UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
10-Q
(Mark
One)
x
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|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended:
March
31, 2008
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from ____________ to ____________
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Commission
file number:
001-33094
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American
CareSource Holdings, Inc.
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(Exact
name of small business issuer as specified in its charter)
Delaware
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20-0428568
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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5429 Lyndon B. Johnson Freeway,
Suite 700, Dallas, Texas 75240
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(Address
of principal executive offices)
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(972)
308-6830
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(Issuer’s
telephone number, including area code)
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|
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(Former
name, former address, and former fiscal year, if changed since last
report)
|
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 (the
“Exchange Act”) 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 last 90 days. Yes
x
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.
q
Large Accelerated
Filer
|
q
Accelerated
Filer
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q
Non-Accelerated
Filer (do not check if a smaller reporting
company)
|
x
Smaller Reporting
Company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: As of May 12, 2008, 15,067,423 shares
of the Company’s common stock, par value $0.01 per share, were
outstanding.
TABLE
OF CONTENTS
AMERICAN
CARESOURCE HOLDINGS, INC.
FORM
10-Q
FOR
THE QUARTER ENDED MARCH 31, 2008
Part
I
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Financial
Information
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1
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Item
1.
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Financial
Statements
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1
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Consolidated
Balance Sheets
(unaudited)
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1
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Consolidated
Statements of Operations (unaudited)
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2
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Consolidated
Statements of Stockholders’ Equity (unaudited)
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3
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Consolidated
Statements of Cash Flows (unaudited)
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4
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Notes
to Unaudited Consolidated Financial Statements
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5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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9
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Item
4.
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Controls
and
Procedures
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13
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Part
II
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Other
Information
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13
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Item
1A.
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Risk
Factors
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13
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Item
6.
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Exhibits
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14
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Signatures
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15
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PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
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|
As
of
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Assets
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March 31,
2008
(unaudited)
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December 31,
2007
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Current
assets:
|
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Cash
and cash equivalents
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$
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5,857,094
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$
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4,272,498
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Accounts
receivable (less allowance for losses of $358,158 in 2008 and
$189,556 in 2007)
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3,248,579
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3,651,203
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Prepaid
and other current assets
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427,195
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409,445
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Total
current assets
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9,532,868
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8,333,146
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Property
and equipment, net
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388,504
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332,450
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Other
Assets
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Certificate
of deposit, restricted
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145,000
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145,000
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Deferred
income taxes
Other
non-current assets
Intangible
assets
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255,731
164,507
1,440,843
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255,731
237,246
1,494,238
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Goodwill
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4,361,299
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4,361,299
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Total
other assets
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6,367,380
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6,493,514
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Total
assets
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$
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16,288,752
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$
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15,159,110
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Liabilities
and stockholders’ equity
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Current
Liabilities
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Due
to service providers
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$
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3,709,889
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$
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3,344,278
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Accounts
payable and accrued liabilities
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1,288,963
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1,320,036
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Current
maturities of long-term debt
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56,697
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55,697
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Total
current liabilities
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5,055,549
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4,720,011
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Long-term
debt
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35,784
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50,348
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Total
liabilities
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5,091,333
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4,770,359
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Stockholders’
equity
:
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Common
stock-par value $0.01, 40,000,000 shares authorized and 15,067,423 and
14,668,416 shares issued and outstanding as of March 31, 2008 and December
31,
2007,
respectively
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150,674
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146,684
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Preferred
stock-par value $0.01, 10,000,000 shares authorized and none
outstanding
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-
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-
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Additional
paid-in-capital
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17,897,140
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17,613,880
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Accumulated
deficit
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(6,850,395
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)
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(7,371,813
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)
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Total
stockholders’ equity
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11,197,419
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10,388,751
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Total
liabilities and stockholders’ equity
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$
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16,288,752
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$
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15,159,110
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See
notes to unaudited consolidated financial statements.
AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES
|
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Three
Months Ended
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March 31,
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2008
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2007
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Net
revenue
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$
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11,505,675
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$
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2,266,569
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Total
cost of revenues
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9,801,122
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2,101,643
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Contribution
margin
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1,704,553
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164,926
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Selling,
general, and administrative expense
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1,112,854
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694,421
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Depreciation
and amortization
|
|
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92,067
|
|
|
|
78,074
|
|
|
|
|
|
|
|
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|
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Total
operating expense
|
|
|
1,204,921
|
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772,495
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Operating income
(loss)
|
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499,632
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(607,569
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)
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Financing
(income) expenses:
|
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|
|
|
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Interest
income
|
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(40,668
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)
|
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(53,874
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)
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Interest
expense
|
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|
1,838
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|
|
|
11,071
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Debt
issuance cost
|
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—
|
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46,300
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|
|
|
|
|
|
|
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Total
financing (income) expenses
|
|
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(38,830
|
)
|
|
|
3,497
|
|
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|
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|
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|
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Net
income (loss) before income taxes
|
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538,462
|
|
|
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(611,066
|
)
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Income
tax provision
|
|
|
17,044
|
|
|
|
—
|
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|
|
|
|
|
|
|
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|
Net
income (loss)
|
|
$
|
521,418
|
|
|
$
|
(611,066
|
)
|
|
|
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|
|
|
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|
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Earnings
(loss) per common share:
|
|
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|
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Basic
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
14,880,266
|
|
|
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14,486,749
|
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Diluted
weighted average common shares outstanding
|
|
|
17,255,201
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|
|
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14,486,749
|
|
See
notes to unaudited consolidated financial statements.
AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 (UNAUDITED)
|
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|
|
|
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|
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Common Stock
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
December 31, 2007
|
|
|
14,668,416
|
|
|
$
|
146,684
|
|
|
$
|
17,613,880
|
|
|
$
|
(7,371,813
|
)
|
|
$
|
10,388,751
|
|
Exercise
of stock options
|
|
|
399,007
|
|
|
|
3,990
|
|
|
|
125,735
|
|
|
|
—
|
|
|
|
129,725
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
157,525
|
|
|
|
—
|
|
|
|
157,525
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
521,418
|
|
|
|
521,418
|
|
Balance
March
31, 2008
|
|
|
15,067,423
|
|
|
$
|
150,674
|
|
|
$
|
17,897,140
|
|
|
$
|
(6,850,395
|
)
|
|
$
|
11,197,419
|
|
See
notes to unaudited consolidated financial statements.
AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
Three
Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
521,418
|
|
|
$
|
(611,066
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
157,525
|
|
|
|
49,536
|
|
Depreciation
and amortization
|
|
|
92,067
|
|
|
|
78,074
|
|
Amortization
of debt issuance costs
|
|
|
—
|
|
|
|
46,300
|
|
Client
management fee expense related to warrants
|
|
|
13,228
|
|
|
|
—
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
402,624
|
|
|
|
384,844
|
|
Prepaid
and other current assets
|
|
|
41,761
|
|
|
|
(25,660
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(31,073
|
)
|
|
|
(22,287
|
)
|
Due
to service providers
|
|
|
365,611
|
|
|
|
(445,683
|
)
|
Net
cash
provided by
(used in) operating
activities
|
|
|
1,563,161
|
|
|
|
(545,942
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(94,726
|
)
|
|
|
(18,833
|
)
|
Net
cash used in investing activities
|
|
|
(94,726
|
)
|
|
|
(18,833
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(13,564
|
)
|
|
|
(309,659
|
)
|
Net
proceeds from the exercise of stock options
|
|
|
129,725
|
|
|
|
1,924
|
|
Net
cash provided by (used in) financing activities
|
|
$
|
116,161
|
|
|
|
(307,735
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
1,584,596
|
|
|
|
(872,510
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
4,272,498
|
|
|
|
5,025,380
|
|
Cash
and cash equivalents at end of period
|
|
$
|
5,857,094
|
|
|
$
|
4,152,870
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
1,838
|
|
|
$
|
29,931
|
|
See
notes to unaudited consolidated financial statements.
AMERICAN
CARESOURCE HOLDINGS, INC. AND SUBSIDIARIES
Note
1. Description of Business and Basis of Presentation
American
CareSource Holdings, Inc., a Delaware corporation (the “Company,
”
“American CareSource Holdings,
”
“ACS,
”
“we,
”
“our,
”
“us,
”
or
the “Registrant”), is in the business of delivering ancillary healthcare
services for employment groups through its national network of ancillary care
providers. The Company markets its products to insurance companies, third-party
administrators and preferred provider organizations. American
CareSource Holdings has one wholly owned subsidiary, Ancillary Care Services,
Inc. (“Care Services”).
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) interim reporting requirements of Form 10-Q and Rule
8-03 of Regulation S-X of the rules and regulations of the Securities and
Exchange Commission (“SEC”). Consequently, financial information and disclosures
normally included in financial statements prepared annually in accordance with
GAAP have been condensed or omitted. Balance sheet amounts are as of
March 31, 2008 and December 31, 2007 and operating result amounts are for the
three months ended March 31, 2008 and 2007, and include all normal and recurring
adjustments that we consider necessary for the fair summarized presentation of
our financial position and operating results. As these are condensed
financial statements, readers of this report should, therefore, refer to the
consolidated financial statements and the notes included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on
March 31, 2008.
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131,
“Disclosures About Segments of an Enterprise and Related Information,
”
the Company uses the “management approach” for
reporting information about segments in annual and interim financial
statements. The management approach is based on the way the chief
operating decision-maker organizes segments within a company for making
operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure and any other manner in which management disaggregates a
company. Based on the “management approach” model, the Company has
determined that its business is comprised of a single operating
segment.
Our
interim results of operations are not necessarily indicative of results of
operations that will be realized for the full fiscal year.
Note
2. Revenue Recognition
The
Company evaluates its service provider contracts using the indicators of EITF
No. 99-19 “Reporting Gross Revenue as a Principal vs. Net as an Agent” (EITF
99-19) to determine whether the Company is acting as a principal or an agent in
the fulfillment of services to be rendered.
Revenues
are recorded gross when services by providers have been authorized and performed
and collections from third-party payors are reasonably assured. The Company acts
as principal under EITF 99-19 when settling claims for service providers through
its
contracted service provider network for
the following reasons:
|
·
|
The
Company negotiates a contract with the service provider and also
negotiates separate contracts with the payor. Neither the service provider
nor the payor can look through the Company and claim directly against the
other party. Each service provider contracts with the Company only, and
not with the payor. Likewise, each payor contracts with the
Company only, and not with the service provider. Each party
deals directly with the Company and does not deal
directly
with each
other.
|
|
·
|
The
Company determines through negotiations which service providers will be
included
in
or excluded
from
the network to be offered to the
client payor based on, among other things, price
and
access.
|
|
·
|
The
Company does not earn a fixed dollar amount per client transaction
regardless of the amount billed to clients or earn a stated percentage of
the amount billed to its clients.
|
|
·
|
The
Company is responsible to the service provider for processing claims and
managing the claims its adjustors
process.
|
|
·
|
The
Company sets prices to be settled with payors and separately negotiates
the prices to be settled with the service
providers.
|
|
·
|
The
Company may realize a positive or negative margin represented by the
difference between the negotiated fees received from the payor and the
negotiated amount paid to service
providers.
|
When
claims are recorded gross, the payor’s payment to the Company is recorded as
revenue and the Company’s payment to the service provider is recorded as cost of
revenue in the statement of operations.
The
Company does not have responsibility for collecting co-payments to be made or
co-insurance claims to be received. Accordingly, co-payments or co-insurance
claims collected are not recorded as either revenue or cost of
revenues.
The
Company records an allowance on all sales reported as gross to arrive at a net
revenue amount. Co-payments, deductibles and co-insurance can all affect the
collectability of each individual claim. While the Company is able to re-price a
claim and accurately estimate what should be paid for the service, the presence
of co-pays, deductibles and co-insurance can all affect the ultimate
collectability of the claim. In addition, the Company’s collection experience
with each payor varies. The Company records an allowance against
gross revenue to better estimate collectability. This allowance is applied
specifically for each payor and is adjusted to reflect the Company’s collection
experience each quarter.
During
the three months ended March 31, 2008,
two of
the Company
’s
customers
comprised
a significant portion of the Company’s
revenue. The following is a summary of the approximate amounts of the
Company’s revenue and accounts receivable contributed by each of those
customers:
|
|
Three Months Ended March 31,
2008
|
|
Three Months Ended March 31,
2007
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
Accounts
Receivable
|
|
|
Revenue
|
|
|
%
of Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
A
|
|
$
|
1,833,000
|
|
|
$
|
7,067,000
|
|
|
|
61
|
%
|
|
$
|
584,000
|
|
|
$
|
1,859,000
|
|
|
|
82
|
%
|
Customer
B
|
|
|
1,188,000
|
|
|
|
4,015,000
|
|
|
|
35
|
%
|
|
|
113,000
|
|
|
|
40,000
|
|
|
|
2
|
%
|
All
Others
|
|
|
228,000
|
|
|
|
424,000
|
|
|
|
4
|
%
|
|
|
253,000
|
|
|
|
368,000
|
|
|
|
16
|
%
|
|
|
$
|
3,249,000
|
|
|
$
|
11,506,000
|
|
|
|
100
|
%
|
|
$
|
950,000
|
|
|
$
|
2,267,000
|
|
|
|
100
|
%
|
Note
3. Earnings Per Share
Earnings
(loss) per common share - basic represents income or (loss) available to common
stockholders divided by the weighted average number of common shares outstanding
during the periods presented. The diluted earnings (loss) per common share
amounts were computed using the weighted average number of common shares
outstanding during the period, adjusted for the effect of dilutive potential
common shares equivalents, which consists of outstanding stock options and
warrants.
The
following table details the reconciliation of basic earnings (loss) per share to
diluted earnings (loss) per share:
|
Three
Months Ended
March 31,
|
|
|
2008
|
|
|
2007
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
Net
income (loss)
|
|
$
|
521,418
|
|
|
$
|
(611,066
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average
basic common shares outstanding
|
|
|
14,880,266
|
|
|
|
14,486,749
|
|
Assumed
conversion of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
859,796
|
|
|
|
-
|
|
Warrants
|
|
|
1,515,139
|
|
|
|
-
|
|
Potentially
dilutive common shares
|
|
|
2,374,935
|
|
|
|
-
|
|
Denominator
for diluted earnings
|
|
|
|
|
|
|
|
|
per
share - Adjusted weighted-average shares
|
|
|
17,255,201
|
|
|
|
14,486,749
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
Note 4. Long-Term
Debt
Long-term
debt consists of the following:
|
|
March 31,
2008
|
|
|
December 31,
2007
|
|
Notes
payable to Capital One Bank, $135,000 due September 2009, due in monthly
installments of approximately $4,143, including interest at
6.5%
|
|
$
|
70,787
|
|
|
$
|
81,939
|
|
Capital
lease obligations
|
|
|
21,694
|
|
|
|
24,106
|
|
|
|
|
92,481
|
|
|
|
106,045
|
|
Less
current maturities
|
|
|
(56,697
|
)
|
|
|
(55,697
|
)
|
Long-term
debt, less current maturities
|
|
$
|
35,784
|
|
|
$
|
50,348
|
|
Note
5. Recent Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board issued SFAS No. 141(R)
“Business Combinations
” (“SFAS No.
141(R)
”
)
SFAS No. 141(R)
changes the accounting for business combinations including the measurement of
acquirer shares issued in consideration for a business combination, the
recognition of contingent consideration, the accounting for pre-acquisition gain
and loss contingencies, the recognition of capitalized in-process research and
development, the accounting for acquisition-related restructuring cost accruals,
the treatment of acquisition related transaction costs and the recognition of
changes in the acquirer’s income tax valuation allowance. SFAS No.
141(R) is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited. We are currently evaluating the
impact of the pending adoption of SFAS No. 141(R) on our financial
statements.
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”. This
Statement defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No.
157 also emphasizes that fair value is a market-based measurement, not an
entity-specific measurement, and sets out a fair value hierarchy with the
highest priority being quoted prices in active markets. Under SFAS
No. 157, fair value measurements are disclosed by level within that
hierarchy. Our adoption of this standard on January 1, 2008 did not
have a material impact on our consolidated financial statements.
The
Company was required to adopt SFAS No. 159 “The Fair Value Option for Financial
Assets and Liabilities” (“SFAS No. 159”) for the fiscal year beginning January
1, 2008. SFAS No. 159 provides the option to report certain financial assets and
liabilities at fair value, with the intent to mitigate volatility in financial
reporting that can occur when related assets and liabilities are measured
differently. The Company does not expect to voluntarily implement the optional
fair value measurements portions of SFAS No. 159 for eligible
items. The adoption of SFAS No. 159 did not have a material effect on
our consolidated financial position or results of operations as we elected not
to adopt fair value accounting on applicable financial assets and
liabilities.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of Accounting Research Bulletin
No. 51”
(“SFAS No. 160”)
. SFAS No. 160
establishes accounting and reporting standards for the noncontrolling interest
(minority interest) in a subsidiary and for the deconsolidation of a subsidiary.
SFAS No. 160 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. Early adoption is prohibited. The Company
currently has no minority interests and therefore expects the adoption of SFAS
No. 160 will not have a material impact on our consolidated financial
statements.
SPECIAL
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
discussion includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “intend”, “anticipate,”
“believe,” “estimate” and “continue” or similar words. 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
financial condition or state other “forward-looking” information.
We believe it is important to communicate to our stockholders and
potential investors not only the Company’s current condition, but management’s
forecasts about the Company’s future opportunities, performance and results,
including, for example, information with respect to potential margin expansion,
cash reserves and other financial items, and our strategies and
prospects. However, forward-looking statements are based on current
expectations and assumptions and are subject to substantial risks and
uncertainties, including, but not limited to, risks of market acceptance of, or
preference for, the Company’s systems and services, competitive forces, the
impact of geopolitical events and changes in government regulations, general
economic conditions and economic factors in the country and the healthcare
industry, and other risk factors as may be listed from time to time in the
Company’s filings with the SEC. In evaluating such forward-looking statements,
investors should specifically consider the matters set forth under the caption
“Risk Factors” appearing in our
Annual
Report
on Form 10-K for the year ended December 31,
2007 which was
filed with the SEC on March 31,
2008, as well as any other cautionary language
contained
in this
quarterly report
, any of which could cause our
actual results to differ materially from the expectations we describe in our
forward-looking statements. Except to the extent required by
applicable securities laws and regulations, we disclaim any obligation to update
or revise information contained in any forward-looking statement contained
herein to reflect events or circumstances occurring after the date of this
quarterly report.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Management’s
discussion and analysis provides a review of the Company’s operating results for
the three months ended March 31, 2008 and its financial condition at March 31,
2008. The focus of this review is on the underlying business reasons for
significant changes and trends affecting the revenues, net income or loss and
financial condition of the Company. This review should be read in conjunction
with the accompanying unaudited consolidated financial statements and the
audited consolidated financial statements and the notes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2007.
Overview
ACS
provides ancillary healthcare services through its proprietary network of
ancillary healthcare service providers for the benefit of its healthcare payor
clients.
Clients
route
healthcare claims to ACS after service has been performed by providers
who participate
in
the ACS
network
.
ACS re-prices those claims according
to its contractual rate with the
service
provider. In the process of re-pricing the claim, ACS is paid
directly by the client or the insurer for the
provider’s
service. ACS then pays the
service
provider according to its
contractual rate. ACS assumes the risk of generating positive margin,
the difference between the payment it receives for the service and the amount it
is obligated to pay the original
service
provider or member of its proprietary network.
The
Company recognizes revenues for ancillary healthcare services when services by
providers have been authorized and performed and collections from payors are
reasonably assured. Patient claims revenues are recognized by
the Company
as services are provided. Cost of
revenues for ancillary healthcare services consist of amounts due to providers
for providing patient services, client administration fees paid to client payors
to reimburse them for the cost of implementing and managing claims submissions,
and the Company’s related direct labor and overhead of processing invoices,
collections and payments. The Company is not liable for costs incurred by
independent contract service providers until
the
Company receives
payment from the payors. The Company recognizes actual
or estimated liabilities to independent contract service providers as the
related revenues are recognized. Patient claim costs of revenue consist of
amounts due the service providers as well as our direct labor and overhead to
administer the patient claims.
The
Company markets its products to insurance companies, third-party administrators
and preferred provider organizations.
Although
we have never reported a profit for a full fiscal year, we realized our first
quarterly profit during the second half of 2007, with net income of $188,211 and
$318,742, respectively, for each of the three month periods ended September 30,
2007 and December 31, 2007. Our improved performance during the
aforementioned three-month periods was attributable to the addition of five new
clients during
our fiscal year
2007 and the
expansion of services performed for existing clients. The Company is seeking
continuing growth in the number of client payor and service provider
relationships by focusing on providing in-network services for its payors and
aggressively pursuing additional preferred provider organizations and
third-party administrators as its primary sales targets. The Company believes
that this strategy should increase the volume of claims the Company can
adjudicate as well as the volume of patients it can direct through its service
provider network. No assurances can be given that the Company can expand its
service provider
network
or payor
relationships, nor that any such expansion will result in an improvement in the
results of operations of the Company.
Recent Events
There have been changes to the composition of our senior
management team since the beginning of fiscal year
2008.
The
Company did not renew the employment
agreements
of Maria L. Baker,
formerly
Vice President of Marketing,
and
Jennifer Boone,
formerly
Vice President of Network
Development
. Ms. Baker and Ms. Boone left the
Company
on January 31, 2008.
On
February 27, 2008,
M.
Cornelia Outten
joined the Company as Vice President of Network Development.
On March
10, 2008, Rost A. Ginevich joined the Company as Chief Information
Officer.
On April
28, 2008, Matthew D. Thompson joined the Company as Controller and Principal
Accounting Officer
, replacing Steven M. Phillips,
formerly Controller and Principal Accounts Officer, who resigned effective May
1, 2008.
Critical
Accounting Policie
s
Management’s
discussion and analysis of our
financial condition and results of operations
is
based upon our condensed financial
statements. These condensed financial statements have been prepared
following the requirements of accounting principles generally accepted in the
United States (“GAAP”) for interim periods and require us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates,
including those related to revenue recognition and amortization and potential
impairment of intangible assets and goodwill and stock-based compensation
expense. As these are condensed financial statements, one should also
read expanded information about our critical accounting policies and estimates
provided in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations
” under the heading
“Critical Accounting Policies
,” included in our
Annual Report on
Form 10-K for the year ended
December 31, 2007. There have been no material changes to our critical
accounting policies and estimates from the information provided in our
Form
10-K for the year ended December 31,
2007.
Results
of Operations
The three
months ended March 31, 2008 compared to the three months ended March 31,
2007:
|
|
Statement
of Operations for the Quarters Ended
|
|
|
|
March 31,
2008
|
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
11,505,675
|
|
|
$
|
2,266,569
|
|
Cost
of revenue
|
|
|
9,801,122
|
|
|
|
2,101,643
|
|
Contribution
margin
|
|
|
1,704,553
|
|
|
|
164,926
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
|
1,112,854
|
|
|
|
694,421
|
|
Depreciation
and amortization
|
|
|
92,067
|
|
|
|
78,074
|
|
Operating
income (loss)
|
|
|
499,632
|
|
|
|
(607,509
|
)
|
Financing
(income) expense
|
|
|
(38,830
|
)
|
|
|
3,497
|
|
Net
income (loss) before income taxes
|
|
|
538,462
|
|
|
|
(611,066
|
)
|
Income
tax provision
|
|
|
17,044
|
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
521,418
|
|
|
$
|
(611,066
|
)
|
Revenue
The
Company’s revenues are generated from ancillary healthcare service claims. Net
revenues increased 407% to $11.5 million from $2.3 million for the quarter ended
March 31, 2008 from the same quarter of the prior year. Approximately
$6.2 million of the increase was due to the addition of five new clients which
began with us in 2007. In addition, revenue from established clients
increased approximately $3.0 million in the first quarter of 2008 compared to
the first quarter in 2007. That increase was the result of expansion
of services for those existing clients.
The
Company will continue to attempt to increase the number of client payor and
service provider relationships by focusing on providing in-network services for
its payors and aggressively pursuing preferred provider organizations and third
party administrators as its primary sales targets. The Company believes that
this strategy should increase the volume of claims the Company can adjudicate as
well as the volume of patients it can direct through its service provider
network. No assurances can be given that the Company can expand its service
provider
network
or payor relationships,
nor that any such expansion will result in an improvement in the results of
operations of the Company.
Costs
and Expenses
Cost of
revenue
is comprised of payments to our
providers, administration fees paid to our client payors for converting claims
to electronic data interchange and routing them to both the Company for
processing and to their payors for payment, and the fixed costs of our network
development and claims administration organizations. Cost of revenue
increased from $2.1 million for the quarter ended March 31, 2007 to $9.8 million
for the quarter ended March 31, 2008. This represents an increase of
366% over the prior year’s comparable quarter. Cost of revenue
directly related to provider services in the quarter ended March 31, 2008
increased
approximately
$6.8 million, or
443%, compared to the prior year’s comparable quarter. This increase
reflects increased amounts paid to providers for their services as a result of
our increased revenue, and fluctuation in the mix of services provided by the
Company. Administration fees increased
approximately $615,000
to $702,000,
compared to the prior year’s
comparable period due to the addition of five new clients and expanded
relationships with existing clients. Fixed costs increased
approximately $238,000,
or 50%
,
compared with the prior year’s comparable
period due to increased costs and expenses related to increased volume of claims
processing.
Contribution
margin (net revenue less cost of revenue) for the quarter ended March 31, 2008
was $1.7 million compared to $
164,926
for
the quarter ended March 31, 2007. Contribution margin as a percentage
of net revenue for the quarter was 14.8% compared to 7.3% for the comparable
period in 2007. The increase in contribution margin is attributable
primarily to the increase in revenue, offset by a variety of factors, including
more aggressive pricing by the Company, fluctuations in the mix of services
provided by the Company, and increased administration fees payable to
clients. The Company anticipates that it will continue to experience
margin expansion as the rate of client volume increases over time as a result of
leveraging its fixed cost infrastructure.
Selling,
general and administrative (“SG&A”) expense increased to $1.1 million for
the quarter ended March 31, 2008 as compared to $
694,421
for the quarter ended March 31,
2007. As a percent of net revenues, SG&A expense was 9.7% for the
first quarter 2008 compared to 30.6% for the same period in
2007. These costs consist primarily of salaries and related benefits,
travel costs, sales commissions, sales materials, other marketing related
expenses, costs of corporate operations, finance and accounting, human resources
and other general operating expenses of the Company. The increase is
primarily related to increased professional expenses, specifically accounting,
legal and consulting fees, accrued bonuses related to improved operating results
compared to the prior year period, increased stock-based compensation expense
and sales commissions commensurate with our increased sales.
Depreciation
and
amortization
expense was $
92,067
in the quarter ended March 31, 2008
compared to $
78,074
in the quarter ended
March 31, 2007. These expenses include $53,000 of amortization of intangibles,
which consists of $21,000 in amortization of certain software development costs
and $32,000 in amortization of the capitalized value of provider contracts that
were acquired
in
the
2003
acquisition of American CareSource
Corporation’s assets by Patient Infosystems (now CareGuide, Inc.) in
2003.
Financing
(Income) Expense
Financing
(income) expense is comprised of interest income, interest expense and other
expenses. For the three months ended March 31, 2008, net financing
income was $
38,830,
as compared to net
financing expense of $
3,497
for the three
months ended March 31, 2007. The change from the prior year period
was the result of amortization of debt issuance costs of $
46,300,
which was incurred during the first
quarter of 2007. Those costs were fully amortized as of December 31,
2007.
Income
Tax Provision
For the
three months ended March 31, 2008, an income tax provision of $
17,044
was recorded, as compared to no income tax
provision being recorded to the same period of 2007. The provision
recorded in the first quarter 2008 represents our estimated margin tax liability
in the State of Texas.
Liquidity
and Capital Resources
As of
March 31, 2008, the Company had a working capital surplus of $4.5 million as
compared to a working capital surplus of $3.6 million at December 31,
2007. The increase in working capital is primarily the result of net
cash provided by operating activities during the quarter
ended March 31,
2008 compared to the same prior
year period.
For the
three months ended March 31, 2008, operating activities provided net cash of
$1.6 million, primarily generated from net income of $
521,418,
non-cash share-based compensation
expense of $
157,525,
and a net decrease in
operating assets and liabilities of $
778,923.
Net operating assets and
liabilities declined mainly due to the timing of collection of claims paid to us
by our clients and payments made by us to the service providers in our
network.
Investing
activities in the quarter
ended March 31,
2008 were comprised of investments of $
94,72
6
in
property and equipment.
Financing
activities
in the quarter ended March 31, 2008
produced cash of $
116,161,
compared
to cash used of $
307,735
in the same period
in
2007. Cash generated in
financing activities was primarily comprised of proceeds of $
129,725
from the exercise of
399,007
stock options by the former Chief
Executive Officer of the Company.
During
the
quarter
ended March 31, 2008, the
Company’s net income was $
521,418
and cash
flows from operating activities were $1.6 million. Historically, we
have relied on external sources of
capital,
including indebtedness
or
issuance of
equity
securities
. We believe
our current cash balances and expected future cash flows from operations will be
sufficient to meet our anticipated cash needs for working capital, capital
expenditures and other activities through the next twelve months. If
operating cash flows are not sufficient to meet our needs, we believe that
credit or access to capital through issuance of equity would be available to
us.
Inflation
Inflation
did not have a significant impact on the Company’s costs during the quarters
ended March 31, 2008 and March 31, 2007, respectively. The Company
continues to monitor the impact of inflation in order to minimize its effects
through pricing strategies, productivity improvements and cost
reductions.
Off-balance
sheet arrangements
The
Company does not have any material off-balance sheet arrangements at March 31,
2008 or March 31, 2007, or for the periods then ended.
Evaluation of Disclosure Controls
and Procedures.
Our management, with the participation of our Chief
Executive Officer
and
Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2008. Based upon this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that 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
) are effective for the recording, processing, summarizing and
reporting of the information that the Company is required to disclose in the
reports it files under the Exchange Act, within the time periods specified in
the
SEC
’s rules and forms.
Changes in Internal Controls Over
Financial Reporting
. Our management, with the participation of
our Chief Executive Officer and Chief Financial Officer
,
has concluded that there were no changes in the
Company’s internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended
) during the quarter ended March
31, 2008 that have materially affected the Company’s internal controls over
financial reporting or are reasonably likely to materially affect internal
controls over financial reporting, including any corrective actions with regard
to significant deficiencies and material weaknesses.
PART
II. OTHER INFORMATION
Item
1A. Risk Factors.
In
addition to the other information set forth in this report, the reader should
carefully consider the discussion of various risks and uncertainties contained
in Part I, Item 1A.
“
Risk Factors” in our
Annual Report on Form 10-K
for the year ended
December 31, 2007.
We believe those risk factors are the most
relevant to our business and could cause our results to differ materially from
the
expectations concerning our future
opportunities, performance and results described in
forward-looking
statements made by us. Please note, however, that those are not the only
risk factors facing us. Additional risks that we do not consider
material, or of which we are not currently aware, may also have an adverse
impact on us. Our business, financial condition and results of
operations could be seriously harmed if any of these risks or uncertainties
actually occurs or materializes. In that event, the market price for
our common stock could decline, and our stockholders may lose all or part of
their investment. During the three months
ended March 31,
2008, there were no material
changes in the information regarding risk factors contained in our Annual Report
on Form 10-K for the year ended December 31, 2007.
See
Exhibit Index following this Quarterly Report on Form 10-Q.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
Registrant
caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
|
American
CareSource Holdings, Inc.
|
Date:
|
May
15, 2008
|
|
By:
|
/s/
David S. Boone
|
|
|
|
|
David
S. Boone
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
|
May
15, 2008
|
|
By:
|
/s/
Steven J. Armond
|
|
|
|
|
Steven
J. Armond
Chief
Financial Officer
|
Exhibit
Index
Exhibit
#
|
Description
of Exhibits
|
14.1
|
Code
of Business Conduct and Ethics
|
20.1
|
Audit
Committee Charter
|
20.2
|
Compensation
Committee Charter
|
20.3
|
Governance
and Nominations Committee Charter
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|