10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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

For the transition period from ______to ______

Commission File Number: 001-34171

FOUNDATION HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

OKLAHOMA	20-0180812
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14000 N. Portland Avenue, Ste. 200

Oklahoma City, Oklahoma 73134

(Address of principal executive offices)

(405) 608-1700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  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).    x  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 the 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	x

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

As of November 14, 2014, 172,638,414 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

FOUNDATION HEALTHCARE, INC.

FORM 10-Q

For the Quarter Ended September 30, 2014

TABLE OF CONTENTS

Part I.	Financial Information	1
Item 1.	Consolidated Condensed Financial Statements (Unaudited)	1
	a) Balance Sheets	2
	b) Statements of Operations	3
	c) Statements of Cash Flows	5
	d) Notes to Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34
Part II.	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
SIGNATURES		38

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements under the captions “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Item 1A. Risk Factors,” and elsewhere in this report constitute “forward-looking statements” Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “may,” “will,” or “should” or other variations thereon, or by discussions of strategies that involve risks and uncertainties. Our actual results or industry results may be materially different from any future results expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include general economic and business conditions; our ability to implement our business strategies; competition; availability of key personnel; increasing operating costs; unsuccessful promotional efforts; changes in brand awareness; acceptance of new product offerings; and adoption of, changes in, or the failure to comply with, and government regulations.

Throughout this report the first personal plural pronoun in the nominative case form “we” and its objective case form “us”, its possessive and the intensive case forms “our” and “ourselves” and its reflexive form “ourselves” refer collectively to Foundation Healthcare, Inc. and its subsidiaries including Foundation Surgery Affiliates, LLC (“FSA”) and Foundation Surgical Hospital Affiliates, LLC (“FSHA”).

i

PART I. FINANCIAL INFORMATION

Item  1. Foundation Healthcare, Inc. Condensed Consolidated Financial Statements.

The condensed consolidated financial statements included in this report have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated balance sheet as of December 31, 2013, has been derived from audited financial statements, and the condensed consolidated balance sheet as of September 30, 2014, the condensed consolidated statements of operations for the three months and nine months ended September 30, 2014 and 2013, and the condensed consolidated statements of cash flows for nine months ended September 30, 2014 and 2013, have been prepared without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the related notes thereto included in our latest annual report on Form 10-K.

The consolidated statements for the unaudited interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary to present a fair statement of the results for such interim periods. The results for any interim period may not be comparable to the same interim period in the previous year or necessarily indicative of earnings for the full year.

1

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
	2014			2013
ASSETS
Cash and cash equivalents	$	3,567,951		$	4,212,076
Accounts receivable, net of allowances for doubtful    accounts of $2,718,795 and $4,778,915, respectively		14,294,779			12,755,642
Receivables from affiliates		1,023,700			848,002
Supplies inventories		1,966,799			1,931,142
Prepaid and other current assets		5,792,841			4,302,885
Current assets from discontinued operations		174,964			518,629
Total current assets		26,821,034			24,568,376
Property and equipment, net		11,222,042			12,073,986
Equity method investments in affiliates		5,498,967			5,699,093
Intangible assets, net		9,595,917			11,138,621
Goodwill		973,927			973,927
Other assets		449,436			244,598
Other assets from discontinued operations		383,862			576,228
Total assets	$	54,945,185		$	55,274,829
LIABILITIES, PREFERRED NONCONTROLLING INTEREST AND SHAREHOLDERS’ DEFICIT
Liabilities:
Accounts payable	$	9,857,019		$	11,648,987
Accrued liabilities		7,725,337			3,914,915
Preferred noncontrolling interests dividends payable		197,358			195,411
Short term debt		253,530			5,664,827
Current portion of long-term debt		4,050,498			7,919,179
Other current liabilities		2,260,850			4,591,587
Current liabilities from discontinued operations		1,188,224			5,620,697
Total current liabilities		25,532,816			39,555,603
Long-term debt, net of current portion		23,843,579			10,031,732
Other liabilities		15,343,797			12,255,809
Other liabilities from discontinued operations		—			9,969
Total liabilities		64,720,192			61,853,113
Preferred noncontrolling interest		8,700,000			8,700,000
Commitments and contingencies (Note 9)
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;     172,604,265 and 163,834,886 issued and outstanding, respectively		17,260			16,383
Paid-in capital		19,117,730			18,241,756
Accumulated deficit		(38,419,772	)		(35,171,315	)
Total Foundation Healthcare shareholders’ deficit		(19,284,782	)		(16,913,176	)
Noncontrolling interests		809,775			1,634,892
Total deficit		(18,475,007	)		(15,278,284	)
Total liabilities, preferred noncontrolling interest and shareholders’ deficit	$	54,945,185		$	55,274,829

See Accompanying Notes to Condensed Consolidated Financial Statements

2

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended September 30, 2014 and 2013

(Unaudited)

	2014			2013
Net Revenues:
Patient services	$	26,183,803		$	21,724,423
Provision for doubtful accounts		(1,562,147	)		(682,319	)
Net patient services revenue		24,621,656			21,042,104
Management fees from affiliates		1,352,909			1,460,163
Other revenue		1,450,021			1,048,381
Revenues		27,424,586			23,550,648
Equity in earnings of affiliates		616,959			1,448,898
Operating Expenses:
Salaries and benefits		7,339,528			6,974,734
Supplies		6,748,785			6,659,330
Other operating expenses		10,655,907			8,609,650
Impairment of goodwill		—			20,847,608
Depreciation and amortization		1,320,527			1,290,779
Total operating expenses		26,064,747			44,382,101
Other Income (Expense):
Interest expense, net		(324,700	)		(552,763	)
Other income		30,000			36,694
Net other (expense)		(294,700	)		(516,069	)
Income (loss) from continuing operations, before taxes		1,682,098			(19,898,624	)
Provision for income taxes		—			(961,105	)
Income (loss) from continuing operations, net of taxes		1,682,098			(20,859,729	)
Loss from discontinued operations, net of tax		(119,785	)		(196,705	)
Extraordinary gain, net of tax, attributable to Foundation Healthcare		—			4,872,746
Extraordinary gain, net of tax, attributable to noncontrolling interests		—			2,094,856
Net income (loss)		1,562,313			(14,088,832	)
Less:  Net income attributable to noncontrolling interests		1,208,648			2,402,532
Net income (loss) attributable to Foundation Healthcare		353,665			(16,491,364	)
Preferred noncontrolling interests dividends		(199,502	)		(121,414	)
Net income (loss) attributable to Foundation Healthcare common stock	$	154,163		$	(16,612,778	)
Earnings per common share (basic and diluted):
Net income (loss) attributable to continuing operations     attributable to Foundation Healthcare common stock	$	0.00		$	(0.14	)
Loss from discontinued operations, net of tax		0.00			0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare		0.00			0.03
Net income (loss) per share, attributable to     Foundation Healthcare common stock	$	0.00		$	(0.11	)
Weighted average number of common and diluted shares outstanding		171,824,731			151,561,441
Pro forma income information (Note 3):
Pro forma provision for income taxes				$	(1,008,978	)
Pro forma net income attributable to noncontrolling interests				$	2,401,087
Pro forma net income attributable to     Foundation Healthcare common stock				$	(16,537,792	)
Pro forma basic and diluted net income per share				$	(0.11	)

See Accompanying Notes to Condensed Consolidated Financial Statements

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FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Operations

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

	2014			2013
Net Revenues:
Patient services	$	65,607,006		$	56,211,160
Provision for doubtful accounts		(2,799,237	)		(2,409,733	)
Net patient services revenue		62,807,769			53,801,427
Management fees from affiliates		4,056,981			4,986,012
Other revenue		4,271,194			3,845,254
Revenues		71,135,944			62,632,693
Equity in earnings of affiliates		2,039,811			4,502,759
Operating Expenses:
Salaries and benefits		22,317,768			19,770,112
Supplies		17,383,162			16,993,555
Other operating expenses		28,810,032			24,513,007
Impairment of goodwill		—			20,847,608
Depreciation and amortization		4,204,828			3,636,840
Total operating expenses		72,715,790			85,761,122
Other Income (Expense):
Interest expense, net		(1,329,932	)		(1,575,535	)
Other income		30,840			39,852
Net other (expense)		(1,299,092	)		(1,535,683	)
Loss from continuing operations, before taxes		(839,127	)		(20,161,353	)
(Provision) benefit for income taxes		852,005			(961,105	)
Income (loss) from continuing operations, net of taxes		12,878			(21,122,458	)
Loss from discontinued operations, net of tax		(620,823	)		(196,705	)
Extraordinary gain, net of taxes, attributable to Foundation Healthcare		—			4,872,746
Extraordinary gain, net of taxes, attributable to noncontrolling interests		—			2,094,856
Net loss		(607,945	)		(14,351,561	)
Less:  Net income attributable to noncontrolling interests		2,054,872			1,522,445
Net loss attributable to Foundation Healthcare		(2,662,817	)		(15,874,006	)
Preferred noncontrolling interests dividends		(585,640	)		(720,621	)
Net loss attributable to Foundation Healthcare common stock	$	(3,248,457	)	$	(16,594,627	)
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.02	)	$	(0.17	)
Loss from discontinued operations, net of tax		0.00			0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare		0.00			0.04
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.02	)	$	(0.13	)
Weighted average number of common and diluted shares outstanding		170,163,181			126,989,570
Pro forma income information (Note 3):
Pro forma provision for income taxes				$	(1,240,455	)
Pro forma net income attributable to noncontrolling interests				$	1,170,410
Pro forma net income attributable to     Foundation Healthcare common stock				$	(15,801,321	)
Pro forma basic and diluted net income per share				$	(0.12	)

See Accompanying Notes to Condensed Consolidated Financial Statements

4

FOUNDATION HEALTHCARE, INC.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

	2014			2013
Operating activities:
Net loss	$	(607,945	)	$	(14,351,561	)
Less:  Loss from discontinued operations, net of tax		(620,823	)		(196,705	)
Less:  Extraordinary gain, net of tax		—			6,967,602
Income (loss) from continuing operations		12,878			(21,122,458	)
Adjustments to reconcile loss from continuing operations   to net cash provided by operating activities:
Depreciation and amortization		4,204,828			3,636,840
Impairment of goodwill		—			20,847,608
Stock-based compensation, net of cashless vesting		876,851			41,922
Provision for doubtful accounts		2,799,237			2,409,733
Equity in earnings of affiliates		(2,039,811	)		(4,502,759	)
Changes in assets and liabilities, net of acquisitions and extraordinary items:
Accounts receivable, net of provision for doubtful accounts		(4,338,374	)		(6,360,666	)
Receivables from affiliates		(175,698	)		202,017
Supplies inventories		(35,657	)		96,593
Prepaid and other current assets		(1,489,956	)		(684,284	)
Other assets		(204,838	)		400,415
Accounts payable		(1,791,968	)		202,838
Accrued liabilities		3,810,422			6,801,418
Other current liabilities		(2,330,737	)		1,016,176
Other liabilities		3,087,988			2,149,353
Net cash provided by operating activities from continuing operations		2,385,165			5,134,746
Net cash used in operating activities from discontinued operations		(454,338	)		(449,993	)
Net cash provided by operating activities		1,930,827			4,684,753
Investing activities:
Cash received in business acquisition		—			68,170
Purchase of property and equipment		(1,810,180	)		(3,478,983	)
Disposal of property and equipment		—			184,313
Sale of equity investment in affiliates		178,000			—
Cash received in extraordinary gain transaction		—			463,678
Distributions from affiliates		2,061,937			4,522,247
Net cash provided by investing activities from continuing operations		429,757			1,759,425
Net cash provided by investing activities from discontinued operations		—			200,000
Net cash provided by investing activities		429,757			1,959,425
Financing activities:
Debt proceeds		29,092,552			12,190,184
Debt payments		(24,560,683	)		(5,358,842	)
Common stock proceeds		—			375,000
Preferred noncontrolling interests proceeds		—			7,500,000
Preferred noncontrolling interests dividend		(583,693	)		(919,715	)
Redemption of preferred noncontrolling interests		—			(13,509,195	)
Distributions to noncontrolling interests		(2,879,989	)		(94,492	)
Distributions to member		—			(766,118	)
Net cash provided by (used in) financing activities from continuing operations		1,068,187			(583,178	)
Net cash used in financing activities from discontinued operations		(4,072,896	)		(294,039	)
Net cash used in financing activities		(3,004,709	)		(877,217	)
Net change in cash and cash equivalents		(644,125	)		5,766,961
Cash and cash equivalents at beginning of period		4,212,076			2,524,417
Cash and cash equivalents at end of period	$	3,567,951		$	8,291,378
Cash Paid for Interest and Income Taxes:
Interest expense	$	1,604,256		$	1,436,125
Interest expense, discontinued operations	$	168,733		$	34,689
Income taxes, continuing operations	$	3,255,623		$	—

See Accompanying Notes to Condensed Consolidated Financial Statements

5

FOUNDATION HEALTHCARE, INC.

Notes to Condensed Consolidated Financial Statements

For the Periods Ended September 30, 2014 and 2013

(Unaudited)

Note 1 – Nature of Business

Foundation Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and owns controlling and noncontrolling interests in surgical hospitals located in Texas. The Company also owns noncontrolling interests in ambulatory surgery centers (“ASCs”) located in Texas, Oklahoma, Pennsylvania, New Jersey, Maryland and Ohio. Additionally, the Company provides sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. The Company provides management services to a majority of the facilities that it has noncontrolling interests (referred to as “Affiliates”) under the terms of various management agreements.

Note 2 – Basis of Presentation

Reverse Acquisition – On July 22, 2013, the Company acquired Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively referred to as “Foundation”). For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

Going Concern and Management’s Plan – As of September 30, 2014, the Company had an accumulated deficit of $38.4 million, cash and cash equivalents of $3.6 and working capital of $1.3 million. During the nine months ended September 30, 2014, the Company generated a net loss attributable to Foundation Healthcare of $2.7 million and generated $2.4 million in cash flow from operating activities from continuing operations. On June 30, 2014, the Company completed a refinancing of substantially all of its outstanding indebtedness through the execution of the SNB Credit Facility. The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million (see Note 7 – Borrowings and Capital Lease Obligations).

As of September 30, 2014, the Company has $2.5 million available under the Revolving Loan. Management believes that the line of credit along with the Company’s cash on hand and projected cash flow from operations will provide the Company with enough liquidity to meet its cash requirements over the next 12 months. However, if the Company’s cash flows from operations do not meet or exceed management’s projections, the Company may need to raise additional funds, including through debt or equity financings. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 3 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2013.

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2014 are not necessarily indicative of results that may be expected for the year ended December 31, 2014. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013. The December 31, 2013 consolidated balance sheet was derived from audited financial statements.

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s members had elected to have FSA’s and FSHA’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a C Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 38%, which approximates the calculated statutory tax rates for the periods.

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Consolidation – The accompanying consolidated financial statements include the accounts of the Company and it’s wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed and billed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare, Medicaid and Tricare are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. The estimated net cost report settlements due to the Company were $608,555 and $235,000 as of September 30, 2014 and December 31, 2013 respectively, and are included in prepaid and other current assets in the accompanying consolidated balance sheets. We adjusted our cost report estimate by $373,555 during the nine months ended September 30, 2014 based on our final filed cost report for 2013 and an estimate of the 2014 cost report.  The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the

7

Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies. During the Company’s normal quarterly review process at March 31, 2014, management determined that a portion of the accounts receivable related to personal injury cases at our FSH SA location had grown to a level requiring it to be analyzed as a distinct payor category. Based on the historical cash collection experience and other analytical measures as noted above, the allowance for doubtful accounts related to the personal injury cases was lowered by $1.0 million.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

The activity in the allowance for doubtful accounts for the nine months ending September 30, 2014 follows:

	2014
Balance at beginning of period	$	4,778,915
Provisions recognized as reduction in revenues		2,799,237
Write-offs, net of recoveries		(4,859,357	)
Balance at end of period	$	2,718,795

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Restricted Cash – As of September 30, 2014 and December 31, 2013, the Company had restricted cash of approximately $1.1 million and $0.7 million respectively, included in prepaid and other current assets in the accompanying consolidated balance sheets.  The restricted cash at September 30, 2014 is related to the SNB Credit Facility (see Note 7 – Borrowings and Capital Lease Obligations) and represents the proceeds from the Term Loan that were not utilized as of September 30, 2014 to retire existing debt (“SNB Restricted Cash”).  The SNB Restricted Cash can be utilized to complete the payoff of the remaining indebtedness of the Company, to pay federal and state income taxes and for other uses as approved by BankSNB.  Use of the SNB Restricted Cash must be approved by BankSNB.  The restricted cash at December 31, 2013 was pledged as collateral against debt that was paid-off from the proceeds of the SNB Credit Facility.

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2014.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to ten years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

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During 2014, management determined that the Company had incorrectly reflected the historical common stock shares attributable to Foundation and the common stock shares issued in the reverse acquisition.  As a result, the Company has restated its previously reported net loss per share for the three and nine month periods ending September 30, 2013 in order to correct certain previously reported amounts.  The restatement had no impact on assets, liabilities, stockholders’ deficit or net loss attributable to Foundation Healthcare common stock.

The financial information included in the accompanying consolidated financial statements and notes thereto reflect the effects of the corrections described in the preceding paragraph.  The following tables set forth the correction of the individual affected line items in the accompanying consolidated financial statements:

	Three Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.01	)	$	(0.14	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.00			0.03
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.01	)	$	(0.11	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(11,141,958	)		151,561,441
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.01	)	$	(0.11	)

	Nine Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.04	)	$	(0.17	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.01			0.04
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.03	)	$	(0.13	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(35,713,829	)		126,989,570
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.02	)	$	(0.12	)

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have an impact on the Company’s consolidated financial statements, as the Company does not currently have any such arrangements.

In July 2013, the FASB issued changes to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax

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benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. Previously, there was diversity in practice as no explicit guidance existed. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have a significant impact on the Company’s consolidated financial statements.

Issued Guidance

In April 2014, the FASB issued changes to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The amendments are effective prospectively for all disposals (or classifications as held for sale) of components of an entity, and for all businesses that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective for the Company on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Company’s consolidated financial statements.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Company’s consolidated financial statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated financial statements in a given reporting period.

Note 4 – Reverse Acquisition

On July 22, 2013, the Company acquired FSA and FSA’s consolidated variable interest entity, FSHA, from Foundation Healthcare Affiliates, LLC (“FHA”) pursuant to an Amended and Restated Membership Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company (i) issued to FHA 114,500,000 shares of its common stock,

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(ii) issued to FHA a demand promissory note in the principal amount of $2.0 million, and (iii) assumed certain liabilities and obligations of FHA totaling approximately $2.0 million.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

The acquisition of Foundation was based on management’s belief that Foundation’s acquisition and development strategy and operating model will enable the Company to grow by taking advantage of highly-fragmented markets, an increasing demand for short stay surgery and a need by physicians to forge strategic alliances to meet the needs of the evolving healthcare landscape while also shaping the clinical environments in which they practice.

Simultaneous with and subject to the reverse acquisition, the Company issued 13,333,333 shares of common stock to purchase a $6.0 million participation in the credit facility owed by the Company to Arvest Bank (see Note 5 – Discontinued Operations for more information) and 17,970,295 shares of common stock to Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. Since the completion of the reverse acquisition was subject to these transactions, they have been recorded as part of the reverse acquisition.

Since FSA is deemed to be the accounting acquirer, the reverse acquisition was recorded by allocating the purchase price of the acquisition to the assets acquired, including intangible assets and liabilities assumed, from the legacy business of Graymark Healthcare, Inc. (“Graymark”), based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the estimated fair value of the assets acquired, net of liabilities assumed, was recorded as goodwill, none of which is anticipated to be tax deductible.

The fair value of the total consideration issued in the reverse acquisition amounted to $29.3 million and included $13.9 million for the common stock attributable to existing Graymark shareholders, Arvest Bank and Mr. Oliver, $2.0 million for the promissory note issued to FHA, $2.0 million for the debt obligations and liabilities assumed from FHA and $11.4 million of acquired debt and liabilities.

The final purchase allocation for the reverse acquisition is presented in the table below:

	Graymark
Assets acquired
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,360,143
Other current assets		198,976
Total current assets		1,876,622
Property and equipment		1,389,169
Intangible assets		2,733,000
Goodwill		21,864,781
Other assets		252,528
Other assets from discontinued operations		1,224,140
Total assets acquired	$	29,340,240
Liabilities assumed
Accounts payable and accrued liabilities	$	2,899,823
Short term debt		2,000,000
Current portion of long term debt		714,711
Current liabilities from discontinued operations		7,375,521
Total current liabilities		12,990,055
Long term debt		742,385
Other liabilities		305,969
Other liabilities from discontinued operations		1,362,957
Total liabilities assumed		15,401,366
Net assets acquired	$	13,938,874

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During the nine months ended September 30, 2013, the Company incurred $444,988 in expenses related to the reverse acquisition. The expenses incurred related primarily to legal fees related to the Purchase Agreement and structure of the transaction and professional fees related to the audits of the 2012 and 2011 consolidated financial statements of FSA.

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2014, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2013 are as follows:

			Loss From						Attributable to Foundation
	Revenue		Continuing Operations			Net Loss			Net Loss			Net Loss Per Share
Actual:
From 1/1/2014 to 9/30/2014	$	1,531,445	$	(4,771,630	)	$	(3,919,625	)	$	(3,919,625	)	$	(0.02	)
Supplemental Pro Forma:
From 1/1/2013 to 9/30/2013	$	69,993,313	$	(25,858,257	)	$	(18,695,228	)	$	(20,086,112	)	$	(0.12	)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Note 5 – Discontinued Operations

Prior to the reverse acquisition, Graymark committed to a plan to divest of or close certain sleep diagnostic and sleep therapy locations. The decision was based on a combination of the financial performance of the facilities and the shift in focus to the business model of Foundation. As a result of the pending closure or sale of these locations, the related assets, liabilities, results of operations and cash flows were classified as discontinued operations which were acquired by the Company in the reverse acquisition.

Under the plan, from July 2013 to October 2013, the Company closed or sold 24 sleep diagnostic locations including both IDTF and contracted locations in Georgia, Iowa, Kansas, Missouri, Nevada, Oklahoma and Texas and 5 sleep therapy locations in Iowa, Kansas, Nevada, Oklahoma and Texas.

As part of the reverse acquisition, the Company acquired the special charge liability of $475,570 related to the estimated closing costs resulting from the plan to sell or close the sleep diagnostic and therapy locations. For the nine month period ended September 30, 2014, the activity in the acquired accruals for restructuring charges established for lease termination costs were as follows:

	Lease Termination Cost
Balance at December 31, 2013	$	78,235
Adjustments		139,940
Cash Payments		(30,575	)
Balance at September 30, 2014	$	187,600

Adjustments to the special charge liability include changes to estimated settlements or other changes to the liabilities. Additional charges or adjustments may be recorded in future periods dependent upon the Company’s ability to sub-lease or otherwise mitigate future lease costs at closed facilities.

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations for the nine month period ended September 30, 2014 are summarized below:

	2014
Revenue	$	123,728
Net loss before taxes	$	(812,247	)
Income tax benefit		191,424
Net loss from discontinued operations, net of tax	$	(620,823	)

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The balance sheet items for discontinued operations are summarized below:

	September 30, 2014		December 31, 2013
Cash and cash equivalents	$	—	$	49,252
Accounts receivable, net of allowances		—		222,943
Inventories		—		1,893
Other current assets		174,964		244,541
Total current assets		174,964		518,629
Fixed assets, net		233,862		426,228
Other assets		150,000		150,000
Total non-current assets		383,862		576,228
Total assets	$	558,826	$	1,094,857
Payables and accrued liabilities	$	1,188,224	$	1,557,771
Short-term debt		—		3,994,932
Current portion of long-term debt		—		67,994
Total current liabilities		1,188,224		5,620,697
Long-term debt, net of current portion		—		9,969
Total liabilities	$	1,188,224	$	5,630,666

The Company’s borrowings and capital lease obligations included in discontinued operations are as follows:

	September 30, 2014		December 31, 2013
Short-term Debt
Arvest bank	$	—	$	3,994,932
Long-term Debt
Sleep center notes payable		—		28,723
Equipment capital leases		—		49,389
Total		—		78,112
Less: Current portion of long term debt		—		(68,143	)
Long-term debt	$	—	$	9,969

On June 30, 2014, the Company completed a refinancing of substantially all its outstanding indebtedness through the execution of the SNB Credit Facility.  The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million (see Note 7 – Borrowings and Capital Lease Obligations).  A portion of the proceeds from the Term Loan were used to refinance the full amount of the Company’s indebtedness previously included in discontinued operations.

Note 6 – Goodwill and Other Intangibles

Changes in the carrying amount of goodwill are as follows:

	Gross Amount		Accumulated Impairment Loss			Net Carrying Value
December 31, 2013	$	23,019,309	$	(22,045,382	)	$	973,927
September 30, 2014	$	23,019,309	$	(22,045,382	)	$	973,927

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Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

The goodwill associated with the reverse acquisition was $21.9 million. The Company then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. The Company evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

Changes in the carrying amount of intangible assets during the nine months ended September 30, 2014 were as follows:

	Carrying		Accumulated
	Amount		Amortization			Net
December 31, 2013	$	14,524,500	$	(3,385,879	)	$	11,138,621
Amortization		—		(1,542,704	)		(1,542,704	)
September 30, 2014	$	14,524,500	$	(4,928,583	)	$	9,595,917

Intangible assets as of September 30, 2014 and December 31, 2013 include the following:

		September 30, 2014							December 31,
	Useful	Carrying		Accumulated					2013
	Life (Years)	Value		Amortization			Net		Net
Management fee contracts	6 - 8	$	3,498,500	$	(2,061,189	)	$	1,437,311	$	1,763,463
Non-compete	5		2,027,000		(748,003	)		1,278,997		1,583,256
Physician memberships	7		6,468,000		(1,771,000	)		4,697,000		5,390,000
Trade Name	5		381,000		(91,324	)		289,676		347,218
Service Contracts	10		2,150,000		(257,067	)		1,892,933		2,054,684
		$	14,524,500	$	(4,928,583	)	$	9,595,917	$	11,138,621

Amortization expense for the three months ended September 30, 2014 and 2013 was $514,969 and $556,816 respectively. Amortization expense for the nine months ended September 30, 2014 and 2013 was $1,542,704 and $1,453,777 respectively.

Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2015	$	2,055,474
2016		2,055,474
2017		2,055,474
2018		1,395,586
2019		1,139,000
Thereafter		894,909

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Note 7 – Borrowings and Capital Lease Obligations

The Company’s short-term debt obligations are as follows:

	Rate (1)		September 30, 2014		December 31, 2013
Note payable - Legacy			$	—	$	2,814,027
Note payable - S&H leasing				—		1,865,600
Note payable - working capital				—		800,000
Insurance premium financings	3.1 - 4.8%			241,414		101,135
Note payable - Medicare cost report		10.1%		12,116		84,065
Short-term debt			$	253,530	$	5,664,827

(1) Effective rate as of September 30, 2014

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)		Maturity Date	September 30, 2014			December 31, 2013
Senior Lender:
Note payable		4.4%	Jun. 2021	$	26,625,000		$	—
Other Lenders:
Line of credit					—			896,000
Notes payable - working capital					—			3,715,088
Note payable - equity investments					—			3,270,427
Note payable - management agreements					—			640,466
Note payable - assumption					—			146,857
Note payable - preferred interest redemption					—			5,100,000
Note payable - settlements					—			1,189,725
Note payable - THE					—			311,149
Notes payable - physician partners					—			103,604
Notes payable - acquisition		6.0%	Dec. 2014 - Oct. 2015		95,674			99,610
Capital Lease Obligations	5.5 - 9.1%				1,173,403			2,477,985
Total					27,894,077			17,950,911
Less: Current portion of long-term debt					(4,050,498	)		(7,919,179	)
Long-term debt				$	23,843,579		$	10,031,732

(1) Effective rate as of September 30, 2014

SNB Credit Facility

Effective June 30, 2014, we entered into a Loan Agreement with Bank SNB, National Association, and Texas Capital Bank, together referred to as Lenders and collectively the agreement is referred to as the SNB Credit Facility.  The SNB Credit Facility was used to consolidate substantially all of our and our subsidiaries’ debt in the principal amount of $27.5 million, which we refer to as the Term Loan, and provides for an additional revolving loan in the amount of $2.5 million, which we refer to as the Revolving Loan. As of June 30, 2014 we have not drawn funds from the Revolving Loan.  We have also entered into a number of ancillary agreements in connection with the SNB Credit Facility, including deposit account control agreements, subsidiary guarantees, security agreements and promissory notes.

Maturity Dates.  The Term Loan matures on June 30, 2021 and the Revolving Loan matures on June 30, 2016.

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Interest Rates.  The interest rate for the Term Loan and Revolving Loan is 30-day LIBOR plus the Applicable Margins based on our Senior Debt Ratio, as defined.  The Applicable Margins are as follows:

	Applicable Margin
Senior Debt Ratio	Revolving Loan	Term Loan
≥ 2.5x	3.75%	4.25%
< 2.5x, but ≥ 2.0x	3.25%	3.75%
< 2.0 x	2.75%	3.25%

 The Applicable Margins are established at 3.75% for the Revolving Loan and 4.25% for the Term Loan through December 31, 2014.  Subsequent to December 31, 2014, the Applicable Margins will be adjusted on a quarterly basis based on our senior debt ratio. The Senior Debt Ratio is calculated by dividing all of our indebtedness, including capital leases, which is secured by a lien or security interest in any of our assets by our EBITDA for the preceding four fiscal quarters.  EBITDA is defined in the SNB Credit Facility as our net income calculated before interest expense, provision for income taxes, depreciation and amortization expenses, stock compensation, gains arising from the write-up of assets, extraordinary gains and any one-time expenses approved by Bank SNB.

Interest and Principal Payments.  We are required to make quarterly payments of principal and interest on the Term Loan.  The first four quarterly payments on the Term Loan will be $875,000 plus all accrued and unpaid interest.  Each subsequent quarterly payment will be $1,000,000 plus all accrued and unpaid interest.  We are required to make quarterly payments on the Revolving Loan equal to the accrued and unpaid interest.  All unpaid principal and interest on the Term Loan and Revolving Loan must be paid on the respective maturity dates of June 30, 2021 and June 30, 2016.

Permitted Acquisitions.  We must obtain the Lenders approval for any acquisition, merger or consolidation in which the consideration paid for the acquisition, merger or consolidation is in excess of $1 million or for any acquisition, merger or consolidation in which the target entity’s operating income for the preceding 12 month period is less than zero.

Mandatory Prepayments.  If we sell any assets in excess of $100,000 or collectively sell any assets in a 12 month period in excess of $100,000, we must make a prepayment equal to the net proceeds of the asset sale(s).  If we receive proceeds from a debt or equity offering that is not used for a permitted acquisition over a 12 month period following the offering or for repayment of our preferred noncontrolling interests, we must make a prepayment equal to the net proceeds of the debt or equity offering.  Subsequent to the completion of our annual audited financial statements, we must make a prepayment equal to 30% of our Excess Cash Flow which is defined as the amount of EBITDA (as defined in the SNB Credit Facility) for the fiscal year that exceeds the sum of debt service payments plus capital expenditures plus cash payments for federal, state and local income taxes, plus distributions made by our Equity Owned Hospitals to persons other than us.

Voluntary Prepayments.  We may prepay amounts under the Term Loan at any time provided that we are required to pay a prepayment penalty of 2% of the amount prepaid if payment is made prior to the first anniversary, 1.5% if the prepayment is made after the first anniversary but prior to the second anniversary and 1% if the prepayment is made after the second anniversary but prior to the maturity date.  We may prepay amounts under the Revolving Loan at any time without penalty.

Guaranties.  Each of our direct or indirect wholly-owned subsidiaries jointly and severally and unconditionally guaranty payment of our obligations owed to Lenders.

Financial Covenants:

Senior Debt Ratio.  We must maintain a Senior Debt Ratio not in excess of 3.00 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014.  As of September 30, 2014, our Senior Debt Ratio was 1.79.

Senior Debt Service Coverage Ratio.  We must maintain a Senior Debt Service Coverage Ratio of not less than 1.30 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Senior Debt Service Coverage ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures to our debt service payments for the same period.  As of September 30, 2014, our Senior Debt Service Coverage Ratio was 2.09.

Adjusted Senior Debt Service Coverage Ratio.  We must maintain an Adjusted Senior Debt Service Coverage Ratio of not less than 1.05 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Adjusted Senior Debt Service Coverage Ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures, plus distributions made to our preferred noncontrolling interest holders, plus distributions made by our Equity Owned Hospitals to persons other than us to our debt service payments for the same period.  As of September 30, 2014, our Adjusted Senior Debt Service Ratio was 1.31.

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Annualized EBITDA.  Until June 30, 2015 and for purposes of calculating compliance with the financial covenants in SNB Credit Facility, EBITDA shall be determined by annualizing EBITDA for the fiscal quarter ending on September 30, 2014 and each quarter that has elapsed thereafter.

As of September 30, 2014, we are in compliance with our financial covenants.

Restrictions on Indebtedness.  We and our Equity Owned Hospitals are not allowed to create any indebtedness other than indebtedness for the purchase of fixed assets not exceeding $500,000 in any fiscal year, trade payables incurred in the ordinary course of business and not past due, contingent obligations and unsecured indebtedness not exceeding $100,000 in the aggregate at any time outstanding.

Use of Proceeds.  All proceeds of the Term Loan were used solely for the refinancing of existing indebtedness.  The proceeds of the Revolving Loan will be used for working capital.

Collateral.  Payment and performance of our obligations under the SNB Credit Facility are secured in general by all of our assets.

Defaults and Remedies.  In addition to the general defaults of failure to perform our obligations under the Loan Agreement, events of default also include the occurrence of a change in control, as defined, and the loss of our Medicare or Medicaid certification, collateral casualties, entry of a judgment of $150,000 or more, failure of first liens on collateral and the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18 month period.  In the event of a monetary default, all of our obligations due under the SNB Credit Facility shall become immediately due and payable.  In the event of a non-monetary default, we have 10 days or in some cases three days to cure before BankSNB has the right to declare our obligations due under the SNB Credit Facility immediately due and payable.

At September 30, 2014, future maturities of long-term debt were as follows:

Twelve months ended September 30:
2015	$	4,050,498
2016		4,362,967
2017		4,229,627
2018		4,134,459
2019		4,116,526
Thereafter		7,000,000

Note 8 – Preferred Noncontrolling Interests

During 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) completed a private placement offering of $9,135,000. The offering was comprised of 87 units (“FHE Unit” or “preferred noncontrolling interest”). Each FHE Unit was offered at $105,000 and entitled the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. The total consideration of $9,135,000 was comprised of $8,700,000 attributable to the preferred noncontrolling interest and $435,000 attributable to the 870,000 shares of the Company’s common stock.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share. Since the FHE Units have a redemption feature and a conversion feature which the Company determined to be substantive, the preferred noncontrolling interests has been recorded at the mezzanine level in the accompanying consolidated balance sheets and the corresponding dividends are recorded as a reduction of accumulated deficit.

Note 9 – Commitments and Contingencies

Legal claims – The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters

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will not have a material adverse effect on the operating results or the financial position of the Company. There were no settlement expenses during the three months ended September 30, 2014 and 2013 related to the Company’s ongoing unasserted legal claims.

Self-insurance – Effective January 1, 2014, the Company began using a combination of insurance and self-insurance for employee-related healthcare benefits. The self-insurance liability is determined actuarially, based on the actual claims filed and an estimate of incurred but not reported claims. Self-insurance reserves as of September 30, 2014 were $372,596 and are included in accrued liabilities in the accompanying consolidated balance sheets.

Note 10 – Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

· Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

· Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

· Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At September 30, 2014, the fair value of the Company’s long-term debt, including the current portion was determined to be approximately equal to its carrying value.

Nonrecurring Fair Value Measurements: During the nine months ended September 30, 2014, the Company did not have any assets or liabilities recorded using nonrecurring fair value measurements.

Note 11 – Real Estate Transaction

On March 1, 2014, the Company executed a 15 year master lease on the building occupied by the Company’s hospital subsidiary in San Antonio, Texas for an annual rent of $2.3 million with annual escalations of 3%. The current lease income on the underlying sub-lease is approximately $2.1 million per year which includes the rent paid by FBH SA. The master lease is an operating lease. In conjunction with the master lease and certain other agreements with the landlord, the Company received $4.1 million at the time of the lease. Given the disparity between the annual rent expense under the master lease and the rental income of the underlying sub-lease, the cash received at the execution of the lease was deferred and will be recorded on a straight-line basis as a reduction in the rent expense under the master lease.

Note 12 – Related Party Transactions

Effective June 1, 2014, the Company’s hospital subsidiary located in El Paso, Texas entered into a sublease agreement with The New Sleep Lab International, Ltd., referred to as New Sleep. New Sleep is controlled by Dr. Robert Moreno, one of our Directors. The sublease with New Sleep calls for monthly rent payments of $8,767 and the sublease expires on November 30, 2018. The space subleased from New Sleep will be sublet to physician partners and casual uses of our hospital and is located in a building that also houses one of our imaging facilities. During the nine months ended September 30, 2014, the Company incurred approximately $35,000 in lease expense under the terms of the lease.

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As of September 30, 2014, the Company had $0.9 million on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders. In addition, the Company was obligated to Valliance Bank under certain notes payable totaling $5.9 million at December 31, 2013. On June 30, 2014, the notes were paid in full from the proceeds of the SNB Credit facility.  The interest rates on the notes ranged from 5% to 10%. A non-controlling interest in Valliance Bank is held by Mr. Joseph Harroz, Jr., a director of the Company. Mr. Stanton Nelson, the Company’s Chief Executive Officer and Mr. Harroz also serve as directors of Valliance Bank.

In October 2013, the Company completed a private placement offering $9,135,000 (see Note 8 – Preferred Noncontrolling Interests for additional information). The offering was comprised of 87 FHE Units. Each FHE Unit was offered at $105,000 and entitled the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. Mr. Stanton Nelson, the Company’s chief executive officer, purchased 5 FHE units for $525,000.

The Company has office space subject to a lease agreement with City Place, LLC (“City Place”). Under the lease agreement, the Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. A non-controlling interest in City Place is held by Roy T. Oliver, one of the Company’s greater than 5% shareholders. During the nine months ended September 30, 2014, the Company incurred approximately $70,000 in lease expense under the terms of the lease. During the period from July 22, 2013 to September 30, 2013, the Company incurred approximately $18,000 in lease expense under the terms of the lease

As of September 30, 2014 and December 31, 2013, the Company has obligations of $1.4 million that are owed to FHA and certain real estate subsidiaries and affiliates of FHA related to transactions that occurred prior to the Foundation acquisition in July 2013. The amounts owed to FHA and FHA affiliates are included in other liabilities on the accompanying consolidated balance sheets.

The Company has entered into agreements with certain of its Affiliate ASCs and hospitals to provide management services. As compensation for these services, the surgery centers and hospitals are charged management fees which are either fixed or are based on a percentage of the Affiliates cash collected or the Affiliates net revenue. The percentages range from 2.25% to 6.0%.

Note 13 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Company Overview

We own and manage facilities which operate in the rapidly growing specialized surgical segment of the healthcare industry. Today, our network consists of four surgical hospitals, nine ambulatory surgical centers (ASCs) and two hospital outpatient departments (HOPDs) in the Southeastern United States. Our growth strategy involves increasing our footprint in our current markets by acquiring controlling interests in surgical hospitals, nearby ASCs and ancillary service facilities where we currently own a non-controlling interest. ASCs affiliated with surgical hospitals are known as HOPDs and generally benefit from higher payment rates from governmental insurance and other payors as compared with unaffiliated ASCs, and both the hospitals and affiliated outpatient surgery centers benefit from regional branding, increased operating efficiencies and lower costs through economies of scale. We believe that having the ability to perform procedures at surgical hospitals for more complex surgeries and at ASCs or HOPDs for same-day surgeries, coupled with the ability to provide other related non-surgical services will enable us to capture an increasing share of surgical volumes in the markets in which we serve and to generate strong patient outcomes and satisfaction. Additionally, we provide sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. We provide management services to a majority of our Affiliates under the terms of various management agreements.

We focus primarily on investing in and managing high quality cost effective surgical hospitals that meet the needs of patients, physicians and payors. We believe the facilities we invest in and manage provide an enhanced quality of care to our patients while providing administrative, clinical and economic benefits to physicians. Our facilities currently provide general surgeries and in such specialties as orthopedics, neurosurgery, pain management, podiatry, gynecology, optometry, gastroenterology and pediatric ENT (tubes/adenoids), as well as wound care, sleep management, radiology, imaging and other ancillary services. We are expanding our service offering to include additional imaging, intraoperative monitoring, robotic surgery, and physical therapy services. A key component of our success has been our strong relationships with quality physician partners. We believe our continued emphasis on physician satisfaction and productivity will continue to position us competitively in the future.

Foundation Transaction

On July 22, 2013, we acquired 100% of the interests in Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively “Foundation”) from Foundation Healthcare Affiliates, LLC (“FHA”) in exchange for 114,500,000 shares of our common stock and a promissory note in the amount of $2,000,000 (the “Foundation Acquisition”). We also assumed certain debt and other obligations of FHA in the amount of $1,991,733. The promissory note bore interest at a fixed rate of 7% and was paid in full on October 14, 2013.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the historical operating results included in our consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition. Prior to July 22, 2013, FSA’s member had elected to have FSA’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its respective tax returns and no provision for federal and state income taxes is included in these consolidated financial statements for periods prior to July 22, 2013. We have included pro forma income information in our consolidated statements of operations that provides an adjustment for income tax expense as if FSA and FSHA had been a C Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 38%, which approximates the calculated statutory tax rates for the periods.

Going Concern and Management’s Plan

As of September 30, 2014, we had an accumulated deficit of $38.4 million, cash and cash equivalents of $3.6 million and working capital of $1.3 million. During the nine months ended September 30, 2014, we generated a net loss attributable to Foundation Healthcare of $2.7 million and generate $2.4 million in cash flow from operating activities from continuing operations. On June 30, 2014, we completed a refinancing of substantially all of our outstanding indebtedness through the execution of the SNB Credit Facility. The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources.”

We believe our cash on hand, the $2.5 million Revolving Loan and projected cash flow from operations will provide us enough liquidity to meet our cash requirements over the next 12 months. However, if our cash flows from operations do not meet or exceed our projections, we may need to raise additional funds, including through debt or equity financings. These uncertainties raise

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substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Hospital and ASC Business Overview

Today, we own more than 51% of two surgical hospitals located in San Antonio and El Paso, Texas which are reflected in our financials as our Consolidated Hospitals. We maintain minority interests in two hospitals in Sherman and Houston, Texas and nine ASCs in six states which are referred to as Equity Owned Hospitals, Equity Owned ASCs, Equity Owned Facilities or Affiliates. We also have an interest in two HOPDs through our investment in the Sherman hospital. We have a management contract with one ASC in Baton Rouge, Louisiana in which we have no ownership interest. We generate revenue through our ownership interests in these surgical facilities as well as management fees for providing a variety of administrative services to most of our Equity Owned Facilities. We manage our facilities by overseeing their business office, contracting, marketing, financial reporting, accreditation, clinical, regulatory and administrative operations. We work closely with our physician partners to increase the likelihood of successful patient and financial outcomes.

Facility Location	Number of Physician Partners	Number of Operating Rooms	Percentage Owned by Company		Managed by Company	Mgmt. Agreement Exp. Date
Consolidated Hospitals:
San Antonio, Texas	19	4		51.0%	Yes	n/a
El Paso, Texas	68	6		54.0%	Yes	n/a
Equity Owned Hospitals:
Sherman, Texas	43	4		20.0%	Yes	6/1/2016
Houston, Texas	19	10		20.0%	No	n/a
Equity Owned ASCs:
Cumberland Valley, Maryland	14	1		31.9%	Yes	9/30/2017
Frederick, Maryland	20	4		20.1%	Yes	3/31/2017
Mercerville, New Jersey	23	3		10.0%	Yes	4/30/2020
Middleburg Heights, Ohio	12	4		10.0%	Yes	3/5/2016
Oklahoma City, Oklahoma	33	6		20.0%	Yes	1/19/2018
Huntingdon Valley, Pennsylvania	21	4		20.0%	Yes	Monthly
Houston, Texas	13	4		10.0%	Yes	2/28/2016
Houston, Texas	22	4		10.0%	Yes	12/31/2018
Nacogdoches, Texas	9	3		12.5%	Yes	Monthly
Equity Owned HOPD:
Sherman, Texas	*	4	**		Yes	6/1/2016
Sherman, Texas	*	2	**		Yes	6/1/2016
Managed Only ASC:
Baton Rouge, Louisiana	21	6		0.0%	Yes	Monthly

* The 43 physician partners in our hospital in Sherman also participate in these HOPDs through the hospital’s 100% ownership of these HOPDs.

** These HOPDs are 100% owned by our hospital in Sherman, Texas.

Our facilities are licensed at the state level and are accredited by either the Accreditation Association for Ambulatory Healthcare (AAAHC) or the Det Norske Veritas (DNV). The only exception is our ASC in Nacogdoches, Texas which meets the accreditation standards, but the governing board of this ASC has elected to not seek accreditation. We recognize that accreditation is a crucial quality benchmark for payors since many managed care organizations will not contract with a facility until it is accredited. We believe that our historical success in obtaining and retaining accreditation for our facilities reflects our commitment to providing high quality care in our facilities.

Generally, each facility is owned and operated by either a limited partnership or limited liability company in which ownership interests are held by our local physician partners who practice at the facility and by us. Our partnership and limited liability company agreements typically provide for the monthly or quarterly pro rata distribution of cash equal to net profits from operations, less amounts held in reserve for expenses and working capital. These limited partnership or limited liability company agreements generally grant us representation on the facility’s governing board and ensure our participation in fundamental decisions. Our influence over the businesses of our facilities is further enhanced by our management agreements with such facilities.

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Our surgical hospitals and ASC facilities depend upon third-party reimbursement programs to pay for our services rendered to patients, including governmental Medicare and managed Medicare programs, a broad mix of private insurance programs, and co-pays, deductibles and cash payments from patients. Private payors typically employ reimbursement methodologies similar to those used by government providers. Under Medicare, our facilities are reimbursed for the services rendered through the payment of facility fees which vary depending on the type of facility (hospital, HOPD or ASC), and type of procedure. Hospitals and HOPDs are reimbursed for outpatient procedures in a manner similar to most ASCs except that the methodologies employed to calculate reimbursement rates generally result in rates that are higher than those for comparable procedures at free-standing ASCs. ASCs are reimbursed through the payment of a composite “ASC rate” which is set by us based on a survey of comparative rates, which includes payment for most of the expenses associated with the performance of a procedure such as nursing services, supplies, and staffing costs. Reimbursement rates for inpatient hospital services are determined using Medicare severity diagnosis related groups which are intended to compensate hospitals according to the estimated intensity of hospital resources necessary to furnish care for a particular diagnosed illness.

Our surgical hospital and ASC facilities depend upon third-party reimbursement programs, including governmental and private insurance programs, to pay for the preponderance of the services rendered to patients. Our surgical hospital and ASC facilities derive a portion of their revenues from governmental healthcare programs, primarily Medicare and managed Medicare programs, and the remainder from a wide mix of commercial payors and patient co-pays and deductibles. Private payors typically follow the method in which the government reimburses healthcare providers. Under the government’s methodology our surgical hospital and ASC facilities are reimbursed for the performance of services through the payment of facility fees which vary according to whether the facility is a hospital or an ASC and the type of procedure that is performed. Hospitals are reimbursed for outpatient procedures in a manner similar to ASCs except that the methodologies employed to calculate reimbursement generally result in hospitals being reimbursed in this setting at a higher rate than free-standing ASCs. ASCs are reimbursed through the payment of a composite “ASC rate” which includes payment for most of the expenses associated with the performance of a procedure such as nursing services, supplies, and staffing costs. The reimbursement rates for inpatient hospital services are determined using Medicare severity diagnosis related groups which are intended to compensate hospitals according to the estimated intensity of hospital resources necessary to furnish care for a particular diagnosed illness.

Our revenues from the ASC and surgical hospital facilities are derived from (i) the pro rata distributions we receive on our ownership in the facilities, and (ii) management fees that we receive from these facilities. Such management fees are generally calculated as a percentage of the monthly net revenues. We own equity interests in all of our ASC and surgical hospital facilities except the Lake Surgery Center in Baton Rouge, Louisiana which we manage. We possess management agreements with all of our facilities except for the Houston Orthopedic Surgical Hospital in Houston, Texas in which we own a 20% interest.

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Results of Operations

The following table sets forth selected results of our operations for the three months and nine months ended September 30, 2014 and 2013. The following information was derived and taken from our unaudited financial statements appearing elsewhere in this report.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Net Revenues:
Patient services	$	26,183,803		$	21,724,423		$	65,607,006		$	56,211,160
Provision for doubtful accounts		(1,562,147	)		(682,319	)		(2,799,237	)		(2,409,733	)
Net patient services revenue		24,621,656			21,042,104			62,807,769			53,801,427
Management fee from affiliates		1,352,909			1,460,163			4,056,981			4,986,012
Other revenue		1,450,021			1,048,381			4,271,194			3,845,254
Revenue		27,424,586			23,550,648			71,135,944			62,632,693
Equity in earnings from affiliates		616,959			1,448,898			2,039,811			4,502,759
Operating Expenses:
Salaries and benefits		7,339,528			6,974,734			22,317,768			19,770,112
Supplies		6,748,785			6,659,330			17,383,162			16,993,555
Other operating expenses		10,655,907			8,609,650			28,810,032			24,513,007
Impairment of goodwill		—			20,847,608			—			20,847,608
Depreciation and amortization		1,320,527			1,290,779			4,204,828			3,636,840
Net other expense		294,700			516,069			1,299,092			1,535,683
Income (loss) from continuing operations, before taxes		1,682,098			(19,898,624	)		(839,127	)		(20,161,353	)
Benefit for income taxes		—			(961,105	)		852,005			(961,105	)
Income (loss) from continuing operations, net of taxes		1,682,098			(20,859,729	)		12,878			(21,122,458	)
Extraordinary gain, net of tax, attributable to Foundation		—			4,872,746			—			4,872,746
Extraordinary gain, net of tax, attributable to NCI		—			2,094,856			—			2,094,856
Discontinued operations, net of tax		(119,785	)		(196,705	)		(620,823	)		(196,705	)
Net income (loss)		1,562,313			(14,088,832	)		(607,945	)		(14,351,561	)
Less: Noncontrolling interests		1,208,648			2,402,532			2,054,872			1,522,445
Net income (loss) attributable to Foundation Healthcare	$	353,665		$	(16,491,364	)	$	(2,662,817	)	$	(15,874,006	)

Discussion of Three Month Period Ended September 30, 2014 and 2013

Patient services revenue increased $4.5 million or 20.7% during the three months ended September 30, 2014 compared with the third quarter of 2013. The increase was primarily due to:

— The addition of a new drug testing laboratory service at East El Paso Physician Medical Center, LLC (“EEPPMC”) resulted in an increase of $2.8 million;

— An increase in average reimbursement per surgical case at EEPPMC driven by an increase in inpatient spine and orthopedic cases resulted in an increase in patient service revenue of $1.1 million; and

— An increase in surgical case volume at Foundation Surgical Hospital of San Antonio (“FSH SA”) driven primarily by an increase in spine and orthopedic cases, resulted in an increase in patient services revenue of $0.6 million.

Provision for doubtful accounts increased $0.9 million or 128.6% during the three months ended September 30, 2014 compared with the third quarter of 2013. Provision for doubtful accounts as a percent of patient services revenue was 6.0% and 3.1% for the third quarter of 2014 and 2013, respectively. The higher percent was driven by an increase in the allowance rate compared to the third quarter of 2013 which also contributed $0.6 million of the increased reserve.  Additionally, increased reserves related to the higher revenues in the third quarter of 2014 compared to 2013 was $0.3 million.

Management fees from affiliates decreased $0.1 million or 6.7% during the three months ended September 30, 2014 compared with the third quarter of 2013. Our management fees at both our ASCs and surgical hospitals are based on a percentage of collections. Lower collections at our ASCs due to reduced volumes resulted in the decrease of $0.1 million.

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Other revenue increased $0.5 million or 50.0% during the three months ended September 30, 2014 compared with the third quarter of 2013. The increase was related to the change in accounting for one of our ASC locations from the equity method to the cost method due to our determination on December 31, 2013 that we no longer had significant influence over this ASC resulting in an increase of $0.8 million compared to the third quarter of 2013 and improved revenues from our sleep service operations of $0.1 million.  The increase was offset by $0.4 million in higher cost report recoupments in the third quarter of 2013 compared to 2014.

Income from equity investments in affiliates decreased $0.8 million or 57.1% during the three months ended September 30, 2014 compared with the third quarter of 2013. A change in accounting method for one of our ASC’s from the equity method to the cost method resulted in the distributions from that location being booked as other revenue in 2014 resulting in a decrease of $0.5 million. Additionally, lower volumes and average reimbursement levels at one of our non-majority owned hospitals and one of our ASC’s in Pennsylvania resulted in a decrease of $0.3 million.

Salaries and benefits increased $0.3 million or 4.3% to $7.3 million from $7.0 million during the three months ended September 30, 2014, compared with the third quarter of 2013. The increase in salaries and benefits was primarily due to:

— $0.2 million in increased salaries and benefits resulting from a combination of normal annual salary increases and increased personnel required to manage our expanding hospital operations; and

— $0.2 million in increased salary expense at FSH SA related to incremental administrative salaries during the transition to a new Chief Executive Officer at FSH SA and the increase in case volumes, offset by $0.1 million in salary reductions at EEPPMC and in our sleep services business.

Supplies expense was unchanged at $6.7 million for the three months ended September 30, 2014, compared with the third quarter of 2013. Cost increases related to increased volumes at FSH SA of $0.8 million were offset by a $0.8 million decrease at EEPPMC due to improved pricing and overall lower case volume.

Other operating expenses increased $2.1 million or 24.4% to $10.7 million from $8.6 million during the three months ended September 30, 2014, compared with the third quarter of 2013. The increase in other operating expenses was primarily due to:

— $2.0 million in outsource fees related to the new drug testing laboratory services at EEPPMC; and

— $0.1 million in increased facility lease expense and higher legal and accounting fees.

Impairment of goodwill – In the third quarter of 2013, we recorded goodwill associated with the reverse acquisition related to legacy Graymark of $20,847,608. We then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. We evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.  We had no impairment of goodwill in the third quarter of 2014.

Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization was unchanged in the third quarter of 2014 compared to the third quarter of 2013.  Incremental depreciation from new assets was offset by exiting assets becoming fully depreciated in the quarter.

Net other expense represents primarily interest expense on borrowings reduced by interest income earned on cash and cash equivalents and the gain or loss on the sale of equity investments in affiliates. Net other expense decreased $0.2 million in the third quarter of 2014 compared to the third quarter of 2013. The decrease is related to the impact of the BankSNB refinancing that occurred on June 30, 2014 which resulted in lower interest rates on the refinanced outstanding debt.

Discontinued operations represent the net loss from the operations of our independent diagnostic testing facilities (“IDTF”) which were classified as held for sale prior the Graymark reverse acquisition. The results from our discontinued operations for the three months ended September 30, 2014 are summarized below:

	2014
Revenue	$	—
Net loss before taxes	$	(119,785	)
Income tax benefit		—
Net loss from discontinued operations, net of tax	$	(119,785	)

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Extraordinary gain, net of tax – on August 30, 2013, we entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Foundation Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied by and certain personal property used by the Company’s subsidiary EEPPMC under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), a note payable, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property”). The purchase price under the Purchase Agreement was $39,066,428.

Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, a note payable and Personal Property.

 The consideration under the Assignment Agreement with DOC was $40,000,000. In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,562 due to HC REIT from EEPPMC.

We determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

We had no extraordinary gains in the third quarter of 2014.

Noncontrolling interests were allocated $1.2 million and $2.4 million of net income during the three months ended September 30, 2014 and 2013, respectively. Noncontrolling interests are the equity ownership interests in our majority owned hospital subsidiaries, EEPPMC and FSH SA.

Net income (loss) attributable to Foundation Healthcare. Our operations resulted in net income of $0.4 million during the third quarter of 2014, compared to net loss of $16.5 million during the third quarter of 2013.

Discussion of Nine Month Period Ended September 30, 2014 and 2013

Overall comments – as a result of the Foundation transaction on July 22, 2013 being recorded as a reverse acquisition, the operating results of legacy Graymark is not included in the operating results prior to the transaction date of July 22, 2013.

Patient services revenue increased $9.4 million or 16.7% during the nine months ended September 30, 2014 compared with the first nine months of 2013. The increase was primarily due to:

— The addition of a new drug testing laboratory service at EEPPMC resulted in an increase of $2.8 million;

— An increase in average reimbursement per case at EEPMC driven primarily by an increase in inpatient surgical spine cases resulted in an increase in patient service revenue of $3.1 million; and

— An increase in surgical case volume and the average reimbursement per surgical case at FSH SA which was driven by an increase in spine and orthopedic cases resulted in an increase in patient services revenue of $3.5 million.

Provision for doubtful accounts increased $0.4 million or 16.7% during the nine months ended September 30, 2014 compared with the first nine months of 2013. Provision for doubtful accounts as a percent of patient services revenue was 4.3% for both the nine months ended September 30, 2014 and 2013.  The increase in the provision is due to higher reserves related to the increase in revenue of $0.4 million.

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Management fees from affiliates decreased $0.9 million or 18.0% during the nine months ended September 30, 2014 compared with the first nine months of 2013. Our management fees at both our ASCs and surgical hospitals are based on a percentage of collections. Lower collections at our ASCs due to reduced volumes in the first nine months of 2014 compared to 2013 along with unplanned closures due to inclement weather in the first quarter of 2014 resulted in a decrease of $0.5 million. An agreement to lower our management fees beginning in June 2013 at one of our managed hospitals resulted in a decrease of $0.4 million.

Other revenue was increased $0.5 million or 13.2% during the nine months ended September 30, 2014 compared with the first nine months of 2013. Increases in other revenue in the first nine months of 2014 compared to 2013 include:

· $1.0 million in revenue earned during the first six months of 2014 from the sleep center management fees earned at our legacy Graymark hospital outreach locations, there is no revenue included from the hospital outreach locations during the first half of 2013 as a result of the reverse acquisition recorded on July 22, 2013;

· $0.1 million in higher sleep center management fees in the third quarter of 2014 compared to the third quarter of 2013 due to higher volumes; and

· $1.9 million related to the change in accounting for one of our ASC locations from the equity method to the cost method due to our determination on December 31, 2013 that we no longer had significant influence over this ASC.

The offsetting decrease in other revenue is due to:

· the receipt of $1.9 million of Meaningful Use payments EEPPMC in the second quarter of 2013, no meaningful use payments were received in 2014;

· higher cost report reconciliation payments of $0.3 million in 2013; and

· a $0.3 million distribution from our minority owned hospital in Houston, Texas received in the first quarter of 2013. We have not received a distribution from that facility in 2014.

Income from equity investments in affiliates decreased $2.5 million or 55.6% during the nine months ended September 30, 2014 compared with the first nine months of 2013. A change in accounting method for one of our ASC’s from the equity method to the cost method resulted in the distributions from that location being booked as other revenue in 2014 resulting in a decrease of $1.4 million. Lower earnings at our ASC’s primarily related to lower volumes and average reimbursement levels at one of our ASC’s in Pennsylvania resulted in a decrease of $0.6 million and lower earnings at a non-majority owned surgical hospital resulted in a decrease of $0.5 million.

Salaries and benefits increased $2.5 million or 12.6% to $22.3 million from $19.8 million during the nine months ended September 30, 2014, compared with the first nine months of 2013. The increase in salaries and benefits was primarily due to:

— $1.0 million of stock compensation expense;

— $0.8 million of salaries and benefits at legacy Graymark;

— $0.6 million due to increased salaries and benefits resulting from a combination of normal annual salary increases and increased personnel required to manage our expanding hospital operations; and

— $0.5 million increase at FSH SA related to incremental administrative salaries during the transition to a new Chief Executive Officer at FSH SA and the increase in case volumes, offset by a $0.4 million decrease at EEPPMC due to improved staffing efficiency.

Supplies expense increased $0.4 million or 2.4% to $17.4 million from $17.0 million during the nine months ended September 30, 2014, compared with the first nine months of 2013. The increase is due to a $1.7 million increase at FSH SA driven by higher surgical case volumes compared to the first nine months of 2013, offset by a $1.3 million decrease at EEPPMC related to lower overall surgical case volumes and improved pricing compared to the first nine months of 2013.

Other operating expenses increased $4.3 million or 17.6% to $28.8 million from $24.5 million during the nine months ended September 30, 2014, compared with the first nine months of 2013. The increase in other operating expenses was primarily due to:

— $0.8 million in increased facility lease expense and higher professional fees primarily related to increased audit and legal fees;

— $1.5 million of other operating expenses at legacy Graymark; and

— $2.0 million in professional fees related to the new laboratory services EEPPMC.

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Impairment of goodwill – We recorded goodwill associated with the reverse acquisition related to legacy Graymark of $20,847,608. We then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. We evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.  We did not have an impairment of goodwill in the first nine months of 2014.

Depreciation and amortization represents the depreciation expense associated with our fixed assets and the amortization attributable to our intangible assets. Depreciation and amortization increased $0.6 million in the nine months ended September 30, 2014 compared to the first nine months of 2013. The increase was primarily due to $0.2 million related to additional information technology assets at our corporate offices and medical equipment assets at EEPPMC and FSH SA and $0.4 million of depreciation and amortization at legacy Graymark.

Net other expense represents primarily interest expense on borrowings reduced by interest income earned on cash and cash equivalents and the gain or loss on the sale of equity investments in affiliates. Net other expense was $1.3 million and $1.5 million in the nine months ended September 30, 2014 and 2013. The decrease is related to the impact of the BankSNB refinancing that occurred on June 30, 2014 which resulted in lower interest rates on the refinanced outstanding debt.

Benefit for income taxes was $0.9 million for the nine months of 2014. Prior to July 22, 2013, FSA’s member had elected to have FSA’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its respective tax returns and no provision for federal and state income taxes is included in our consolidated financial statements for periods prior to July 22, 2013. We have included pro forma income information in our consolidated statements of operations that provides an adjustment for income tax expense as if FSA and FSHA had been a C Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 38%, which approximates the calculated statutory tax rates for the periods.

Discontinued operations represent the net loss from the operations of our independent diagnostic testing facilities (“IDTF”) which were classified as held for sale prior the Graymark reverse acquisition. The results from our discontinued operations for the nine months ended September 30, 2014 are summarized below:

	2014
Revenue	$	123,728
Net loss before taxes	$	(812,247	)
Income tax benefit		191,424
Net loss from discontinued operations, net of tax	$	(620,823	)

Noncontrolling interests were allocated $2.1 million of net income during the nine months ended September 30, 2014 compared to the first nine months of 2013 when noncontrolling interests were allocated a net income of $1.5 million. Noncontrolling interests are the equity ownership interests in our majority owned hospital subsidiaries, EEPPMC and FSH SA.

Extraordinary gain, net of tax – on August 30, 2013, we entered into an Agreement of Sale and Purchase (“Purchase Sale Agreement” or “PSA”) with HCRI Texas Properties, Ltd. (“Seller”) and HC REIT and an Agreement in Connection with Assignment and Assumption of PSA (“Assignment Agreement”) with DOC-FSH El Paso Medical Center, LLC (“DOC”) resulting in an extraordinary gain of $11,136,121 (collectively referred to as the “El Paso Real Estate Transaction”). The income taxes related to the extraordinary gain and the amount of the extraordinary gain attributable to noncontrolling interests are summarized below:

	Gross		Tax			Net
Attributable to Foundation Healthcare	$	7,864,051	$	(2,991,305	)	$	4,872,746
Attributable to noncontrolling interests		3,272,070		(1,177,214	)		2,094,856
Total extraordinary gain	$	11,136,121	$	(4,168,519	)	$	6,967,602

Pursuant to the PSA, the Company agreed to acquire from Seller the real property occupied by and certain personal property used by the Company’s subsidiary East El Paso Physicians’ Medical Center, LLC (“EEPPMC”) under a master lease agreement (“Master Lease”) between EEPPMC, Seller and HCN.

The real property and other consideration covered by the Purchase Sale Agreement includes the hospital (“Hospital”) and medical office building (“MOB”) occupied by EEPPMC, an adjoining parcel of vacant land (“Excess Land”), a note payable, and certain personal property, including medical equipment, owned by Seller and attached to or located in and used in the operation of the Hospital and MOB (“Personal Property”). The purchase price under the Purchase Agreement was $39,066,428.

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Simultaneous with the execution of the Purchase Sale Agreement, the Company executed the Assignment Agreement with DOC whereby FSHA assigned and DOC assumed all of FSHA’s right, title, interest and obligations in, to and under the Purchase Sale Agreement, except for the Excess Land, a note payable and Personal Property. The consideration under the Assignment Agreement with DOC was $40,000,000. In conjunction with the execution of the PSA and Assignment Agreement, HC REIT agreed to forgive certain liabilities totaling $7,108,562 due to HC REIT from EEPPMC.

We determined that the nature of the El Paso Real Estate Transaction was both unusual in nature and infrequent in occurrence given the nature of our business and current operating environment. The event is unusual given we are a health care organization that invests in and manages existing healthcare facilities, not a real estate company. This event is also unique given the complex nature of both the transaction and the unusual level of debt and liabilities forgiven as part of the transaction and as such would not be reasonably expected to reoccur in the foreseeable future.

We did not have an extraordinary gain in the first nine months of 2014.

Net loss attributable to Foundation Healthcare. Our operations resulted in a net loss of $2.7 million during the nine months ended September 30, 2014, compared to net loss of $15.9 million during the first nine months of 2013.

Liquidity and Capital Resources

Generally our liquidity and capital resource needs are funded from operations, loan proceeds and equity offerings. As of September 30, 2014, our liquidity and capital resources included cash and cash equivalents of $3.6 million and working capital of $1.3 million. As of December 31, 2013, our liquidity and capital resources included cash and cash equivalents of $4.2 million and working capital deficit of $15.0 million.

Cash provided by operating activities from continuing operations was $2.4 million during the nine months ended September 30, 2014 compared to the first nine months of 2013 when operating activities from continuing operations provided $5.1 million. During the nine months ended September 30, 2014, the primary sources of cash from operating activities from continuing operations were cash generated by income from continuing operations (net loss increased by non-cash items) of $5.8 million and increases in accrued liabilities and other liabilities totaling $6.9 million. During the nine months ended September 30, 2014, the primary uses of cash from continuing operations, were increases in accounts receivables and other current and noncurrent assets totaling $6.2 million and a decrease in accounts payable and other current liabilities of $4.1 million. During the nine months ended September 30, 2013, the primary sources of cash from operating activities from continuing operations were cash generated by income from continuing operations (net loss decreased by non-cash items) of $1.3 million and increases in accounts payable, accrued liabilities, and other current and long term liabilities of $10.2 million.  The primary use of cash from operating activities from continuing operations in the first nine months of 2013 was an increase in accounts receivable and other current and long term assets of $6.4 million.

Cash used by operating activities from discontinued operations for the nine months ended September 30, 2014 and 2013 was $0.5 million and $0.4 million, respectively.

Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2014 was $0.4 million compared to the first nine months of 2013 when investing activities from continuing operations provided $1.8 million. Investing activities during the first nine months of 2014 were primarily related to distributions received from equity investments of $2.0 and proceeds from the sale of an equity investment of $0.2 million which were offset by purchases of property and equipment of $1.8 million. Investing activities during the first nine months of 2013 were primarily related to distributions received from equity investments of $4.5 million, cash received in the extraordinary gain transaction of $0.4 million cash received in the disposal of property and equipment of $0.2 million which were offset by purchases of property and equipment of $3.5 million.

Net cash provided by financing activities from continuing operations during the nine months ended September 30, 2014 was $1.1 million compared to the first nine months of 2013 when financing activities from continuing operations used $0.6 million. During the nine months ended September 30, 2014 and 2013, we received debt proceeds of $29.1 million and $12.2 million, respectively, and we made debt payments of $24.6 million and $5.4 million, respectively. During the nine months ended September 30, 2014 and 2013, we made distributions to noncontrolling interests of $2.9 million and $0.1 million, respectively. During the nine months ended September 30, 2014 and 2013, we paid preferred noncontrolling dividends of $0.6 million and $0.9 million, respectively. During the nine months ended September 30, 2013, we made distributions to FHA (prior to the reverse acquisition on July 22, 2013) of $0.8 million.During the nine months ended September 30, 2013, we had proceeds from the sale of common stock and preferred noncontrolling interests of $0.4 million and $7.5 million, respectively.

Cash used by financing activities from discontinued operations for the nine months ended September 30, 2014 and 2013 consisted of debt payments of $4.1 million and $0.3 million, respectively.

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As of September 30, 2014, we had an accumulated deficit of $38.4 million, cash and cash equivalents of $3.6 million and working capital of $1.3 million. During the nine months ended September 30, 2014, we generated a net loss attributable to Foundation Healthcare of $2.7 million and generated $ 2.4 million in cash flow from operating activities from continuing operations. On June 30, 2014, we completed a refinancing of substantially all of our outstanding indebtedness through the execution of the SNB Credit Facility. The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million. We believe our cash on hand, the $2.5 million Revolving Loan and projected cash flow from operations will provide us enough liquidity to meet our cash requirements over the next 12 months. However, if our cash flows from operations do not meet or exceed our projections, we may need to raise additional funds through debt or equity financings. These uncertainties raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

SNB Credit Facility

Effective June 30, 2014, we entered into a Loan Agreement with Bank SNB, National Association, and Texas Capital Bank, together referred to as Lenders and collectively the agreement is referred to as the SNB Credit Facility.  The SNB Credit Facility was used to consolidate all of our and our subsidiaries’ debt in the principal amount of $27.5 million, which we refer to as the Term Loan, and provides for an additional revolving loan in the amount of $2.5 million, which we refer to as the Revolving Loan.  We have also entered into a number of ancillary agreements in connection with the SNB Credit Facility, including deposit account control agreements, subsidiary guarantees, security agreements and promissory notes.

Maturity Dates.  The Term Loan matures on June 30, 2021 and the Revolving Loan matures on June 30, 2016.

Interest Rates.  The interest rate for the Term Loan and Revolving Loan is 30-day LIBOR plus the Applicable Margins based on our Senior Debt Ratio, as defined.  The Applicable Margins are as follows:

	Applicable Margin
Senior Debt Ratio	Revolving Loan	Term Loan
≥ 2.5x	3.75%	4.25%
< 2.5x, but ≥ 2.0x	3.25%	3.75%
< 2.0 x	2.75%	3.25%

The Applicable Margins are established at 3.75% for the Revolving Loan and 4.25% for the Term Loan through December 31, 2014.  Subsequent to December 31, 2014, the Applicable Margins will be adjusted on a quarterly basis based on our senior debt ratio.

The Senior Debt Ratio is calculated by dividing all of our indebtedness, including capital leases, that is secured by a lien or security interest in any of our assets by our EBITDA for the preceding four fiscal quarters.  EBITDA is defined in the SNB Credit Facility as our net income calculated before interest expense, provision for income taxes, depreciation and amortization expenses, stock compensation, gains arising from the write-up of assets, extraordinary gains and any one-time expenses approved by Bank SNB.

Interest and Principal Payments.  We are required to make quarterly payments of principal and interest on the Term Loan.  The first four quarterly payments on the Term Loan will be $875,000 plus all accrued and unpaid interest.  Each subsequent quarterly payment will be $1,000,000 plus all accrued and unpaid interest.  We are required to make quarterly payments on the Revolving Loan equal to the accrued and unpaid interest.  All unpaid principal and interest on the Term Loan and Revolving Loan must be paid on the respective maturity dates of June 30, 2021 and June 30, 2016.

Permitted Acquisitions.  We must obtain the Lenders approval for any acquisition, merger or consolidation in which the consideration paid for the acquisition, merger or consolidation is in excess of $1 million or for any acquisition, merger or consolidation in which the target entity’s operating income for the preceding 12 month period is less than zero.

Mandatory Prepayments.  If we sell any assets in excess of $100,000 or collectively sell any assets in a 12 month period in excess of $100,000, we must make a prepayment equal to the net proceeds of the asset sale(s).  If we receive proceeds from a debt or equity offering that is not used for a Permitted Acquisition over a 12 month period following the offering or for repayment of our preferred noncontrolling interests, we must make a prepayment equal to the net proceeds of the debt or equity offering.  Subsequent to the completion of our annual audited financial statements, we must make a prepayment equal to 30% of our Excess Cash Flow which is defined as the amount of EBITDA (as defined in the SNB Credit Facility) for the fiscal year that exceeds the sum of debt service payments plus capital expenditures plus cash payments for federal, state and local income taxes, plus distributions made by our Equity Owned Hospitals to persons other than us.

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Voluntary Prepayments.  We may prepay amounts under the Term Loan at any time provided that we are required to pay a prepayment penalty of 2% of the amount prepaid if payment is made prior to the first anniversary, 1.5% if the prepayment is made after the first anniversary but prior to the second anniversary and 1% if the prepayment is made after the second anniversary but prior to the maturity date.  We may prepay amounts under the Revolving Loan at any time without penalty.

Guaranties.  Each of our direct or indirect wholly-owned subsidiaries jointly and severally and unconditionally guaranty payment of our obligations owed to Lenders.

Financial Covenants:

Senior Debt Ratio.  We must maintain a Senior Debt Ratio not in excess of 3.00 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014.  As of September 30, 2014 our Senior Debt Ratio was 1.79.

Senior Debt Service Coverage Ratio.  We must maintain a Senior Debt Service Coverage Ratio of not less than 1.30 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Senior Debt Service Coverage ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures to our debt service payments for the same period.  As of September 30, 2014, our Senior Debt Service Coverage Ratio was 2.09.

Adjusted Senior Debt Service Coverage Ratio.  We must maintain an Adjusted Senior Debt Service Coverage Ratio of not less than 1.05 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Adjusted Senior Debt Service Coverage Ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures, plus distributions made to our preferred noncontrolling interest holders, plus distributions made by our Equity Owned Hospitals to persons other than us to our debt service payments for the same period.  As of September 30, 2014, our Adjusted Senior Debt Service Coverage Ratio was 1.31.

Annualized EBITDA.  Until June 30, 2015 and for purposes of calculating compliance with the financial covenants in SNB Credit Facility, EBITDA shall be determined by annualizing EBITDA for the fiscal quarter ending on September 30, 2014 and each quarter that has elapsed thereafter.

Restrictions on Indebtedness.  We and our Equity Owned Hospitals are not allowed to create any indebtedness other than indebtedness for the purchase of fixed assets not exceeding $500,000 in any fiscal year, trade payables incurred in the ordinary course of business and not past due, contingent obligations and unsecured indebtedness not exceeding $100,000 in the aggregate at any time outstanding.

Use of Proceeds.  All proceeds of the Term Loan were used solely for the refinancing of existing indebtedness.  The proceeds of the Revolving Loan will be used for working capital.

Collateral.  Payment and performance of our obligations under the SNB Credit Facility are secured in general by all of our assets.

Defaults and Remedies.  In addition to the general defaults of failure to perform our obligations under the Loan Agreement, events of default also include the occurrence of a change in control, as defined, and the loss of our Medicare or Medicaid certification, collateral casualties, entry of a judgment of $150,000 or more, failure of first liens on collateral and the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18 month period.  In the event of a monetary default, all of our obligations due under the SNB Credit Facility shall become immediately due and payable.  In the event of a non-monetary default, we have 10 days or in some cases three days to cure before Bank SNB has the right to declare our obligations due under the SNB Credit Facility immediately due and payable.

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Financial Commitments

Our future commitments under contractual obligations by expected maturity date at September 30, 2014 are as follows:

	< 1 year		1-3 years		3-5 years		> 5 years		Total
Short-term debt (1)	$	255,991	$	—	$	—	$	—	$	255,991
Long-term debt (1)		5,242,698		10,397,844		9,292,225		7,313,236		32,246,003
Operating leases		11,890,815		24,599,851		23,867,764		87,141,807		147,500,237
Other long term liabilities		30,000		17,500		—		—		47,500
Preferred noncontrolling interest (2)		1,653,000		9,183,496		53,866		—		10,890,362
Total	$	19,072,504	$	44,198,691	$	33,213,855	$	94,455,043	$	190,940,093

(1) Includes principal and interest obligations.

(2) Represents the redemption obligation, including interest, of our preferred noncontrolling interests.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management’s prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future statements. For a complete discussion of all our significant accounting policies please see our 2013 annual report on Form 10-K. Some of the more significant estimates include revenue recognition, allowance for doubtful accounts, and goodwill and intangible asset impairment. We use the following methods to determine our estimates:

Revenue recognition and accounts receivable – We recognize revenues in the period in which services are performed and charged. Accounts receivable primarily consist of amounts due from third-party payors and patients. Our ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts we receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than our established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in our consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – We derive a significant portion of our revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. We must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. We estimate the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from our estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in our consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. We believe that we are in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future; we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

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We have an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that we utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of our ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with our policies.

Due to the nature of the healthcare industry and the reimbursement environment in which we operate, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on our operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for our services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, we are not certain of the full amount of patient responsibility at the time of service. We estimate amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

Goodwill and Intangible Assets – We evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to seven years. We evaluate the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Adopted Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for us on January 1, 2014. We have determined that the adoption of these changes did not have an impact on our consolidated financial statements, as we do not currently have any such arrangements.

In July 2013, the FASB issued changes to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. Previously, there was diversity in practice as no explicit guidance existed. These changes become effective us on January 1, 2014. We have determined that the adoption of these changes did not have a significant impact on our consolidated financial statements

Issued Guidance

In April 2014, the FASB issued changes to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The amendments are

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effective prospectively for all disposals (or classifications as held for sale) of components of an entity, and for all businesses that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. We are currently evaluating the new guidance to determine the impact it may have to our consolidated financial statements.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective for us on January 1, 2017. We are currently evaluating the potential impact of these changes on our consolidated financial statements.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for us for the 2016 annual period. We have determined that the adoption of these changes will not have an impact on our consolidated financial statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated financial statements in a given reporting period.

Cautionary Statement Relating to Forward Looking Information

We have included some forward-looking statements in this section and other places in this report regarding our expectations. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, business plans or objectives, levels of activity, performance or achievements, or industry results, to be materially different from any future results, business plans or objectives, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of these forward-looking statements can be identified by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategies that involve risks and uncertainties. You should read statements that contain these words carefully because they

— discuss our future expectations;

— contain projections of our future operating results or of our future financial condition; or

— state other “forward-looking” information.

We believe it is important to discuss our expectations; however, it must be recognized that events may occur in the future over which we have no control and which we are not accurately able to predict. Readers are cautioned to consider the specific business risk factors described in this report and our Annual Report on Form 10-K and not to place undue reliance on the forward-looking statements contained in this report or our Annual Report, which speak only as of the date of this report or the date of our Annual Report. We undertake no obligation to publicly revise forward-looking statements to reflect events or circumstances that may arise after the date of this report.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting entity as defined in Rule 12b-2 of the Exchange Act and as such, are not required to provide the information required by Item 305 of Regulation S-K with respect to Quantitative and Qualitative Disclosures about Market Risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management (with the participation of our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) evaluated the effectiveness 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”)), as of September 30, 2014. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer concluded that these disclosure controls and procedures are effective.

On July 22, 2013, we completed our acquisition of Foundation. As permitted by the Securities and Exchange Commission under the current year acquisition scope exception, we excluded the Foundation acquisition from our 2013 assessment of the effectiveness of our internal control over financial reporting since it was not practicable for management to conduct an assessment of internal control over financial reporting between the acquisition date and the date of management’s assessment. However, we have extended our oversight and monitoring processes that support our internal control over financial reporting to include Foundation’s operations. During our monitoring of the internal controls over financial reporting at Foundation, we identified the material weaknesses noted below.

Description and Remediation of Material Weaknesses in Internal Controls over Financial Reporting

The internal controls at Foundation did not include sufficient independent internal review and approval of critical accounting schedules used in the preparation of financial statements. In addition, the internal controls at Foundation did not include sufficient review and approval of the accounting impact and treatment of material contracts and agreements. During the third quarter of 2014, we completed the remediation of these material weaknesses by establishing review and approval procedures that extend to the operations of Foundation. Specifically, we engaged a consultant to assist us in the identification of required key controls, the necessary steps required for procedures to ensure the appropriate independent review and approval of critical accounting schedules and the independent review and assessment of the accounting treatment of material contracts and agreements.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting except as described in the above paragraph.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of business, we may become involved in litigation or in legal proceedings. We are not aware of any such litigation or legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition and results of operations.

Item 1A. Risk Factors.

There are material changes from the risk factors previously disclosed in our 2013 Annual Report on Form 10-K are as follows:

If our operating results do not meet or exceed our projections, we may be unable to continue operations and could be forced to substantially curtail operations or cease operations all together.

On June 30, 2014, we completed a refinancing of substantially all of our outstanding indebtedness through the execution a Loan Agreement with Bank SNB, National Association, and Texas Capital Bank, together referred to as Lenders and collectively the agreement is referred to as the SNB Credit Facility.  The SNB Credit Facility provides for a term loan in the principal amount of $27.5 million, referred to as the Term Loan, and a revolving line of credit of $2.5 million, referred to as the Revolving Loan, for total principal of $30 million. We believe our cash on hand, the $2.5 million Revolving Loan and projected cash flow from operations will provide us enough liquidity to meet our cash requirements over the next 12 months. However, if our cash flows from operations do not meet or exceed our projections, we may need to raise additional funds, including through debt or equity financings. These uncertainties raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have a bank credit facility of approximately $30 million and we may not maintain compliance with certain financial covenants.

Under the Loan Agreement covering the SNB Credit Facility and commencing with the calendar quarter ending September 30, 2014 and thereafter during the term of the SNB Credit Facility, based on the latest four rolling quarters, we agreed to continuously maintain compliance with the following financial covenants (collectively referred to as “Debt Ratios”):

Senior Debt Ratio.  We must maintain a Senior Debt Ratio not in excess of 3.00 to 1.00 as of the end of each fiscal quarter.

Senior Debt Service Coverage Ratio.  We must maintain a Senior Debt Service Coverage Ratio of not less than 1.30 to 1.00 as of the end of each fiscal quarter.

Adjusted Senior Debt Service Coverage Ratio.  We must maintain an Adjusted Senior Debt Service Coverage Ratio of not less than 1.05 to 1.00 as of the end of each fiscal quarter.

As of September 30, 2014, we are in compliance with the Debt Ratios. The Debt Ratios are calculated using the latest four rolling quarters. Until June 30, 2015 and for purposes of calculating compliance with the financial covenants in SNB Credit Facility, EBITDA shall be determined by annualizing EBITDA for the fiscal quarter ending on September 30, 2014 and each quarter that has elapsed thereafter. Based on our projected financial results, we believe we will maintain compliance with the Debt Ratios. If we are unsuccessful in achieving compliance with the Debt Ratios, there is no assurance that our lenders will waive or delay the requirement.

In the event we receive a notice of default from the Lenders and the default is not cured within 10 days following notice, the Lenders will have the right to declare the outstanding principal and accrued and unpaid interest immediately due and payable. If the Lenders accelerate the payment of outstanding principal and interest, we will need to file a current report on Form 8-K with the SEC disclosing the event of default and the acceleration of payment of all principal and interest. In addition, we do not expect to be able to pay all outstanding principal and interest if the Lenders accelerate the due dates for such amounts. Since we have granted the Lenders a security interest in all of our assets, the Lenders could elect to foreclose on such assets. If the Lenders declare an event of default and/or accelerates the payment of our obligations under the SNB Credit Facility, then the disclosure of such fact may cause a material decrease in the price of our stock on the OTCQB. The declaration of an event of default and the move to foreclose on our assets may cause a material adverse effect on our ability to operate our business in the ordinary course of business as well as a material adverse effect on our liquidity, results of operations and financial position.

As a result of increased reviews from third party payors of claims for our services, we may incur additional costs and may be required to repay amounts already paid to us.

We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to third party payors for payment for our services.  These post-payment reviews are increasing as a result of cost containment initiatives, including enhanced

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medical necessity reviews, managed care arrangements and audits of claims.  Third party payors have also targeted out of network providers with allegations of over billing and sought to obtain claw backs of payments made.  The claims review strategies used by the third party payors generally include a review of high dollar claims, including inpatient hospital claims, facility fees and surgical fees.  As a result a large majority of the total amounts recovered by third party payors has come from large providers and hospitals.  Any such audit or investigation could have a material adverse effect on the results of our operations.

In this regard, two of our subsidiaries, Foundation Surgery Affiliates, LLC and Foundation Surgery Management, LLC and our Huntingdon Valley, Pennsylvania ASC, Huntingdon Valley Surgery Center, are currently defendants in a lawsuit in the United States District Court for the Eastern District of Pennsylvania initially filed by Aetna Life Insurance Company, or Aetna, on June 5, 2013 and amended on December 2, 2013.  Aetna seeks an accounting, damages in excess of $150,000 and injunctive relief related to, among other things, allegedly improper referral inducements to physicians, waivers of deductibles and other payments, and non-disclosures by physicians of their ownership interest in the Huntingdon Valley ASC with respect to Aetna patients such that patients would utilize out-of-network providers at excessive cost to Aetna.

We and our healthcare facilities are involved from time to time in lawsuits, claims and investigations, and we may be subjected to actions brought by the government under anti-fraud and abuse provisions under the False Claims Act, any of which could result in substantial costs, divert management’s attention, adversely affect our business condition, or harm our reputation, regardless of their merit or outcome.

Because of the nature of our business, we and our healthcare facilities are involved from time-to-time in lawsuits, claims, audits and investigations, including “qui tam” cases under the False Claims Act and subpoenas and investigations by the DOJ and the OIG, such as those arising out of services provided, arrangements with physicians, personal injury claims, professional liability claims, billing and marketing practices, employment disputes and contractual claims. Any of these lawsuits, claims, audits or investigations could result in substantial costs, divert management’s attention, adversely affect our business condition, or harm our reputation, regardless of their merit or outcome.

In addition, over the past several years, the federal government has accused an increasing number of healthcare providers of violating the federal False Claims Act which prohibits providers from, among other things, knowingly submitting false claims for payment to the federal government. The statute defines “knowingly” to include not only actual knowledge of a claim’s falsity, but also reckless disregard for or intentional ignorance of the truth or falsity of a claim. The “qui tam” or “whistleblower” provisions of the False Claims Act allow private individuals to bring actions under the False Claims Act on behalf of the government. These private parties are entitled to share in any amounts recovered by the government, and, as a result, the number of “whistleblower” lawsuits that have been filed against providers has increased significantly in recent years. Defendants found to be liable under the federal False

Claims Act may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each separate false claim. The statute of limitations for billing errors can extend to up to ten years. Since our facilities jointly perform thousands of similar procedures, should any allegations of billing error with payment from Medicare or Medicare occur, it could have a material adverse effect on our business and result in civil or criminal penalties. Qui tam cases are initially sealed by the court when they are filed. The only parties that are initially aware a qui tam action has been filed are the whistleblower, the federal government and the court in which the matter was filed. Therefore, it is possible for qui tam lawsuits to be filed against us or our facilities, and possibly without our knowledge.

There are many potential bases for liability under the False Claims Act. The government has used the False Claims Act to prosecute Medicare and other government healthcare program fraud such as coding errors, billing for services not provided, submitting false cost reports, and providing care that is not medically necessary or that is substandard in quality. Under the ACA, any overpayment by Medicare or Medicaid received by our facilities must be reported and repaid within sixty days of when it was identified as an overpayment. Failure to report and submit repayment within this time period may subject the facility or facilities not in compliance to FCA action. The ACA also provides that claims submitted in connection with patient referrals that result from violations of the Anti-kickback Statute constitute false claims for the purposes of the federal False Claims Act, and some courts have held that a violation of the Stark law can result in False Claims Act liability, as well. In addition, a number of states have adopted their own false claims and whistleblower provisions whereby a private party may file a civil lawsuit in state court. We are required to provide information to our employees and certain contractors about state and federal false claims laws and whistleblower provisions and protections.

Although we intend and will endeavor to conduct our business in compliance with all applicable federal and state fraud and abuse laws, many of these laws are broadly worded and may be interpreted or applied in ways that cannot be predicted. Therefore, we cannot assure you that our arrangements or business practices will not be subject to government scrutiny or be found to be in compliance with applicable fraud and abuse laws. Should any of our facilities be found liable of violating the FCA, it could have a material adverse effect on our business.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Cashless Stock Grant Vesting. During the three months ended September 30, 2014, we acquired, by means of net share settlements, 19,116 shares of Foundation common stock, at prices ranging from $0.42 to $0.44 per share, related to the vesting of employee restricted stock awards to satisfy withholding tax obligations. We do not have any on-going stock repurchase programs.

Item 3. Defaults Upon Senior Securities.

We do not have anything to report under this Item.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

We do not have anything to report under this Item.

Item 6. Exhibits.

(a) Exhibits:

Exhibit No.	Description
31.1+	Certification of Stanton Nelson, Chief Executive Officer of Registrant.
31.2+	Certification of Hubert King, Chief Financial Officer of Registrant.
31.3+	Certification of Grant A. Christianson, Chief Accounting Officer of Registrant.
32.1+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Stanton Nelson, Chief Executive Officer of Registrant.
32.2+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Hubert King, Chief Financial Officer of Registrant.
32.3+	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 of Grant A. Christianson, Chief Accounting Officer of Registrant.
101. INS	XBRL Instance Document.
101. SCH	XBRL Taxonomy Extension Schema Document.
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101. LAB	XBRL Taxonomy Extension Label Linkbase Document.
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

+ Filed herewith.

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SIGNATURES

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

	FOUNDATION HEALTHCARE, INC.
	(Registrant)
	By:	/S/ STANTON NELSON
		Stanton Nelson
		Chief Executive Officer
		(Principal Executive Officer)
Date: November 14, 2014
	By:	/S/ HUBERT KING
		Hubert King
		Chief Financial Officer
		(Principal Financial Officer)
Date: November 14, 2014
	By:	/S/ GRANT A. CHRISTIANSON
		Grant A. Christianson
		Chief Accounting Officer
		(Principal Accounting Officer)
Date: November 14, 2014

38

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Stanton Nelson, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2014 of Foundation Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2014

/S/ STANTON NELSON

Stanton Nelson

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Hubert King, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2014 of Foundation Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2014

/S/ HUBERT KING

Hubert King

Chief Financial Officer

(Principal Financial Officer)

EX-31.3

Exhibit 31.3

CERTIFICATION

I, Grant A. Christianson, certify that:

1. I have reviewed this Form 10-Q for the period ended September 30, 2014 of Foundation Healthcare, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, was made known to us by others within those entities, particularly during the period in which this report was being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2014

/S/ GRANT A. CHRISTIANSON

Grant A. Christianson

Chief Accounting Officer

(Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Executive Officer of Foundation Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2014 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2014	/S/ STANTON NELSON
	Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Financial Officer of Foundation Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2014 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2014	/S/ HUBERT KING
	Chief Financial Officer (Principal Financial Officer)

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), I, the undersigned Chief Accounting Officer of Foundation Healthcare, Inc. (the “Company”), hereby certify that, to the best of my knowledge, the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2014 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2014	/S/ GRANT A. CHRISTIANSON
	Chief Accounting Officer (Principal Accounting Officer)

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Intangible Assets (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Finite Lived Intangible Assets [Line Items]
Carrying Value	$ 14,524,500	$ 14,524,500
Accumulated Amortization	(4,928,583)	(3,385,879)
Intangible assets, net	9,595,917	11,138,621
Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life	5 years
Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life	10 years
Management fee contracts
Finite Lived Intangible Assets [Line Items]
Carrying Value	3,498,500
Accumulated Amortization	(2,061,189)
Intangible assets, net	1,437,311	1,763,463
Management fee contracts | Minimum
Finite Lived Intangible Assets [Line Items]
Useful Life	6 years
Management fee contracts | Maximum
Finite Lived Intangible Assets [Line Items]
Useful Life	8 years
Non-compete
Finite Lived Intangible Assets [Line Items]
Useful Life	5 years
Carrying Value	2,027,000
Accumulated Amortization	(748,003)
Intangible assets, net	1,278,997	1,583,256
Physician memberships
Finite Lived Intangible Assets [Line Items]
Useful Life	7 years
Carrying Value	6,468,000
Accumulated Amortization	(1,771,000)
Intangible assets, net	4,697,000	5,390,000
Trade Name
Finite Lived Intangible Assets [Line Items]
Useful Life	5 years
Carrying Value	381,000
Accumulated Amortization	(91,324)
Intangible assets, net	289,676	347,218
Service Contracts
Finite Lived Intangible Assets [Line Items]
Useful Life	10 years
Carrying Value	2,150,000
Accumulated Amortization	(257,067)
Intangible assets, net	$ 1,892,933	$ 2,054,684

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Real Estate Transaction - Additional Information (Detail) (San Antonio Texas, USD $)	0 Months Ended
	Mar. 01, 2014
San Antonio Texas
Real Estate Properties [Line Items]
Operating Leases, Term of Contract	15 years
Annual rental payments	$ 2,300,000
Percentage of annual lease escalations	3.00%
Income on underlying sub-lease	2,100,000
Cash received	$ 4,100,000

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Preferred Noncontrolling Interests - Additional Information (Detail) (USD $)	1 Months Ended	9 Months Ended	12 Months Ended
	Oct. 31, 2013	Sep. 30, 2014	Dec. 31, 2013
Minority Interest [Line Items]
Common stock value		$ 17,260	$ 16,383
Total consideration			9,135,000
Amount of unreturned capital contribution and undistributed preferred distributions		10,000
Conversion price per share		$ 2.00
Common Stock
Minority Interest [Line Items]
Total consideration			435,000
Number of shares sold			870,000
Foundation Health Enterprises Llc
Minority Interest [Line Items]
Offering cost	100,000		100,000
Common stock issued	10,000		10,000
Common stock value	5,000		5,000
Total consideration			8,700,000
Cumulative preferred annual return		9.00%
Foundation Health Enterprises Llc | Class B member interests
Minority Interest [Line Items]
Offering cost	105,000		105,000
Number offering units			87
Foundation Health Enterprises Llc | Private placement
Minority Interest [Line Items]
Offering cost	$ 9,135,000		$ 9,135,000

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Activity in Acquired Accruals for Restructuring Charges Established for Lease Termination Costs (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Ending Balance	$ 475,570
Lease Termination Costs
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Beginning Balance	78,235
Adjustments	139,940
Cash Payments	(30,575)
Ending Balance	$ 187,600

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Basis of Presentation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Dec. 31, 2012	Jun. 30, 2014 Term Loan	Sep. 30, 2014 Revolving Loan	Jun. 30, 2014 Revolving Loan
Basis Of Presentation [Line Items]
Accumulated deficit	$ (38,419,772)		$ (38,419,772)		$ (35,171,315)
Cash and cash equivalents	3,567,951	8,291,378	3,567,951	8,291,378	4,212,076	2,524,417
Working capital	1,300,000		1,300,000
Net income (loss) attributable to Foundation Healthcare	353,665	(16,491,364)	(2,662,817)	(15,874,006)
Cash flow from operating activities from continuing operations			2,385,165	5,134,746
Long term debt	27,894,077		27,894,077		17,950,911		27,500,000
Revolving loan								$ 2,500,000	$ 2,500,000

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Schedule of Long-Term Debt and Capital Lease Obligations (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Long Term Debt [Line Items]
Long-term debt	$ 27,894,077		$ 17,950,911
Less: Current portion of long term debt	(4,050,498)		(7,919,179)
Long-term debt	23,843,579		10,031,732
Capital lease obligations
Long Term Debt [Line Items]
Debt instrument, effective interest rate, minimum	5.50%	[1]
Debt instrument, effective interest rate, maximum	9.10%	[1]
Long-term debt	1,173,403		2,477,985
Senior Lenders | Note Payable
Long Term Debt [Line Items]
Debt instrument, effective interest rate	4.40%	[1]
Debt instrument maturity date	2021-06
Long-term debt	26,625,000
Other Lenders | Notes payable - settlements
Long Term Debt [Line Items]
Long-term debt			1,189,725
Other Lenders | Notes payable - THE
Long Term Debt [Line Items]
Long-term debt			311,149
Other Lenders | Notes payable - acquisition
Long Term Debt [Line Items]
Debt instrument, effective interest rate	6.00%	[1]
Long-term debt	95,674		99,610
Other Lenders | Notes payable - acquisition | Minimum
Long Term Debt [Line Items]
Debt instrument maturity date	2014-12
Other Lenders | Notes payable - acquisition | Maximum
Long Term Debt [Line Items]
Debt instrument maturity date	2015-10
Other Lenders | Line of credit
Long Term Debt [Line Items]
Long-term debt			896,000
Other Lenders | Note payable - working capital
Long Term Debt [Line Items]
Long-term debt			3,715,088
Other Lenders | Note payable - equity investments
Long Term Debt [Line Items]
Long-term debt			3,270,427
Other Lenders | Note payable - management agreements
Long Term Debt [Line Items]
Long-term debt			640,466
Other Lenders | Note payable - assumption
Long Term Debt [Line Items]
Long-term debt			146,857
Other Lenders | Note Payable Preferred Interest Redemption
Long Term Debt [Line Items]
Long-term debt			5,100,000
Other Lenders | Notes payable - physician partners
Long Term Debt [Line Items]
Long-term debt			$ 103,604

[1] Effective rate as of September 30, 2014

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Goodwill and Other Intangibles - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Reverse acquisition			$ 21,900,000
Amortization expense	$ 514,969	$ 556,816	$ 1,542,704	$ 1,453,777

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Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Commitments And Contingencies Disclosure [Abstract]
Legal claims settlement expenses	$ 0	$ 0
Self Insurance Reserves	$ 372,596

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Reverse Acquisition

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Reverse Acquisition

Note 4 – Reverse Acquisition

On July 22, 2013, the Company acquired FSA and FSA’s consolidated variable interest entity, FSHA, from Foundation Healthcare Affiliates, LLC (“FHA”) pursuant to an Amended and Restated Membership Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company (i) issued to FHA 114,500,000 shares of its common stock, (ii) issued to FHA a demand promissory note in the principal amount of $2.0 million, and (iii) assumed certain liabilities and obligations of FHA totaling approximately $2.0 million.

For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying condensed consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

The acquisition of Foundation was based on management’s belief that Foundation’s acquisition and development strategy and operating model will enable the Company to grow by taking advantage of highly-fragmented markets, an increasing demand for short stay surgery and a need by physicians to forge strategic alliances to meet the needs of the evolving healthcare landscape while also shaping the clinical environments in which they practice.

Simultaneous with and subject to the reverse acquisition, the Company issued 13,333,333 shares of common stock to purchase a $6.0 million participation in the credit facility owed by the Company to Arvest Bank (see Note 5 – Discontinued Operations for more information) and 17,970,295 shares of common stock to Mr. Roy T. Oliver, one of our greater than 5% shareholders and affiliates, for full satisfaction of debt owed to Mr. Oliver totaling $8,136,390. Since the completion of the reverse acquisition was subject to these transactions, they have been recorded as part of the reverse acquisition.

Since FSA is deemed to be the accounting acquirer, the reverse acquisition was recorded by allocating the purchase price of the acquisition to the assets acquired, including intangible assets and liabilities assumed, from the legacy business of Graymark Healthcare, Inc. (“Graymark”), based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the estimated fair value of the assets acquired, net of liabilities assumed, was recorded as goodwill, none of which is anticipated to be tax deductible.

The fair value of the total consideration issued in the reverse acquisition amounted to $29.3 million and included $13.9 million for the common stock attributable to existing Graymark shareholders, Arvest Bank and Mr. Oliver, $2.0 million for the promissory note issued to FHA, $2.0 million for the debt obligations and liabilities assumed from FHA and $11.4 million of acquired debt and liabilities.

The final purchase allocation for the reverse acquisition is presented in the table below:

	Graymark
Assets acquired
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,360,143
Other current assets		198,976
Total current assets		1,876,622
Property and equipment		1,389,169
Intangible assets		2,733,000
Goodwill		21,864,781
Other assets		252,528
Other assets from discontinued operations		1,224,140
Total assets acquired	$	29,340,240
Liabilities assumed
Accounts payable and accrued liabilities	$	2,899,823
Short term debt		2,000,000
Current portion of long term debt		714,711
Current liabilities from discontinued operations		7,375,521
Total current liabilities		12,990,055
Long term debt		742,385
Other liabilities		305,969
Other liabilities from discontinued operations		1,362,957
Total liabilities assumed		15,401,366
Net assets acquired	$	13,938,874

During the nine months ended September 30, 2013, the Company incurred $444,988 in expenses related to the reverse acquisition. The expenses incurred related primarily to legal fees related to the Purchase Agreement and structure of the transaction and professional fees related to the audits of the 2012 and 2011 consolidated financial statements of FSA.

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2014, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2013 are as follows:

			Loss From						Attributable to Foundation
	Revenue		Continuing Operations			Net Loss			Net Loss			Net Loss Per Share
Actual:
From 1/1/2014 to 9/30/2014	$	1,531,445	$	(4,771,630	)	$	(3,919,625	)	$	(3,919,625	)	$	(0.02	)
Supplemental Pro Forma:
From 1/1/2013 to 9/30/2013	$	69,993,313	$	(25,858,257	)	$	(18,695,228	)	$	(20,086,112	)	$	(0.12	)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

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Borrowings and Capital Lease Obligations - Additional Information (Detail) (USD $)	9 Months Ended		9 Months Ended				9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Maximum	Sep. 30, 2014 Minimum	Sep. 30, 2014 Term Loan	Jun. 30, 2014 Term Loan	Sep. 30, 2014 Term Loan First Four Quarterly Payments	Sep. 30, 2014 Term Loan Subsequent Quarterly Payments	Sep. 30, 2014 Revolving Loan	Jun. 30, 2014 Revolving Loan
Debt Instrument [Line Items]
Long term debt	$ 27,894,077	$ 17,950,911				$ 27,500,000
Revolving loan									2,500,000	2,500,000
Debt instrument maturity date					Jun. 30, 2021				Jun. 30, 2016
Debt instrument applicable margin					4.25%				3.75%
Quarterly principal payment							875,000	1,000,000
Permitted merger or acquisition consideration amount	1,000,000
Sale of assets, maximum limit	100,000
Percentage of prepayment on excess cash flow	30.00%
Prepayment penalty percentage on term loan prior to first Anniversary	2.00%
Prepayment penalty percentage on term loan after first anniversary	1.50%
Prepayment penalty percentage on term loan after second anniversary	1.00%
Senior debt ratio	1.79		3.00
Senior debt service coverage ratio	2.09			1.30
Adjusted senior debt service coverage ratio	1.31			1.05
Restriction on indebtedness in trade payable, maximum	500,000
Restriction on indebtedness in unsecured debt, maximum	100,000
Amount of judgment triggering default	$ 150,000
Debt default, description	In addition to the general defaults of failure to perform our obligations under the Loan Agreement, events of default also include the occurrence of a change in control, as defined, and the loss of our Medicare or Medicaid certification, collateral casualties, entry of a judgment of $150,000 or more, failure of first liens on collateral and the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18 month period. In the event of a monetary default, all of our obligations due under the SNB Credit Facility shall become immediately due and payable. In the event of a non-monetary default, we have 10 days or in some cases three days to cure before BankSNB has the right to declare our obligations due under the SNB Credit Facility immediately due and payable.

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Reverse Acquisition - Additional Information (Detail) (USD $)	0 Months Ended
	Jul. 22, 2013	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013
Business Acquisition [Line Items]
Promissory note	$ 2,000,000
Assumed certain liabilities and obligations	2,000,000
Common stock,shares issued		172,604,265	163,834,886
Common stock value		17,260	16,383
Incurred expenses				444,988
Arvest Loan Participation
Business Acquisition [Line Items]
Common stock,shares issued	13,333,333
Common stock value	6,000,000
Roy T. Oliver
Business Acquisition [Line Items]
Common stock,shares issued	17,970,295
Common stock value	8,136,390
Percentage of ownership in shareholders and affiliates	5.00%
Foundation
Business Acquisition [Line Items]
Number of shares issued in connection with acquisition	114,500,000
Promissory note	2,000,000
Assumed certain liabilities and obligations	2,000,000
Foundation Health Care Affiliates, LLC
Business Acquisition [Line Items]
Fair value of consideration issued in reverse acquisition	29,300,000
Acquired debt and liabilities	11,400,000
Graymark Arvest Bank And Roy Oliver
Business Acquisition [Line Items]
Net assets acquired	$ 13,938,874

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Accompanying Consolidated Financial Statements (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net income (loss) attributable to continuing operations attributable to Foundation Healthcare common stock	$ 0.00	$ (0.14)	$ (0.02)	$ (0.17)
Loss from discontinued operations, net of tax	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare	$ 0.00	$ 0.03	$ 0.00	$ 0.04
Net loss per share, basic and diluted	$ 0.00	$ (0.11)	$ (0.02)	$ (0.13)
Weighted average number of common and diluted shares outstanding	171,824,731	151,561,441	170,163,181	126,989,570
As Previously Recorded
Net income (loss) attributable to continuing operations attributable to Foundation Healthcare common stock		$ (0.13)		$ (0.13)
Loss from discontinued operations, net of tax		$ 0.00		$ 0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare		$ 0.03		$ 0.03
Net loss per share, basic and diluted		$ (0.10)		$ (0.10)
Weighted average number of common and diluted shares outstanding		162,703,399		162,703,399
Correction
Net income (loss) attributable to continuing operations attributable to Foundation Healthcare common stock		$ (0.01)		$ (0.04)
Loss from discontinued operations, net of tax		$ 0.00		$ 0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare		$ 0.00		$ 0.01
Net loss per share, basic and diluted		$ (0.01)		$ (0.03)
Weighted average number of common and diluted shares outstanding		(11,141,958)		(35,713,829)
Pro Forma
Net loss per share, basic and diluted		$ (0.11)		$ (0.12)
Pro Forma | As Previously Recorded
Net loss per share, basic and diluted		$ (0.10)		$ (0.10)
Pro Forma | Correction
Net loss per share, basic and diluted		$ (0.01)		$ (0.02)

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Schedule of Applicable Margins Rate (Detail)	9 Months Ended
	Sep. 30, 2014
Revolving Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	3.75%
Term Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	4.25%
Senior Debt Ratio, ≥ 2.5x | Revolving Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	3.75%
Senior Debt Ratio, ≥ 2.5x | Term Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	4.25%
Senior Debt Ratio, 2.5x, but ≥ 2.0x | Revolving Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	3.25%
Senior Debt Ratio, 2.5x, but ≥ 2.0x | Term Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	3.75%
Senior Debt Ratio, 2.0 x | Revolving Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	2.75%
Senior Debt Ratio, 2.0 x | Term Loan
Debt Instrument [Line Items]
Debt instrument applicable margin	3.25%

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Final Purchase Allocation for Reverse Acquisition (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Jul. 22, 2013
Assets acquired
Goodwill	$ 973,927	$ 973,927
Liabilities assumed
Total liabilities assumed			2,000,000
Graymark | Foundation Health Care Affiliates, LLC
Assets acquired
Cash and cash equivalents	68,170
Accounts receivable	249,333
Current assets from discontinued operations	1,360,143
Other current assets	198,976
Total current assets	1,876,622
Property and equipment	1,389,169
Intangible assets	2,733,000
Goodwill	21,864,781
Other assets	252,528
Other assets from discontinued operations	1,224,140
Total assets acquired	29,340,240
Liabilities assumed
Accounts payable and accrued liabilities	2,899,823
Short term debt	2,000,000
Current portion of long term debt	714,711
Current liabilities from discontinued operations	7,375,521
Total current liabilities	12,990,055
Long term debt	742,385
Other liabilities	305,969
Other liabilities from discontinued operations	1,362,957
Total liabilities assumed	15,401,366
Net assets acquired	$ 13,938,874

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Acquisition Revenue and Earnings of Combined Entity Reverse Acquisition (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Business Acquisition [Line Items]
Revenue	$ 27,424,586	$ 23,550,648	$ 71,135,944	$ 62,632,693
Income (loss) from continuing operations	1,682,098	(20,859,729)	12,878	(21,122,458)
Net loss	1,562,313	(14,088,832)	(607,945)	(14,351,561)
Net Loss Attributable to Foundation	353,665	(16,491,364)	(2,662,817)	(15,874,006)
Net Loss Per Share Attributable to Foundation	$ 0.00	$ (0.11)	$ (0.02)	$ (0.13)
Graymark
Business Acquisition [Line Items]
Revenue			1,531,445
Income (loss) from continuing operations			(4,771,630)
Net loss			(3,919,625)
Net Loss Attributable to Foundation			(3,919,625)
Net Loss Per Share Attributable to Foundation			$ (0.02)
Supplemental Pro Forma, Revenues				69,993,313
Supplemental Pro Forma, Loss from Continuing Operations				(25,858,257)
Supplemental Pro Forma, Net Loss				(18,695,228)
Supplemental Pro Forma, Net Loss Attributable to Foundation				$ (20,086,112)
Supplemental Pro Forma, Net Loss Per Share Attributable to Foundation				$ (0.12)

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 3 – Summary of Significant Accounting Policies

For a complete list of the Company’s significant accounting policies, please see the Company’s Annual Report on Form 10-K for the year ending December 31, 2013.

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2014 are not necessarily indicative of results that may be expected for the year ended December 31, 2014. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013. The December 31, 2013 consolidated balance sheet was derived from audited financial statements.

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s members had elected to have FSA’s and FSHA’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a C Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 38%, which approximates the calculated statutory tax rates for the periods.

Consolidation – The accompanying consolidated financial statements include the accounts of the Company and it’s wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed and billed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare, Medicaid and Tricare are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. The estimated net cost report settlements due to the Company were $608,555 and $235,000 as of September 30, 2014 and December 31, 2013 respectively, and are included in prepaid and other current assets in the accompanying consolidated balance sheets. We adjusted our cost report estimate by $373,555 during the nine months ended September 30, 2014 based on our final filed cost report for 2013 and an estimate of the 2014 cost report.  The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies. During the Company’s normal quarterly review process at March 31, 2014, management determined that a portion of the accounts receivable related to personal injury cases at our FSH SA location had grown to a level requiring it to be analyzed as a distinct payor category. Based on the historical cash collection experience and other analytical measures as noted above, the allowance for doubtful accounts related to the personal injury cases was lowered by $1.0 million.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

The activity in the allowance for doubtful accounts for the nine months ending September 30, 2014 follows:

	2014
Balance at beginning of period	$	4,778,915
Provisions recognized as reduction in revenues		2,799,237
Write-offs, net of recoveries		(4,859,357	)
Balance at end of period	$	2,718,795

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Restricted Cash – As of September 30, 2014 and December 31, 2013, the Company had restricted cash of approximately $1.1 million and $0.7 million respectively, included in prepaid and other current assets in the accompanying consolidated balance sheets.  The restricted cash at September 30, 2014 is related to the SNB Credit Facility (see Note 7 – Borrowings and Capital Lease Obligations) and represents the proceeds from the Term Loan that were not utilized as of September 30, 2014 to retire existing debt (“SNB Restricted Cash”).  The SNB Restricted Cash can be utilized to complete the payoff of the remaining indebtedness of the Company, to pay federal and state income taxes and for other uses as approved by BankSNB.  Use of the SNB Restricted Cash must be approved by BankSNB.  The restricted cash at December 31, 2013 was pledged as collateral against debt that was paid-off from the proceeds of the SNB Credit Facility.

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2014.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to ten years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

During 2014, management determined that the Company had incorrectly reflected the historical common stock shares attributable to Foundation and the common stock shares issued in the reverse acquisition.  As a result, the Company has restated its previously reported net loss per share for the three and nine month periods ending September 30, 2013 in order to correct certain previously reported amounts.  The restatement had no impact on assets, liabilities, stockholders’ deficit or net loss attributable to Foundation Healthcare common stock.

The financial information included in the accompanying consolidated financial statements and notes thereto reflect the effects of the corrections described in the preceding paragraph.  The following tables set forth the correction of the individual affected line items in the accompanying consolidated financial statements:

	Three Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.01	)	$	(0.14	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.00			0.03
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.01	)	$	(0.11	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(11,141,958	)		151,561,441
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.01	)	$	(0.11	)

	Nine Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.04	)	$	(0.17	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.01			0.04
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.03	)	$	(0.13	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(35,713,829	)		126,989,570
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.02	)	$	(0.12	)

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have an impact on the Company’s consolidated financial statements, as the Company does not currently have any such arrangements.

In July 2013, the FASB issued changes to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. Previously, there was diversity in practice as no explicit guidance existed. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have a significant impact on the Company’s consolidated financial statements.

Issued Guidance

In April 2014, the FASB issued changes to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The amendments are effective prospectively for all disposals (or classifications as held for sale) of components of an entity, and for all businesses that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective for the Company on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Company’s consolidated financial statements.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Company’s consolidated financial statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated financial statements in a given reporting period.

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Discontinued Operations - Additional Information (Detail) (USD $)						3 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Term Loan	Sep. 30, 2014 Revolving Loan	Jun. 30, 2014 Revolving Loan	Oct. 31, 2013 Sleep diagnostic locations Location	Oct. 31, 2013 Sleep Therapy Business Location
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Number of locations closed or sold						24	5
Amount of special charge liability acquired as part of reverse acquisition	$ 475,570
Long term debt	27,894,077	17,950,911	27,500,000
Outstanding debt under SNB credit facility				$ 2,500,000	$ 2,500,000

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Amortization Expense for Next Five Years Related to Intangible Assets (Detail) (USD $)	Sep. 30, 2014
Finite Lived Intangible Assets Future Amortization Expense [Abstract]
2015	$ 2,055,474
2016	2,055,474
2017	2,055,474
2018	1,395,586
2019	1,139,000
Thereafter	$ 894,909

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Condensed Consolidated Balance Sheets (Unaudited) (USD $)	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Cash and cash equivalents	$ 3,567,951	$ 4,212,076
Accounts receivable, net of allowances for doubtful accounts of $2,718,795 and $4,778,915, respectively	14,294,779	12,755,642
Receivables from affiliates	1,023,700	848,002
Supplies inventories	1,966,799	1,931,142
Prepaid and other current assets	5,792,841	4,302,885
Current assets from discontinued operations	174,964	518,629
Total current assets	26,821,034	24,568,376
Property and equipment, net	11,222,042	12,073,986
Equity method investments in affiliates	5,498,967	5,699,093
Intangible assets, net	9,595,917	11,138,621
Goodwill	973,927	973,927
Other assets	449,436	244,598
Other assets from discontinued operations	383,862	576,228
Total assets	54,945,185	55,274,829
Liabilities:
Accounts payable	9,857,019	11,648,987
Accrued liabilities	7,725,337	3,914,915
Preferred noncontrolling interests dividends payable	197,358	195,411
Short term debt	253,530	5,664,827
Current portion of long-term debt	4,050,498	7,919,179
Other current liabilities	2,260,850	4,591,587
Current liabilities from discontinued operations	1,188,224	5,620,697
Total current liabilities	25,532,816	39,555,603
Long-term debt, net of current portion	23,843,579	10,031,732
Other liabilities	15,343,797	12,255,809
Other liabilities from discontinued operations		9,969
Total liabilities	64,720,192	61,853,113
Preferred noncontrolling interest	8,700,000	8,700,000
Commitments and contingencies (Note 9)
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; 172,604,265 and 163,834,886 issued and outstanding, respectively	17,260	16,383
Paid-in capital	19,117,730	18,241,756
Accumulated deficit	(38,419,772)	(35,171,315)
Total Foundation Healthcare shareholders’ deficit	(19,284,782)	(16,913,176)
Noncontrolling interests	809,775	1,634,892
Total deficit	(18,475,007)	(15,278,284)
Total liabilities, preferred noncontrolling interest and shareholders’ deficit	$ 54,945,185	$ 55,274,829

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Future Maturities Long-Term Debt (Detail) (USD $)	Sep. 30, 2014
Maturities of Long-term Debt [Abstract]
2015	$ 4,050,498
2016	4,362,967
2017	4,229,627
2018	4,134,459
2019	4,116,526
Thereafter	$ 7,000,000

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Nature of Business

9 Months Ended

Sep. 30, 2014

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of Business

Note 1 – Nature of Business

Foundation Healthcare, Inc. (the “Company”) is organized under the laws of the state of Oklahoma and owns controlling and noncontrolling interests in surgical hospitals located in Texas. The Company also owns noncontrolling interests in ambulatory surgery centers (“ASCs”) located in Texas, Oklahoma, Pennsylvania, New Jersey, Maryland and Ohio. Additionally, the Company provides sleep testing management services to various rural hospitals in Iowa, Minnesota, Missouri, Nebraska and South Dakota under management contracts with the hospitals. The Company provides management services to a majority of the facilities that it has noncontrolling interests (referred to as “Affiliates”) under the terms of various management agreements.

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Schedule of Borrowings and Capital Lease Obligations (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Short-term Debt	$ 253,530	$ 5,664,827
Long-term debt	27,894,077	17,950,911
Less: Current portion of long term debt	(4,050,498)	(7,919,179)
Long-term debt	23,843,579	10,031,732
Discontinued Operations
Debt Instrument [Line Items]
Long-term debt		78,112
Less: Current portion of long term debt		(68,143)
Long-term debt		9,969
Discontinued Operations | Arvest bank
Debt Instrument [Line Items]
Short-term Debt		3,994,932
Discontinued Operations | Sleep center notes payable
Debt Instrument [Line Items]
Long-term debt		28,723
Discontinued Operations | Equipment capital leases
Debt Instrument [Line Items]
Long-term debt		$ 49,389

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2014

Discontinued Operations And Disposal Groups [Abstract]

Activity in Acquired Accruals for Restructuring Charges Established for Lease Termination Costs

For the nine month period ended September 30, 2014, the activity in the acquired accruals for restructuring charges established for lease termination costs were as follows:

	Lease Termination Cost
Balance at December 31, 2013	$	78,235
Adjustments		139,940
Cash Payments		(30,575	)
Balance at September 30, 2014	$	187,600

Operating Results and Balance Sheet Items of Discontinued Operations

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations for the nine month period ended September 30, 2014 are summarized below:

	2014
Revenue	$	123,728
Net loss before taxes	$	(812,247	)
Income tax benefit		191,424
Net loss from discontinued operations, net of tax	$	(620,823	)

The balance sheet items for discontinued operations are summarized below:

	September 30, 2014		December 31, 2013
Cash and cash equivalents	$	—	$	49,252
Accounts receivable, net of allowances		—		222,943
Inventories		—		1,893
Other current assets		174,964		244,541
Total current assets		174,964		518,629
Fixed assets, net		233,862		426,228
Other assets		150,000		150,000
Total non-current assets		383,862		576,228
Total assets	$	558,826	$	1,094,857
Payables and accrued liabilities	$	1,188,224	$	1,557,771
Short-term debt		—		3,994,932
Current portion of long-term debt		—		67,994
Total current liabilities		1,188,224		5,620,697
Long-term debt, net of current portion		—		9,969
Total liabilities	$	1,188,224	$	5,630,666

Schedule of Borrowings and Capital Lease Obligations

The Company’s borrowings and capital lease obligations included in discontinued operations are as follows:

	September 30, 2014		December 31, 2013
Short-term Debt
Arvest bank	$	—	$	3,994,932
Long-term Debt
Sleep center notes payable		—		28,723
Equipment capital leases		—		49,389
Total		—		78,112
Less: Current portion of long term debt		—		(68,143	)
Long-term debt	$	—	$	9,969

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Changes in Carrying Amount of Goodwill (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill Gross Amount	$ 23,019,309	$ 23,019,309
Goodwill Accumulated Impairment Loss	(22,045,382)	(22,045,382)
Goodwill	$ 973,927	$ 973,927

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Borrowings and Capital Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2014

Schedule of Short-Term Debt Obligations

The Company’s short-term debt obligations are as follows:

	Rate (1)		September 30, 2014		December 31, 2013
Note payable - Legacy			$	—	$	2,814,027
Note payable - S&H leasing				—		1,865,600
Note payable - working capital				—		800,000
Insurance premium financings	3.1 - 4.8%			241,414		101,135
Note payable - Medicare cost report		10.1%		12,116		84,065
Short-term debt			$	253,530	$	5,664,827

(1) Effective rate as of September 30, 2014

Schedule of Applicable Margins Rate

The Applicable Margins are as follows:

	Applicable Margin
Senior Debt Ratio	Revolving Loan	Term Loan
≥ 2.5x	3.75%	4.25%
< 2.5x, but ≥ 2.0x	3.25%	3.75%
< 2.0 x	2.75%	3.25%

Schedule of Future Maturities of Long-Term Debt

At September 30, 2014, future maturities of long-term debt were as follows:

Twelve months ended September 30:
2015	$	4,050,498
2016		4,362,967
2017		4,229,627
2018		4,134,459
2019		4,116,526
Thereafter		7,000,000

Continuing Operations

Schedule of Borrowings and Capital Lease Obligations

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)		Maturity Date	September 30, 2014			December 31, 2013
Senior Lender:
Note payable		4.4%	Jun. 2021	$	26,625,000		$	—
Other Lenders:
Line of credit					—			896,000
Notes payable - working capital					—			3,715,088
Note payable - equity investments					—			3,270,427
Note payable - management agreements					—			640,466
Note payable - assumption					—			146,857
Note payable - preferred interest redemption					—			5,100,000
Note payable - settlements					—			1,189,725
Note payable - THE					—			311,149
Notes payable - physician partners					—			103,604
Notes payable - acquisition		6.0%	Dec. 2014 - Oct. 2015		95,674			99,610
Capital Lease Obligations	5.5 - 9.1%				1,173,403			2,477,985
Total					27,894,077			17,950,911
Less: Current portion of long-term debt					(4,050,498	)		(7,919,179	)
Long-term debt				$	23,843,579		$	10,031,732

(1) Effective rate as of September 30, 2014

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Basis of Presentation

9 Months Ended

Sep. 30, 2014

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

Note 2 – Basis of Presentation

Reverse Acquisition – On July 22, 2013, the Company acquired Foundation Surgery Affiliates, LLC (“FSA”) and FSA’s consolidated variable interest entity, Foundation Surgical Hospital Affiliates, LLC (“FSHA”) (collectively referred to as “Foundation”). For accounting purposes, the acquisition of FSA was accounted for as a reverse acquisition and as a result, the Company’s historical operating results included in the accompanying consolidated financial statements for the periods prior to July 22, 2013 represent those of FSA. The historical financial statements of FSA have been adjusted for the effect of the recapitalization that occurred as a result of the reverse acquisition.

Going Concern and Management’s Plan – As of September 30, 2014, the Company had an accumulated deficit of $38.4 million, cash and cash equivalents of $3.6 and working capital of $1.3 million. During the nine months ended September 30, 2014, the Company generated a net loss attributable to Foundation Healthcare of $2.7 million and generated $2.4 million in cash flow from operating activities from continuing operations. On June 30, 2014, the Company completed a refinancing of substantially all of its outstanding indebtedness through the execution of the SNB Credit Facility. The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million (see Note 7 – Borrowings and Capital Lease Obligations).

As of September 30, 2014, the Company has $2.5 million available under the Revolving Loan. Management believes that the line of credit along with the Company’s cash on hand and projected cash flow from operations will provide the Company with enough liquidity to meet its cash requirements over the next 12 months. However, if the Company’s cash flows from operations do not meet or exceed management’s projections, the Company may need to raise additional funds, including through debt or equity financings. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Accounts receivable, allowances for doubtful accounts	$ 2,718,795	$ 4,778,915
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	172,604,265	163,834,886
Common stock,shares outstanding	172,604,265	163,834,886

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Related Party Transactions

9 Months Ended

Sep. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions

Note 12 – Related Party Transactions

Effective June 1, 2014, the Company’s hospital subsidiary located in El Paso, Texas entered into a sublease agreement with The New Sleep Lab International, Ltd., referred to as New Sleep. New Sleep is controlled by Dr. Robert Moreno, one of our Directors. The sublease with New Sleep calls for monthly rent payments of $8,767 and the sublease expires on November 30, 2018. The space subleased from New Sleep will be sublet to physician partners and casual uses of our hospital and is located in a building that also houses one of our imaging facilities. During the nine months ended September 30, 2014, the Company incurred approximately $35,000 in lease expense under the terms of the lease.

As of September 30, 2014, the Company had $0.9 million on deposit at Valliance Bank. Valliance Bank is controlled by Mr. Roy T. Oliver, one of our greater than 5% shareholders. In addition, the Company was obligated to Valliance Bank under certain notes payable totaling $5.9 million at December 31, 2013. On June 30, 2014, the notes were paid in full from the proceeds of the SNB Credit facility.  The interest rates on the notes ranged from 5% to 10%. A non-controlling interest in Valliance Bank is held by Mr. Joseph Harroz, Jr., a director of the Company. Mr. Stanton Nelson, the Company’s Chief Executive Officer and Mr. Harroz also serve as directors of Valliance Bank.

In October 2013, the Company completed a private placement offering $9,135,000 (see Note 8 – Preferred Noncontrolling Interests for additional information). The offering was comprised of 87 FHE Units. Each FHE Unit was offered at $105,000 and entitled the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. Mr. Stanton Nelson, the Company’s chief executive officer, purchased 5 FHE units for $525,000.

The Company has office space subject to a lease agreement with City Place, LLC (“City Place”). Under the lease agreement, the Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place; the lease expires on March 31, 2017. A non-controlling interest in City Place is held by Roy T. Oliver, one of the Company’s greater than 5% shareholders. During the nine months ended September 30, 2014, the Company incurred approximately $70,000 in lease expense under the terms of the lease. During the period from July 22, 2013 to September 30, 2013, the Company incurred approximately $18,000 in lease expense under the terms of the lease

As of September 30, 2014 and December 31, 2013, the Company has obligations of $1.4 million that are owed to FHA and certain real estate subsidiaries and affiliates of FHA related to transactions that occurred prior to the Foundation acquisition in July 2013. The amounts owed to FHA and FHA affiliates are included in other liabilities on the accompanying consolidated balance sheets.

The Company has entered into agreements with certain of its Affiliate ASCs and hospitals to provide management services. As compensation for these services, the surgery centers and hospitals are charged management fees which are either fixed or are based on a percentage of the Affiliates cash collected or the Affiliates net revenue. The percentages range from 2.25% to 6.0%.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 14, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	FDNH
Entity Registrant Name	FOUNDATION HEALTHCARE, INC.
Entity Central Index Key	0001272597
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		172,638,414

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Subsequent Events

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

Subsequent Events

Note 13 – Subsequent Events

Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net Revenues:
Patient services	$ 26,183,803	$ 21,724,423	$ 65,607,006	$ 56,211,160
Provision for doubtful accounts	(1,562,147)	(682,319)	(2,799,237)	(2,409,733)
Net patient services revenue	24,621,656	21,042,104	62,807,769	53,801,427
Management fees from affiliates	1,352,909	1,460,163	4,056,981	4,986,012
Other revenue	1,450,021	1,048,381	4,271,194	3,845,254
Revenues	27,424,586	23,550,648	71,135,944	62,632,693
Equity in earnings of affiliates	616,959	1,448,898	2,039,811	4,502,759
Operating Expenses:
Salaries and benefits	7,339,528	6,974,734	22,317,768	19,770,112
Supplies	6,748,785	6,659,330	17,383,162	16,993,555
Other operating expenses	10,655,907	8,609,650	28,810,032	24,513,007
Impairment of goodwill		20,847,608		20,847,608
Depreciation and amortization	1,320,527	1,290,779	4,204,828	3,636,840
Total operating expenses	26,064,747	44,382,101	72,715,790	85,761,122
Other Income (Expense):
Interest expense, net	(324,700)	(552,763)	(1,329,932)	(1,575,535)
Other income	30,000	36,694	30,840	39,852
Net other (expense)	(294,700)	(516,069)	(1,299,092)	(1,535,683)
Income (loss) from continuing operations, before taxes	1,682,098	(19,898,624)
Provision for income taxes		(961,105)	852,005	(961,105)
Income (loss) from continuing operations, net of taxes	1,682,098	(20,859,729)	12,878	(21,122,458)
Loss from discontinued operations, net of tax	(119,785)	(196,705)	(620,823)	(196,705)
Extraordinary gain, net of tax, attributable to Foundation Healthcare		4,872,746		4,872,746
Extraordinary gain, net of tax, attributable to noncontrolling interests		(2,094,856)		(2,094,856)
Net income (loss)	1,562,313	(14,088,832)	(607,945)	(14,351,561)
Net income attributable to noncontrolling interests	1,208,648	2,402,532	2,054,872	1,522,445
Net income (loss) attributable to Foundation Healthcare	353,665	(16,491,364)	(2,662,817)	(15,874,006)
Preferred noncontrolling interests dividends	(199,502)	(121,414)	(585,640)	(720,621)
Net income (loss) attributable to Foundation Healthcare common stock	154,163	(16,612,778)	(3,248,457)	(16,594,627)
Earnings per common share (basic and diluted):
Net income (loss) attributable to continuing operations attributable to Foundation Healthcare common stock	$ 0.00	$ (0.14)	$ (0.02)	$ (0.17)
Loss from discontinued operations, net of tax	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Extraordinary gain, net of tax, attributable to Foundation Healthcare	$ 0.00	$ 0.03	$ 0.00	$ 0.04
Basic and diluted net income (loss) per share	$ 0.00	$ (0.11)	$ (0.02)	$ (0.13)
Weighted average number of common and diluted shares outstanding	171,824,731	151,561,441	170,163,181	126,989,570
Loss from continuing operations, before taxes			(839,127)	(20,161,353)
Pro Forma
Other Income (Expense):
Provision for income taxes		1,008,978		1,240,455
Net income attributable to noncontrolling interests		2,401,087		1,170,410
Net income (loss) attributable to Foundation Healthcare common stock		$ (16,537,792)		$ (15,801,321)
Earnings per common share (basic and diluted):
Basic and diluted net income (loss) per share		$ (0.11)		$ (0.12)

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Borrowings and Capital Lease Obligations

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Borrowings and Capital Lease Obligations

Note 7 – Borrowings and Capital Lease Obligations

The Company’s short-term debt obligations are as follows:

	Rate (1)		September 30, 2014		December 31, 2013
Note payable - Legacy			$	—	$	2,814,027
Note payable - S&H leasing				—		1,865,600
Note payable - working capital				—		800,000
Insurance premium financings	3.1 - 4.8%			241,414		101,135
Note payable - Medicare cost report		10.1%		12,116		84,065
Short-term debt			$	253,530	$	5,664,827

(1) Effective rate as of September 30, 2014

The Company’s long-term debt and capital lease obligations are as follows:

	Rate (1)		Maturity Date	September 30, 2014			December 31, 2013
Senior Lender:
Note payable		4.4%	Jun. 2021	$	26,625,000		$	—
Other Lenders:
Line of credit					—			896,000
Notes payable - working capital					—			3,715,088
Note payable - equity investments					—			3,270,427
Note payable - management agreements					—			640,466
Note payable - assumption					—			146,857
Note payable - preferred interest redemption					—			5,100,000
Note payable - settlements					—			1,189,725
Note payable - THE					—			311,149
Notes payable - physician partners					—			103,604
Notes payable - acquisition		6.0%	Dec. 2014 - Oct. 2015		95,674			99,610
Capital Lease Obligations	5.5 - 9.1%				1,173,403			2,477,985
Total					27,894,077			17,950,911
Less: Current portion of long-term debt					(4,050,498	)		(7,919,179	)
Long-term debt				$	23,843,579		$	10,031,732

(1) Effective rate as of September 30, 2014

SNB Credit Facility

Effective June 30, 2014, we entered into a Loan Agreement with Bank SNB, National Association, and Texas Capital Bank, together referred to as Lenders and collectively the agreement is referred to as the SNB Credit Facility.  The SNB Credit Facility was used to consolidate substantially all of our and our subsidiaries’ debt in the principal amount of $27.5 million, which we refer to as the Term Loan, and provides for an additional revolving loan in the amount of $2.5 million, which we refer to as the Revolving Loan. As of June 30, 2014 we have not drawn funds from the Revolving Loan.  We have also entered into a number of ancillary agreements in connection with the SNB Credit Facility, including deposit account control agreements, subsidiary guarantees, security agreements and promissory notes.

Maturity Dates.  The Term Loan matures on June 30, 2021 and the Revolving Loan matures on June 30, 2016.

Interest Rates.  The interest rate for the Term Loan and Revolving Loan is 30-day LIBOR plus the Applicable Margins based on our Senior Debt Ratio, as defined.  The Applicable Margins are as follows:

	Applicable Margin
Senior Debt Ratio	Revolving Loan	Term Loan
≥ 2.5x	3.75%	4.25%
< 2.5x, but ≥ 2.0x	3.25%	3.75%
< 2.0 x	2.75%	3.25%

 The Applicable Margins are established at 3.75% for the Revolving Loan and 4.25% for the Term Loan through December 31, 2014.  Subsequent to December 31, 2014, the Applicable Margins will be adjusted on a quarterly basis based on our senior debt ratio. The Senior Debt Ratio is calculated by dividing all of our indebtedness, including capital leases, which is secured by a lien or security interest in any of our assets by our EBITDA for the preceding four fiscal quarters.  EBITDA is defined in the SNB Credit Facility as our net income calculated before interest expense, provision for income taxes, depreciation and amortization expenses, stock compensation, gains arising from the write-up of assets, extraordinary gains and any one-time expenses approved by Bank SNB.

Interest and Principal Payments.  We are required to make quarterly payments of principal and interest on the Term Loan.  The first four quarterly payments on the Term Loan will be $875,000 plus all accrued and unpaid interest.  Each subsequent quarterly payment will be $1,000,000 plus all accrued and unpaid interest.  We are required to make quarterly payments on the Revolving Loan equal to the accrued and unpaid interest.  All unpaid principal and interest on the Term Loan and Revolving Loan must be paid on the respective maturity dates of June 30, 2021 and June 30, 2016.

Permitted Acquisitions.  We must obtain the Lenders approval for any acquisition, merger or consolidation in which the consideration paid for the acquisition, merger or consolidation is in excess of $1 million or for any acquisition, merger or consolidation in which the target entity’s operating income for the preceding 12 month period is less than zero.

Mandatory Prepayments.  If we sell any assets in excess of $100,000 or collectively sell any assets in a 12 month period in excess of $100,000, we must make a prepayment equal to the net proceeds of the asset sale(s).  If we receive proceeds from a debt or equity offering that is not used for a permitted acquisition over a 12 month period following the offering or for repayment of our preferred noncontrolling interests, we must make a prepayment equal to the net proceeds of the debt or equity offering.  Subsequent to the completion of our annual audited financial statements, we must make a prepayment equal to 30% of our Excess Cash Flow which is defined as the amount of EBITDA (as defined in the SNB Credit Facility) for the fiscal year that exceeds the sum of debt service payments plus capital expenditures plus cash payments for federal, state and local income taxes, plus distributions made by our Equity Owned Hospitals to persons other than us.

Voluntary Prepayments.  We may prepay amounts under the Term Loan at any time provided that we are required to pay a prepayment penalty of 2% of the amount prepaid if payment is made prior to the first anniversary, 1.5% if the prepayment is made after the first anniversary but prior to the second anniversary and 1% if the prepayment is made after the second anniversary but prior to the maturity date.  We may prepay amounts under the Revolving Loan at any time without penalty.

Guaranties.  Each of our direct or indirect wholly-owned subsidiaries jointly and severally and unconditionally guaranty payment of our obligations owed to Lenders.

Financial Covenants:

Senior Debt Ratio.  We must maintain a Senior Debt Ratio not in excess of 3.00 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014.  As of September 30, 2014, our Senior Debt Ratio was 1.79.

Senior Debt Service Coverage Ratio.  We must maintain a Senior Debt Service Coverage Ratio of not less than 1.30 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Senior Debt Service Coverage ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures to our debt service payments for the same period.  As of September 30, 2014, our Senior Debt Service Coverage Ratio was 2.09.

Adjusted Senior Debt Service Coverage Ratio.  We must maintain an Adjusted Senior Debt Service Coverage Ratio of not less than 1.05 to 1.00 as of the end of each fiscal quarter beginning with the quarter ending September 30, 2014. The Adjusted Senior Debt Service Coverage Ratio is the ratio of EBITDA (as defined in the SNB Credit Facility) for the preceding four fiscal quarters minus cash payments for federal, state and local taxes, minus capital expenditures, plus distributions made to our preferred noncontrolling interest holders, plus distributions made by our Equity Owned Hospitals to persons other than us to our debt service payments for the same period.  As of September 30, 2014, our Adjusted Senior Debt Service Ratio was 1.31.

Annualized EBITDA.  Until June 30, 2015 and for purposes of calculating compliance with the financial covenants in SNB Credit Facility, EBITDA shall be determined by annualizing EBITDA for the fiscal quarter ending on September 30, 2014 and each quarter that has elapsed thereafter.

As of September 30, 2014, we are in compliance with our financial covenants.

Restrictions on Indebtedness.  We and our Equity Owned Hospitals are not allowed to create any indebtedness other than indebtedness for the purchase of fixed assets not exceeding $500,000 in any fiscal year, trade payables incurred in the ordinary course of business and not past due, contingent obligations and unsecured indebtedness not exceeding $100,000 in the aggregate at any time outstanding.

Use of Proceeds.  All proceeds of the Term Loan were used solely for the refinancing of existing indebtedness.  The proceeds of the Revolving Loan will be used for working capital.

Collateral.  Payment and performance of our obligations under the SNB Credit Facility are secured in general by all of our assets.

Defaults and Remedies.  In addition to the general defaults of failure to perform our obligations under the Loan Agreement, events of default also include the occurrence of a change in control, as defined, and the loss of our Medicare or Medicaid certification, collateral casualties, entry of a judgment of $150,000 or more, failure of first liens on collateral and the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18 month period.  In the event of a monetary default, all of our obligations due under the SNB Credit Facility shall become immediately due and payable.  In the event of a non-monetary default, we have 10 days or in some cases three days to cure before BankSNB has the right to declare our obligations due under the SNB Credit Facility immediately due and payable.

At September 30, 2014, future maturities of long-term debt were as follows:

Twelve months ended September 30:
2015	$	4,050,498
2016		4,362,967
2017		4,229,627
2018		4,134,459
2019		4,116,526
Thereafter		7,000,000

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Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2014

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles

Note 6 – Goodwill and Other Intangibles

Changes in the carrying amount of goodwill are as follows:

	Gross Amount		Accumulated Impairment Loss			Net Carrying Value
December 31, 2013	$	23,019,309	$	(22,045,382	)	$	973,927
September 30, 2014	$	23,019,309	$	(22,045,382	)	$	973,927

Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

The goodwill associated with the reverse acquisition was $21.9 million. The Company then determined the projected cash flows from the continuing operations of the legacy Graymark business were not sufficient to support the recorded goodwill. The Company evaluated the fair value of the goodwill subsequent to the reverse acquisition and determined the acquired goodwill was fully-impaired.

Changes in the carrying amount of intangible assets during the nine months ended September 30, 2014 were as follows:

	Carrying		Accumulated
	Amount		Amortization			Net
December 31, 2013	$	14,524,500	$	(3,385,879	)	$	11,138,621
Amortization		—		(1,542,704	)		(1,542,704	)
September 30, 2014	$	14,524,500	$	(4,928,583	)	$	9,595,917

Intangible assets as of September 30, 2014 and December 31, 2013 include the following:

		September 30, 2014							December 31,
	Useful	Carrying		Accumulated					2013
	Life (Years)	Value		Amortization			Net		Net
Management fee contracts	6 - 8	$	3,498,500	$	(2,061,189	)	$	1,437,311	$	1,763,463
Non-compete	5		2,027,000		(748,003	)		1,278,997		1,583,256
Physician memberships	7		6,468,000		(1,771,000	)		4,697,000		5,390,000
Trade Name	5		381,000		(91,324	)		289,676		347,218
Service Contracts	10		2,150,000		(257,067	)		1,892,933		2,054,684
		$	14,524,500	$	(4,928,583	)	$	9,595,917	$	11,138,621

Amortization expense for the three months ended September 30, 2014 and 2013 was $514,969 and $556,816 respectively. Amortization expense for the nine months ended September 30, 2014 and 2013 was $1,542,704 and $1,453,777 respectively.

Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2015	$	2,055,474
2016		2,055,474
2017		2,055,474
2018		1,395,586
2019		1,139,000
Thereafter		894,909

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Goodwill and Other Intangibles (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill And Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill

Changes in the carrying amount of goodwill are as follows:

	Gross Amount		Accumulated Impairment Loss			Net Carrying Value
December 31, 2013	$	23,019,309	$	(22,045,382	)	$	973,927
September 30, 2014	$	23,019,309	$	(22,045,382	)	$	973,927

Changes in Carrying Amount of Intangible Assets

Changes in the carrying amount of intangible assets during the nine months ended September 30, 2014 were as follows:

	Carrying		Accumulated
	Amount		Amortization			Net
December 31, 2013	$	14,524,500	$	(3,385,879	)	$	11,138,621
Amortization		—		(1,542,704	)		(1,542,704	)
September 30, 2014	$	14,524,500	$	(4,928,583	)	$	9,595,917

Intangible Assets

Intangible assets as of September 30, 2014 and December 31, 2013 include the following:

		September 30, 2014							December 31,
	Useful	Carrying		Accumulated					2013
	Life (Years)	Value		Amortization			Net		Net
Management fee contracts	6 - 8	$	3,498,500	$	(2,061,189	)	$	1,437,311	$	1,763,463
Non-compete	5		2,027,000		(748,003	)		1,278,997		1,583,256
Physician memberships	7		6,468,000		(1,771,000	)		4,697,000		5,390,000
Trade Name	5		381,000		(91,324	)		289,676		347,218
Service Contracts	10		2,150,000		(257,067	)		1,892,933		2,054,684
		$	14,524,500	$	(4,928,583	)	$	9,595,917	$	11,138,621

Amortization Expense for Next Five Years Related to Intangible Assets

Amortization expense for the next five years related to these intangible assets is expected to be as follows:

Twelve months ended September 30,
2015	$	2,055,474
2016		2,055,474
2017		2,055,474
2018		1,395,586
2019		1,139,000
Thereafter		894,909

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Interim Financial Information

Interim Financial Information – The condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2014 are not necessarily indicative of results that may be expected for the year ended December 31, 2014. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2013. The December 31, 2013 consolidated balance sheet was derived from audited financial statements.

Pro forma income information

Pro forma income information – Prior to July 22, 2013, FSA’s and FSHA’s members had elected to have FSA’s and FSHA’s income taxed as an S Corporation under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual member for inclusion in its tax returns and no provision for income taxes is included in the Company’s consolidated financial statements for periods prior to July 22, 2013. The pro forma income information provides an adjustment for income tax expense as if FSA and FSHA had been a C Corporation prior to July 22, 2013 at an assumed combined federal and state effective tax rate of 38%, which approximates the calculated statutory tax rates for the periods.

Consolidation

Consolidation – The accompanying consolidated financial statements include the accounts of the Company and it’s wholly owned, majority owned and controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

The Company accounts for its investments in Affiliates in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.

Use of estimates

Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition and accounts receivable

Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are performed and billed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received.

Contractual Discounts and Cost Report Settlements

Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations.

Cost report settlements under reimbursement agreements with Medicare, Medicaid and Tricare are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. The estimated net cost report settlements due to the Company were $608,555 and $235,000 as of September 30, 2014 and December 31, 2013 respectively, and are included in prepaid and other current assets in the accompanying consolidated balance sheets. We adjusted our cost report estimate by $373,555 during the nine months ended September 30, 2014 based on our final filed cost report for 2013 and an estimate of the 2014 cost report.  The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.

Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

Provision and Allowance for Doubtful Accounts

Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients.

The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, the aging of accounts receivable, historical cash collection experience, revenue trends by payor classification, revenue days in accounts receivable, the status of claims submitted to third party payors, reason codes for declined claims and an assessment of the Company’s ability to address the issue and resubmit the claim and whether a patient is on a payment plan and making payments consistent with that plan. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies. During the Company’s normal quarterly review process at March 31, 2014, management determined that a portion of the accounts receivable related to personal injury cases at our FSH SA location had grown to a level requiring it to be analyzed as a distinct payor category. Based on the historical cash collection experience and other analytical measures as noted above, the allowance for doubtful accounts related to the personal injury cases was lowered by $1.0 million.

Due to the nature of the healthcare industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed following completion of service.

The activity in the allowance for doubtful accounts for the nine months ending September 30, 2014 follows:

	2014
Balance at beginning of period	$	4,778,915
Provisions recognized as reduction in revenues		2,799,237
Write-offs, net of recoveries		(4,859,357	)
Balance at end of period	$	2,718,795

Cash and cash equivalents

Cash and cash equivalents – The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the account.

Restricted Cash

Restricted Cash – As of September 30, 2014 and December 31, 2013, the Company had restricted cash of approximately $1.1 million and $0.7 million respectively, included in prepaid and other current assets in the accompanying consolidated balance sheets.  The restricted cash at September 30, 2014 is related to the SNB Credit Facility (see Note 7 – Borrowings and Capital Lease Obligations) and represents the proceeds from the Term Loan that were not utilized as of September 30, 2014 to retire existing debt (“SNB Restricted Cash”).  The SNB Restricted Cash can be utilized to complete the payoff of the remaining indebtedness of the Company, to pay federal and state income taxes and for other uses as approved by BankSNB.  Use of the SNB Restricted Cash must be approved by BankSNB.  The restricted cash at December 31, 2013 was pledged as collateral against debt that was paid-off from the proceeds of the SNB Credit Facility.

Goodwill and Intangible Assets

Goodwill and Intangible Assets – The Company evaluates goodwill for impairment at least on an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company will complete its annual impairment test in December 2014.

Intangible assets other than goodwill which include physician membership interests, service contracts and covenants not to compete are amortized over their estimated useful lives using the straight line method. The remaining lives range from five to ten years. The Company evaluates the recoverability of identifiable intangible asset whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

Net income (loss) per share

Net income (loss) per share – Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Recently Adopted and Recently Issued Accounting Guidance

Recently Adopted and Recently Issued Accounting Guidance

Adopted Guidance

In February 2013, the FASB issued changes to the accounting for obligations resulting from joint and several liability arrangements. These changes require an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of (i) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (ii) any additional amount the reporting entity expects to pay on behalf of its co-obligors. An entity will also be required to disclose the nature and amount of the obligation as well as other information about those obligations. Examples of obligations subject to these requirements are debt arrangements and settled litigation and judicial rulings. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have an impact on the Company’s consolidated financial statements, as the Company does not currently have any such arrangements.

In July 2013, the FASB issued changes to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. These changes require an entity to present an unrecognized tax benefit as a liability in the financial statements if (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or (ii) the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset to settle any additional income taxes that would result from the disallowance of a tax position. Otherwise, an unrecognized tax benefit is required to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. Previously, there was diversity in practice as no explicit guidance existed. These changes become effective for the Company on January 1, 2014. Management has determined that the adoption of these changes did not have a significant impact on the Company’s consolidated financial statements.

Issued Guidance

In April 2014, the FASB issued changes to the reporting of discontinued operations and disclosures of disposals of components of an entity. The amendments change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The amendments are effective prospectively for all disposals (or classifications as held for sale) of components of an entity, and for all businesses that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. These changes become effective for the Company on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Company’s consolidated financial statements.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Company’s consolidated financial statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated financial statements in a given reporting period.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 10 – Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

· Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

· Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

· Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At September 30, 2014, the fair value of the Company’s long-term debt, including the current portion was determined to be approximately equal to its carrying value.

Nonrecurring Fair Value Measurements: During the nine months ended September 30, 2014, the Company did not have any assets or liabilities recorded using nonrecurring fair value measurements.

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Preferred Noncontrolling Interests

9 Months Ended

Sep. 30, 2014

Noncontrolling Interest [Abstract]

Preferred Noncontrolling Interests

Note 8 – Preferred Noncontrolling Interests

During 2013, the Company’s wholly-owned subsidiary, Foundation Health Enterprises, LLC (“FHE”) completed a private placement offering of $9,135,000. The offering was comprised of 87 units (“FHE Unit” or “preferred noncontrolling interest”). Each FHE Unit was offered at $105,000 and entitled the purchaser to one (1) Class B membership interest in FHE, valued at $100,000, and 10,000 shares of the Company’s common stock, valued at $5,000. The total consideration of $9,135,000 was comprised of $8,700,000 attributable to the preferred noncontrolling interest and $435,000 attributable to the 870,000 shares of the Company’s common stock.

The FHE Units provide for a cumulative preferred annual return of 9% on the amount allocated to the Class B membership interests. The FHE Units will be redeemed by FHE in four annual installments beginning in July 2014. The first three installments shall be in the amount of $10,000 per FHE Unit and the fourth installment will be in the amount of the unreturned capital contribution and any undistributed preferred distributions. The FHE Units are convertible at the election of the holder at any time prior to the complete redemption into restricted common shares of the Company at a conversion price of $2.00 per share. Since the FHE Units have a redemption feature and a conversion feature which the Company determined to be substantive, the preferred noncontrolling interests has been recorded at the mezzanine level in the accompanying consolidated balance sheets and the corresponding dividends are recorded as a reduction of accumulated deficit.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 9 – Commitments and Contingencies

Legal claims – The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company. There were no settlement expenses during the three months ended September 30, 2014 and 2013 related to the Company’s ongoing unasserted legal claims.

Self-insurance – Effective January 1, 2014, the Company began using a combination of insurance and self-insurance for employee-related healthcare benefits. The self-insurance liability is determined actuarially, based on the actual claims filed and an estimate of incurred but not reported claims. Self-insurance reserves as of September 30, 2014 were $372,596 and are included in accrued liabilities in the accompanying consolidated balance sheets.

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Real Estate Transaction

9 Months Ended

Sep. 30, 2014

Real Estate [Abstract]

Real Estate Transaction

Note 11 – Real Estate Transaction

On March 1, 2014, the Company executed a 15 year master lease on the building occupied by the Company’s hospital subsidiary in San Antonio, Texas for an annual rent of $2.3 million with annual escalations of 3%. The current lease income on the underlying sub-lease is approximately $2.1 million per year which includes the rent paid by FBH SA. The master lease is an operating lease. In conjunction with the master lease and certain other agreements with the landlord, the Company received $4.1 million at the time of the lease. Given the disparity between the annual rent expense under the master lease and the rental income of the underlying sub-lease, the cash received at the execution of the lease was deferred and will be recorded on a straight-line basis as a reduction in the rent expense under the master lease.

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Operating Results and Balance Sheet Items of Discontinued Operations (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Discontinued Operations And Disposal Groups [Abstract]
Revenue			$ 123,728
Net loss before taxes			(812,247)
Income tax benefit			191,424
Net loss from discontinued operations, net of tax	(119,785)	(196,705)	(620,823)	(196,705)
Cash and cash equivalents					49,252
Accounts receivable, net of allowances					222,943
Inventories					1,893
Other current assets	174,964		174,964		244,541
Total current assets	174,964		174,964		518,629
Fixed assets, net	233,862		233,862		426,228
Other assets	150,000		150,000		150,000
Total non-current assets	383,862		383,862		576,228
Total assets	558,826		558,826		1,094,857
Payables and accrued liabilities	1,188,224		1,188,224		1,557,771
Short-term debt					3,994,932
Current portion of long-term debt					67,994
Total current liabilities	1,188,224		1,188,224		5,620,697
Long-term debt, net of current portion					9,969
Total liabilities	$ 1,188,224		$ 1,188,224		$ 5,630,666

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Reverse Acquisition (Tables)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Final Purchase Allocation for Reverse Acquisition

The final purchase allocation for the reverse acquisition is presented in the table below:

	Graymark
Assets acquired
Cash and cash equivalents	$	68,170
Accounts receivable		249,333
Current assets from discontinued operations		1,360,143
Other current assets		198,976
Total current assets		1,876,622
Property and equipment		1,389,169
Intangible assets		2,733,000
Goodwill		21,864,781
Other assets		252,528
Other assets from discontinued operations		1,224,140
Total assets acquired	$	29,340,240
Liabilities assumed
Accounts payable and accrued liabilities	$	2,899,823
Short term debt		2,000,000
Current portion of long term debt		714,711
Current liabilities from discontinued operations		7,375,521
Total current liabilities		12,990,055
Long term debt		742,385
Other liabilities		305,969
Other liabilities from discontinued operations		1,362,957
Total liabilities assumed		15,401,366
Net assets acquired	$	13,938,874

Acquisition Revenue and Earnings of Combined Entity Reverse Acquisition

The amounts of acquisition revenues and earnings included in the Company’s consolidated statements of operations for the nine months ended September 30, 2014, and the revenue and earnings of the combined entity had the reverse acquisition date for Graymark been January 1, 2013 are as follows:

			Loss From						Attributable to Foundation
	Revenue		Continuing Operations			Net Loss			Net Loss			Net Loss Per Share
Actual:
From 1/1/2014 to 9/30/2014	$	1,531,445	$	(4,771,630	)	$	(3,919,625	)	$	(3,919,625	)	$	(0.02	)
Supplemental Pro Forma:
From 1/1/2013 to 9/30/2013	$	69,993,313	$	(25,858,257	)	$	(18,695,228	)	$	(20,086,112	)	$	(0.12	)

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended	9 Months Ended
	Jul. 22, 2013	Mar. 31, 2014	Sep. 30, 2014	Sep. 30, 2014 Minimum	Sep. 30, 2014 Maximum	Sep. 30, 2014 Prepaid and Other Current Assets	Dec. 31, 2013 Prepaid and Other Current Assets	Sep. 30, 2014 Prepaid and Other Current Assets SNB Credit Facility
Summary Of Significant Accounting Policies [Line Items]
Federal and state effective tax rate	38.00%
Adjustments for cost report settlements			$ 373,555
Cost settlements adjustment amount						608,555	235,000
Decrease in allowance for doubtful accounts related to personal injury cases		1,000,000
Restricted Cash							$ 700,000	$ 1,100,000
Estimated useful lives				5 years	10 years

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Related Party Transactions - Additional Information (Detail) (USD $)			1 Months Ended	12 Months Ended	1 Months Ended						0 Months Ended	9 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Oct. 31, 2013 Foundation Health Enterprises Llc	Dec. 31, 2013 Foundation Health Enterprises Llc	Oct. 31, 2013 Foundation Health Enterprises Llc Class B member interests	Dec. 31, 2013 Foundation Health Enterprises Llc Class B member interests	Dec. 31, 2013 Foundation Health Enterprises Llc Private placement	Oct. 31, 2013 Foundation Health Enterprises Llc Private placement	Sep. 30, 2014 Minimum	Sep. 30, 2014 Maximum	Jun. 01, 2014 New Sleep Lab International, Ltd.	Sep. 30, 2014 New Sleep Lab International, Ltd.	Dec. 31, 2013 Notes Payable to Banks	Sep. 30, 2014 Shareholders And Affiliates Minimum	Sep. 30, 2014 Shareholders And Affiliates Maximum	Sep. 30, 2013 City Place	Sep. 30, 2014 City Place
Related Party Transaction [Line Items]
Income on underlying sub-lease											$ 8,767
Sublease expiration date											Nov. 30, 2018
Lease expense												35,000				18,000	70,000
Related party deposit	900,000
Notes payable													5,900,000
Interest rates on the notes														5.00%	10.00%
Offering cost			100,000	100,000	105,000	105,000	9,135,000	9,135,000
Number offering units			5		87
Common stock issued			10,000	10,000
Common stock value	17,260	16,383	5,000	5,000
Amount of Purchase by CEO			525,000
Lease agreement monthly rent description																	The Company has office space subject to a lease agreement with City Place, LLC (“City Place”). Under the lease agreement, the Company pays monthly rent of $17,970 until June 30, 2014; $0.00 from July 1, 2014 to January 31, 2015 and $17,970 from February 1, 2015 to March 31, 2017 plus additional payments for allocable basic expenses of City Place
Lease expiration date																	Mar. 31, 2017
Obligations owed to FHA and other affiliates	$ 1,400,000	$ 1,400,000
Management fee Percentages range									2.25%	6.00%

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Schedule of Short-Term Debt Obligations (Detail) (USD $)	9 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Short Term Debt [Line Items]
Short term debt	$ 253,530		$ 5,664,827
Insurance premium financings
Short Term Debt [Line Items]
Debt instrument, effective interest rate	3.10%	[1]
Debt instrument, effective interest rate, minimum	4.80%	[1]
Short term debt	241,414		101,135
Note Payable Medicare Cost Report
Short Term Debt [Line Items]
Debt instrument, effective interest rate, maximum	10.10%	[1]
Short term debt	12,116		84,065
Note payable - Legacy
Short Term Debt [Line Items]
Short term debt			2,814,027
Note payable - S&H leasing
Short Term Debt [Line Items]
Short term debt			1,865,600
Note payable - working capital
Short Term Debt [Line Items]
Short term debt			$ 800,000

[1] Effective rate as of September 30, 2014

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Operating activities:
Net loss	$ (607,945)	$ (14,351,561)
Less: Loss from discontinued operations, net of tax	(620,823)	(196,705)
Less: Extraordinary gain, net of tax		6,967,602
Income (loss) from continuing operations	12,878	(21,122,458)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization	4,204,828	3,636,840
Impairment of goodwill		20,847,608
Stock-based compensation, net of cashless vesting	876,851	41,922
Provision for doubtful accounts	2,799,237	2,409,733
Equity in earnings of affiliates	(2,039,811)	(4,502,759)
Changes in assets and liabilities, net of acquisitions and extraordinary items:
Accounts receivable, net of provision for doubtful accounts	(4,338,374)	(6,360,666)
Receivables from affiliates	(175,698)	202,017
Supplies inventories	(35,657)	96,593
Prepaid and other current assets	(1,489,956)	(684,284)
Other assets	(204,838)	400,415
Accounts payable	(1,791,968)	202,838
Accrued liabilities	3,810,422	6,801,418
Other current liabilities	(2,330,737)	1,016,176
Other liabilities	3,087,988	2,149,353
Net cash provided by operating activities from continuing operations	2,385,165	5,134,746
Net cash used in operating activities from discontinued operations	(454,338)	(449,993)
Net cash provided by operating activities	1,930,827	4,684,753
Investing activities:
Cash received in business acquisition		68,170
Purchase of property and equipment	(1,810,180)	(3,478,983)
Disposal of property and equipment		184,313
Sale of equity investment in affiliates	178,000
Cash received in extraordinary gain transaction		463,678
Distributions from affiliates	2,061,937	4,522,247
Net cash provided by investing activities from continuing operations	429,757	1,759,425
Net cash provided by investing activities from discontinued operations		200,000
Net cash provided by investing activities	429,757	1,959,425
Financing activities:
Debt proceeds	29,092,552	12,190,184
Debt payments	(24,560,683)	(5,358,842)
Common stock proceeds		375,000
Preferred noncontrolling interests proceeds		7,500,000
Preferred noncontrolling interests dividend	(583,693)	(919,715)
Redemption of preferred noncontrolling interests		(13,509,195)
Distributions to noncontrolling interests	(2,879,989)	(94,492)
Distributions to member		(766,118)
Net cash provided by (used in) financing activities from continuing operations	1,068,187	(583,178)
Net cash used in financing activities from discontinued operations	(4,072,896)	(294,039)
Net cash used in financing activities	(3,004,709)	(877,217)
Net change in cash and cash equivalents	(644,125)	5,766,961
Cash and cash equivalents at beginning of period	4,212,076	2,524,417
Cash and cash equivalents at end of period	3,567,951	8,291,378
Cash Paid for Interest and Income Taxes:
Interest expense	1,604,256	1,436,125
Interest expense, discontinued operations	168,733	34,689
Income taxes, continuing operations	$ 3,255,623

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Discontinued Operations

9 Months Ended

Sep. 30, 2014

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations

Note 5 – Discontinued Operations

Prior to the reverse acquisition, Graymark committed to a plan to divest of or close certain sleep diagnostic and sleep therapy locations. The decision was based on a combination of the financial performance of the facilities and the shift in focus to the business model of Foundation. As a result of the pending closure or sale of these locations, the related assets, liabilities, results of operations and cash flows were classified as discontinued operations which were acquired by the Company in the reverse acquisition.

Under the plan, from July 2013 to October 2013, the Company closed or sold 24 sleep diagnostic locations including both IDTF and contracted locations in Georgia, Iowa, Kansas, Missouri, Nevada, Oklahoma and Texas and 5 sleep therapy locations in Iowa, Kansas, Nevada, Oklahoma and Texas.

As part of the reverse acquisition, the Company acquired the special charge liability of $475,570 related to the estimated closing costs resulting from the plan to sell or close the sleep diagnostic and therapy locations. For the nine month period ended September 30, 2014, the activity in the acquired accruals for restructuring charges established for lease termination costs were as follows:

	Lease Termination Cost
Balance at December 31, 2013	$	78,235
Adjustments		139,940
Cash Payments		(30,575	)
Balance at September 30, 2014	$	187,600

Adjustments to the special charge liability include changes to estimated settlements or other changes to the liabilities. Additional charges or adjustments may be recorded in future periods dependent upon the Company’s ability to sub-lease or otherwise mitigate future lease costs at closed facilities.

The operating results of the discontinued sleep diagnostic and therapy locations and the Company’s other discontinued operations for the nine month period ended September 30, 2014 are summarized below:

	2014
Revenue	$	123,728
Net loss before taxes	$	(812,247	)
Income tax benefit		191,424
Net loss from discontinued operations, net of tax	$	(620,823	)

The balance sheet items for discontinued operations are summarized below:

	September 30, 2014		December 31, 2013
Cash and cash equivalents	$	—	$	49,252
Accounts receivable, net of allowances		—		222,943
Inventories		—		1,893
Other current assets		174,964		244,541
Total current assets		174,964		518,629
Fixed assets, net		233,862		426,228
Other assets		150,000		150,000
Total non-current assets		383,862		576,228
Total assets	$	558,826	$	1,094,857
Payables and accrued liabilities	$	1,188,224	$	1,557,771
Short-term debt		—		3,994,932
Current portion of long-term debt		—		67,994
Total current liabilities		1,188,224		5,620,697
Long-term debt, net of current portion		—		9,969
Total liabilities	$	1,188,224	$	5,630,666

The Company’s borrowings and capital lease obligations included in discontinued operations are as follows:

	September 30, 2014		December 31, 2013
Short-term Debt
Arvest bank	$	—	$	3,994,932
Long-term Debt
Sleep center notes payable		—		28,723
Equipment capital leases		—		49,389
Total		—		78,112
Less: Current portion of long term debt		—		(68,143	)
Long-term debt	$	—	$	9,969

On June 30, 2014, the Company completed a refinancing of substantially all its outstanding indebtedness through the execution of the SNB Credit Facility.  The SNB Credit Facility includes a Term Loan in the amount of $27.5 million and a Revolving Loan in the amount of $2.5 million (see Note 7 – Borrowings and Capital Lease Obligations).  A portion of the proceeds from the Term Loan were used to refinance the full amount of the Company’s indebtedness previously included in discontinued operations.

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Allowance for Doubtful Accounts (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period			$ 4,778,915
Provisions recognized as reduction in revenues	1,562,147	682,319	2,799,237	2,409,733
Write-offs, net of recoveries			(4,859,357)
Balance at end of period	$ 2,718,795		$ 2,718,795

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Changes in Carrying Amount of Intangible Assets (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
Intangible asset carrying amount, beginning balance			$ 14,524,500
Intangible asset carrying amount, Amortization	514,969	556,816	1,542,704	1,453,777
Intangible asset carrying amount, ending balance	14,524,500		14,524,500
Intangible asset accumulated amortization, beginning balance			(3,385,879)
Intangible asset, accumulated amortization			(1,542,704)
Intangible asset accumulated amortization, ending balance	(4,928,583)		(4,928,583)
Intangible asset beginning balance, net			11,138,621
Intangible asset amortization, net	(514,969)	(556,816)	(1,542,704)	(1,453,777)
Intangible asset ending balance, net	$ 9,595,917		$ 9,595,917

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Allowance For Doubtful Accounts

The activity in the allowance for doubtful accounts for the nine months ending September 30, 2014 follows:

	2014
Balance at beginning of period	$	4,778,915
Provisions recognized as reduction in revenues		2,799,237
Write-offs, net of recoveries		(4,859,357	)
Balance at end of period	$	2,718,795

Accompanying Consolidated Financial Statements

The financial information included in the accompanying consolidated financial statements and notes thereto reflect the effects of the corrections described in the preceding paragraph.  The following tables set forth the correction of the individual affected line items in the accompanying consolidated financial statements:

	Three Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.01	)	$	(0.14	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.00			0.03
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.01	)	$	(0.11	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(11,141,958	)		151,561,441
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.01	)	$	(0.11	)

	Nine Months Ended September 30, 2013
	As Previously Recorded			Correction			Restated
Earnings per common share (basic and diluted):
Net loss attributable to continuing operations     attributable to Foundation Healthcare common stock	$	(0.13	)	$	(0.04	)	$	(0.17	)
Loss from discontinued operations, net of tax		0.00			0.00			0.00
Extraordinary gain, net of tax, attributable to     Foundation Healthcare		0.03			0.01			0.04
Net loss per share, attributable to     Foundation Healthcare common stock	$	(0.10	)	$	(0.03	)	$	(0.13	)
Weighted average number of common and diluted     shares outstanding		162,703,399			(35,713,829	)		126,989,570
Pro forma income information (Note 3):
Pro forma basic and diluted net (loss) per share	$	(0.10	)	$	(0.02	)	$	(0.12	)