0001144204-15-071028.txt : 20151215 0001144204-15-071028.hdr.sgml : 20151215 20151215172417 ACCESSION NUMBER: 0001144204-15-071028 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20151215 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20151215 DATE AS OF CHANGE: 20151215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: American CareSource Holdings, Inc. CENTRAL INDEX KEY: 0001316645 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 200428568 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33094 FILM NUMBER: 151289293 BUSINESS ADDRESS: STREET 1: 1170 PEACHTREE STREET, NE STREET 2: SUITE 2350 CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 972-308-6830 MAIL ADDRESS: STREET 1: 1170 PEACHTREE STREET, NE STREET 2: SUITE 2350 CITY: ATLANTA STATE: GA ZIP: 30309 FORMER COMPANY: FORMER CONFORMED NAME: American Caresource Holdings, Inc. DATE OF NAME CHANGE: 20050615 FORMER COMPANY: FORMER CONFORMED NAME: American Caresouce Holdings, Inc. DATE OF NAME CHANGE: 20050204 8-K 1 v426966_8k.htm FORM 8-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): December 15, 2015

 

American CareSource Holdings, Inc.

(Exact name of registrant as specified in charter)

 

Delaware 001-33094 20-0428568
(State or other jurisdiction (Commission (IRS Employer
of  incorporation) File Number) Identification No.)

 

1170 Peachtree Street, Suite 2350

Atlanta, Georgia 30309

(Address of Principal Executive Offices)

 

(404) 465-1000

(Registrant’s Telephone Number, Including Area

Code)

 

(Former Name or Former Address, If Changed Since

Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

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

 

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

 

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

 

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

 

 

 

 

 

 

Item 1.01.Entry Into a Material Definitive Agreement.

 

As previously reported, on July 31, 2015, ACSH Medical Management, LLC (“ACSH Management”), a wholly-owned subsidiary of the registrant, American CareSource Holdings, Inc. (the “Company”), entered into an asset purchase agreement (as amended, the “Asset Purchase Agreement”) with Medac Health Services, P.A. (“Medac”) and its shareholders to purchase certain assets used by Medac in the operation of its four urgent care centers in the greater Wilmington, North Carolina area (the foregoing transaction, the “Medac Asset Acquisition”). On December 15, 2015, the Medac Asset Acquisition was consummated.

 

At closing, and pursuant to the terms of the Asset Purchase Agreement, ACSH Management agreed to, among other things, (a) lease the purchased assets back to Medac, (b) assume or enter into new leases for the four centers and sublease them to Medac and (c) enter into a management services agreement with Medac. Medac retains control over all of the clinical aspects of the urgent care business, including the employment or engagement of all individuals whose duties include the rendition of medical care.

 

Under the terms of the management services agreement (the “Management Services Agreement”) entered into between Medac and ACSH Management on December 15, 2015, ACSH Management agreed to manage the non-clinical operations of the Medac centers and to assist in Medac’s provision of administrative and staffing services to an emergency medicine physician group, each in exchange for a fixed management fee, which fee may be adjusted by ACSH Management no more frequently than annually. The initial term of the Management Services Agreement is 10 years from the closing date, with an automatic renewal of 5 additional years unless either party provides written notice to the other at least 180 days before the expiration of the initial term. The Management Services Agreement also contains customary confidentiality, termination and indemnification provisions.

 

The foregoing description of the Asset Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Asset Purchase Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on August 6, 2015 and is hereby incorporated by reference. The foregoing description of the Management Services Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Management Services Agreement, a copy of which will be filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ending December 31, 2015.

 

 

Item 2.01.Completion of Acquisition or Disposition of Assets.

 

The information set forth under Item 1.01 above is incorporated by reference into this Item 2.01.

 

Pursuant to the Asset Purchase Agreement, the purchase price for the Medac Asset Acquisition was $5.7 million, with approximately $5.1 million payable in cash at closing and the balance of approximately $0.6 million payable in the form of a promissory note.

 

Certain financial statements and other information of Medac and the Company are filed herewith as Exhibits 99.1-99.3, and are incorporated herein by reference.

 

Item 2.03.Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth under Items 1.01 and 2.01 above are incorporated by reference into this Item 2.03.

 

 1 

 

 

In connection with the partial payment of the purchase price for the Medac Asset Acquisition, on December 15, 2015, a promissory note in the original principal amount of $560,000 was executed by ACSH Management in favor of Medac, with interest accruing at 5% per annum and maturing on June 15, 2017.

 

The foregoing description of the promissory note does not purport to be complete and is qualified in its entirety by the full text of the promissory note which is filed herewith as Exhibit 10.1 and incorporated herein by reference.

 

Item 9.01.Financial Statements and Exhibits.

 

(a)  Financial statements of businesses acquired.

 

(b)  Pro forma financial information.

 

(d)  Exhibits.

 

Exhibit No.   Description
     
2.1   Asset Purchase Agreement, dated as of July 31, 2015, among Medac Health Services, P.A., the shareholders of Medac Health Services, P.A., Kevin E. Potts, MD, and ACSH Medical Management, LLC  (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-33094) filed with the Commission on August 6, 2015).
     
10.1   Promissory Note, dated as of December 15, 2015, between ACSH Medical Management, LLC  and Medac Health Services, P.A.
     
23.1   Consent of LWBJ LLP.
     
99.1   Audited Medac Health Services, P.A. Financial Statements and Supplemental Information as of and for the years ended December 31, 2014 and 2013.
     
99.2   Unaudited Medac Health Services, P.A. Financial Statements and Supplemental Information, as of and for the nine months ended September 30, 2015.
     
99.3   Unaudited Pro Forma Financial Information of American CareSource Holdings, Inc. for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015.

 

 2 

 

 

SIGNATURE

 

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

 

Date: December 15, 2015

 

  American CareSource Holdings, Inc.
   
  By: /s/ Adam S. Winger
  Adam S. Winger
  General Counsel, Secretary, Vice President of Acquisitions and Interim Chief Financial Officer

 

 3 

 

 

EXHIBIT INDEX

 

Exhibit No.   Description
     
2.1   Asset Purchase Agreement, dated as of July 31, 2015, among Medac Health Services, P.A., the shareholders of Medac Health Services, P.A., Kevin E. Potts, MD, and ACSH Medical Management, LLC  (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-33094) filed with the Commission on August 6, 2015).
     
10.1   Promissory Note, dated as of December 15, 2015, between ACSH Medical Management, LLC  and Medac Health Services, P.A.
     
23.1   Consent of LWBJ LLP.
     
99.1   Audited Medac Health Services, P.A. Financial Statements and Supplemental Information as of and for the years ended December 31, 2014 and 2013.
     
99.2   Unaudited Medac Health Services, P.A. Financial Statements and Supplemental Information, as of and for the nine months ended September 30, 2015.
     
99.3   Unaudited Pro Forma Financial Information of American CareSource Holdings, Inc. for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015.

 

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 EX-10.1 2 v426966_ex10-1.htm EXHIBIT 10.1

 

Exhibit 10.1

 

PROMISSORY NOTE

 

$560,000 December 15, 2015

 

FOR VALUE RECEIVED, ACSH MEDICAL MANAGEMENT, LLC, a Delaware limited liability company (“Borrower”), hereby promises to pay to MEDAC HEALTH SERVICE, P.A., a North Carolina professional corporation (“Lender”), to the address Medac Health Services, P.A., 4402 Shipyard Blvd., Wilmington, NC 28403 or at such other place as may be designated in writing by Lender, the principal sum of $560,000, together with interest on the unpaid balance thereof at the rate, on the terms and subject to the conditions set forth herein.

 

This Promissory Note (this “Note”) is delivered by Borrower pursuant to and in accordance with the terms and conditions of that certain Asset Purchase Agreement (the “Purchase Agreement”), dated as of July 31, 2015, by and among Borrower, Lender, each shareholder of Lender, and Kevin E. Potts, MD, as representative of such shareholders (Lender and such shareholders, collectively, “Seller Parties”). Capitalized terms used and not otherwise defined in this Note shall have the meanings ascribed to such term in the Purchase Agreement.

 

1.          Interest Rate. The unpaid principal balance of the Note shall bear simple interest starting on the date hereof at a fixed interest rate of 5% per annum. After the Maturity Date (defined below) or the date of an Event of Default (defined below), whichever occurs first, the principal balance hereof and any other amounts due hereunder shall bear interest at the rate of twelve percent (12%) per annum until paid in full. In no event shall the amount of interest due or payable under this Note exceed the maximum rate of interest allowed by applicable law, as amended from time to time. If any payment of interest or in the nature of interest would, under applicable Law, cause the foregoing interest rate limitation to be exceeded, then the excess payment shall be credited as a payment of principal, unless Borrower notifies Lender that Borrower desires to have the excess sum returned to Borrower.

 

2.          Maturity. If not sooner prepaid pursuant to the terms of this Note, and subject to earlier acceleration in accordance with Section 6 below, the unpaid principal balance and all accrued but unpaid interest under this Note shall be due and payable on the date that is 18 months after the date of this Note (the “Maturity Date”); provided that if Borrower in good faith delivers to Lender an indemnity notice pursuant to Section 6.11 of the Purchase Agreement prior to the Maturity Date, and the matters for which indemnification is sought are unresolved on the Maturity Date, the Maturity Date for an amount equal to the amount for which indemnification is sought shall be the date that is fifteen days after the date all such matters are finally and fully resolved (for the avoidance of doubt, the Maturity Date for any amount in excess of the amount for which indemnification is sought shall be unaffected by this proviso).

 

3.          Prepayment. The principal amount of this Note may be prepaid in full or in part at any time without penalty. Any such prepayment shall be first applied to accrued but unpaid interest, and the balance, if any, to principal.

 

4.          Security for Loan. This Note is secured by the unconditional and absolute guaranty of payment given by American CareSource Holdings, Inc. (“Guarantor”) to Lender pursuant to the Guaranty dated of even date herewith (the “Guaranty”).

 

 1 

 

 

5.          Event of Default. An “Event of Default” shall occur under this Note upon the happening of any one or more of the following events: (a) the failure of Borrower to pay all amounts when due on or before the applicable Maturity Date determined in accordance with Section 2; (b) the making by Borrower or Gurantor of a general assignment for the benefit of creditors; (c) the filing of a petition or the commencement of any proceeding by or against Borrower or any endorser or Guarantor for any relief under any bankruptcy or insolvency laws, or any law relating to the relief of debtors, readjustment of indebtedness, reorganization, consolidations or extensions; (d) Borrower’s or Guarantor’s dissolution, liquidation or bankruptcy; (e) the suspension of the transaction of the usual business of Borrower; (f) any sale, exchange or conveyance to another person or entity of all or substantially all of the assets of Borrower or Guarantor (excluding any assets used in connection with Guarantor’s operation of its ancillary network business, which Lender acknowledges that Guarantor intends to sell prior to the Maturity Date) or a sale or transfer of more than fifty percent (50%) of the ownership interest in Borrower or Guarantor, whether by sale, merger or consolidation; and (g) in the event of a breach or default of any representation, warranty or covenant of Borrower or Guarantor set forth in this Note or the Guaranty.

 

6.          Acceleration. Upon the happening of an Event of Default, the entire unpaid principal balance of this Note, together with any accrued interest or other amounts due hereunder, shall immediately become due and payable without notice or demand.

 

7.          Costs of Enforcement; Cumulative Remedies. Upon an Event of Default, the holder of this Note may employ an attorney to enforce the holder’s rights and remedies and Borrower hereby agrees to pay to the holder, in addition to the unpaid principal and interest hereof, to the extent allowed by law, reasonable attorneys’ fees (not exceeding a sum equal to fifteen percent (15%) of the outstanding balance owing on the Note) and costs of collection. The rights and remedies of the holder as provided in this Note or by law shall be cumulative and may be pursued singly, successively or together.

 

8.          Waiver of Notice and Other Rights. Borrower hereby waives presentment for payment, demand, protest, notice of nonpayment or dishonor, and any and all other notices and demands whatsoever, and any and all defenses on the grounds of (a) any extension of time for payment which may be granted by the holder of this Note, (b) any release, surrender, exchange, modification or substitution of this Note, and (c) any failure to assert any legal rights available to the holder of this Note. Borrower agrees to remain bound until the entire indebtedness evidenced by this Note is paid in full. No waiver by Lender of any right or remedy under this Note shall be effective unless in writing signed by Lender. Neither the failure nor the delay in enforcing any right, power or privilege under this Note will operate as a waiver or release of any such right, power or privilege and no single or cumulative exercise of any such right, power or privilege by Lender will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by law, (1) no claim or right of Lender arising out of this Note can be discharged by Lender, in whole or in part, by a waiver or renunciation of the claim or right unless in a writing signed by Lender; (2) no waiver that may be given to Borrower will be applicable except in the specific instance for which it is given; and (3) no notice to or demand on Borrower will be deemed to be a waiver of any obligation of Borrower or of the right of Lender to take further action without notice or demand as provided in this Note.

 

9.          Method of Payment. Payments made pursuant to this Note shall be made in cash or immediately available funds to Lender at the address provided above, or to such other address as Lender may designate to Borrower in writing from time to time.

 

10.        Offset by Borrower. Borrower may offset undisputed amounts owed to Borrower by any Seller Party under any of the Transaction Documents against any amount owed to Lender under this Note, whether or not such amounts are currently due under this Note; provided that Borrower first comply with all terms and satisfy all conditions set forth in the applicable Transaction Documents.

 

11.        Applicable Law and Dispute Resolution. The provisions set forth in Article 8 of the Purchase Agreement relating to choice of law and dispute resolution shall govern any dispute concerning this Note.

 

 2 

 

 

12.        Execution and Delivery. Notwithstanding anything to the contrary set forth herein, this Note shall be executed and delivered at the location designated for Closing in the Purchase Agreement.

 

13.        Headings. The headings of the sections, subsections, paragraphs and subparagraphs of this Note are used only for convenience of reference and shall not be considered in construing the contents of this Note.

 

14.        Severability. No determination by any court, agency or other Governmental Authority that any provision of this Note is invalid or unenforceable in any instance shall affect the validity or enforceability of (a) any other such provision or (b) such provision in any circumstance not controlled by such determination. Each such provision shall be valid and enforceable to the fullest extent allowed by, and shall be construed wherever possible as being consistent with, applicable law.

 

15.        Modification. This Note may be modified, amended, discharged or waived only by an agreement in writing signed by Borrower and Lender.

 

16.        Not a Negotiable Instrument; Assignment to Thor Management. This Note shall not be deemed to be a negotiable instrument, and the rights and obligations under this Note may not be assigned or delegated by Borrower or any Seller Party without the prior written consent of the other and no such assignment or delegation shall release the liability of the Borrower unless otherwise agreed by Lender in writing. Notwithstanding the foregoing, the Purchase Agreement contemplates Lender’s assignment of this Note to Thor Management, LLC, a North Carolina limited liability company (“Thor Management”)as part of the Transactions; accordingly, Borrower’s consent shall not be required in connection with such assignment and, following such assignment, Thor Management shall have all of the rights of Lender hereunder. This Note shall bind Borrower and Borrower’s successors and permitted assigns, and inure to the benefit of Lender and Lender’s successors and assigns.

 

17.        Notices. All notices and other communications provided for by this Note shall be given in the manner as set forth in the Purchase Agreement and to the parties at their addresses.

 

18.        Time of the Essence. Time is hereby declared to be of the essence of this Note and of every part hereof.

 

19.        Relationship. Nothing contained in this Note shall be deemed or construed to create a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by or between Borrower and any Seller Party.

 

[Signature Page Follows]

 

 3 

 

 

IN WITNESS WHEREOF, the undersigned has executed this Note in favor of Lender as of the date first written above.

 

  BORROWER:
   
  ACSH MEDICAL MANAGEMENT, LLC,
  a Delaware limited liability company
     
  By: /s/ Norman B. Winland

  Name: Norman B. Winland
  Title: President

 

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 EX-23.1 3 v426966_ex23-1.htm EXHIBIT 23.1

Exhibit 23.1

 

Consent of Independent Auditors

 

 

We hereby consent to the use in this Current Report on Form 8-K (No. 001-33094) of American CareSource Holdings, Inc. of our report dated July 16, 2015, with respect to our audits of the financial statements of Medac Health Services, P.A. for the years ended December 31, 2014 and 2013.

 

 

/s/ LWBJ, LLP

West Des Moines, Iowa

December 15, 2015

 EX-99.1 4 v426966_exh99x1.htm EXHIBIT 99.1

Exhibit 99.1

Report of Independent Auditors

To the Shareholders
Medac Health Services, P.A.
Wilmington, North Carolina

We have audited the accompanying financial statements of Medac Health Services, P.A., which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of income, retained earnings, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Medac Health Services, P.A., as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Report on Supplemental Information

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedules of other operating expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

/s/ LWBJ, LLP
West Des Moines, Iowa
July 16, 2015

1

 
 

MEDAC HEALTH SERVICES, P.A.
 
Balance Sheets
December 31, 2014 and 2013

   
  2014   2013
Assets
                  
Current assets:
                  
Cash and cash equivalents   $ 721,693     $ 324,341  
Patient accounts receivable, net (Note 2)     533,573       431,477  
Receivable from related party (Note 8)     44,796       —  
Prepaid insurance     4,383       19,746  
Other current assets     5,036       6,943  
Total current assets     1,309,481       782,507  
Investment in real estate (Note 7)     155,172       155,172  
Other assets, noncurrent     4,008       3,107  
       159,180       158,279  
Property and equipment:
                  
Leasehold improvements     1,763,388       1,753,453  
Furniture     217,230       213,812  
Computer equipment     138,974       87,609  
Medical equipment     233,204       189,862  
Office equipment     144,920       144,855  
Other equipment     121,885       32,339  
       2,619,601       2,421,930  
Less accumulated depreciation     1,648,713       1,428,072  
       970,888       993,858  
Total assets   $ 2,439,549     $ 1,934,644  
Liabilities and shareholders’ equity
                  
Current liabilities:
                  
Line of credit (Note 3)   $ —     $ 85,000  
Current portion of capital lease obligations (Note 4)     14,744       34,504  
Current maturities of long-term debt (Note 3)     138,848       61,648  
Accounts payable     291,503       106,280  
Accrued salaries, wages, and benefits     233,496       241,763  
Other accrued expenses     202,669       193,379  
Total current liabilities     881,260       722,574  
Capital lease obligations, net of current portion (Note 4)     54,912       —  
Long-term debt, less current maturities (Note 3)     731,530       870,378  
Total liabilities     1,667,702       1,592,952  
Contingency (Note 4)
                  
Shareholders’ equity:
                  
Common stock, $1 par value; 100,000 shares authorized; 1,200 shares issued and outstanding     1,200       1,200  
Additional paid-in capital     71,913       71,913  
Retained earnings     698,734       268,579  
Total shareholders’ equity     771,847       341,692  
Total liabilities and shareholders’ equity   $ 2,439,549     $ 1,934,644  

See accompanying notes.

2

 
 

MEDAC HEALTH SERVICES, P.A.
 
Statements of Income
For the years ended December 31, 2014 and 2013

   
  2014   2013
Patient service revenue, net (Note 2)   $ 6,575,495     $ 5,654,715  
Service agreement revenue     1,759,207       1,705,199  
Total operating revenues     8,334,702       7,359,914  
Operating expenses:
                  
Salaries and benefits     5,643,206       4,884,889  
Shareholder salaries     165,439       442,921  
Other operating expenses     1,960,789       1,712,275  
       7,769,434       7,040,085  
Total operating income     565,268       319,829  
Other income (expense):
                  
Interest income     3,914       3,607  
Interest expense     (20,991 )      (31,491 ) 
Loss from investment in real estate (Note 7)     (3,020 )      (1,770 ) 
Other expense     (3,537 )      (4,686 ) 
       (23,634 )      (34,340 ) 
Net income   $ 541,634     $ 285,489  

See accompanying notes.

3

 
 

MEDAC HEALTH SERVICES, P.A.
 
Statements of Retained Earnings
For the years ended December 31, 2014 and 2013

 
Balance, December 31, 2012   $ 209,605  
Distributions     (226,515 ) 
Net income     285,489  
Balance, December 31, 2013     268,579  
Distributions     (111,479 ) 
Net income     541,634  
Balance, December 31, 2014   $ 698,734  

See accompanying notes.

4

 
 

MEDAC HEALTH SERVICES, P.A.
 
Statements of Cash Flows
For the years ended December 31, 2014 and 2013

   
  2014   2013
Operating activities
                  
Net income   $ 541,634     $ 285,489  
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation     220,641       227,970  
Loss on investment in real estate     3,020       1,770  
Decrease (increase) in prepaid insurance     15,363       (1,466 ) 
Decrease (increase) in patient and other receivables     (146,892 )      122,927  
Decrease (increase) in other assets     1,006       (5,144 ) 
Increase (decrease) in accounts payable and accrued expenses     186,246       (162,264 ) 
Net cash provided by operating activities     821,018       469,282  
Investing activities
                  
Purchases of property and equipment     (119,924 )      (24,664 ) 
Capital contributed to investment in real estate     (3,020 )      (1,770 ) 
Net cash used in investing activities     (122,944 )      (26,434 ) 
Financing activities
                  
Proceeds from line of credit     —       65,000  
Principal payments on line of credit     (85,000 )      (115,000 ) 
Principal payments on long-term debt and capital leases obligations     (104,243 )      (110,849 ) 
Distributions paid to shareholders     (111,479 )      (226,515 ) 
Net cash used in financing activities     (300,722 )      (387,364 ) 
Net increase in cash and cash equivalents     397,352       55,484  
Cash and cash equivalents at beginning of year     324,341       268,857  
Cash and cash equivalents at end of year   $ 721,693     $ 324,341  
Supplemental disclosures
                  
Interest paid   $ 22,610     $ 31,618  
Non-cash investing and financing activity:
                  
Medical equipment acquired through capital lease obligations   $ 77,747     $ —  

See accompanying notes.

5

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

1. Summary of Significant Accounting Policies

Medac Health Services, P.A. (the “Company”) provides urgent healthcare services through four locations in North Carolina. The Company also provides occupational healthcare, workers’ compensation management services, and outsourced staffing services.

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America and the prevailing practices within the healthcare industry. The significant accounting policies used in preparing and presenting the financial statements are summarized below.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company considers its most significant estimates to be the collectability of accounts receivable, including the determination of the allowance for doubtful accounts and contractual adjustments. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all depository accounts at financial institutions to be cash and cash equivalents. At various times during the two years ending December 31, 2014, the Company maintained balances in excess of balances insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Patient Accounts Receivable, Net

Patient accounts receivable consist of amounts due from insurance companies and patients in the Wilmington, North Carolina area. The Company generally does not require collateral with the extension of credit; as such, the majority of its receivables are unsecured. Patient accounts receivable are recorded net of expected contractual adjustments and an allowance for doubtful accounts.

The Company maintains an allowance for doubtful accounts based on management’s assessment of collectability, current economic conditions, and prior experience. The Company determines if patient accounts receivable are past-due based on the service date; however, the Company does not charge interest on past-due accounts. The Company charges off patient accounts receivable if management considers the collection of the outstanding balances to be doubtful.

While management uses available information in estimating the Company’s allowances for contractual adjustments and doubtful accounts, changes in the reimbursable contract rates and the composition of the patient treatments could result in further changes in the carrying amounts of patient receivables. As such, it is reasonably possible that the estimated patient receivables may change materially in the near term. The amount of the change that is reasonably possible, however, cannot be estimated.

Property and Equipment

Property and equipment are stated at cost. Expenditures for property and equipment which substantially increase the useful lives or values of existing assets are capitalized and subsequently depreciated. Expenditures for repairs and maintenance are expensed as incurred.

Depreciation is provided primarily using the straight-line method over the estimated useful lives of the assets, which range from 3 to 15 years. The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, based on undiscounted cash flows. There were no impairment charges recorded for the years ended December 31, 2014 and 2013.

 

6

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

1. Summary of Significant Accounting Policies - (continued)

Patient Service Revenue, Net

The Company has agreements with various third-party payers that provide for payments to the Company at amounts different from its established rates. New patient revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers, at the time services are rendered. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered, and adjusted in future periods as final settlements are determined.

Service Agreement Revenue

The Company leases certain employees to a staffing service under an agreement in exchange for a fee. Administrative services are also provided to the staffing service under the agreement for a monthly fee. Revenue related to the agreement is recorded during the period when the services are completed.

Advertising

Advertising costs are charged to operations when incurred and totaled $166,237 and $95,391 for the years ended December 31, 2014 and 2013, respectively.

Professional Liability Insurance

The Company maintains insurance for protection from losses resulting from professional liability claims. The policy covers the first $1,000,000 per claim and $3,000,000 in the aggregate annually.

Income Taxes

The Company, with the consent of its shareholders, has elected to be taxed under sections of federal and state income tax law which provide that, in lieu of corporate income taxes, the shareholders separately account for their pro rata shares of items of the Company’s income, deductions, losses and credits. As a result of this election, no income taxes have been recognized in the accompanying financial statements.

As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740-10-50-15, Unrecognized Tax Benefit Related Disclosures, the Company assesses its tax positions to determine if any positions are uncertain. The Company has analyzed its filing positions open to review and believes all significant positions have a “more-likely-than-not” likelihood of being upheld based on technical merits. The Company is open to audit by various taxing authorities for the prior three years.

2. Patient Service Revenues, Net

The Company has agreements with governmental and other third-party payers that provide for payments to the Company at amounts different from its established rates. Contractual adjustments under third-party reimbursement programs represent the differences between the Company’s billings at established rates for services and amounts reimbursed by third-party payers. A summary of the basis of reimbursement with major third-party payers is as follows:

• Medicare — Services rendered to Medicare program beneficiaries are recorded at prospectively determined rates. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors.
• Commercial and health maintenance organization (“HMO”) — The Company has entered into agreements with certain commercial insurance carriers, HMOs, and preferred provider organizations. Billing methodologies under these agreements include discounts from established charges and prospectively determined rates.

 

7

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

2. Patient Service Revenues, Net - (continued)

Below is a summary of patient service revenues for the years ended December 31:

   
  2014   2013
Gross patient service revenue   $ 10,677,700     $ 9,582,173  
Provision for contractual adjustments     (4,102,205 )      (3,927,458 ) 
Patient service revenue, net   $ 6,575,495     $ 5,654,715  

A summary of patient accounts receivable as of December 31 is as follows:

   
  2014   2013
Patient accounts receivable   $ 889,288     $ 719,128  
Estimated allowance for contractual adjustments and doubtful accounts     (355,715 )      (287,651 ) 
Patient accounts receivable, net   $ 533,573     $ 431,477  

3. Debt

Line of Credit

The Company has a $200,000 revolving line of credit with a bank. Interest is payable monthly at the daily LIBOR rate plus 2.20% (2.38% and 2.36% at December 31, 2014 and 2013, respectively), adjusted daily, through June 2016. At December 31, 2014 and 2013, $0 and $85,000 was borrowed on the line, respectively. Borrowings under the line are secured by substantially all assets of the Company.

Long-Term Debt

Long-term debt consists of the following at December 31:

   
  2014   2013
Promissory note requiring monthly principal payments of $3,830 plus interest at the 1 month LIBOR plus 2.20% (2.35% at December 31, 2014), with balance due November 2016.(a)   $ 777,490     $ 823,450  
Promissory note requiring monthly payments of $1,544 including interest at 4.30%, with balance due August 2015.(b)(c)     92,888       108,576  
       870,378       932,026  
Less current maturities     138,848       61,648  
Long-term debt, excluding current maturities   $ 731,530     $ 870,378  

(a) This loan is secured by substantially all assets of the Company.
(b) This loan is secured by certain property as described in Note 7.
(c) The Company adopted FASB Accounting Standards Update (“ASU”) No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date, which prescribes the accounting for joint and several liability arrangements. This guidance requires an entity to measure its obligation resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. Based on the agreement with the partners in the unincorporated joint venture described in Note 7, the Company has recognized one-third of the promissory note in the financial statements, which represents the amounts the Company with the other borrowers agreed to pay, and the amounts the Company expects to pay.

 

8

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

3. Debt - (continued)

Aggregate maturities of long-term debt are as follows:

 
Year ending December 31,
  
2015   $ 138,848  
2016     731,530  
     $ 870,378  

4. Lease Commitments

Capital Lease Commitments

The Company leases certain medical equipment under capital lease arrangements. Cost of the equipment under the capital lease was $77,747 and $234,765 as of December 31, 2014 and 2013, respectively. Accumulated amortization related to the leased assets was $9,406 and $206,304 as of December 31, 2014 and 2013, respectively. Amortization expenses related to the leased assets are included within depreciation expense.

The following is a schedule of the future required payments under capital lease agreements:

 
Year ending December 31,
  
2015   $ 17,023  
2016     17,023  
2017     17,023  
2018     17,023  
2019     7,438  
Total     75,530  
Less amount representing interest     5,874  
Present value of minimum lease payments     69,656  
Less current portion     14,744  
Long-term capital lease obligation   $ 54,912  

Operating Leases

The Company leases office space for one of its locations from Seamist Management, LLC (“Seamist”), which is owned by the same shareholders of the Company, under an operating lease expiring in December 2015. Rent paid to Seamist was $152,864 and $148,412 for the years ended December 31, 2014 and 2013, respectively.

The Company is a co-borrower on two term loans that financed the building held by Seamist. The loans are secured by the building as well as substantially all assets of the Company and have a floating interest rate at the 1-month LIBOR plus 2.20% and mature in December 2016. At December 31, 2014 and 2013, the remaining principal balance was approximately $4,566,000 and $4,833,000, respectively.

In addition to the Company, Seamist leases portions of the building to unrelated parties. If the unrelated parties become delinquent on payments or do not renew their leases, Seamist could become delinquent on the loans, and the Company may be required to assume payment of the loans. As of December 31, 2014, the Company does not expect to be responsible for any future loan payments related to Seamist.

The Company has elected to apply FASB ASU No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, which provides an elective accounting alternative for private companies to forego the application of the variable interest entity (“VIE”) guidance to certain lessor legal entities under common control. As such, Seamist is not reflected in these financial statements as a VIE.

 

9

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

4. Lease Commitments - (continued)

In addition, the Company leases office space and various office equipment for its other two locations under noncancelable operating leases expiring through June 2025. Rental expense on these leases was $242,072 and $260,000 for the years ended December 31, 2014 and 2013, respectively.

Following is a schedule of the future minimum lease payments required under operating lease agreements:

     
Year ending December 31
   Related Party   Other   Total
2015   $ 157,449     $ 262,523     $ 419,972  
2016     —       265,973       265,973  
2017     —       272,498       272,498  
2018     —       275,571       275,571  
2019     —       106,640       106,640  
Thereafter     —       625,513       625,513  
     $ 157,449     $ 1,808,718     $ 1,966,167  

5. Retirement Plan

The Company maintains a 401(k) Profit Sharing Plan, under which eligible employees can defer up to the lesser of 90% of their compensation or the maximum amount allowed by law. Matching contributions are made at the discretion of the Company’s Board of Directors. The Company’s contributions are $76,242 and $46,045 for the years ended December 31, 2014 and 2013, respectively.

6. Concentrations of Credit Risk

The Company grants credit without collateral to its patients, which consist primarily of local residents which are insured under third-party payer agreements. Significant concentrations of gross patient receivables as of December 31 and gross patient revenues for the years ended December 31 are as follows:

       
  2014   2013
     Revenues   Receivables   Revenues   Receivables
Blue Cross/Blue Shield     17 %      25 %      14 %      21 % 
Medicare     5 %      16 %      6 %      11 % 
United Healthcare     3 %      11 %      6 %      12 % 

 

10

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
December 31, 2014

7. Investment in Real Estate

The Company has a one-third interest in an unincorporated joint venture. The Company accounts for its investment using the equity method. During the years ended December 31, 2014 and 2013, the Company contributed capital of $3,020 and $1,770 to the investee, respectively, and recognized $3,020 and $1,770 of investee loss, respectively. Condensed financial information for the joint venture as of and for the years ended December 31 is as follows:

   
  2014   2013
Assets:
                  
Land and improvements   $ 465,516     $ 465,516  
Liabilities and equity:
                  
Accrued expenses   $ 4,802     $ 4,802  
Equity     460,714       460,714  
Total liabilities and equity:   $ 465,516     $ 465,516  
Net loss   $ 9,060     $ 5,310  

Subsequent to year-end, the Company’s interest in the unincorporated joint venture was distributed to the shareholders of the Company.

8. Related Party Transactions

The Company has entered into an administrative and staffing agreement with ECEP II, P.A. (“ECEP”) for the purpose of leasing certain Company staff to area medical facilities. Certain shareholders of the Company are also shareholders of ECEP. The Company provides administrative support to ECEP in exchange for a monthly fee, as well as staffing in exchange for a fee dependent on the number of hours and staff levels provided. Revenues recognized from ECEP for the years ended December 31, 2014 and 2013 are $1,759,207 and $1,705,199, respectively. As of December 31, 2014, the Company has a receivable from ECEP of $44,796 related to the reimbursement of expenses.

Additionally, see Note 4 for description of relationship and transactions with Seamist.

9. Subsequent Events

The Company evaluated all subsequent events through July 16, 2015, the date the financial statements were available to be issued.

 

11

 
 

MEDAC HEALTH SERVICES, P.A.
 
Schedules of Other Operating Expenses
For the years ended December 31, 2014 and 2013

   
  2014   2013
Advertising   $ 166,237     $ 95,391  
Billing     150,877       140,258  
Building and equipment rent     396,576       381,155  
Depreciation     220,641       227,970  
Dues, licenses, and memberships     25,306       27,890  
General and administrative     319,618       240,569  
Insurance     30,275       31,358  
Laboratory fees     135,637       124,193  
Medical library     429       45  
Medical supplies     181,541       159,609  
Medical wastes     3,089       3,059  
Pharmaceuticals     155,363       114,362  
Professional fees     45,231       43,342  
Repairs and maintenance     54,036       38,634  
Utilities     68,463       71,960  
X-ray     7,470       12,480  
     $ 1,960,789     $ 1,712,275  

See accompanying notes.

12

EX-99.2 5 v426966_exh99x2.htm EXHIBIT 99.2

Exhibit 99.2

Independent Accountants' Compilation Report

To the Shareholders
Medac Health Services, P.A.
Wilmington, North Carolina

We have compiled the accompanying balance sheet of Medac Health Services, P.A. as of September 30, 2015, and the related statements of income and cash flows for the nine month period then ended. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

/s/ LWBJ, LLP
November 23, 2015
West Des Moines, Iowa

See accompanying notes.

1

 
 

MEDAC HEALTH SERVICES, P.A.
 
Balance Sheet
September 30, 2015

 
Assets
         
Current assets:
         
Cash and cash equivalents   $ 729,470  
Patient accounts receivable, net     616,727  
Receivable from related party     44,796  
Prepaid insurance     3,188  
Other current assets     1,800  
Total current assets     1,395,981  
Other assets, noncurrent     5,696  
       5,696  
Property and equipment:
         
Leasehold improvements     1,765,424  
Furniture     218,909  
Computer equipment     145,047  
Medical equipment     238,748  
Office equipment     145,326  
Other equipment     184,202  
       2,697,656  
Less accumulated depreciation     1,805,796  
       891,860  
Total assets   $ 2,293,537  
Liabilities and shareholders' equity
         
Current liabilities:
         
Current portion of capital lease obligations   $ 20,368  
Current maturities of long-term debt     45,960  
Accounts payable     412,723  
Accrued salaries, wages, and benefits     254,853  
Other accrued expenses     155,236  
Total current liabilities     889,140  
Capital lease obligations, net of current portion     64,839  
Long-term debt, less current maturities     693,230  
Total liabilities     1,647,209  
Shareholders' equity:
         
Common stock, $1 par value; 100,000 shares authorized; 1,200 shares issued and outstanding     1,200  
Additional paid-in capital     71,913  
Retained earnings     573,215  
Total shareholders' equity     646,328  
Total liabilities and shareholders' equity   $ 2,293,537  

See accompanying notes.

2

 
 

MEDAC HEALTH SERVICES, P.A.
 
Statement of Income
For the nine months ended September 30, 2015

 
Patient service revenue, net   $ 6,108,810  
Service agreement revenue     1,391,356  
Total operating revenues     7,500,166  
Operating expenses:
         
Salaries and benefits     5,033,080  
Facilities     397,362  
Medical supplies     342,113  
Other operating expenses     1,087,919  
Depreciation and amortization     157,083  
       7,017,557  
Total operating income     482,609  
Other income (expense):
         
Interest income     1,374  
Rental income     37,410  
Interest expense     (15,860 ) 
Other expense     (7,307 ) 
       15,617  
Net income   $ 498,226  

See accompanying notes.

3

 
 

MEDAC HEALTH SERVICES, P.A.
 
Statement of Cash Flows
For the nine months ended September 30, 2015

 
Operating activities
         
Net income   $ 498,226  
Adjustments to reconcile net income to net cash provided by operating activities:
         
Depreciation     157,083  
Increase in patient and other receivables     (83,155 ) 
Decrease in other assets     2,743  
Decrease in accounts payable and accrued expenses     95,145  
Net cash provided by operating activities     670,042  
Investing activities
         
Purchases of property and equipment     (78,055 ) 
Net cash used in investing activities     (78,055 ) 
Financing activities
         
Principal payments on long-term debt and capital leases obligations     (26,396 ) 
Distributions paid to shareholders     (557,814 ) 
Net cash used in financing activities     (584,210 ) 
Net increase in cash and cash equivalents     7,777  
Cash and cash equivalents at beginning of year     721,693  
Cash and cash equivalents at end of period   $ 729,470  
Supplemental disclosures
         
Interest paid   $ 15,860  
Non-cash investing and financing activity:
         
Disbribution of real estate held as investment, net of related debt   $ 65,931  

See accompanying notes.

4

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
September 30, 2015

1. Summary of Significant Accounting Policies

Medac Health Services, P.A. (the “Company”) provides urgent healthcare services through four locations in North Carolina. The Company also provides occupational healthcare, workers' compensation management services, and outsourced staffing services.

The accounting and reporting policies conform to accounting principles generally accepted in the United States of America and the prevailing practices within the healthcare industry. The significant accounting policies used in preparing and presenting the financial statements are summarized below.

On July 31, 2015, the Company entered into an asset purchase agreement with ACSH Medical Management, LLC (“ACSH”) to sell significantly all of the assets of the Company to ACSH for $5,600,000. Consummation of the transaction is subject to ACSH receiving financing. The transaction is expected to close in the fourth quarter of 2015.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company considers its most significant estimates to be the collectability of accounts receivable, including the determination of the allowance for doubtful accounts and contractual adjustments. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all depository accounts at financial institutions to be cash and cash equivalents. At various times during the nine months ended September 30, 2015, the Company maintained balances in excess of balances insured by the Federal Deposit Insurance Corporation. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Patient Accounts Receivable, Net

Patient accounts receivable consist of amounts due from insurance companies and patients in the Wilmington, North Carolina area. The Company generally does not require collateral with the extension of credit; as such, the majority of its receivables are unsecured. Patient accounts receivable are recorded net of expected contractual adjustments and an allowance for doubtful accounts.

The Company maintains an allowance for doubtful accounts based on management's assessment of collectability, current economic conditions, and prior experience. The Company determines if patient accounts receivable are past-due based on the service date; however, the Company does not charge interest on past-due accounts. The Company charges off patient accounts receivable if management considers the collection of the outstanding balances to be doubtful.

While management uses available information in estimating the Company's allowances for contractual adjustments and doubtful accounts, changes in the reimbursable contract rates and the composition of the patient treatments could result in further changes in the carrying amounts of patient receivables. As such, it is reasonably possible that the estimated patient receivables may change materially in the near term. The amount of the change that is reasonably possible, however, cannot be estimated.

Property and Equipment

Property and equipment are stated at cost. Expenditures for property and equipment which substantially increase the useful lives or values of existing assets are capitalized and subsequently depreciated. Expenditures for repairs and maintenance are expensed as incurred.

See accompanying notes.

5

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
September 30, 2015

1. Summary of Significant Accounting Policies - (continued)

Depreciation is provided primarily using the straight-line method over the estimated useful lives of the assets, which range from 3 to 15 years. The Company reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, based on undiscounted cash flows. There were no impairment charges recorded during the nine months ended September 30, 2015.

Patient Service Revenue, Net

The Company has agreements with various third-party payers that provide for payments to the Company at amounts different from its established rates. New patient revenue is reported at the estimated net realizable amounts from patients, third-party payers and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payers, at the time services are rendered. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered, and adjusted in future periods as final settlements are determined.

Service Agreement Revenue

The Company leases certain employees to a staffing service under an agreement in exchange for a fee.

Administrative services are also provided to the staffing service under the agreement for a monthly fee. Revenue related to the agreement is recorded during the period when the services are completed.

Advertising

Advertising costs are charged to operations when incurred and totaled $145,980 for the nine months ended September 30, 2015.

Professional Liability Insurance

The Company maintains insurance for protection from losses resulting from professional liability claims. The policy covers the first $1,000,000 per claim and $3,000,000 in the aggregate annually.

Income Taxes

The Company, with the consent of its shareholders, has elected to be taxed under sections of federal and state income tax law which provide that, in lieu of corporate income taxes, the shareholders separately account for their pro rata shares of items of the Company's income, deductions, losses and credits. As a result of this election, no income taxes have been recognized in the accompanying financial statements.

As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740-10-50-15, Unrecognized Tax Benefit Related Disclosures, the Company assesses its tax positions to determine if any positions are uncertain. The Company has analyzed its filing positions open to review and believes all significant positions have a “more-likely-than-not” likelihood of being upheld based on technical merits.

2. Patient Service Revenues, Net

The Company has agreements with governmental and other third-party payers that provide for payments to the Company at amounts different from its established rates. Contractual adjustments under third-party reimbursement programs represent the differences between the Company's billings at established rates for services and amounts reimbursed by third-party payers. A summary of the basis of reimbursement with major third-party payers is as follows:

• Medicare — Services rendered to Medicare program beneficiaries are recorded at prospectively determined rates. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors.

See accompanying notes.

6

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
September 30, 2015

2. Patient Service Revenues, Net - (continued)

• Commercial and health maintenance organization (“HMO”) — The Company has entered into agreements with certain commercial insurance carriers, HMOs, and preferred provider organizations. Billing methodologies under these agreements include discounts from established charges and prospectively determined rates.

Below is a summary of patient service revenues for the nine months ended September 30, 2015:

 
Gross patient service revenue   $ 10,014,443  
Provision for contractual adjustments     (3,905,633 ) 
Patient service revenue, net   $ 6,108,810  

A summary of patient accounts receivable as of September 30, 2015 is as follows:

 
Patient accounts receivable   $ 1,011,028  
Estimated allowance for contractual adjustments and doubtful accounts     (394,301 ) 
Patient accounts receivable, net   $ 616,727  

3. Debt

Line of Credit

The Company has a $200,000 revolving line of credit with a bank. Interest is payable monthly at the daily LIBOR rate plus 2.20%, adjusted daily, through June 2016. There was no outstanding balance on the line at September 30, 2015. Borrowings under the line are secured by substantially all assets of the Company.

Long-Term Debt

Long-term debt consists of the following at September 30, 2015:

 
Promissory note requiring monthly principal payments of $3,830 plus interest at the 1 month LIBOR plus 2.20%, with balance due November 2016.(a)   $ 739,190  
Less current maturities     45,960  
Long-term debt, excluding current maturities   $ 693,230  

(a) This loan is secured by substantially all assets of the Company.

Aggregate maturities of long-term debt are as follows:

 
Year ending September 30,  
2016   $ 45,960  
2017     693,230  
     $ 739,190  

4. Lease Commitments

Capital Lease Commitments

The Company leases certain medical equipment under capital lease arrangements. Cost of the equipment under the capital lease was $105,582 as of September 30, 2015. Accumulated amortization related to the leased assets was $23,652 as of September 30, 2015. Amortization expenses related to the leased assets are included within depreciation expense.

See accompanying notes.

7

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
September 30, 2015

4. Lease Commitments - (continued)

The following is a schedule of the future required payments under capital lease agreements:

 
Year ending September 30,  
2016   $ 23,118  
2017     23,118  
2018     23,118  
2019     17,788  
2020     5,079  
Total     92,221  
Less amount representing interest     7,014  
Present value of minimum lease payments     85,207  
Less current portion     20,368  
Long-term capital lease obligation   $ 64,839  

Operating Leases

The Company leases office space for one of its locations from Seamist Management, LLC (“Seamist”), which is owned by the same shareholders of the Company, under an operating lease expiring in December 2015. Rent paid to Seamist was $109,815 for the nine months ended September 30, 2015.

The Company is a co-borrower on two term loans that financed the building held by Seamist. The loans are secured by the building as well as substantially all assets of the Company and have a floating interest rate at the 1-month LIBOR plus 2.20% and mature in December 2016. At September 30, 2015, the remaining principal balance was approximately $4,365,000.

In addition to the Company, Seamist leases portions of the building to unrelated parties. If the unrelated parties become delinquent on payments or do not renew their leases, Seamist could become delinquent on the loans, and the Company may be required to assume payment of the loans. As of September 30, 2015, the Company does not expect to be responsible for any future loan payments related to Seamist.

The Company has elected to apply FASB ASU No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements, which provides an elective accounting alternative for private companies to forego the application of the variable interest entity (“VIE”) guidance to certain lessor legal entities under common control. As such, Seamist is not reflected in these financial statements as a VIE.

In addition, the Company leases office space and various office equipment for its other two locations under noncancelable operating leases expiring through June 2025. Rental expense on these leases was $230,426 and for the nine months ended September 30, 2015.

Following is a schedule of the future minimum lease payments required under operating lease agreements:

     
Year ended September 30:
   Related Party   Other   Total
2016   $ 39,362     $ 386,509     $ 463,621  
2017     —       393,075       393,075  
2018     —       398,978       398,978  
2019     —       268,924       268,924  
2020     —       230,385       230,385  
Thereafter     —       1,124,415       1,124,415  
     $ 39,362     $ 2,802,286     $ 2,841,648  

See accompanying notes.

8

 
 

MEDAC HEALTH SERVICES, P.A.
 
Notes to Financial Statements
September 30, 2015

5. Retirement Plan

The Company maintains a 401(k) Profit Sharing Plan, under which eligible employees can defer up to the lesser of 90% of their compensation or the maximum amount allowed by law. Matching contributions are made at the discretion of the Company's board of directors. The Company's contributions are $62,105 for the nine months ended September 30, 2015.

6. Concentrations of Credit Risk

The Company grants credit without collateral to its patients, which consist primarily of local residents which are insured under third-party payer agreements. Significant concentrations of gross patient receivables as of September 30, 2015 and gross patient revenues for the nine months ended September 30, 2015 are as follows:

   
  Revenues   Receivables
Blue Cross/Blue Shield     18 %      23 % 

7. Investment in Real Estate

In March 2015, the Company's interest in the unincorporated joint venture was distributed to Seamist, along with the related debt.

FASB ASC Topic 805-50, Business Combinations, requires that transfers of assets and liabilities between entities under common control be recorded at the carrying amount of the distributing entity, thus, the Company recorded no gain or loss on the transfer.

8. Related Party Transactions

The Company has entered into an administrative and staffing agreement with ECEP II, P.A. (“ECEP”) for the purpose of leasing certain Company staff to area medical facilities. Certain shareholders of the Company are also shareholders of ECEP. The Company provides administrative support to ECEP in exchange for a monthly fee, as well as staffing in exchange for a fee dependent on the number of hours and staff levels provided. Revenues recognized from ECEP for the nine months ended September 30, 2015 are $1,391,356. As of September 30, 2015, the Company has a receivable from ECEP of $44,796 related to the reimbursement of expenses.

Additionally, see Note 4 for description of relationship and transactions with Seamist.

9. Subsequent Events

The Company evaluated all subsequent events through November 23, 2015, the date the financial statements were available to be issued.

See accompanying notes.

9

EX-99.3 6 v426966_exh99x3.htm EXHIBIT 99.3

Exhibit 99.3

AMERICAN CARESOURCE HOLDINGS, INC.
  
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION

On July 31, 2015, ACSH Medical Management LLC, or ACSH Management, a wholly-owned subsidiary of American CareSource Holdings, Inc. (the “Company”) entered into an Asset Purchase Agreement with Medac Health Services, P.A., or Medac, and its shareholders to purchase certain assets used in the operation of its four urgent care centers located in the greater Wilmington, North Carolina area (as described in the Asset Purchase Agreement, which was filed on August 6, 2015 in a Current Report on Form 8-K with the Securities and Exchange Commission).

On May 8, 2014, ACSH Urgent Care of Georgia, LLC., a wholly owned subsidiary of the Company, completed the purchase of substantially all the assets of two urgent care centers, from CorrectMed Locust Grove, LLC, CorrectMed Scott, LLC, CorrectMed, LLC and other seller parties (collectively, “CorrectMed”).

The unaudited pro forma condensed balance sheet as of September 30, 2015 combines the historical consolidated balance sheet of the Company and the historical combined balance sheet of Medac to illustrate the estimated effect of the acquisition on the Company's financial statements as if it had occurred on September 30, 2015. Since the acquisition of CorrectMed occurred prior to September 30, 2015, the financial position of CorrectMed is included within the historical balance sheet of the Company.

The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2015 combines the historical consolidated statements of operations of the Company with the historical statement of operations of Medac as if the acquisition of Medac had occurred on January 1, 2014. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2014 combines the consolidated statement of operations of the Company (including CorrectMed since the acquisition date) with the historical statement of operations of Medac for the year ended December 31, 2014 and the historical statement of operations for CorrectMed from January 1, 2014 to May 8, 2014 (acquisition date), as if the acquisitions of Medac and CorrectMed had occurred on January 1, 2014. The unaudited pro forma condensed consolidated financial statements are based on certain estimates and assumptions made with respect to the combined operations of the Company, Medac, and CorrectMed, which we believe are reasonable. The unaudited pro forma condensed consolidated statements of operations are presented for illustrative purposes only and do not purport to be indicative of the results of operations of the Company, Medac or CorrectMed that actually would have been achieved had the acquisitions of Medac or CorrectMed been completed on the assumed dates, or to project the Company's results of operations for any future date or period.

The Medac and CorrectMed transactions are being accounted for using the acquisition method of accounting for business combinations in accordance with generally accepted accounting principles in the United States. Under this method, the total consideration transferred to consummate the acquisitions are being allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values as of the closing dates of the acquisitions. The acquisition method of accounting requires extensive use of estimates and judgements to allocate the consideration transferred to the identifiable tangible and intangible assets acquired and liabilities assumed. Accordingly, the allocation of the consideration transferred in the unaudited pro forma condensed consolidated financial statements is preliminary and will be adjusted upon completion of the final valuation of the assets acquired and liabilities assumed. Such adjustments could be significant. The final valuation is expected to be completed as soon as practicable and when all information to complete the acquisition is obtained but no later than 12 months after the closing date of the acquisition. The unaudited condensed consolidated pro forma statements of operations do not include costs that the Company may incur to integrate Medac with the Company’s current operations, and these costs may be material.

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated financial statements to give effect to pro forma events that are (i) directly attributable to the acquisitions, (ii) factually supportable, and (iii) expected to continually impact the combined results of the

1

 
 

Company, Medac, and CorrectMed. The pro forma financial statements are limited to the aforementioned criteria and only provide information as the effect of the particular transactions, and do not include secondary or indirect effects. Thus adjustments related to cost efficiencies, economies of scale and those made to evaluate the transactions are not included as they are not directly attributable to the transactions. In addition, the unaudited pro forma condensed consolidated financial statements were derived from, and should be read in conjunction with, the information for the nine months ended September 30, 2015 included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2015 and the annual report on the Form 10-K for the year ended December 31, 2014.

The historical condensed financial information regarding Medac and CorrectMed that is included in this report has been prepared by, and is the responsibility of the Company. In addition, we are in the process of reviewing Medac's financial statement classification for conformity with the Company's classifications. As a result of this review, it may be necessary to make, among other changes, additional reclassifications to the consolidated information on a prospective basis.

The statements contained in these notes that are not historical facts are forward-looking statements that involve risks and uncertainties. We wish to caution the reader that these forward-looking statements, such as our expectations for future sales results or future expense changes compared with previous periods, are only predictions. These forward-looking statements may be generally identified by the use of forward-looking words and phrases such as “will,” “intends,” “may,” “believes,” “anticipates,” “should,” and “expects,” and are based on our current expectations or beliefs concerning future events that involve risks and uncertainties. Actual events or results may differ materially as a result of risk and uncertainties as described in “Item 1A. Risk Factors” in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 and annual report on Form 10-K for the year ended December 31, 2014, other risks referenced in our Securities and Exchange Commission filings, or other unanticipated risks. We disclaim any obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

2

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2014
(Audited)
(amounts in thousands, except per share data)

         
  Historical
Company		   Historical
CorrectMed(1)		   Historical
Medac		   Pro Forma
As Adjusted
Adjustments		   Pro Forma
As Adjusted
Net revenues:
                                             
Ancillary network   $ 23,146     $ —     $ —     $ —     $ 23,146  
Urgent and primary care     3,906       1,124       6,576       —       11,606  
Service agreement revenue     —       —       1,759       —       1,759  
Total net revenues     27,052       1,124       8,335       —       36,511  
Operating expenses:
                                             
Ancillary network provider payments     16,241       —       —       —       16,241  
Ancillary network administrative fees     1,127       —       —       —       1,127  
Ancillary network operating costs under Management Services Agreement     903       —       —       —       903  
Salaries, wages, benefits and taxes     8,157       —       5,809       —       13,966  
Other operating expenses     5,910       1,191       1,739       (140 )(7)      8,700  
Management fees     —       145       —       (145 )(2)      —  
Depreciation and amortization     866       85       221       40 (3)      1,212  
Total operating expenses     33,204       1,421       7,769       (245 )      42,149  
Operating (loss)     (6,152 )      (297 )      566       245       (5,638 ) 
Other (income) expense:
                                             
Interest (income) expense, net     115       29       17       7 (4)      168  
Loss on warrant liability, net of deferred loan fees amortization     534       —       —       —       534  
Loss from investment in real estate     —       —       3       (3 )(5)      —  
(Gain)/loss on disposal of fixed assets     (108 )      —       —       —       (108 ) 
Other expense     —       —       4       —       4  
Total other (income) expense     541       29       24       4       598  
Income/(loss) before income taxes (benefit)     (6,693 )      (326 )      542       241       (6,236 ) 
Income tax expense (benefit)     70       —       —       —       70  
Net income (loss)   $ (6,763 )    $ (326 )    $ 542     $ 241     $ (6,306 ) 
Basic and diluted net loss per common share   $ (1.05 )                      $ (0.37 )(6) 
Basic and diluted weighted-average common shares outstanding     6,407                         16,050 (6) 

Pro forma Adjustments and Assumptions

(1) To record 2014 results from operations for CorrectMed prior to the Company’s acquisition on May 8, 2014, for period January 1, 2014 through May 8, 2014.
(2) To eliminate $145,000 of management fees paid by CorrectMed to an affiliate, which payments were discontinued after acquisition.
(3) To record estimated amortization expense of intangibles valued at acquisition date and expected to be amortized over 5 years.

3

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)
FOR YEAR ENDED DECEMBER 31, 2014
(Audited)
(amounts in thousands, except per share data)

(4) To eliminate $21,000 of interest expense related to debt expected to be satisfied by Medac or assumed by an affiliate of Medac at the closing of the transaction and to record $28,000 for 12 months of interest expense related to the $560,000 promissory note included as part of the aggregate consideration. Interest is payable at 5% annually and due 18 months after closing date.
(5) To eliminate loss from investment in real estate recognized in connection with a shareholder distribution made prior to closing.
(6) Pro forma as adjusted after giving effect to the issuance and sale of 9,642,857 Class A Units and 750 Class B Units in the offering consummated December 9, 2015. Does not include the shares of common stock that may be issued under the warrants to be issued in such offering. The net loss per share is calculated on a two class participating securities method with losses allocated to the participating preferred stock. The basic net loss per share for the preferred stock was $(526.31) per share.
(7) To eliminate $140,000 of transaction costs related to the CorrectMed acquisition that were incurred by the Company.

4

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2015
(Unaudited)
(amounts in thousands, except per share data)

       
  Historical
Company		   Historical
Medac		   Pro Forma
As Adjusted
Adjustments		   Pro Forma
As Adjusted
Net revenues:
                                    
Ancillary network   $ 15,640     $ —       —     $ 15,640  
Urgent and primary care     7,251       6,109       —       13,360  
Service agreement revenue     —       1,391       —       1,391  
Total net revenues     22,891       7,500       —       30,391  
Operating expenses:
                                    
Ancillary network provider payments     11,598       —       —       11,598  
Ancillary network administrative fees     799       —       —       799  
Ancillary network other operating costs     2,985       —       —       2,985  
Ancillary network perpaid write-off     487       —       —       487  
Salaries, wages, contract medical professional fees and related expenses     8,331       5,033       —       13,364  
Facility expenses     1,048       397                1,445  
Medical supplies     623       342                965  
Other operating expenses     5,344       1,088       (59 )(4)      6,373  
Intangible asset impairment     520       —       —       520  
Depreciation and amortization     857       157       30 (1)      1,044  
Total operating expenses     32,592       7,017       (29 )      39,580  
Operating (loss)     (9,701 )      483       29       (9,189 ) 
Other (income) expense:
                                    
(Gain) on cancellation of acquisition promissory note     (289 )      —       —       (289 ) 
Rental income     —       (37 )      —       (37 ) 
Interest expense:
                                    
Interest (income) expense, net     277       15       5 (2)      297  
(Gain)/loss on warrant liability, net of deferred loan fees amortization     (489 )      —       —       (489 ) 
Other expense     —       7       —       7  
Total other (income) expense and interest expense     (501 )      (15 )      5       (511 ) 
Loss before income taxes     (9,200 )      498       24       (8,678 ) 
Income tax expense     10       —       —       10  
Net income (loss)   $ (9,210 )    $ 498     $ 24     $ (8,688 ) 
Basic net loss per common share   $ (1.35 )                $ (0.49 ) 
Diluted net loss per common share   $ (1.60 )                $ (0.60 ) 
Basic weighted-average common shares outstanding     6,847                   16,490 (3) 
Diluted weighted-average common shares outstanding     6,913                   16,556 (3) 

Pro forma Adjustments and Assumptions

(1) To record estimated amortization expense of intangibles valued at acquisition date and expected to be amortized over 5 years.

5

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)
FOR NINE MONTHS ENDED SEPTEMBER 30, 2015
(Unaudited)
(amounts in thousands, except per share data)

(2) To eliminate $16,000 of interest expense related to debt expected to be satisfied by Medac or assumed by an affiliate of Medac at the closing of the transaction and to record $21,000 for 9 months of interest expense related to the $560,000 promissory note included as part of the aggregate consideration. Interest is payable at 5% annually and due 18 months after closing date.
(3) Pro forma as adjusted after giving effect to the issuance and sale of 9,642,857 Class A Units and 750 Class B Units in the offering consummated December 9, 2015. Does not include the shares of common stock that may be issued under the warrants to be issued in such offering. The net loss per share is calculated on a two class participating securities method with losses allocated to the participating preferred stock. The basic and diluted net loss per share for the preferred stock was $(706.95) and $(856.46), respectively. The preferred stock was anti-dilutive for the diluted net loss per share calculation.
(4) To elimate $59,000 of transaction costs related to the Medac acquisition that were incurred by the Company.

6

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2015
(Unaudited)
(amounts in thousands, except per share data)

         
  Historical
Company		   Pro Forma(1)   Historical
Medac		   Pro Forma
As Adjusted
Adjustments		   Pro Forma
As Adjusted
ASSETS
                                             
Current assets:
                                             
Cash and cash equivalents   $ 197     $ 6,727     $ 729     $ (5,769 )(2)    $ 1,687  
Accounts receivable     2,969       2,969       662       —       3,631  
Prepaid expenses and other current assets     775       775       5       —       780  
Deferred income taxes     6       6       —       —       6  
Total current assets     3,947       10,477       1,396       (5,769 )      6,104  
Property and equipment, net     3,921       3,921       892       —       4,813  
Other assets:
                                             
Deferred income taxes     12       12       —       —       12  
Deferred loan fees, net     1,625       1,625       —       —       1,625  
Deferred offering costs     310       —       —       —       —  
Other non-current assets     104       104       5       —       109  
Intangible assets, net     705       705       —       202 (3)      907  
Goodwill     6,113       6,113       —       3,834 (4)      9,947  
Total other assets     8,869       8,559       5       4,036       12,600  
Total assets   $ 16,737     $ 22,957     $ 2,293     $ (1,733 )    $ 23,517  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                             
Current liabilities:
                                             
Lines of credit   $ 5,000     $ 5,000     $ —     $ —     $ 5,000  
Due to ancillary network service providers     2,900       2,900       —       —       2,900  
Due to HealthSmart, ancillary network     672       672       —       —       672  
Accounts payable     944       944       413       (413 )(5)      944  
Accrued liabilities     2,062       2,062       410       (235 )(5)(7)      2,237  
Current portion of long-term debt     351       351       46       (46 )(5)      351  
Capital lease obligations, current portion     130       130       20       (20 )(5)      130  
Total current liabilities     12,059       12,059       889       (714 )      12,234  
Long-term liabilities:
                                             
Line of credit     5,800       5,800       —       —       5,800  
Promissory notes and notes payable     —       —       693       (133 )(6)      560  
Capital lease obligations     1,666       1,666       65       (65 )(5)      1,666  
Warrant derivative liability     1,670       31       —       —       31  
Other long-term liabilities     356       356       —       —       356  
Total long-term liabilities     9,492       7,853       758       (198 )      8,413  
Total liabilities     21,551       19,912       1,647       (912 )      20,647  
Commitments and contingencies     —       —       —       —       —  

7

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
SEPTEMBER 30, 2015
(Unaudited)
(amounts in thousands, except per share data)

         
  Historical
Company		   Pro Forma(1)   Historical
Medac		   Pro Forma
As Adjusted
Adjustments		   Pro Forma
As Adjusted
Stockholders' equity (deficit):
                                             
Preferred stock, $1,000 stated value; 10,000 shares authorized, none issued, actual; 10,000 shares authorized, 750 issued and outstanding, as adjusted and pro forma as adjusted     —       750       —       —       750  
Common stock, $0.01 par value; 40,000 shares authorized; 6,952 issued and outstanding, historical and 16,595 outstanding on a pro forma basis respectively     69       165       1       (1 )(5)      165  
Additional paid-in capital     26,188       33,201       72       (72 )(5)      33,201  
Retained earnings (accumulated deficit)     (31,071 )      (31,071 )      573       (748 )(5)(7)      (31,246 ) 
Total stockholders' equity (deficit)     (4,814 )      3,045       646       (821 )      2,870  
Total liabilities and stockholders' equity (deficit)   $ 16,737     $ 22,957     $ 2,293     $ (1,733 )    $ 23,517  

Pro forma Adjustments and Assumptions

(1) The pro forma balance sheet data gives effect to (i) our issuance and sale of 9,642,857 Class A Units and 750 Class B Units in the offering consummated December 9, 2015 at the public offering price of $.70 per Class A Unit and $1,000 per Class B Unit and (ii) increase in stockholders' equity due to the receipt from certain holders of the Company's warrants issued on July 30, 2014, December 4, 2014 and August 12, 2015 (holders of at least $1,639,000 in warrant derivative liability value as valued on September 30, 2015) of waivers to any further exercise price anti-dilution protection, and corresponding decrease in the warrant derivative liability. Does not include the shares of common stock that may be issued under the warrants to be issued in such offering. After deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us of $1,280,000, the offering provides us estimated net proceeds of $6,220,000. Offering expenses of $310,000 had been incurred and capitalized as of September 30, 2015, thus these deferred offering costs have been reclassified against additional paid-in capital and shown as an increase in net proceeds of $310,000 to $6,530,000, in the pro forma condensed consolidated balance sheet as of September 30, 2015. This does not include the underwriters option to purchase additional securities.
(2) Represents a decrease of $5,140,000 for the cash portion of the purchase price payable to Medac at closing and a reduction from $729,000 to $100,000, for the net cash required to be on hand at closing. The preliminary Medac purchase price allocation is as follows:

 
Cash   $ 100,000  
A/R     662,000  
Prepaids & Other Current Assets     5,000  
Other Non-Current Assets     5,000  
Fixed Assets     892,000  
Intangible Assets     202,000  
Goodwill     3,834,000  
Total   $ 5,700,000  

8

 
 

AMERICAN CARESOURCE HOLDINGS, INC.
 
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS – (continued)
SEPTEMBER 30, 2015
(Unaudited)
(amounts in thousands, except per share data)

(3) Represents estimated portion of the Medac purchase price allocable to amortizable intangibles, which are expected to be amortized over 5 years. The amount, and related amortizable intangles, are subject to change based on the results of the final valuation of assets acquired and liabilities assumed, which is expected to be completed within the 12 months following the closing of the acquisition.
(4) Represents the excess of the Medac purchase price over the fair value of the assets acquired and liabilities assumed (goodwill). This amount, and related amortizable intangibles, are subject to change based on the results of the final valuation of assets acquired and liabilites assumed, which is expected to be completed within the 12 months following the acquisition.
(5) To eliminate liabilites to be satisfied by Medac or assumed by an affiliate of Medac at closing and eliminate equity.
(6) To eliminate $693,000 note to be satisfied by Medac or assumed by an affiliate of Medac at closing and record $560,000 promissory note to be paid by the Company to Medac as part of the purchase price at closing, which note is due 18 months after closing date.
(7) To accrue $175,000 in estimated transaction cost to be incurred to complete the Medac acquisition.

9

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