8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 16, 2016

Foundation Healthcare, Inc.

(Exact name of registrant as specified in charter)

Oklahoma	001-34171	20-0180812
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

14000 N. Portland Avenue, Suite 200

Oklahoma City, Oklahoma 73134

(Address of Principal Executive Offices) (Zip Code)

(405) 608-1700

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On March 16, 2016, Foundation Healthcare, Inc. announced its financial results for the three months and year ended December 31, 2015. A copy of the earnings press release is attached as Exhibit 99.1 to this Current Report on Form 8-K. A transcript of the earnings conference call is attached as Exhibit 99.2 to this Current Report on Form 8-K.

The information in this Current Report on Form 8-K and the exhibits attached hereto shall not be deemed “filed” for purposes of

Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Exhibit
99.1	Earnings Press Release Issued on March 16, 2016
99.2	Transcript of March 16, 2016 Earnings Conference Call

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	By:	FOUNDATION HEALTHCARE, INC.
Date: March 18, 2016	By:	/s/ STANTON NELSON
		Stanton Nelson
		Chief Executive Officer

EXHIBIT INDEX

Exhibit No.	Exhibit
99.1	Earnings Press Release Issued on March 16, 2016
99.2	Transcript of March 16, 2016 Earnings Conference Call

EX-99.1

Exhibit 99.1

Foundation HealthCare Reports

Fourth Quarter and Annual 2015 Financial Results

03/16/16

Primary contact: Brooks O’Neil, 952-239-7677 (brooks@whiteoaksir.com)

FOUNDATION HEALTHCARE ANNUAL REVENUE GROWS 22 PERCENT TO $127.5 MILLION; ADJUSTED EBITDA INCREASED 35 PERCENT TO $14.2 MILLION

OKLAHOMA CITY, March 16, 2016 – Foundation HealthCare, Inc. (OTCQB: FDNH), which is an owner and operator of surgical hospitals, announced today the Company’s final financial results for the fourth quarter and year ended December 31, 2015.

Highlights include:

• Annual net revenues increased 22 percent to $127.5 million.

• Annual adjusted EBITDA increased 35 percent to $14.2 million.

• Annual patient service revenue grew by 26 percent at majority owned hospitals.

• Houston hospital acquired December 31, 2015. Expected to be immediately accretive to EBITDA.

“We are very pleased with the results of operations for 2015 and recognize this growth is driven by our unwavering commitment to patient care. We view this commitment as a key differentiator in our business model,” said Stanton Nelson, CEO of Foundation HealthCare. “I am pleased to announce that our El Paso hospital was just awarded the Foundation Center of Excellence Award for Nursing Services. In 2015, our San Antonio hospital was awarded the Center of Excellence for Orthopedics as well as the Blue Cross Distinction award for Bariatric Surgery. Our physician partners and our clinical teams continue to deliver an unparalleled level of quality which is why our patient satisfaction scores continue to be among the highest in the country.”

“Foundation HealthCare reported impressive growth during the 2015. Total revenues grew 22 percent compared to 2014 and patient service revenues grew 26 percent compared to last year,” said Nelson. “This continued revenue growth validates our business strategy of recruiting top tier physicians, providing our patients with an unparalleled health experience and expanding ancillary services.”

“During the third quarter of 2015, we reached capacity in our San Antonio hospital and announced the construction of another operating room and the addition to two patient rooms for post-surgical care. This expansion, which will be completed this month, will increase our surgical capacity by 25 percent in San Antonio. Unfortunately, the construction during November and December did have an inhibiting effect on fourth quarter volumes and revenues,” said Nelson. “In addition, our surgical volume in El Paso was modestly lower than expected during 4Q.”

“We announced the acquisition of University General Hospital in Houston effective December 31, 2015,” said Nelson. “We have subsequently rebranded the facility “Foundation Surgical Hospital of Houston.” This facility is located in a great market and is an excellent addition to the Foundation family of surgically focused hospitals. In 2016, we expect strong growth due to continued solid performance in El Paso, the expansion in San Antonio and the addition of Foundation Surgical Hospital of Houston. We believe we have built an infrastructure that can support additional hospitals and we are actively seeking to add majority-owned surgical hospitals to our business.”

Fourth Quarter 2015 Financial Results:

Net revenues and equity in earnings of affiliates in the fourth quarter of 2015 were collectively $32.1 million, down 1.2 percent from $31.7 million in the fourth quarter of 2014. Our net revenues are composed of patient services, less our provision for doubtful accounts, management fees from affiliates and other revenue. Patient services revenue (net of the provision for doubtful accounts) increased $0.7 million, or 2.4 percent, to $29.0 million during the three months ended December 31, 2015 as compared to $28.3 million in the same period of 2014.

Operating expenses for the fourth quarter of 2015 were $32.3 million compared to $28.9 million in the fourth quarter of 2014. The increase is due primarily to increased purchased services cost directly related to the increased net revenues generated from ancillary services.

During the fourth quarter of 2015, Foundation reported a $2.8 million gain (net of income taxes) on the sale of its 20% interest in the real estate of the Sherman, Texas hospital. The operating unit of the Sherman hospital was sold in the second quarter of 2015.

Our operations resulted in a net income attributable to Foundation HealthCare common stock of $1.6 million during the fourth quarter of 2015, compared to a net income of $1.2 million during the fourth quarter of 2014.

Adjusted EBITDA was $3.0 million for the 2015 fourth quarter compared to $4.7 million in the fourth quarter of 2014. This was primarily related to the lower surgical volume in San Antonio and El Paso.

Year-To-Date 2015 Financial Results:

Net revenues for the year ended December 31, 2015 were $127.5 million, up 22 percent from $104.8 million reported for the year ended December 31, 2014. Patient services revenue (net of the provision for doubtful accounts) increased $23.7 million, or 26 percent, to $114.8 million during the year ended December 31, 2015 as compared to $91.1 million in the same period of 2014.

The increase was primarily due to increased revenue at our El Paso hospital generated by more complex cases and increased revenues from ancillary services.

Operating expenses for the year ended December 31, 2015 were $121.3 million compared to $101.6 million for 2014. The increase is due primarily to increased purchased services cost directly related to the increased net revenues generated from ancillary services.

Our operations, including the gain on the sale of our minority interest in the Sherman, Texas hospital and real estate resulted in a net income attributable to Foundation HealthCare common stock of $5.2 million during the year ended December 31, 2015, compared to a net loss of $2.1 million during 2014. Net income per Foundation common share for the year ended December 31, 2015 was $0.30 compared to a net loss of $0.12 per share in the prior year.

Annual Adjusted EBITDA as of December 31, 2015 was $14.2 million compared to $10.6 million for 2014.

At December 31, 2015, cash and cash equivalents totaled $5.1 million, compared to $2.9 million at December 31, 2014.

Conference Call

Foundation’s CEO, Stanton Nelson, and CFO, Hugh King, will host a conference call today, followed by a question and answer period.

Date: March 16, 2016

Time: 4:30 p.m. Eastern time

Dial-In Number: (888) 348-6454

The conference call will be broadcast live at the investor relations section of the Company’s website at www.fdnh.com. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. In addition, a replay will be available after the call at the Foundation website or by calling (877) 870-5176 using passcode: 10082263.

About Foundation HealthCare – Headquartered in Oklahoma City, Okla., Foundation HealthCare owns and/or operates four surgical hospitals and ten surgery centers in seven states. Physicians who operate in our facilities currently provide general surgeries and surgeries in such specialties as orthopedics, neurosurgery, pain management, podiatry, gynecology, optometry, gastroenterology and pediatric ENT (tubes/adenoids).

Foundation HealthCare’s management seeks to operate each facility efficiently and effectively such that patients receive high quality, cost effective care. The Foundation team seeks to improve the performance of each hospital by recruiting physicians to operate in its facilities and incorporating additional ancillary services in their markets. These additional service lines, such as toxicology, wound care, sleep management, radiology and imaging, truly make the Foundation specialty hospital environment unique.

The Company is also an industry leading ASC management and development company focused on partnering with physicians and employees to create an outstanding patient experience, while maximizing partner and shareholder value.

Reg G disclaimer – reconciling GAAP Net Income with EBITDA and Adjusted EBITDA

Foundation is providing EBITDA information, which is defined as net income plus interest, income taxes, depreciation and amortization expense and earnings or losses from discontinued operations, and Adjusted EBITDA which is defined as EBITDA plus impairment charges minus non-recurring gains. EBITDA and Adjusted EBITDA are a complement to our GAAP results. EBITDA and Adjusted EBITDA are commonly used by management and investors as a measure of leverage capacity, debt service ability and liquidity. EBITDA and Adjusted EBITDA are not considered a measure of financial performance under U.S. generally accepted accounting principles (GAAP), and the items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing our financial performance. EBITDA and Adjusted EBITDA should not be considered in isolation or as an alternative to, or superior to, such GAAP measures as net income, cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. Reconciliations of non-GAAP financial measures are provided in the news release in the accompanying tables. Since EBITDA and Adjusted EBITDA are not a measure determined in accordance with GAAP and is susceptible to varying calculations, EBITDA, and Adjusted EBITDA as presented, may not be comparable to other similarly titled measures of other companies.

Important Cautions Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based on the Company’s current expectations, forecasts and assumptions. Forward-looking statements involve risks and uncertainties that could cause actual outcomes and results to differ materially from the Company’s expectations, forecasts and assumptions. These risks and uncertainties include risks and uncertainties not in the control of the Company, including, without limitation, the risk that Company will maintain enough liquidity to execute its business plan, continue as a going concern and other risks including those enumerated and described in the Company’s filings with the Securities and Exchange Commission, which filings are available on the SEC’s website at www.sec.gov. Unless otherwise required by law, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

CONTACT: Company Contact:

Foundation HealthCare, Inc.

Stanton Nelson, CEO

Tel 405-608-1715

FOUNDATION HEALTHCARE, INC.

Reconciliation of Income (Loss) from Continuing Operations to EBITDA from Continuing Operations

(Unaudited)

	For the Three Months Ended					For the Year Ended
	December 31,					December 31,
	2015			2014		2015			2014
Income (loss) from continuing operations, net of taxes	$	504,632		$	2,859,137	$	5,949,374		$	2,872,015
EBITDA adjustments:
Plus: Interest expense, net		232,652			280,859		1,059,855			1,610,791
Plus: Provision (benefit) for income taxes		(604,574	)		217		(718,612	)		(851,788	)
Plus: Depreciation and amortization		1,625,167			1,345,334		5,697,962			5,550,162
Total EBITDA adjustments		1,253,245			1,626,410		6,039,205			6,309,165
EBITDA from continuing operations	$	1,757,877		$	4,485,547	$	11,988,579		$	9,181,180
EBITDA from continuing operations	$	1,757,877		$	4,485,547	$	11,988,579		$	9,181,180
Adjusted EBITDA adjustment
Plus: Stock compensation expense		1,002,548			195,801		1,637,413			1,387,087
Plus: S-1 filing expenses		—			—		318,863			—
Plus: Acquisition expenses		272,729			—		272,729			—
Total Adjusted EBITDA adjustments		1,275,277			195,801		2,229,005			1,387,087
Adjusted EBITDA	$	3,033,154		$	4,681,348	$	14,217,584		$	10,568,267

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	December 31,			December 31,
	2015			2014
ASSETS
Cash and cash equivalents	$	5,062,492		$	2,860,025
Accounts receivable, net of allowance for doubtful accounts of $1,206,000 and $1,742,000, respectively		30,383,942			18,971,435
Receivables from affiliates		509,886			1,157,184
Supplies inventories		3,566,940			1,863,175
Prepaid and other current assets		4,161,620			4,487,873
Current assets from discontinued operations		197,307			342,441
Total current assets		43,882,187			29,682,133
Property and equipment, net		53,515,123			13,465,190
Equity method investments in affiliates		3,012,631			3,558,020
Intangible assets, net		7,022,170			9,080,395
Goodwill		10,594,819			973,927
Other assets		1,259,029			437,809
Other assets from discontinued operations		8,713			2,329,395
Total assets	$	119,294,672		$	59,526,869
LIABILITIES, PREFERRED NONCONTROLLING INTEREST AND SHAREHOLDERS’ DEFICIT
Liabilities:
Accounts payable	$	9,060,060		$	10,364,160
Accrued liabilities		12,877,711			10,223,388
Preferred noncontrolling interests dividends payable		157,887			195,212
Short-term debt		308,769			456,784
Current portion of long-term debt		10,429,750			5,023,048
Other current liabilities		590,827			1,052,543
Current liabilities from discontinued operations		1,735,615			839,791
Total current liabilities		35,160,619			28,154,926
Long-term debt, net of current portion		69,954,911			24,737,719
Deferred lease incentive		7,672,745			8,608,716
Other liabilities		6,479,181			5,424,313
Total liabilities		119,267,456			66,925,674
Preferred noncontrolling interest		6,960,000			8,700,000
Commitments and contingencies (Note 10)
Foundation Healthcare shareholders’ deficit:
Preferred stock $0.0001 par value, 10,000,000 authorized; no shares issued and outstanding		—			—
Common stock $0.0001 par value, 500,000,000 shares authorized; 17,303,180 and 17,263,842 issued and outstanding, respectively		1,730			1,726
Paid-in capital		20,885,915			19,321,267
Accumulated deficit		(32,130,178	)		(37,265,044	)
Total Foundation Healthcare shareholders’ deficit		(11,242,533	)		(17,942,051	)
Noncontrolling interests		4,309,749			1,843,246
Total deficit		(6,932,784	)		(16,098,805	)
Total liabilities, preferred noncontrolling interest and shareholders’ deficit	$	119,294,672		$	59,526,869

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended December 31, 2015 and 2014

(Unaudited)

	2015			2014
Net Revenues:
Patient services	$	31,341,845		$	30,612,740
Provision for doubtful accounts		(2,358,193	)		(2,318,957	)
Net patient services revenue		28,983,652			28,293,783
Management fees from affiliates		1,009,170			1,337,685
Other revenue		1,744,151			1,090,737
Revenues		31,736,973			30,722,205
Equity in earnings of affiliates		391,193			939,482
Operating Expenses:
Salaries and benefits		9,516,422			6,955,774
Supplies		7,184,251			6,617,114
Other operating expenses		14,000,847			13,957,445
Depreciation and amortization		1,625,167			1,345,334
Total operating expenses		32,326,687			28,875,667
Other Income (Expense):
Interest expense, net		(232,652	)		(280,859	)
Other income		331,231			354,193
Net other (expense)		98,579			73,334
Income from continuing operations, before taxes		(99,942	)		2,859,354
Benefit (provision) for income taxes		604,574			(217	)
Income from continuing operations, net of taxes		504,632			2,859,137
Income from discontinued operations, net of tax		2,830,002			263,631
Net income		3,334,634			3,122,768
Less: Net income attributable to noncontrolling interests		1,532,473			1,772,567
Net income attributable to Foundation Healthcare		1,802,160			1,350,201
Preferred noncontrolling interests dividends		(157,887	)		(195,213	)
Net income attributable to Foundation Healthcare common stock	$	1,644,273		$	1,154,988
Earnings per common share (basic and diluted):
Net income (loss) attributable to continuing operations attributable to Foundation Healthcare common stock	$	(0.07	)	$	0.05
Income from discontinued operations, net of tax		0.16			0.02
Net income per share, attributable to Foundation Healthcare common stock	$	0.09		$	0.07
Weighted average number of common and diluted shares outstanding		17,271,513			17,080,451

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Years Ended December 31, 2015 and 2014

(Unaudited)

	2015			2014
Net Revenues:
Patient services	$	121,197,748		$	96,219,746
Provision for doubtful accounts		(6,359,423	)		(5,118,194	)
Net patient services revenue		114,838,325			91,101,552
Management fees from affiliates		5,449,354			5,394,666
Other revenue		5,852,145			5,361,931
Revenues		126,139,824			101,858,149
Equity in earnings of affiliates		1,369,488			2,979,293
Operating Expenses:
Salaries and benefits		33,870,730			29,273,542
Supplies		27,759,861			24,000,276
Other operating expenses		53,928,367			42,767,477
Depreciation and amortization		5,697,962			5,550,162
Total operating expenses		121,256,920			101,591,457
Other Income (Expense):
Interest expense, net		(1,059,855	)		(1,610,791	)
Other income		38,226			385,033
Net other (expense)		(1,021,629	)		(1,225,758	)
Income from continuing operations, before taxes		5,230,762			2,020,227
Benefit for income taxes		718,612			851,788
Income from continuing operations, net of taxes		5,949,374			2,872,015
Income (loss) from discontinued operations, net of tax		6,593,188			(357,452	)
Net income		12,542,562			2,514,563
Less: Net income attributable to noncontrolling interests		6,645,210			3,827,439
Net income (loss) attributable to Foundation Healthcare		5,897,352			(1,312,876	)
Preferred noncontrolling interests dividends		(706,395	)		(780,853	)
Net income (loss) attributable to Foundation Healthcare common stock	$	5,190,957		$	(2,093,729	)
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations attributable to Foundation Healthcare common stock	$	(0.08	)	$	(0.10	)
Income (loss) from discontinued operations, net of tax		0.38			(0.02	)
Net income (loss) per share, attributable to Foundation Healthcare common stock	$	0.30		$	(0.12	)
Weighted average number of common and diluted shares outstanding		17,267,301			17,080,451

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Cash Flows

For the Years Ended December 31, 2015 and 2014

(Unaudited)

	2015			2014
Operating activities:
Net income	$	12,542,562		$	2,514,563
Less: Income (loss) from discontinued operations, net of tax		6,593,188			(357,452	)
Income from continuing operations, net of tax		5,949,374			2,872,015
Adjustments to reconcile net income (loss) from continuing operations, net of tax, to net cash provided by operating activities:
Depreciation and amortization		5,697,962			5,550,162
Deferred tax benefit		—			(1,154,252	)
Stock-based compensation, net of cashless vesting		1,564,652			1,064,854
Provision for doubtful accounts		6,359,423			5,118,194
Equity in earnings of affiliates		(1,369,488	)		(2,979,293	)
Changes in assets and liabilities:
Accounts receivable, net of provision for doubtful accounts		(17,771,930	)		(11,333,987	)
Receivables from affiliates		647,298			(309,182	)
Supplies inventories		(1,703,765	)		67,967
Prepaid and other current assets		326,253			(1,528,377	)
Other assets		(10,821,220	)		(193,211	)
Accounts payable		(1,304,100	)		(1,284,827	)
Accrued liabilities		2,784,061			6,383,015
Other current liabilities		(461,716	)		(3,613,586	)
Other liabilities		118,897			4,274,861
Net cash provided by (used in) operating activities from continuing operations		(9,984,299	)		2,934,353
Net cash provided by (used in) operating activities from discontinued operations		1,566,595			(488,300	)
Net cash provided by (used in) operating activities		(8,417,704	)		2,446,053
Investing activities:
Purchase of property and equipment		(43,599,313	)		(4,884,948	)
Disposal of property and equipment		165,000			1,807
Proceeds from sale of equity investment		—			178,000
Distributions from affiliates		1,914,877			2,778,257
Net cash used in investing activities from continuing operations		(41,519,436	)		(1,926,884	)
Net cash provided by investing activities from discontinued operations		8,388,233			—
Net cash used in investing activities		(33,131,203	)		(1,926,884	)

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Cash Flows – Continued

For the Years Ended December 31, 2015 and 2014

(Unaudited)

Financing activities:
Debt proceeds		81,745,831			32,885,948
Debt payments		(31,269,952	)		(26,284,135	)
Preferred noncontrolling interest dividends		(743,720	)		(781,052	)
Preferred noncontrolling interest redemptions		(1,740,000	)		—
Distributions to noncontrolling interests		(4,234,784	)		(3,731,252	)
Proceeds from noncontrolling interests		—			112,167
Net cash provided by financing activities from continuing operations		43,757,375			2,201,676
Net cash used in financing activities from discontinued operations		—			(4,072,896	)
Net cash provided by (used in) financing activities		43,757,375			(1,871,220	)
Net change in cash and cash equivalents		2,208,467			(1,352,051	)
Cash and cash equivalents at beginning of period		2,860,025			4,212,076
Cash and cash equivalents at end of period	$	5,068,492		$	2,860,025
Cash Paid for Interest and Income Taxes:
Interest expense	$	1,059,855		$	2,052,213
Interest expense, discontinued operations	$	—		$	168,733
Income taxes, continuing operations	$	1,600,000		$	3,255,623

EX-99.2

Exhibit 99.2

Event Name: Q4 2015 Foundation Healthcare Inc Earnings Call

Event Date: 2016-03-16T20:30:00 UTC

Company: Brooks O’Neil; White Oaks; IR

Company: Stanton Nelson; Foundation HealthCare, Inc.; CEO

Company: Hubert King; Foundation HealthCare, Inc.; CFO

Participant: Bill Sutherland; Emerging Growth Equities; Analyst

Participant: Andy Carruthers; Bagley Securities; Analyst

Participant: Walter Young; Thompson Davis; Analyst

Participant: Tom Maguire; Private Investor

Participant: Operator

Operator - Good afternoon and welcome to the Foundation Healthcare Fourth-Quarter 2015 Financial Results Conference Call and Webcast. All participants will be in listen-only mode.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Brooks O’Neil, White Oaks Investor Relations. Please go ahead.

Brooks O’Neil - Good afternoon and thank you for joining us on this call today. The purpose of this call is to review Foundation Healthcare’s Financial Results for the Fourth Quarter and fall of 2015. We will also provide some additional color on the business. With me on the line, our Foundation Healthcare CEO, Stanton Nelson and Foundation CFO, Hugh King.

After I read our cautionary statement, both Stanton and Hugh make some brief comments, after which, we will be happy to take your questions. Our comments today may include forward-looking statement. All statements other than statements of the historical fact including without limitation, statements regarding the future plans and objectives of Foundation Healthcare, or the Corporation, are forward-looking statements. These involve various risks assumption of risks, assumptions, estimates, and uncertainties. These statements reflect the current projections expectations or belief of Foundation Healthcare and are based on information currently available to the corporation. There can be no assurance that such statements will prove to be accurate and actual results of future events could differ materially from those anticipated in such statements.

All forward-looking statements made on this call are qualified by these cautionary statement and the risk factors described in the Company published financial statement on file with the SEC. All such statements are made as of today and Foundation Healthcare assumes no obligation to update or revise this statements.

With that, let me turn the call over to Stanton.

Stanton Nelson - Thank you, Brooks. Good afternoon and thank you for joining our call today. Today, we will discuss Foundation’s Fourth-Quarter and Year-End Results for 2015. We have just completed an excellent year in 2015 and believe we are well-positioned for continued success in 2016. To summarize 2015, annual net revenues improves 22% to $127.5 million and 2015 annual adjusted EBITDA increased 35% to $14.2 million.

During 2015, annual patient service revenue at our majority-owned hospitals grew by 26%. On December 31, 2015, we completed the acquisition of University General Hospital, or UGH, in Houston, Texas. UGH is our fourth surgical hospital and we expect UGH to be immediately created to EBITDA. We have completed the rebranding of UGH facilities to Foundation Surgical Hospital of Houston.

Houston as a market foundation knows very well, as we have previously developed seven surgery centers and one surgical hospital. We are very familiar with the medical landscape in Houston and potential position with whom we want to partner. Our plan in Houston is consistent with our core strategy in all of our surgical hospital. In just the first few months under our ownership, we have reduced operating expenses at the facility by $4 million annualized and we will see an additional $3 million of annualized savings by the end of the second quarter of 2016. This has been accomplished primarily by rationalizing staffing and centralizing core services, which we typically handle in Oklahoma City.

In addition, we are actively recruiting physician partners at Foundation Surgical Hospital of Houston and we expect this to drive strong growth in surgical cases performed at the Houston Hospital this year. The third component of our strategy is to add ancillary services like lab services, diagnostic imaging, physical therapy, wound care, and other services which fit the physician and patient needs in a Houston Market.

We are very excited about the addition of UGH to the Foundation family and expect UGH to provide a solid contribution to the Company’s results in 2016 and beyond. As we noted in our press release issued earlier today, during the Third Quarter of 2015, we reached capacity in our San Antonio Hospital and announced construction of another operating room in the addition of two patient rooms for postsurgical care. This expansion, which was completed this month, will increase our surgical capacity by 25% in San Antonio. Unfortunately, the construction during November and December did have an inhibiting effect on the Fourth Quarter of volumes and revenues. Given the strong historical performance of San Antonio of the San Antonio Hospital and the expansion of the capacity, we expect really good things in that market in 2016.

I will now turn the call over to Hugh King to discuss our financials for the Fourth Quarter and year-end. Hugh?

Hubert King - Thank you Stanton and good afternoon everyone. Net revenues and equity and earnings of affiliates for the Fourth Quarter of 2015 were collectively $32.1 million up 1.3% from the $31.7 million reported in the Fourth Quarter of 2014. Our net revenues are comprised of revenues from patient’s services, less of provision for Doppler Accounts, management fees from affiliates and other revenue.

Patient services’ revenue net of the provision for Doppler Accounts increased $700,000 or 2.4% to $29 million compared for the three month ended December 31, 2015 compared to $28.3 million in the same period of 2014. As Stanton highlighted, results in San Antonio were impacted by the disruption cost, fire plant facility expansion and we expect results there to strengthen now that the project has been completed.

Results in San Antonio were also affected by a meaningful increase in the number of Personal Injury or PI cases completed in that market during the Fourth Quarter. Given the uncertain leave related to our collection on PI cases, we take the conservative approach to recognizing revenue on those cases. In addition, our surgical volume in El Paso is modestly lower than expected during Q4. We continue to recruit doctors to practice in our facilities in El Paso and San Antonio and expect strong results in the market in 2016.

Our operating expenses for the Fourth Quarter of 2014 were $32.3 million compared to $28.9 million in the Fourth Quarter of 2014. The increase is primarily due to increased purchase service cost directly related to the increased revenues generated from our ancillary services. During the Fourth Quarter of 2015, Foundation reported a $2.1 million gain net of income taxes on the sale of its 20% interest in the real estate of the Sherman Texas Hospital.

The operating unit of the Sherman Hospital was sold at the Second Quarter of 2015. Our operations result a net income attributable to Foundation Healthcare stock of $0.16 during the Fourth Quarter of 2015 compared to - I’m sorry, common stock of $1.6 million during the Fourth Quarter of 2015 compared to income of $1.2 million during the Fourth Quarter of 2014. Adjusted EBITDA was $3 million for the 2015 Quarter compared to $4.7 million in the Fourth Quarter of 2014. This was primarily related to the lower surgical volumes in the San Antonio and El Paso facilities.

Moving to the balance sheet at December 31, cash and cash equivalents total of $5.1 million compared to $2.9 million at December 31, 2014. At year-end, due primarily to the acquisition of UGH on the last day of the year, our total debt was $80.7 million compared to $30.2 million at the end of 2014.

Stanton, I will turn the call back over to you.

Stanton Nelson - Thank you, Hugh. Operator, we’re ready to take questions.

Operator - (Operator Instructions) Bill Sutherland with Emerging Growth Equities.

Bill Sutherland - Just a couple questions. I was curious or maybe a little more color on what happened in El Paso the surgical volumes in the Fourth Quarter?

Stanton Nelson - Our spinal surgeons, at least one of them, had started taking some cases to another hospital. So, that’s primarily the biggest driver of what happened in terms of overall net revenue being down in that market, so that was pretty much the only issue there. I will say though, we have recruited two additional surgeons that will actually start April and July of this year, so we’re really excited about these two gentlemen coming in to the market.

Bill Sutherland - I guess that just like the nature of the business, right?

Hubert King - Sometimes it happens, right.

Bill Sutherland - He wasn’t a partner, then, was he?

Stanton Nelson - He actually is a partner.

Bill Sutherland - Oh, he was - okay. In UGH, how many ORs are there in that hospital?

Stanton Nelson - We have 601.

Bill Sutherland - [601]? Okay. And do you have a common target of how many MD partners you’d like there?

Stanton Nelson - Yes. We’ve initially targeted - have about 1,000 surgeons within a 20-mile radius of the hospital and we certainly narrowed that list down. We expect we’ll end up being between 35 and 40 physicians in the partnership and, as you know, we’re going to sell about 49% of the hospital. We expect that to be completed by June 30th of this year.

Bill Sutherland - Remind us, is the vast majority of your practicing docs partners, or do you have equal ways -

Stanton Nelson - No. We have across-the-board, there’s about 70% of our volume comes from, our doctor partners, the 30% are casual users and I think the reason why that happens is the productivity piece they can get in and get out, but then the clinical outcomes are just far superior at our hospitals versus our competitors.

Bill Sutherland - In Houston, I know it’s early days for UGH, I got to stop calling it that, are you seeing any signs of the economy there impacting or possibly going to impact your volumes?

Stanton Nelson - We really haven’t. I think that’s something we’re certainly conscious of, I mean, that’s obviously a fairly sizable city in terms of the energy, but it is diverse, so I think there certainly office space available that we’re seeing now due to that issue with energy, but it’s something we’re definitely watching, but at this point we don’t think it’s had a negative effect on the hospital.

Bill Sutherland - I think the last question I was going to throw out there is about the ancillaries and kind of the plan - if there’s any color you can provide on what you hope to get done there this year. And then also if you can address as far as the toxicology lab about this Medicare rate cut that’s been implemented?

Hubert King - I can take that last part, Bill, and Stanton, you may want to tackle the first part. Bill, most of our toxicology lab revenues do not come from the Medicare and Medicaid programs. They are predominantly commercial insurance patients and managed care patients. So, we really don’t see a very big impact because of the Medicare changes.

Stanton Nelson - I’ll answer the other piece. So, obviously, the first priority and one that I will say Tom Michaud and Jennifer Duke are doing an excellent job in Houston in the recent occasion piece and the BPM is complete and on the street, so there’s a lot of interest there and they are doing a great job with that. But, I don’t see us doing anything on the ancillary side until we resyndicate. Lab services, imaging is stuff that we’ll start diving into the second half of 2016, but at this point, our biggest focus down there is what we’ve talked about; taken that $7 million of annualized savings out of the hospital through expense cuts and other things, and then the recent indication of BPM.

Bill Sutherland - And so I didn’t actually - I don’t think anything about Houston specifically with that question, but so it’s just kind of a status quo as far as -

Hubert King - Bill, we do have a couple of projects that are in the works right now. They will expand our ancillary volumes which we will be announcing those as we actually get the deals closed the press releases and/or AKs, so we are planning to grow the ancillary business and the extent of that probably won’t be quite as much as toxicology but we do see growth on the Horizon at both hospitals.

Operator - Andy Carruthers with Bagley Securities.

Andy Carruthers - Can you explain what happened in the Fourth Quarter relative to patient sources I know were down because of San Antonio and El Paso ,but, well, how was the salaries and benefits of 35% and your patient revenues early up to 2.5%; you couldn’t make any adjustments for those expenses?

Hubert King - Well, there are couples of things; one, we did a couple of things this year. Because we were having such a great year, we awarded some stock bonuses to all of the employees at corporate and that of course even though it’s not a cash expenditure, we have to reflect that as a salary expense.

And then, we also have some executive bonus provisions that when we have a good year, our stock grants to the executives to encourage that kind of growth and the work that it takes to get that growth, so that was part of the salary and benefit costs. And then we also had to eat a little bit of salary in Houston benefits in the UGH Hospital when we acquired it. The debtor did not have sufficient funds to pay their last payroll so we ended up even though we bought them at 10 o’clock we ended up paying their last payroll, which was about $900,000.

Stanton Nelson - Let me just add it too, Andy. In terms of the Fourth Quarter, I don’t believe this is going to be a trend. I feel confident of where we are and headed in to 2016 and I’m honestly very excited about it, with the acquisition that we made. So, while it’s somewhat disappointing, I certainly don’t believe it’s a trend with all the things that we are going with the recruitment of new positions in all markets. So, I certainly believe that 2016 is going to be another great year similar to what 2015 was to Foundation.

Andy Carruthers - And what volume are you running them on UGH?

Hubert King - I’m not sure we can disclose that at this time. I think we can tell you historically what’s happened, but I think in 2000, well in fact, there’ll be an AK coming out tomorrow related to UGH. Perhaps if you’d like to call and discuss it, we will be happy to share with you that information what’s been released to the public.

Stanton Nelson - And in all of this, Andy. I mean, if you remember, if you date back to January of 2013 when we took over El Paso in a very similar situation other than El Paso was losing a lot of money in this hospital and Houston is going to be a accredited day one on the EBITDA line. It was doing 100 surgical cases a month, and through the success of the recent occasion that we did in El Paso, now we average about 650 surgical cases a month. So that’s happened over basically a 2 to 3-year period and we feel very confident that the exact same thing is going to happen in Houston.

Hubert King - And we can share with you the surgical volume at the Houston Hospital is substantially greater than it was at El Paso when we took it over.

I apologize for not being able to be more forthright, but I’d be happy to have those discussions with you later this week or next week once we issue the release.

Andy Carruthers - So, would you decide going forward the salaries and benefits being more in line with what they were last year, then?

Hubert King - Yes. Again, we take the very conservative approach to accruing any bonuses, et cetera, and we waited until the Third Quarter to see what the totals were going to be. So, yes, I would say that they’ll be more consistent with our historical quarterly averages.

Operator - Walter Young with Thompson Davis.

Walter Young - Hi, did you say your debt was $80 million?

Stanton Nelson - Yes.

Walter Young - So, what’s the interest rate on that?

Hubert King - Well, the interest -

Walter Young - Combined rate, I’m sure.

Hubert King - — our overall combined rate runs about 4% to 4.5%. Our debt agreements have provisions in them that if we perform at certain levels, our interest rate gets reduced. But you can figure 4.25% as an average. And there’s one other factor that needs to be taken into consideration; our debt includes, when we took over the Houston Hospital, a capitalized lease obligation on the building. And that’s - while it’s an obligation, it is included as debt.

Walter Young - I never thought about the turnover rate before for the doctors. Do you - with your experience, do you have an idea of how much you think that would be overtime? When would a partner - how many partners would help back out?

Stanton Nelson - Yes. So, Walter, it’s rare that it happens, especially in a hospital that’s profitable and we’re making monthly distributions, but it is rare. Usually when it happens, it’s based on a physician retiring or leaving town. We just had a situation in San Antonio where a physician retired, but it allowed us to now recruit two additional surgeons for that - to replace that one physician. So, we actually use that as a positive, because that particular physician was not contributing much to the hospital and these two surgeons will. So -

Walter Young - So, rare is the answer?

Stanton Nelson - Yes.

Hubert King - And also if we know that a physician is nearing retirement, we do begin recruitment efforts to find either one or more physicians to replace that that particular physician.

Walter Young - And based on your experience, when do you think the re-syndicating of the Houston Hospital will be complete? Is that in the first half of this year, or in this calendar year or for longer?

Stanton Nelson - Our plan is to close the syndication by on or before June 30th.

Walter Young - And then lastly, can you describe the rebranding effect that the hospital, or it has on the hospital now that - I understand the cost savings, which is great to hear, but I wondered what traffic was like, employee morale, et cetera?

Stanton Nelson - Well, I can say this; I mean, but again, it dates back to 1996 when Tom started the Company, that’s when he entered into Houston. And overtime through those seven developments of surgery centers and non-surgical hospital, the foundation name has a great reputation in Houston, and it’s always is going to do is help with the re-syndication as well as bring casual users.

On the labor side of it, I mean, certainly you’ve seen we’ve taken out a substantial amount of savings there. I will say that it does take some time to improve clinical outcomes and those types of things, but something we are working on every day because we understand that this hospital has to be exactly like our other hospitals in terms of clinical outcomes. And unfortunately for that situation, they’ve had some issues there, so we’re in the process of trying to clean all that up.

Walter Young - On previous calls, you talked about 250 identified acquisition candidates. Want to give us an update there?

Stanton Nelson - Well, that’s - 250 is the number of potential targets that are in the marketplace. I’ll tell you that at this point our focus is Houston and Houston only and I think our goal as we stated publicly is that we would like to acquire a couple hospitals a year, so we continue to work that pipeline and I’ll say that’s probably the most robust since I’ve been with the Company of opportunities out there. So, while we continue to talk, we don’t want to lose focus on what’s ahead of us in terms of the importance of Houston.

Operator - (Operator Instructions) Tom Maguire, a Private Investor.

Tom Maguire - My questions are, I presume because of the construction carried over in the first quarter at San Antonio and that the spine doctor leaving El Paso, that we are going to have a good growth for 2016, but it might be more backend loaded than it already is, and since you still might be having some overlaying from those two things happening in the first quarter, is that fair?

Hubert King - Yes, I think that’s fair. I mean, typically its back-ended anyways, as you know, with deductibles restarting at the beginning of the year. But it’s not going to be drastic. I mean, this is something that we’re addressing, so I believe that the first quarter and certainly through 2016 will be a very positive one, especially with the addition of UGH.

Tom Maguire - So, when a physician leaves does he sell back his partnership interest to the Company?

Hubert King - So, Tom, ideally what we would like to have happen is if we know about it, we will put doctors in touch with each other rather than the hospital buying that out. Now, we do have in our operating agreements the ability to do that at a certain multiple EBITDA, but again, it has to be done on a fair market value if the hospital does it. And so, we have to go get evaluation. But ideally what we want to see is we go out and recruit new physicians and then put the two doctors together or multiple doctors together and negotiate that deal privately. We’re not involved.

Tom Maguire - And I know you said it was rare, Stanton, but what are some reasons why doctors leave? They get (expletive) off at something or what? Better deal somewhere else, is that -

Stanton Nelson - Yes, sometimes. I mean, that that does being recruited away in different instances. We all have egos and sometimes that gets in the way, to be honest with you, and that’s kind of what happened in this situation.

Tom Maguire - So you want to sell down your interest and UGH to 51%, which means the physician partners will get 49%. How do you determine the price to the physician partners, and does Foundation provide financing, or the docs have to get their own financing for that?

Hubert King - I can tell you that in terms of - we do evaluation again or we valued the equity in this hospital at $10 million. So, we’ll actually sell $4.9 million for that 49%, so it represents about $100,000 per 1%. We do not provide financing, but we line them up - we’ll actually line them up with a bank to make that happen.

Tom Maguire - Concerning your debt at quarter end of $80 million, do you have debt to EBITDA covenants on the debt, and if so, where do they stand and where do you stand in terms of comfortability with the debt EBITDA ratio?

Hubert King - We do have those covenants. The one thing, as I mentioned earlier, there’s about - included in that debt number is about $26 million related to a capitalized lease on the building at UGH. Our banks think of that more as a lease payment than a debt payment, and that is excluded from our debt covenants at their direction and we are very comfortably within our debt covenants; we’ve already submitted the December debt covenant review to the bank, they’ve accepted it, and we’re in good shape with them.

Tom Maguire - So, really, the debt is $54 million?

Hubert King - Yes, that’s more in line, yes. There are some [effort] capitalized equipment leases, but the big one is the some odd $26 million related to the building.

Operator - This concludes our question-and-answer session. I would like to turn the conference back over to Stanton Nelson for any closing remarks.

Stanton Nelson - Thank you for joining the call today and we certainly look forward to speaking with you soon, so hope everybody has a good day and take care. Thank you.

Operator - The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.