded in the second quarter of 2013, but was offset by the decrease in expenses discussed above.

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Selling, General and Administrative Expenses

Following is a table showing the components of selling, general and administrative, or SG&A, expenses as presented per the Statement of Operations for the periods presented ending December 31,:

										Change
($ in thousands)		2013				2012				$				%
Sales and marketing		$	1,900			$	2,268			$	368				16	%
Finance and administration			4,266				4,573				307				7
Selling, general and administrative expenses		$	6,166			$	6,841			$	675				10	%
Percentage of total net revenues			23.0%				19.6%

SG&A expenses as a percentage of total net revenues increased during the year ended December 31, 2013 compared to the prior year, due primarily to the decline in net revenues compared to the same prior year period.

Income Tax Provision

For the years ended December 31, 2013 and 2012, we recorded an income tax provision of approximately $25,000 and $31,000, respectively. The effective income tax rates for 2013 and 2012 were different from the statutory United States federal income tax rate of 34% due primarily to the establishment of a deferred income tax valuation allowance of approximately $2,800,000 in 2011 and an increase in the allowance by approximately $1,009,000 and $845,000 in 2013 and 2012, respectively.

Liquidity and Capital Resources

As of September 30, 2014, we had working capital of $700,000 compared to $5,600,000 at December 31, 2013. Our cash and cash equivalents balance decreased to $2,500,000 as of September 30, 2014 compared to $6,200,000 at December 31, 2013. We continued to experience a decline in claims volume and related revenue in our ancillary network business, resulting in a net loss during the nine months ended September 30, 2014, which expended cash despite our cost containment measures. The table below reconciles the loss before income taxes to the net decrease in cash for the nine months ended September 30, 2014.

Loss before income taxes		$	(4,457	)
Cost of acquisitions			(5,030	)
Borrowings from revolving line of credit			2,834
Proceeds from issuance of common stock			2,000
Depreciation and amortization			628
Non-cash stock-based compensation expense			366
Capital expenditures			(462	)
Other working capital changes			376
Decrease in cash for the nine months ended September 30, 2014		$	(3,745	)

During the nine months ended September 30, 2014, we completed three acquisitions of urgent and primary care centers and related assets in the states of Georgia, Florida and Alabama. The total cash investment in the acquisitions was $5,000,000.

On May 5, 2014, we closed a private placement of 1,000,000 shares of our common stock, par value $0.01 per share, at a purchase price of $2.00 per share for an aggregate purchase price of $2,000,000 for the shares.

On July 30, 2014, we entered into the July 2014 credit agreement with Wells Fargo. Our obligation to repay advances under the July 2014 credit agreement is evidenced by a credit note, which we refer to as our credit note, with a fluctuating interest rate per annum 1.75% above daily one month LIBOR, as in effect from time to time. The credit note matures on June 1, 2016, and all borrowings under the July 2014 credit agreement are due and payable on that date. The obligations under the July 2014 credit agreement and the

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credit note are secured by all the assets of the Company and its subsidiaries. The July 2014 credit agreement includes customary covenants related to, among other things, additional debt, further encumbrances, sales of assets, and investments and lending.

Borrowings under the July 2014 credit agreement are also secured by guarantees provided by certain officers and directors of the Company and two stockholders of the Company who are not officers or directors of the Company. On July 30, 2014, we issued to the guarantors warrants to purchase an aggregate of 800,000 shares of our common stock at $3.15 per share, subject to certain adjustments under certain circumstances, in consideration of their guaranteeing such indebtedness. The warrants vested immediately and are exercisable any time prior to their expiration on October 30, 2019. As of January 31, 2015, we had outstanding borrowings under the July 2014 credit agreement in the amount of $4,983,841, all of which funds have financed the acquisition of urgent and primary care facilities and related assets, including the MedHelp transaction, which was completed in October 2014, and the Stat Medical Care, P.C. and the William and Teresa Medical Care, Inc. transactions that were completed in December 2014.

On December 4, 2014, we entered into the December 2014 credit agreement with Wells Fargo. Our obligation to repay advances under the December 2014 credit agreement is evidenced by a credit note with a fluctuating interest rate per annum 1.75% above daily one month LIBOR, as in effect from time to time. The credit note matures on June 1, 2016, and all borrowings under the December 2014 credit agreement are due and payable on that date. The obligations under the December 2014 credit agreement and the credit note are secured by all the assets of the Company and its subsidiaries, subordinate to the security interests granted to Wells Fargo in connection with the July 2014 credit agreement. The December 2014 credit agreement also includes customary covenants related to, among other things, additional debt, further encumbrances, sales of assets, and investments and lending.

Borrowings under the December 2014 credit agreement are secured by guarantees provided by two directors of the Company and a third party who is not an officer, director or stockholder of the Company. On December 4, 2014, we issued to the guarantors warrants to purchase an aggregate of 960,000 shares of our common stock at $2.71 per share, subject to certain adjustments under certain circumstances, in consideration of their guaranteeing such indebtedness. The warrants vested immediately and are exercisable any time prior to their expiration on December 4, 2019. Currently, we have no borrowings outstanding under the December 2014 credit agreement.

With our entry into the management services arrangement with HealthSmart for the operation of our ancillary network business, we believe that our cash on hand, cash flow from operations and borrowings available under our December 2014 credit agreement, together with the net proceeds from this offering and funds that we believe will be available from future equity offerings and debt financing, will be sufficient to meet our anticipated needs for working capital, acquisitions and capital expenditures for the foreseeable future.

Inflation

Inflation did not have a significant impact on the Company’s costs during the quarter ended September 30, 2014. 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 did not have any off-balance sheet arrangements as of September 30, 2014 or 2013 or for the periods then ended.

Critical Accounting Policies and Estimates

Critical accounting policies are those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described

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in the Notes to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following accounting policies are deemed to be critical by our management:

Revenue Recognition

Urgent and Primary Care

We have agreements with governmental and other third-party payors that provide for payments to the Company based on contractual adjustments to the payors’ established rates. Net revenue is reported at the estimated net realizable amounts at the time services are rendered from patients, third-party payors and others for services rendered, including estimated contractual adjustments pursuant to agreements with third-party payors. Contractual adjustments are accrued on an estimated basis in the period the related services are rendered, and adjusted in future periods as final settlements are determined. We grant credit without collateral to our patients, who consist primarily of local residents insured by third-party payors. Amounts owned by patients (including co-payments and deductibles) are collected at the time service is rendered. Services are not rendered to patients that do not have commercial or governmental benefits coverage. A summary of the basis of reimbursement with major third-party payors is as follows:

Ancillary Network

We recognize revenue on the services that we provide, which includes (i) providing payor clients with a comprehensive network of ancillary healthcare providers, (ii) providing claims management, reporting, processing and payment services, (iii) providing network/need analysis to assess the benefits to payor clients of adding additional/different service providers to the client-specific provider networks and (iv) providing credentialing of network 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. We estimate revenues and costs of revenues using average historical collection rates and average historical margins earned on claims. Periodically, revenues are adjusted to reflect actual cash collections so that revenues recognized accurately reflect cash collected.

We determine whether we are acting as a principal or agent in the fulfillment of the services rendered. After careful evaluation of the key gross and net revenue recognition indicators, we acknowledge that while the determination of gross versus net reporting is highly judgmental in nature, we have concluded that our circumstances are most consistent with those key indicators that support gross revenue reporting.

Following are the key indicators that support our conclusion that we acts as a principal when settling claims for service providers through our contracted service provider network:

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We have evaluated the other indicators of gross and net revenue recognition, including whether or not we have general inventory risk. We do not have any general inventory risk, as our business is not related to the manufacture, purchase or delivery of goods and we do not purchase in advance any of the services to be provided by the ancillary healthcare service providers. While the absence of this risk would be one indicator in support of net revenue reporting, as described in detail above, we have carefully evaluated all of the key gross and net revenue recognition indicators and have concluded that our circumstances are more consistent with those key indicators that support gross revenue reporting.

We record a provision for refunds based on an estimate of historical refund amounts. Refunds are paid to payors for overpayments on claims, claims paid in error, and claims paid for non-covered services. In some instances, we will recoup payments made to the ancillary service provider if the claim has been fully resolved. The evaluation is performed periodically and is based on historical data. We present revenue net of the provision for refunds on the consolidated statements of operations.

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Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset or group of assets might not be recoverable. We perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would indicate a potential impairment include a significant decline in the observable market value of an asset or a significant change in the extent or manner in which an asset is used. The impairment review includes a comparison of future projected cash flows generated by the asset or group of assets with its associated net carrying value. If the net carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value.

Goodwill

Goodwill is evaluated for impairment annually during the fourth quarter or more frequently if events indicate that the carrying value of a reporting unit may not be recoverable. We have two operating segments, urgent and primary care and ancillary network, for segment reporting purposes. Each operating segment represents one reporting unit for purposes of our goodwill impairment test. Potential impairment is noted for a reporting unit if its carrying value exceeds the fair value of the reporting unit. To determine whether goodwill is impaired, a two-step impairment test is performed. Goodwill is evaluated for impairment by comparing the current fair value of our reporting unit to its recorded value, including goodwill. If the fair value of the reporting unit exceeds the carrying value, no impairment is indicated. If the fair value of a reporting unit exceeds the carrying value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. Currently, our goodwill is associated with the urgent and primary care operating segment.

Deferred Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in the future periods) and “deferred tax liabilities” (generally items that we received a tax deduction for, which have not yet been recorded in the statements of operations). The deferred tax assets and liabilities are measured using enacted tax rules and laws that are expected to be in effect when the temporary differences are expected to be recovered or settled. The realization of the deferred tax assets, including net operating loss carryforwards, is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income, and the dates of which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions. Based on estimates impacted by such factors as revenue declines of our two most significant client accounts and the impact of operating results, we determined that a valuation allowance was appropriate. In 2011, a valuation allowance in the amount of $2,800,000 was established against the net deferred tax assets with the exception of the Texas tax credit carryforward of approximately $232,000. The valuation allowance against the net deferred tax assets increased by approximately $1,800,000 to $4,600,000 and the Texas tax credit carryforward was approximately $221,000 as of December 31, 2013.

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BUSINESS

Overview

We have two lines of business: our urgent and primary care business and our ancillary network business. Although we have been engaged in our ancillary network business for a number of years, with our entry into the urgent and primary care business and our new management arrangement with HealthSmart, we now intend to focus primarily on our urgent and primary care business. We believe that urgent and primary care centers are and will continue to be an essential component of the effective delivery of healthcare services in the United States. Accordingly, we intend to focus our resources on the growth of that line of business.

Urgent and Primary Care Business

Our Business

We own and operate healthcare centers offering a wide array of services for non-life-threatening medical conditions. We strive to improve access to quality medical care by offering extended hours and weekend service at convenient locations and by appointment and on a walk-in basis.

The U.S. healthcare system continues to struggle with challenges relating to access to care and rising costs. Exacerbating these problems is the increasing shortage of primary care providers coupled with the heavier patient demands resulting from the ACA mandates. We believe that by offering urgent care, primary care, family care and occupational medicine at convenient times and locations, we will be uniquely positioned to serve as a meaningful part of the solution to the country’s ongoing healthcare problems.

According to the National Association of Community Health Centers Inc., at least one-third of all emergency room visits are treatable in primary care offices or urgent care centers. This results in more than $18,000,000,000 of annual waste. By treating acute, episodic medical problems at prices comparable to those charged by primary care providers, we provide our patients with an alternative to the long wait times and the high costs of an emergency room visit.

Our Strategy

We intend to grow our business through the acquisition of existing centers and by opening new centers in the areas in our target region. We are primarily focused in the eastern and southeastern United States.

We employ an acquisition team experienced in healthcare services that seeks to acquire centers that meet our investment criteria. Our team utilizes its extensive industry contacts, as well as referrals from current physician partners and other sources, to identify, contact and develop acquisition leads. The criteria that we consider critical include, but are not limited to:

We believe there are numerous acquisition opportunities in our target market that would pass our team’s screening criteria. We carefully evaluate each of our acquisition opportunities through an extensive due diligence process to determine which centers have the greatest potential for growth and profitability

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improvements under our operating structure. In many cases, the acquisition team identifies specific opportunities to enhance a facility’s productivity post-acquisition. We intend for our centers to benefit from our network of centers by, among other things, sharing best practices and participating in group purchasing agreements designed to reduce the cost of supplies and equipment.

We currently have a pipeline of acquisition opportunities. In addition, we will continue to evaluate whether local market conditions support our development of new centers. To the extent we choose to pursue such de novo opportunities, we will generally focus on the areas immediately surrounding our existing centers. We believe that doing so will enable us to better leverage our existing brand presence, marketing resources, and our physician and non-physician providers in the area. Our evaluation of such opportunities will involve an analysis of local competition, desirability of available sites, and surrounding market demographics. Our demographic analysis will include an investigation of the median income, population density, percentage of insured population, and median age of the surrounding area. Although we plan to be opportunistic in pursuing de novo opportunities, our immediate focus will remain on growth by acquisition.

We believe our acquisition and de novo opportunities provide significant growth potential.

Our Centers

Locations

We own and operate ten primary care and urgent and primary care centers located in Georgia (three), Florida (two), Alabama (three) and Virginia (two).

Staffing

Our centers are staffed by licensed physicians, nurse practitioners, physician assistants, medical support staff, and administrative support staff. Our medical support staff includes licensed nurses, certified medical assistants, laboratory technicians, and registered radiographic technologists.

Hours of Operation

Although our hours of operation vary based on local patient demand, in general, we operate from 8:00 am to 8:00 pm, Monday through Friday, and from 9:00 am to 6:00 pm on Saturday and Sunday.

Services and Service Lines

Our centers offer a broad range of medical services that generally fall within the urgent care, primary care, family practice and occupational medicine classifications. Specifically, we offer non-emergent, out-patient medical care for the treatment of acute, episodic, and some chronic medical conditions. Although we treat patients of all ages, our patients are typically adults between the ages of 23 and 49 years. When hospitalization or specialty care is needed, referrals to appropriate providers are made.

Patients typically visit our centers on a walk-in basis when their condition is either beyond the scope or availability of their regular primary care provider, when treatment by their primary care provider is inconvenient and, generally, when the condition is not severe enough to warrant an emergency room visit. We strive to deliver an exceptional care and an exceptional patient experience to every patient who seeks care out our centers. We also attempt to capture follow-up, preventive and general primary care business after each walk-in encounter. The services provided at our centers include, but are not limited to, the following:

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We draw distinctions between our various service lines based on whether the patient encounter is on a walk-in or appointment basis and also whether the patient is an employee or contractor of one of our occupational medicine clients. With certain exceptions, we consider treatment rendered to walk-in patients to be urgent care and treatment to appointment-based patients to be primary care.

For centers in which we maintain contracts for both urgent care and primary care services, all walk-in patients are treated and billed under urgent care contracts and appointment-based patients are treated and billed under primary care contracts. The scope of care rendered in the urgent care and primary care contexts are generally the same, although we anticipate that the urgent care service line may include the performance of additional procedures and may involve a higher acuity in patient visits. Where we are able, we dispense limited quantities of medication to patients at our centers. This allows patients to receive their prescriptions before leaving our center and thereby avoid going to a pharmacy to pick up their prescriptions.

Our occupational medicine service line involves the rendering of treatment to employees or contractors of employer clients. Occupational medicine services are sold directly to employers and are generally paid for in cash by the employer. The services typically rendered in the occupational medicine setting include, but are not limited to:

Although distinctions between our urgent care, primary care, family care, and occupational medicine service lines are generally only of importance for internal reporting purposes, certain commercial payors reimburse at differing rates depending on the nature of the treatment rendered. For payors that make such a distinction, we currently receive slightly higher reimbursement rates from commercial payors for primary care services than we do for urgent care services. For patients whose services are paid by certain payors, including Medicare, we are paid based on the same physician fee schedule regardless of the service line or the classification of the treatment.

Fees and Revenue Cycle Management

We receive payment for services rendered at our centers from patients, commercial payors, governmental payors, including Medicare, and from our occupational medicine clients. The fees charged are generally determined by the nature of medical services rendered. We believe that the charges at our centers are significantly lower than the charges of hospital emergency departments and are generally competitive with those charged by local physicians and other similar providers in our service areas.

In general, our centers attempt to collect amounts owed by patients at the time of their service (including co-payments and deductibles). The amounts collected from patients frequently differ depending on whether the patient visit is reimbursable under an urgent or primary care contract. We submit claims for services rendered to commercial payors and governmental payors electronically through a third-party revenue cycle manager. In most cases, commercial payors process our claims and pay us based on negotiated rates set forth in our applicable contract.

We rely on our outside revenue cycle manager to collect amounts owed to us from commercial and governmental payors. Currently, our accounts receivable turnover, on average, every 53 days.

Marketing

Because the success of our centers is entirely dependent on the acceptance of our brand in the local communities in which we operate, we market at the center-level through various community outreach activities. These activities are coordinated locally by the individual center and are supported by dedicated

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corporate personnel. Through the local centers, we host and sponsor community activities and events and become involved in local business organizations such as rotary clubs. We also implement a broad range of targeted marketing strategies via direct mail, radio, on-site giveaways, search engine optimization and social media.

In connection with the acquisition of a new center, we will increase marketing efforts to introduce our brand to the local community. This may include inviting community members to attend a tour of the center, conduct a direct mail campaign, sponsor a car wash or another activity or event. Our typical integration plan, however, includes approximately 18 to 36 months of co-branding each acquired center before transitioning the center to our brand and logo. Decisions regarding acquired center branding are made on a case-by-case basis.

Information Systems and Controls

Each of our centers uses a financial reporting system that provides information to our corporate office to track financial performance on a timely basis. In addition, each of our centers uses an operating system to manage its business. The operating system provides critical support in areas such as scheduling, billing and collection, accounts receivable management, purchasing and other essential operational functions. We have implemented systems to support all of our centers and to enable us to more easily access information about our centers on a timely basis.

We calculate net revenues through a combination of manual and system-generated processes. Our operating systems include insurance modules that allow us to establish profiles of insurance plans and their respective payment rates. The systems then match the charges with the insurance plan rates and compute a contractual adjustment estimate for each patient account. We then manually review the reasonableness of the systems’ contractual adjustment estimate using the applicable profiles. This estimate is adjusted, if needed, when the insurance payment is received and posted to the account. Net revenues are computed and reported by the systems as a result of this activity.

It is our policy to collect co-payments and deductibles prior to providing services. We manually input each patient’s account record and the associated billing codes. Our operating systems then calculate the amount of fees for that patient and the amount of the contractual adjustments. Claims are submitted electronically if the payor accepts electronic claims. We use clearinghouses for electronic claims, which then forward the claims to the respective payors. Payments are manually input to the respective patient accounts.

We have developed proprietary measurement tools to track key operating statistics at each of our centers by integrating data from our local operating systems and our financial reporting systems. Management uses these tools to measure operating results against target thresholds and to identify, monitor and make adjustments to certain core operational areas.

Industry

Although primary care offices, including family practices, that provide services by appointment have existed for many decades, urgent care centers first opened in the United States in the early 1980s. After experiencing a period of brief decline in the mid-1990s, the industry has grown at a remarkable pace. According to UCAOA, there are well over 9,000 urgent care centers in the country. Although the number of centers owned by multi-site, corporate operators has grown with the industry’s continued consolidation, operators of single locations comprise over half of the industry population.

In general, urgent care centers tend to be located in suburban areas and are operated out of convenient, retail locations. Other factors affecting the location of urgent care centers include the local population’s age distribution and the location of the local hospital serving the community. The majority of operators lease their sites, and centers are generally situated in either freestanding buildings or retail space strip centers. The size of centers typically range from 2,000 to 4,500 square feet with the majority of operators occupying around 3,500 square feet.

Although early in the industry’s history the target population for the area surrounding a center was approximately 40,000, several top-performing centers are now thriving in areas with a population at or under

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20,000. Experts attribute this phenomena not only to the general acceptance of walk-in care as an accepted form of healthcare delivery but also to the refined, direct-to-customer marketing and advertising campaigns now being conducted at the site level.

Typical urgent and primary care centers treat a similar proportion of male and female patients, and the greatest number of urgent and primary care patients fall between the ages of 23 and 49. Urgent care centers offer diagnostic testing and laboratory services, dispense medication and perform minor procedures, among other services. The urgent care business is largely seasonal with the greatest patient volumes occurring during the fall and winter flu seasons. Urgent and primary care operators that successfully integrate occupational health into their business tend to experience less variation between the summer and winter months.

Occupational health services are offered to employers in an urgent or primary care center’s local community and are complementary to the core services offered at these centers. Treatment offerings within the occupational health line generally include, among others, pre-employment physicals, drug screenings, and treatment of workplace injuries. Revenue from occupational medicine clinics generally make up anywhere from 5% to 25% of an urgent and primary care company’s operating revenue.

In 2012, the UCAOA reported that, on average, urgent care companies collected approximately $114.67 per patient, with the majority of centers treating between 21 and 50 patients per day. Urgent and primary care centers employ a range of licensed clinicians, including physicians, nurse practitioners, physician assistants, medical assistants, laboratory technicians.

Industry Trends

The urgent care sector represents one of the fastest-growing segments of the American healthcare system. According to a 2013 IBISWorld Report, over the five-year period ending in 2018, industry revenue is projected to grow at an annualized rate of 5.3% to an estimated $18,800,000,000, with expected profit margins expanding slightly to 10.5%. According to the UCAOA, since 2008, new urgent care centers continue to open at a rapid pace. Furthermore, cost-saving initiatives implemented by employers and third-party payors have encouraged the use of urgent care centers over hospital and freestanding emergency room for low-acuity patients, and have facilitated strong industry growth.

Urgent care centers generally provide primary care as well as low-acuity, ancillary services, such as x-ray, CLIA-waived laboratory testing, and low-level trauma treatment to patients on a walk-in basis. The rising costs and wait times associated with both primary- and emergency-care providers leave urgent care centers as an increasingly viable alternative for patients. Patients prefer to access facilities that are close to their homes, creating strong demand for urgent care centers in many areas.

We believe that as a greater portion of the healthcare financial burden is shifted to patients through high-deductible and high co-payment plans, patients will become even more cost conscious the preference for lost-cost medical care. We expect this cost awareness to result in patients preferring to access facilities that are close to their homes, creating strong demand for urgent care centers in many areas.

During the next five years, the urgent care industry is expected to continue expanding, particularly in underserved rural areas of the United States. We believe that one of the main factors that will drive industry growth will be increasing demands made on primary-care providers that are resulting in increasing wait times. Although the number of primary-care doctors has grown at a faster rate than the US population, there are still generally fewer doctors in rural areas on a per capita basis, resulting in long wait times. The Association of American Medical Colleges projects that by 2020, there will be a shortage of 45,000 primary-care physicians.

Additionally, we believe that the expansion of private insurance coverage in the United States through the continued implementation of the ACA presents a sustainable tailwind for growth in the urgent care industry and an increase in the demand for healthcare services. According to IBISWorld, this expected surge in demand will emphasize the urgent care industry’s growing importance to the healthcare system, as traditional primary care providers will likely not be able to accommodate the influx of patients. In accordance with rising demand, the number of urgent care centers is forecasted to rise at an annualized rate of 4.4% to an estimated 12,299 locations by 2018. A greater share of urgent care centers will likely be distributed to rural areas of the United States that have limited access to primary-care physicians.

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The urgent care industry is somewhat insulated from general economic risks. In fact, growth in the urgent care sector continued during the recession despite the fact that the number of Americans with private health insurance decreased during that period. According to IBISWorld, the majority of the industry’s revenue (54.8%) is garnered through private health insurance payments, while Medicare makes up 17.2% of revenue. The remainder is generated through out-of-pocket expenses, Medicaid and other sources of government funding. Although fewer people were able to afford coverage, long-term trends toward increased use of urgent care facilities offset potential losses stemming from poor economic conditions.

Competition

The urgent and primary care industry has a low level of market share concentration. According to IBISWorld, the industry is highly fragmented, with the largest four operators accounting for approximately just over 1.0% of industry revenue in 2013. This is true despite the consummation of dozens of newsworthy transactions over the past several years. Major buyers in such transactions include private equity companies, hospital systems, and insurance companies, and as a result of such transactions, very few mid-sized operators (5 – 15 centers) remain independently owned.

Urgent and primary care industry participants must compete with other local operators, hospitals, traditional primary care physicians, family care practices, and other facilities that offer similar services. Clinics operated by nurse practitioners and physician assistants, including “retail clinics,” are increasing in number. Such clinics are expected to increase in number as states continue to relax the rules pertaining to the ability of such mid-level providers to prescribe medications and to the supervision of such mid-level providers by physicians. Although our current strategy does not involve the operation of pure, mid-level centers, we plan to closely analyze such option in various markets.

Because we offer walk-in, urgent care, we are also in competition with hospital-based and freestanding emergency departments. In 2012, Americans made about 136,100,000 visits to an emergency room, according to the CDC. Unlike our centers, emergency departments provide acute care, which may be life threatening or require immediate attention, 24 hours a day, 7 days a week. Also different from our centers, hospital emergency departments that accept payment from governmental sources are required by federal law to provide care to all patients regardless of their ability to pay.

Ancillary Services Provider Network Business

Our ancillary network business offers cost containment strategies to our clients, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers. This service is marketed to a number of healthcare companies including or TPAs, insurance companies, large self-funded organizations, various employer groups and PPOs. We offer payors this solution by:

We have assembled a network of ancillary healthcare service providers that supplement or support the care provided by hospitals and physicians and includes 31 service categories.

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We offer ancillary service providers the following:

Because we have the ability to add new clients and increase the coverage and penetration of our network of ancillary service providers, we can grow revenue by increasing demand as well as increasing supply. New client relationships add new member lives that will seek ancillary services, while new service provider relationships create opportunities for new and existing member lives to receive additional incremental services.

We have experienced significant revenue declines over the past several years in our ancillary network business, primarily related to the decline in business from our two significant legacy clients, both of which are PPOs. Due to a variety of factors affecting the healthcare industry, including, but not limited to, healthcare legislation, the economy and industry consolidation, as well as change in strategic direction of our clients, we have experienced year-over-year declines in our revenue from those accounts. These declines have not been offset by our new business development efforts.

Management Services Agreement

We have made progress over the past 18 months in adding new client relationships; however, we do not believe that the revenue from those accounts will fully offset the revenue declines we have been incurring in our ancillary network business. As a result of these continuing revenue declines and our recent focus on the urgent and primary care business, on October 1, 2014, we entered into a management services agreement with HealthSmart. HealthSmart is a comprehensive benefits management company and is the largest independent administrator of health plans for self-funded employers in the United States. HealthSmart has several provider networks that include hospitals, physicians and other healthcare providers and facilities. It contracts with over 600,000 providers across the United States and tailors its various provider network solutions to meet its customers’ needs and to help control their healthcare costs. In addition, HealthSmart provides claims and benefits administration, pharmacy benefits management services, business intelligence, onsite employer clinics and care management. Under the management services agreement, HealthSmart has assumed responsibility for the management and operation of our ancillary network business, subject to the supervision of a five-person oversight committee comprised of three members appointed by us and two members appointed by HealthSmart. As part of the management arrangement, HealthSmart hired substantially all of our ancillary network business employees, purchased substantially all of our furniture, fixtures and equipment located in our former Dallas, Texas office and assumed our lease for that office. As a result of this arrangement, we no longer employ any personnel dedicated to our ancillary network business. Under the management services agreement, HealthSmart will manage and operate our ancillary network business for a fee equal to the sum of 120% of the direct costs incurred by HealthSmart in providing management services. Any net profit derived from the operation of our ancillary network business (after reduction for the management fee) is divided such that 35% of the net profit accrues to HealthSmart and 65% accrues to us. The initial term of the management services agreement is three years, and it renews annually thereafter for one year terms unless either party gives notice of termination at least 90 days prior to the end of the then-current term.

At any time between October 1, 2016 and the expiration date of the management services agreement, HealthSmart may purchase, or we may require that HealthSmart purchase, our ancillary network business for a price equal to $6,500,000 less the aggregate sum of net profit received by us since the beginning of the management arrangement. Consummation of the transaction will be subject to the satisfaction of certain material conditions, including approval by our stockholders if our annual gross revenue from the urgent and primary care business does not then exceed $40,000,000. In the event HealthSmart purchases our ancillary network business, the urgent and primary care business will be our only business line following completion of that transaction. If for any reason the sale of our ancillary network business to HealthSmart is not

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consummated during or at the end of the term of the management services agreement, we expect to then either reassume management of that line of business, market the business for sale, or phase out that line of business.

Services and Capabilities

Ancillary care services

Ancillary healthcare services include a broad array of services that supplement or support the care provided by hospitals and physicians, including the non-hospital, non-physician services associated with surgery centers, free-standing diagnostic imaging centers, home health and infusion, supply of durable medical equipment, orthotics and prosthetics, laboratory and other services.

Ancillary healthcare services include, but are not limited to, the following categories:

•   acupuncture		•   massage therapy
•   cardiac monitoring		•   occupational therapy
•   chiropractor		•   orthotics and prosthetics
•   diagnostic imaging		•   pain management
•   dialysis		•   physical therapy
•   durable medical equipment		•   podiatry
•   genetic testing		•   rehabilitation: outpatient
•   hearing aids		•   rehabilitation: inpatient
•   home health		•   sleep
•   hospice		•   skilled nursing facility
•   implantable devices		•   speech therapy
•   infusion		•   surgery center
•   laboratory		•   transportation
•   lithotripsy		•   urgent care
•   long-term acute care		•   vision

Provider Network

In order to meet contractual obligations to our healthcare payors to make available a comprehensive and client-specific ancillary healthcare provider network, we have agreements with approximately 5,000 ancillary healthcare service providers operating in approximately 33,500 sites nationwide. The agreements define the scope of services to be provided by each ancillary healthcare provider to covered persons and the amounts to be charged for those services. These agreements are negotiated independently from the agreements we reach with our client payors. The terms of the agreements between the Company and the ancillary healthcare service providers make it clear that we, and not our payor clients, are obligated to the service providers for payments under the contracts with them and that there is no contractual relationship between our payors and the service providers, who are not permitted to pursue claims directly against the our payors.

When providers initially enter into our provider network, they are credentialed for inclusion in the network and they are re-credentialed on a periodic basis. From time to time, its provider relationships are reviewed to determine whether any changes to the relationship are appropriate through sanction monitoring and other methods. We believe that credentialing providers represents a valuable service to both our payors and the providers in the network who would, in the absence of such service, be forced to undergo the credentialing process with respect to each payor with whom they enter into a service relationship.

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During 2013 and 2012, we generated revenue from ancillary healthcare services as follows:

Category		2013				2012
Laboratory			21	%			17	%
Dialysis			15				24
Durable Medical Equipment			15				15
Infusion			15				13
Surgery Center			11				7
Rehabilitation (outpatient & inpatient)			6				6
Diagnostic Imaging			5				6
Long-term Acute Care/Skilled Nursing Facilities			2				3
Chiropractor			2				2
Orthotics and Prosthetics			2				2
Cardiac Monitoring			2				1
Other			4				4
			100	%			100	%

Business Strategy

Our ancillary network business strategy is to maintain and, where feasible, expand a nationwide, high quality, multiple specialty ancillary network and our client payor base. With our new focus on the urgent and primary care business, we are relying on HealthSmart, which has substantial experience in network operations that include ancillary services, to continue to implement our ancillary network business strategy, utilizing its personnel and experience in the ancillary network field.

Our Ancillary Network Structure

Payors route healthcare claims to us after service has been performed by providers in our network. We process those claims and charge the payor according to its rate for the services according to our contract with the payor. In processing the claim, we are paid directly by the payor or the insurer for the service and pay the provider of service according to its independently-negotiated contractual rate. We are at risk for any shortfall in the amount of payment we receive for the service and the amount we are obligated to pay the provider of service.

We may receive a claims submission from a payor either electronically or via a paper based claim. As part of our relationship with the payors, we may pay an administrative fee to the payors for the modifications that may be required to the payor’s technology, systems and processes to create electronic connectivity with us, as well as for the aggregation of claims and the electronic transmission of those claims to us.

How We Deliver Services

Ancillary network analysis.  We perform an analysis of the available claims history from each client payor and partner with the client to develop a specific plan to meet each payor’s needs. The analysis identifies service providers that are not already in our network, and we attempt to enter into agreements with such service providers to maximize discount levels and capture a significant volume of previously out-of-network claims. In addition, the analysis enables us to set a client fee schedule that will bring value through incremental savings on the ancillary service charges.

Ancillary custom network.  Our ancillary network is customized to meet the needs of each payor. In particular, when a new payor joins and periodically for each existing payor, the payor’s “out-of-network” claims history is reviewed and a strategy is developed to create a network that efficiently serves the payor’s needs. This may involve adding additional service providers for a payor or removing service providers if we determine it is beneficial for them to be excluded from the client’s network.

Ancillary network management.  We manage ancillary service provider contracts, reimbursement and credentialing for our payors. This not only provides administrative benefits to our payors, but reduces the burden on our contracted service providers who typically must supply credentialing documentation to payors and engage in contract negotiations with separate payors.

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Ancillary systems integration.  We have created a proprietary software system that enables many different customized accounts to be managed and includes the following modules:

Ancillary reporting.  A complete suite of reports is provided to each payor on a monthly basis. These reports cover contracting efforts and capture rates, client savings, volumes by service category and complete claims and utilization reports and other information of value to the client.

Ancillary healthcare claims management.  Our ancillary healthcare claims flow, both electronic and paper based, can be managed and integrated with a payor’s process electronically or through paper claims. We can perform a number of customized processes that may add additional value for each payor. As part of the claims management process, the documentation requirements specific to each payor are managed. In the event claims are submitted to us by a payor without the complete required documentation, we will work with the payor and service provider to obtain the required documentation so that the claim will be accepted by the payor. This service provides a labor cost savings to the payors and providers.

Ancillary claims collections management.  We facilitate an expedited claims collection process by ensuring receipt of the claim by the payor, providing information to the payor required for processing the claim, tracking the status of the claim throughout the process and maintaining a team of customer service representatives to resolve any issues that might delay the collections process. We believe that the providers in our network are paid more effectively and efficiently than would otherwise be the case.

Sales and Marketing

Pursuant to our management services agreement, HealthSmart is primarily responsible for securing new clients and provider contracts and maintaining and growing existing relationships.

We expect HealthSmart to continue marketing our services to PPOs on an opportunistic basis, but primarily to target direct payors such insurance companies, large self-funded organizations and employer groups. Our manager utilizes a senior sales executive that focuses on new business as well as a client services team of two professionals to contract with new payor organizations and then maximize the revenue and margin potential of each new payor. The new business sales executive uses a variety of channels to reach potential clients including professional relationships, direct marketing efforts, attendance at industry-specific trade shows and conferences, and through strategic partnerships with market channel partners, independent brokers, and consultants. The client services group is engaged with each new payor to help manage the implementation process. In addition, a client services director is generally assigned to each new payor organization and is responsible for all aspects of our relationship with the entity including the expanded utilization of our services over time and the enhancement of our relationship with the payor.

Clients

Our healthcare payor clients engage us to manage a comprehensive array of ancillary healthcare services that they and their payors have agreed to make available to their insureds or beneficiaries or for which they have agreed to provide insurance coverage. The typical services our healthcare payors require us to provide include, but are not limited to:

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Under our agreements with payors, we are obligated to provide or arrange for the provision of all of the services covered by such agreements. In addition, we are responsible for ensuring that the contractual terms are met and such services are provided (whether the services are those performed directly by us, such as claims management, processing and payment service, network/needs analysis and credentialing, or those performed by a service provider contracted by the Company).

Our manager is our most significant client. For the years ended December 31, 2014, 2013 and 2012, we derived approximately 34%, 22% and 31%, respectively, of our total net revenue from HealthSmart, and its affiliates. MultiPlan, Inc., or MultiPlan, which acquired our legacy clients Texas True Choice, Inc. and Viant Holdings Inc., was historically one of our two most significant clients. As a result of market consolidation, revenue generated from that relationship has declined considerably over the past several years. MultiPlan was not a significant client in 2014, and we do not expect it to be a significant client in 2015 or thereafter.

Under our current client contract with HealthSmart, we agreed to enhance our network of ancillary service providers to address markets outside of the commercial group health space and utilize an administrative fee rate differential to encourage HealthSmart to add payors that will access our network of ancillary providers. As part of the agreement, we pay HealthSmart a monthly administrative services fee, subject to an annual maximum of $4,000,000, to reimburse and to compensate it for the work it is required to perform to support our program. The fee is based upon paid claims arising from our network of providers. The agreement, the initial term of which expires at the end of 2015, is subject to an automatic two year renewal term. After this initial renewal term, the agreement will automatically renew for successive periods of one year unless earlier terminated by a party for breach or unless either party provides notice of non-renewal no less than 90 days prior to the expiration of the two year renewal term or any subsequent renewal term. Although this contract continues our client relationship with HealthSmart, the agreement does not provide that we are its exclusive ancillary care network and HealthSmart can engage other ancillary care providers directly into its network. Accordingly, we cannot be certain of any level of continued volume from HealthSmart.

Competition

We face the following types of direct competitors in our ancillary network business: