UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

 

FORM 10-Q

________________

 

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2016

 

OR 

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

Commission File Number: 001-33094

________________

 

American CareSource Holdings, Inc.

(Exact name of Registrant as specified in its charter)

________________

 

Delaware	20-0428568
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

55 Ivan Allen Jr. Blvd., Suite 510

Atlanta, Georgia 30308

(Address of principal executive offices)

 

(404) 465-1000

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share	The NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:

None

________________

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

 

As of May 13, 2016, there were 16,597,150 outstanding shares of common stock of the registrant.

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements can be identified by forward-looking words such as “may,” “will,” “seek,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “believe,” “estimate” and “continue” or similar words and include statements regarding our strategy and growth plans, future operations, future financial position, prospects, expectations 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 or future events to differ materially from those indicated by such forward-looking statements, including, but not limited to:

 

·

our ability to continue as a going concern if we do not obtain additional financing;

 

·

our ability to attract and maintain patients, clients and providers and achieve our financial results;

 

·

our ability to raise additional capital to meet our liquidity needs;

 

·

changes in national healthcare policy, federal and state regulation, including without limitation the impact of the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act and Medical Loss Ratio regulations;

 

·

our ability to complete the disposition of our ancillary network business to HealthSmart;

 

·

our ability to regain and maintain compliance with NASDAQ Continued Listing Rules;

 

·

general economic conditions, including economic downturns and increases in unemployment;

 

·

our ability to successfully implement our growth strategy for the urgent and primary care business;

 

·

our ability to develop, identify, acquire and integrate target urgent and primary care centers;

 

·

increased competition in the urgent and primary care market;

 

·

our ability to recruit and retain qualified physicians and other healthcare professionals;

 

·

reduction in reimbursement rates from governmental and commercial payors;

 

·

lower than anticipated demand for services;

 

·

HealthSmart’s ability to manage our ancillary network business;

 

·

changes in the business decisions by significant ancillary network clients;

 

·

increased competition in our ancillary network business from major carriers;

 

·

increased competition from cost containment vendors and solutions;

 

·

implementation and performance difficulties; and

 

·

other risk factors described in our “Risk Factors” section included in this report or in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

The preceding list is not intended to be an exhaustive list of all of the risks and uncertainties that could cause our actual results or future events to differ materially from those expressed or implied by our forward-looking statements. Our actual results or future events could differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in our “Risk Factors” section included in this report or in our Annual Report on Form 10-K for the year ended December 31, 2015. Given these uncertainties, you should not place undue reliance on our forward-looking statements, and we cannot assure you that the forward-looking statements in this report 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 report, to conform these statements to actual results, or to changes in our expectations.

 

TABLE OF CONTENTS

AMERICAN CARESOURCE HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

 

Part I				Financial Information		4
		Item 1.		Financial Statements		4
				Consolidated Balance Sheets (unaudited)		4
				Consolidated Statements of Operations (unaudited)		5
				Consolidated Statements of Stockholders' (Deficit) (unaudited)		6
				Consolidated Statements of Cash Flows (unaudited)		7
				Notes to Unaudited Consolidated Financial Statements		8
		Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		17
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk		24
		Item 4.		Controls and Procedures		24
Part II				Other Information		24
		Item 1.		Legal Proceedings		24
		Item 1A.		Risk Factors		24
		Item 6.		Exhibits		24
				Signatures		25
				Exhibit Index		26

 

 

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(amounts in thousands, except per share data)

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT)

(Unaudited)

(amounts in thousands, except shares of Series A Convertible Preferred Stock)

 

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

AMERICAN CARESOURCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(amounts in thousands)

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

AMERICAN CARESOURCE HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(tables in thousands, except per share data)

 

 

 

 

 

 

 

 

Item 2. 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 Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 engage in two lines of business: our urgent and primary care business, which we operate under the tradenames GoNow Doctors and Medac, and our legacy ancillary network business. These lines of business are supported through a shared services function.

 

On November 2, 2015 we commenced efforts to sell our legacy ancillary network business to our largest client and manager of the business, HealthSmart, in order to continue our focus on our urgent and primary care business. Assuming we reach mutually agreeable terms with HealthSmart, we anticipate closing the transaction in 2016. Accordingly, we have concluded that the ancillary network business qualifies as discontinued operations and financial results for the ancillary network business are presented as discontinued operations in our consolidated statements of operations, and the related asset and liability accounts are presented on our consolidated balance sheets as held for sale as of March 31, 2016 and December 31, 2015. Amounts previously reported have been reclassified, as necessary, to conform to this presentation to allow for meaningful comparison of continuing operations.

 

Our Urgent and Primary Care Business

 

In May 2014, we announced our entry into the urgent and primary care market. During the remainder of 2014, through our wholly-owned subsidiaries, we consummated five transactions resulting in our acquisition of ten urgent and primary care centers, located in Georgia (3), Florida (2), Alabama (3), and Virginia (2). In December 2015, we completed a key asset acquisition with a four-site urgent care operator in North Carolina. In January 2016, we closed one of our Georgia centers and in April 2016, we sold the two Virginia centers.

 

Our healthcare centers offer a wide array of services for non-life-threatening medical conditions. We strive to improve access to quality medical care by offering extended hours and weekend service primarily on a walk-in basis. Our centers offer a broad range of medical services that generally fall within the urgent care, primary care, family care, and occupational medicine classifications. Specifically, we offer non-life-threatening, out-patient medical care for the treatment of acute, episodic, and some chronic medical conditions. When hospitalization or specialty care is needed, referrals to appropriate providers are made.

 

Patients typically visit our centers on a walk-in basis when their condition is not severe enough to warrant an emergency visit, when they do not have a relationship with a primary care provider, or when treatment by their primary care provider is inconvenient. We also attempt to capture follow-up, preventative and general primary care business after walk-in visits. The services provided at our centers include, but are not limited to, the following:

 

·

routine treatment of general medical problems, including colds, flu, ear infections, hypertension, asthma, pneumonia, urinary tract infections, and other conditions typically treated by primary care providers,

 

·

treatment of injuries, such as simple fractures, dislocations, sprains, bruises, and cuts;

 

·

minor, non-emergent surgical procedures, including suturing of lacerations and removal of foreign bodies;

 

·

diagnostic tests, such as x-rays, electrocardiograms, complete blood counts, and urinalyses; and

 

·

occupational and industrial medical services, including drug testing, workers’ compensation cases, and pre-employment physical examinations.

 

Our centers generally are equipped with digital x-ray machines, electrocardiograph machines and basic laboratory equipment, and are generally staffed with a combination of licensed physicians, nurse practitioners, physician assistants, medical support staff, and administrative support staff. Our medical support staff includes licensed nurses, certified medical assistants, laboratory technicians, and registered radiographic technologists.

 

Our patient volume, and therefore our revenue, is sensitive to seasonal fluctuations in urgent 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 towards high deductible insurance plans, they are responsible for a greater percentage of their bill, particularly in the early months of the year before other healthcare spending has occurred. Our inability to collect the full patient liability portion of the bill at the time of service may lead to an increase in bad debt expense during that period. Our quarterly operating results may fluctuate significantly in the future depending on these and other factors.

 

In keeping with our retail approach to the business, in the fourth quarter of 2015, we initiated a rebranding campaign with our new tradename, GoNow Doctors. We believe our new name and logo will enable us to effectively market our services in our existing and target communities. We intend to use this name in all states except North Carolina. The trade name acquired in our December 2015 transaction, Medac, has been the trusted brand for urgent care services in the Wilmington, North Carolina market for over 30 years. As a result, we will retain the Medac name and will continue use of the name throughout our North Carolina expansion. We believe our new logo and tradenames will enable us to effectively market our services in our existing and target communities.

 

We intend to grow our urgent and primary care business by developing and acquiring new centers in strategic areas located in the eastern and southeastern United States, by expanding our service offerings in our existing centers, by increasing the volume of patients treated in our centers through advertising and other efforts, and by improving overall operating efficiency in our centers.

 

Disposition of our Virginia Centers

 

On April 1, 2016, we exited the Virginia urgent and primary care market by consummating the sale of our two Virginia subsidiaries to UrgeMedical Group, Inc. For the period ended March 31, 2016 and March 31 2015, our Virginia subsidiaries reported net revenues of approximately $254,000 and $275,000, respectively, and net operating loss of approximately $(151,000) and $(132,000), respectively.

 

The sales price for the Virginia subsidiaries was $610,000, $50,000 of which was paid in cash at closing and the balance by delivery of two promissory notes. The first promissory note has an initial principal balance of $160,000 and interest accrues on the outstanding balance at 1.5% per annum. The note is payable in two installments, the first installment of $50,000 is due within 90 days after closing and the second installment of $110,000 is due within 150 days after closing. If, however, UrgeMedical pays $150,000 plus all accrued interest within 90 days, the entire note will be deemed satisfied in full.

 

The second promissory note has an initial principal balance of $400,000 and interest accrues on the outstanding balance at 5.0% per annum. Interest-only payments are due each month beginning July 1, 2016. Principal is due in three equal installments of $133,333 on the first, second and third anniversaries of the effective date of the closing date.

 

Our Legacy Business

 

We concluded that our legacy ancillary network business qualifies as discontinued operations. Accordingly, the financial results from the ancillary network business for the three months ended March 31, 2016 and 2015 are presented as discontinued operations in our consolidated statements of operations, and the related asset and liability accounts are presented as held for sale as of March 31, 2016 and 2015. Amounts previously reported have been reclassified, as necessary, to conform to this presentation to allow for meaningful comparison of continuing operations.

 

Our ancillary network business offers cost containment strategies to our payor clients, primarily through the utilization of a comprehensive national network of ancillary healthcare service providers. This service is marketed to a number of healthcare companies including TPAs, insurance companies, large self-funded organizations, various employer groups and PPOs. We are able to lower the payors’ ancillary care costs through our network of high quality, cost effective providers that we have under contract at more favorable terms than the payors can generally obtain on their own. Payors route healthcare claims to us after service is performed by participant providers in our network. We process those claims and charge the payor according to an agreed upon, contractual rate. Upon processing the claim, we are paid directly by the payor or the insurer for the service. We then pay the medical service provider according to a separately negotiated contractual rate. We assume the risk of generating positive margin, which is calculated as the difference between the payment we receive for the service from the payor and the amount we are obligated to pay the service provider.

 

On October 1, 2014, we entered into a management services agreement with HealthSmart. Under the management services agreement, HealthSmart manages the operation of our ancillary network business, subject to the supervision of a five-person oversight committee comprised of three members selected by us and two members selected by HealthSmart. As a result of this arrangement, we no longer employ the workforce of our ancillary network business. Under the management services agreement, HealthSmart operates our ancillary network business for a management fee equal to the sum of (a) 35% of the net profit derived from operation of our ancillary network business, plus (b) 120% of all direct and documented operating expenses and liabilities actually paid during such calendar month by HealthSmart in connection with providing its management services. For purposes of the fee calculation, the term “net profit” means gross ancillary network business revenue, less the sum of (x) the provider payments and administrative fees and (y) 120% of all direct and documented operating expenses and liabilities actually paid during such calendar month by HealthSmart in connection with providing its management services. Any remaining net profit accrues to us on a monthly basis, which we recognize as service agreement revenue. 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 was three years, and it will terminate upon the consummation of the disposition of the ancillary network business.

 

Results of Operations

 

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

 

The following table sets forth a comparison of consolidated statements of operations by our business segments and shared services for the respective three months ended March 31, 2016 and 2015.

 

		March 31, 2016																March 31, 2015																Change
		Urgent and Primary Care				Ancillary Network*				Shared Services				Total				Urgent and Primary Care				Ancillary Network*				Shared Services				Total				$				%
Urgent and primary care net revenues		$	4,412			$	4,695			$	-			$	9,107			$	2,672			$	5,743			$	-			$	8,415			$	692				8	%
Service revenue			594												594				-												-				594
Total revenue			5,006												9,701				2,672												8,415				1,286				15	%
Operating expenses:
Ancillary network provider payments			-				3,256				-				3,256				-				4,331				-				4,331				(1,075	)			-25	%
Ancillary network administrative fees			-				324				-				324				-				330				-				330				(6	)			-2	%
Ancillary network other operating costs			-				816				-				816				-				972				-				972				(156	)			-16	%
Salaries, wages, contract medical professional fees and related expenses			3,537				-				469				4,006				2,170				-				902				3,072				934				30	%
Facility expenses			441				-				84				525				252				-				110				362				163				45	%
Medical supplies			210				-				-				210				224				-				-				224				(14	)			-6	%
Other operating expenses			756				-				847				1,603				476				-				1,576				2,052				(449	)			-22	%
Depreciation and amortization			194				-				28				222				149				125				17				291				(69	)			-24	%
Total operating expenses		$	5,138			$	4,396			$	1,428			$	10,962			$	3,271			$	5,758			$	2,605			$	11,634			$	(672	)			-6	%
Operating income (loss), including discontinued operations		$	(132	)		$	299			$	(1,428	)		$	(1,261	)		$	(599	)		$	(15	)		$	(2,605	)		$	(3,219	)		$	1,958				-61	%
Interest expense:
Interest expense															107																83				24				29	%
Loss on warrant liability, net of deferred loan fee amortization															470																369				101				27	%
Total other expense and interest expense															577																452				125				1
Loss before income taxes, including income (loss) on discontinued operations														$	(1,838	)														$	(3,671	)		$	1,833				-50	%

 

* Presented as a discontinued operations in statement of operations.

 

Our Urgent and Primary Care Business

 

Our urgent and primary care business segment reported operating income before depreciation of $62,000 and an operating loss before depreciation of $(450,000), respectively, for the three months ended March 31, 2016 and 2015, an increase of $512,000 over the prior year period. We entered the urgent and primary care business in May 2014 and we currently own or operate 11 urgent and primary care centers in the east and southeastern United States. The following factors, among several others, contributed to our segment operating income in the three months ended March 31, 2016:

 

	·	the execution of our strategic plan by our new executive management team;
	·	full-quarter inclusion of Medac results;
	·	improvements to revenue cycle;
	·	implementation of several cost reduction measures; and
	·	closure of one of our underperforming centers

 

Net Revenues

 

Net revenues are recognized at the time services are rendered at the estimated net realizable amounts from patients, third-party payors and others, after reduction for estimated contractual adjustments pursuant to agreements with third-party payors and an estimate for bad debts. Our urgent and primary care business net revenues increased $2.3 million, or 87% over the prior year period. For the three months ended March 31, 2016, we experienced, in the aggregate, approximately 40,600 patient visits, which resulted in an average of 33 patient visits per day per center and the average reimbursement per patient visit excluding service revenue was approximately $109. For the three months ended March 31, 2015, we experienced, in the aggregate, approximately 23,000 patient visits, which resulted in an average of 29 patient visits per day per center and the average reimbursement per patient visit was approximately $116. We believe our patient volume figures, and therefore our revenue, will improve at our centers as we continue our marketing and advertising efforts in our target markets. Contributing to this projected increase will be the expansion of our occupational medicine service line (on-the-job injuries, pre-employment drug screens, pre-employment physicals), which we intend to grow through our direct marketing efforts. We also expect to see improvements in our total revenue as a result of certain efficiency measures we intend to take with respect to our billing and coding practices

 

We also anticipate further increases to net revenue as we continue to improve our billing, collection, and all other aspects of our revenue cycle process.

 

Salaries, Wages, Contract Medical Professional Fees and Related Expenses

 

Salaries, wages, contract medical professional fees and related expenses are the most significant operating expense components of our urgent and primary care business and consist of compensation and benefits to our clinical providers and staff at our centers. We employ a staffing model at each center that generally includes at least one board-certified physician, one or more physician assistants or nurse practitioners, nurses or medical assistants and a front office staff member on-site at all times. Salaries, wages, contract medical professional fees and related expenses for the three months ended March 31, 2016 increased $1.4 million, or 63.0%, over the prior year period. The increase is largely attributable to the addition of the four Medac centers.

 

For the three months ended March 31, 2016 and 2015, salaries, wages, contract medical professional fees and related expenses were 70.7% and 81.2%, respectively, of our urgent and primary care business net revenues. The reduction was the result of, among other things, a decreased usage of temporary and other higher-cost medical providers. Temporary medical providers are generally between 25% and 40% more expensive than our typical, full-time providers. We intend to continue to focus on recruiting and retaining talented physicians and mid-level providers, which we believe will further reduce our clinic staffing costs.

 

Facility Expenses

 

Facility expenses consist of our urgent and primary care centers’ rent, property tax, insurance, utilities, telephone, and internet expenses. Facility expenses for the three months ended March 31, 2016 increased $189,000, or 75.0%, over the prior year period. For the three months ended March 31, 2016 and 2015, facility expenses were 8.8% and 9.4%, respectively, of our urgent and primary care business net revenues. The increase in expenses was due to our operation of the four additional Medac facilities during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015.

 

Medical Supplies

 

Medical supplies consist of medical, pharmaceutical, and laboratory supplies used at our centers. Medical supplies expense in the first quarter of 2016 decreased $14,000, or 6.2%, from the prior period. For the three months ended March 31, 2016 and 2015, medical supplies expenses were 4.2% and 8.4%, respectively, of our urgent and primary care business net revenues. The decrease in expenses was due to more efficient management, our 2015 consolidation of medical supplies vendors, and entry into a group purchasing relationship to gain access to certain preferential pricing terms for certain supply and service items. We believe we will continue to benefit from these actions as we expand our urgent and primary care business.

 

Other Operating Expenses

 

Other operating expenses (including electronic medical records, computer systems and maintenance and support) primarily consist of radiology and laboratory fees, premiums paid for medical malpractice and other insurance, marketing, information technology, non-medical professional fees, including accounting and legal, merchant fees, equipment rental and amounts paid to our third-party revenue cycle manager to bill and collect our urgent and primary care revenue. Other operating expenses increased $280,000, or 58.8%, over the prior year period. The increase was due to our operation of more facilities during the three months ended March 31, 2016 than during the three months ended March 31, 2015. For the three months ended March 31, 2016 and 2015, other operating expenses were 15.1% and 17.8% , respectively, of our urgent and primary care business net revenues.

 

Depreciation and Amortization

 

Depreciation and amortization primarily consists of depreciation and amortization related to our medical property and equipment. Depreciation and amortization in the first three months of 2016 increased $45,000, or 30.2%, over the prior year period. The increase was due to our operation of more facilities during the three months ended March 31, 2016 than during the three months ended March 31, 2015. For the three months ended March 31, 2016 and 2015, depreciation and amortization expenses were 3.9% and 5.6%, respectively, of our urgent and primary care business net revenues.

 

Ancillary Network Business

 

Since October 1, 2014, HealthSmart has managed our ancillary network business under the management agreement discussed above. We experienced deterioration in our ancillary network business segment beginning in 2015 due to continuing changes in the healthcare marketplace. We reported operating income of $299,000 for the three months ended March 31, 2016 compared to $(15,000) for the three months ended March 31, 2015. This increase of $314,000 is due to a 6% reduction in provider margin partially offset by a 1.2% increase in management fees.

 

As discussed above, we concluded that this line of business qualifies as discontinued operations as of March 31, 2016. Accordingly, financial results for the ancillary network business are presented as discontinued operations in our consolidated statements of operations, and the related asset and liability accounts are presented as held for sale as of March 31, 2016. Amounts previously reported have been reclassified, as necessary, to conform to this presentation to allow for meaningful comparison of continuing operations.

 

Shared Services

 

Shared services include the common costs related to both the urgent and primary care and ancillary network lines of business such as the salaries of our executive management team whose time is allocable across both business segments. The following functions are also included in shared services: finance and accounting, human resources, legal, marketing, information technology, and general administration.

 

As of March 31, 2016, shared services employed 10 full-time employees compared to 18 at March 31, 2015. Shared services expenses totaled $1.4 million and $2.6 million, respectively, for the three months ended March 31, 2016 and 2015, a decrease of $1.2 million, or 45.2%. The decrease was primarily due to significant reduction in corporate staff and professional fees.

 

Liquidity and Capital Resources

 

We had negative working capital of $14.6 million at March 31, 2016 compared to negative working capital of $13.2 million at December 31, 2015. The decrease in working capital was primarily due to a $1.6 million decrease in cash used to fund first quarter losses. We expect to incur additional operating losses until we acquire or develop sufficient centers to generate positive operating income.

 

Our financial statements have been prepared on a going concern basis, which contemplates the recoverability of assets and satisfaction of liabilities in the normal course of business. Based on the information herein, there is a substantial doubt as to the Company’s ability to continue as a going concern. We hope to raise additional capital in 2016 to fund anticipated future operating losses, to satisfy our debt obligations as they become due and to facilitate the expansion of our urgent and primary care business; however, there are no assurances we will be able to secure this capital at terms acceptable to us or at all. We may raise such capital through the sale of assets or through one or more public or private equity offerings, debt financings, borrowings or a combination thereof. If we raise funds through the incurrence of additional debt or the issuance of debt securities, the lenders or purchasers of debt securities may require security that is senior to the rights of our common stockholders. In addition, our incurrence of additional debt could result in the imposition of covenants that restrict our operations or limit our ability to achieve our business objectives. The issuance of any new equity securities will likely dilute the interest of our current stockholders. In light of our historical performance, additional capital may not be available when needed on acceptable terms, or at all. If adequate funds are not available, we will need to, among other things, curb our expansion plans, which would have a material adverse impact on our business prospects and results of operations. In addition, we may be required to reduce our operations, including further reductions in headcount, and sell assets. However, we may be unable to sell assets or undertake other actions to meet our operational needs. As a result, we may be unable to pay our ordinary expenses, including our debt service, on a timely basis. The table below reconciles the loss before income taxes to the net increase in cash for the three months ended March 31, 2016:

 

Loss before income taxes		$	(1,838	)
Borrowings under line of credit			700
Depreciation and amortization			222
Non-cash stock-based compensation expense			30
Payment of deferred offering costs			(358	)
Other			(335	)
Decrease in cash		$	(1,579	)

 

Our cash and cash equivalents balance was approximately $1.0 million as of March 31, 2016, as compared to $2.6 million as of December 31, 2015. We had borrowing capacity under existing lines of credit of $0.0 and $700,000, respectively, at March 31, 2016 and December 31, 2015. We expect to extend the maturity of our lines of credit; however, there are no assurances that we will be successful in doing so. At May 13, 2016 we had cash available to us of approximately $478,000 but no capacity to borrow under our lines of credit. We raised equity capital, net of offering costs, of $6.2 million during the year ended December 31, 2015. We have not raised equity capital in 2016.

 

On December 9, 2015, we consummated a registered firm commitment underwritten public offering and sale (the “2015 Offering”) of (i) 9,642,857 Class A Units, with each Class A Unit consisting of one share of our common stock, par value $0.01 per share (the “Common Stock”) and one immediately exercisable five-year warrant to purchase one share of Common Stock with a warrant exercise price of $0.875 (collectively, the “Class A Units”), (ii) 750 Class B Units, with each Class B Unit consisting of one share of the our Series A Convertible Preferred Stock with a stated value of $1,000 and convertible into 1,429 shares of the Company’s Common Stock and five-year warrants to purchase 1,429 shares of Common Stock, with a warrant exercise price of $0.875 per share (collectively, the “Class B Units” and, together with the Class A Units, the “Securities”) and (iii) immediately exercisable five-year warrants to purchase 370,567 shares of Common Stock with a warrant exercise price of $0.875 per share, sold pursuant to an option we granted to the underwriter, Aegis Capital Corp. (“Aegis”), to purchase additional Securities to cover overallotments. The Securities issued in the 2015 Offering were sold pursuant to an underwriting agreement with Aegis. We received proceeds of $6,221,364, net of all underwriting discounts, commissions and certain reimbursements, pursuant to the underwriting agreement, after legal, accounting and other costs of $1,278,636.

 

We have two credit agreements with Wells Fargo. On July 30, 2014, we entered into a $5,000,000 revolving line of credit and on December 4, 2014, we entered into a second credit agreement for a $6,000,000 revolving line of credit, which was increased to $7,000,000 on August 12, 2015. Our obligations to repay advances under the credit agreements are evidenced by revolving line of credit notes, each with a fluctuating interest rate per annum of 1.75% above daily one month LIBOR, as in effect from time to time. The July 30, 2014 credit agreement matures on June 1, 2016, and the December 4, 2014 agreement matures on October 1, 2016. The obligations under the credit agreements are secured by all the assets of the Company and its subsidiaries. The credit agreements include ordinary and customary covenants related to, among other things, additional debt, further encumbrances, sales of assets, and investments and lending. As of March 31, 2016, the weighted-average interest rate on these borrowings was approximately 2.18%.

 

Borrowings under the credit agreements are also secured by guarantees provided by certain officers and directors of the Company, among others. On July 30, 2014, we issued to the guarantors of the July 2014 obligations warrants to purchase an aggregate of 800,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The July 2014 warrants vested immediately and are exercisable any time prior to their expiration on October 30, 2019 at an exercise price of $3.15 per share. In addition, on December 4, 2014, we issued to the guarantors of the December 2014 obligations warrants to purchase an aggregate of 960,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The December 2014 warrants vested immediately and are exercisable any time prior to their expiration on December 4, 2019 at an exercise price of $2.71 per share. In connection with the $1,000,000 increase in the line of credit under the December 2014 credit agreement, on August 12, 2015, we issued warrants to the guarantors to purchase an additional 300,000 shares of our common stock in consideration of their guaranteeing such indebtedness. The August 2015 warrants vested immediately and are exercisable at any time prior to their expiration on August 12, 2020 at an exercise price of $1.70 per share.

 

The exercise prices of the July 2014 warrants, the December 2014 warrants, and one of the August 2015 warrants under which 50,010 shares are purchasable, were adjusted downward to $1.46 per share, the closing price of our common stock on August 28, 2015. The adjustment resulted from our issuing restricted stock to our directors pursuant to our director compensation plan at a price per share less than the exercise price of such warrants. The exercise prices of all such warrants were further adjusted to $0.70 per share, the public offering price of the Class A Units in our 2015 Offering. The remaining, unadjusted August 2015 warrants, under which 249,990 shares are purchasable, were issued to Company directors (Messrs. Pappajohn and Oman). Therefore, any adjustments to such warrants require stockholder approval. We intend to seek such approval at our 2016 annual meeting of stockholders, and if approved, the exercise price of the remaining August 2015 warrants will be adjusted similarly to $0.70 per share.

 

Holders of warrants representing substantially all of the shares issuable under the July 2014 warrants have waived any adjustment in the number of shares that could be purchased pursuant to their warrants as a result of the change in the exercise price. Furthermore, with the exception of the potential adjustment to the remaining August 2015 warrants held by Messrs. Pappajohn and Oman, all of the warrant holders have waived any further adjustments to the exercise price of the outstanding warrants.

 

On December 15, 2015, our wholly-owned subsidiary, ACSH Management, purchased from Medac and its shareholders, substantially all the assets used in the operations of its four urgent care centers for $4,370,000 in cash, the assumption of $768,000 in liabilities and a $560,000 note payable that accrues interest at five percent (5%) that matures on June 15, 2017. Medac remains an urgent care operating entity, owned by a single physician, with which ACSH Management has entered into various agreements. ACSH Management has the power to direct certain of Medac’s significant activities and has the right to receive benefits from Medac that are significant to Medac. We have determined, therefore, that Medac is a VIE and that ACSH Management is the primary beneficiary. Consequently, we have consolidated Medac and its financial results since the date we closed the Medac Asset Acquisition. ACSH Management has entered into a $1.0 million secured line of credit for the benefit of Medac to fund certain of Medac’s operating losses and to cover costs necessary to expand the Medac brand in North Carolina.

 

At March 31, 2016, $185,000 was due under promissory notes issued to the sellers in the transactions entered into during the year ended December 31, 2014 to acquire primary and urgent are centers. The notes accrue interest at an annual rate of five percent (5%).

 

A summary of all acquisition notes issued prior to the Medac Asset Acquisition is as follows:

 

·

ACSH Urgent Care of Georgia, LLC, or ACSH Georgia, issued a promissory note in the principal amount of $500,000 to CorrectMed, LLC and other sellers. The note provided for simple interest at a fixed rate of 5% per annum, matured on May 8, 2015 and the full amount due thereunder has been paid.

 

·

ACSH Urgent Care of Florida, LLC issued three promissory notes in the aggregate principal amount of $700,000 to Bay Walk-In Clinic, Inc. One promissory note in the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum and is payable in two installments: $110,000 on August 29, 2015 and $105,000 on August 29, 2016. On October 21, 2015, as a result of certain working capital adjustments, the seller accepted $91,000 in full satisfaction of the note. The second promissory note also in the principal amount of $200,000 bears simple interest at a fixed rate of 5% per annum and is payable in 24 equal monthly installments of $8,776.51 each, beginning on September 30, 2014. We received notification on August 17, 2015 that the third promissory note in the principal amount of $300,000 was cancelled due to the death of the note’s holder. As a result of the cancellation, we recorded a one-time gain of $289,000 in the third quarter of 2015.

 

·

ACSH Urgent Care Holdings, LLC issued a promissory note in the principal amount of $150,000 to Jason Junkins, M.D. The note is guaranteed by American CareSource Holdings, Inc. and is payable in two equal principal installments of $75,000, plus accrued interest at the rate of 5% per annum, on the first and second annual anniversaries of the closing date, September 12, 2014. The first principle installment was timely paid in 2015.

 

·

ACSH Georgia issued a promissory note in the amount of $100,000 to Han C. Phan, M.D. and Thinh D. Nguyen, M.D. The note matured on the one-year anniversary of the closing date, October 31, 2014 and was satisfied in full in 2015.

 

·

ACSH Urgent Care of Virginia, LLC issued a promissory note in the principal amount of $50,000 to Stat Medical Care, P.C. (d/b/a Fair Lakes Urgent Care Center) and William and Teresa Medical Care, Inc. (d/b/a Virginia Gateway Urgent Care Center). The note bears simple interest at a fixed rate of 5% per annum, matured on December 31, 2015, and is subject to a working capital adjustment as set forth in the applicable purchase agreement. The note remained outstanding as of March 31, 2016.

 

Nasdaq Listing

 

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, minimum bid price per share, and minimum stockholder's equity, 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.

 

On May 21, 2015, we received a letter from NASDAQ indicating that as of March 31, 2015, our reported stockholders’ equity of $407,000 did not meet the $2.5 million minimum required to maintain continued listing, as set forth in NASDAQ Listing Rule 5550(b)(1). The letter further stated that as of May 20, 2015 we did not meet either of the alternatives of market value of listed securities or net income from continuing operations.

 

Under NASDAQ rules, we submitted a plan to NASDAQ to regain compliance, which NASDAQ accepted, granting us until November 17, 2015 to evidence compliance. However, because we did not raise equity capital as we anticipated, we did not evidence compliance with NASDAQ Listing Rule 5550(b)(1) by November 17, 2015. On November 18, 2015, we received a letter from NASDAQ stating that we had not regained compliance with the continued listing requirements of The NASDAQ Capital Market. As a result, NASDAQ determined that our common stock would be delisted from The NASDAQ Capital Market effective November 30, 2015. We appealed that determination which stayed the delisting of our common stock until the appeal was heard on January 14, 2016 by the NASDAQ Hearings Panel. Following the hearing, the NASDAQ Hearings Panel continued our listing through May 16, 2016 in order to allow us to meet the $2.5 million minimum stockholders’ equity requirement for continued listing on The NASDAQ Capital Market.

 

 On January 8, 2016, we received a deficiency letter from NASDAQ indicating that as of January 8, 2016, our common stock failed to maintain a minimum bid price of $1.00 per share for 30 consecutive days in violation of NASDAQ Listing Rule 5550(a)(2). The notification had no immediate effect on the listing of our common stock on The NASDAQ Capital Market and our common stock is continuing to trade on The NASDAQ Capital Market. Under NASDAQ rules, we were granted a 180-day period within which to regain compliance.

 

We do not believe that we will meet the $2.5 million minimum stockholders’ equity requirement for continued listing on The NASDAQ Capital Market by May 16, 2016. Consequently, we expect that NASDAQ will deem us not to be in compliance with their listing standards and terminate the listing of our common stock on The NASDAQ Capital Market.

 

If we are delisted from The NASDAQ Capital Market, we expect to list our common stock on the OTCQB Venture Market, operated by OTC Markets Group Inc. We have applied to trade our common stock on the OTCQB, and expect trading would begin on the trading day immediately following the day NASDAQ effects a delisting of our common stock. Our common stock would trade on the OTCQB under its current trading symbol "GNOW." This transition to the OTCQB would not affect our business operations. We will continue to file periodic and other required reports with the Securities and Exchange Commission under applicable federal securities laws.

 

Delisting from The NASDAQ Capital Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investor interest and the potential loss of business development opportunities. We could also face significant adverse consequences including, among others:

 

·

a limited availability of market quotations for our securities;

 

·

a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

·

a limited amount of news and little or no analyst coverage for us; and

 

·

a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3) or obtain additional financing in the future.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

 

Pursuant to permissive authority under Rule 305 of Regulation S-K, we have omitted Quantitative and Qualitative Disclosures About Market Risk.

 

Item 4. Controls And Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Management, with the participation of our Chief Executive Officer (“CEO”) and interim Chief Financial Officer, (“CFO”) who has been serving, and is continuing to serve as our Corporate Controller, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures along with the related internal controls over financial reporting were effective to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The Company is not currently party to any legal proceedings.

 

Item 1A. Risk Factors.

 

There have been no material changes to the risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Item 6.	Exhibits
Exhibit Number	Description
3.2	Amended and Restated Bylaws of American CareSource Holdings, Inc.
10.1	Equity Purchase Agreement, dated effective as of April 1, 2016, by and among ACSH Urgent Care Holdings, LLC, ACSH Primary Care Holdings, LLC, Urgemedical Group, Inc., and Payam Herischi.
10.2	Promissory Note A, dated as of April 1, 2016, by Urgemedical Group, Inc. in favor of ACSH Urgent Care Holdings, LLC and ACSH Primary Care Holdings, LLC.
10.3	Promissory Note B, dated as of April 1, 2016, by Urgemedical Group, Inc. in favor of ACSH Urgent Care Holdings, LLC and ACSH Primary Care Holdings, LLC.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial statements and footnotes from the American CareSource Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations; (ii) Consolidated Balance Sheets; (iii) Consolidated Statement of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Consolidated Financial Statements.

 

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on May 16, 2016.

 

		AMERICAN CARESOURCE HOLDINGS, INC.
Date:	May 16, 2016	By:	/s/ Adam S. Winger
			Adam S. Winger
			President and  Chief Executive Officer (Principal Executive Officer)

 

Date:	May 16, 2016	By:	/s/ Robert Frye
			Robert Frye
			Interim Chief Financial Officer and Controller (Principal Financial Officer and Principal Accounting Officer)

 

Exhibit Index

 

Exhibit Number		Description
3.2		Amended and Restated Bylaws of American CareSource Holdings, Inc.
10.1		Equity Purchase Agreement, dated effective as of April 1, 2016, by and among ACSH Urgent Care Holdings, LLC, ACSH Primary Care Holdings, LLC, Urgemedical Group, Inc., and Payam Herischi.
10.2		Promissory Note A, dated as of April 1, 2016, by Urgemedical Group, Inc. in favor of ACSH Urgent Care Holdings, LLC and ACSH Primary Care Holdings, LLC.
10.3		Promissory Note B, dated as of April 1, 2016, by Urgemedical Group, Inc. in favor of ACSH Urgent Care Holdings, LLC and ACSH Primary Care Holdings, LLC.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements and footnotes from the American CareSource Holdings, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations; (ii) Consolidated Balance Sheets; (iii) Consolidated Statement of Stockholders' Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Consolidated Financial Statements.

 

 

 

 

 

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