Form 8-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. ____)
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 1, 2009
Alliance HealthCard, Inc.
(Exact name of registrant as specified in its charter)
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GEORGIA
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000-30099
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58-2445301 |
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.) |
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900 36th Avenue, Suite 105,
Norman, OK
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73072 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (405) 579-8525
3500 Parkway Lane, Suite 720, Norcross, GA 30092
(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:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The audited financial statements of Access Plans USA, Inc. for the years ended December 31, 2008
and 2007 and for the years then ended appear at pages F-1 through F-27 of this report.
ACCESS PLANS USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS,
CONSOLIDATING SCHEDULES, AND
INDEPENDENT AUDITOR REPORTS
DECEMBER 31, 2008 AND 2007
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Access Plans USA, Inc.
We have audited the accompanying consolidated balance sheet of Access Plans USA, Inc. as of
December 31, 2008 and the related consolidated statements of operations, stockholders equity and
cash flows for the year ended December 31, 2008. Access Plans USA, Inc.s management is
responsible for these financial statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion of the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Access Plans USA, Inc. as of December 31, 2008 and
the results of its operations and its cash flows for the year ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The consolidating schedules on pages 26 and 27 are presented for purposes of
additional analysis and are not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Greenwood Village, Colorado
April 1, 2009
PEOPLE. PRINCIPLES. POSSIBILITIES.
www.eidebailly.com
5299 DTC Blvd., Ste. 1000 Greenwood Village, CO 80111-3329 Toll Free 877.882.9856 Phone 303.770.5700 Fax 303.770.7581 EOE
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Access Plans USA, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheet of Access Plans USA, Inc. as of
December 31, 2007 and the related consolidated statements of operations, stockholders equity and
cash flows for the years ended December 31, 2007 and 2006. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion of the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Access Plans USA, Inc. as of December 31, 2007 and the
results of its operations and its cash flows for the years ended December 31, 2007 and 2006 in
conformity with accounting principles generally accepted in the United States of America.
Hein & Associates LLP
Dallas, Texas
March 31, 2008, except for Notes 3 and 19, which are dated January 16, 2009
14755 Preston Road, Suite 320
Dallas, Texas 75254
Phone: 972-458-2296
Fax: 972-788-4943
www.heincpa.com
F-3
ACCESS PLANS USA, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
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Dollars in thousands |
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2008 |
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2007 |
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ASSETS |
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Cash and cash equivalents |
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$ |
336 |
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$ |
2,711 |
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Restricted short-term investments |
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671 |
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1,231 |
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Total cash and short-term investments |
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1,007 |
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3,942 |
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Accounts receivable, net |
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1,038 |
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964 |
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Income taxes receivable |
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70 |
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Advanced agent commissions, net |
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6,825 |
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4,942 |
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Prepaid expenses |
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155 |
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|
154 |
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Deferred tax asset |
|
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23 |
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Current assets of discontinued operations |
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196 |
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519 |
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Total current assets |
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9,221 |
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10,614 |
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Fixed assets, net |
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532 |
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447 |
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Goodwill, net |
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5,489 |
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5,489 |
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Other intangible assets, net |
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2,668 |
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3,462 |
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Other assets |
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125 |
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69 |
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Non-current assets of discontinued operations |
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738 |
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Total assets |
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$ |
18,035 |
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$ |
20,819 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Accounts payable |
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$ |
508 |
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$ |
562 |
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Accrued commissions payable |
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361 |
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478 |
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Accrued liabilities |
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1,490 |
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2,021 |
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Income taxes payable |
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128 |
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267 |
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Short-term debt |
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520 |
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1,255 |
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Current portion of capital leases |
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48 |
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Unearned commissions |
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5,159 |
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3,683 |
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Deferred service and enrollment fees, net of acquisition costs |
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263 |
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289 |
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Current liabilities of discontinued operations |
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45 |
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936 |
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Total current liabilities |
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8,474 |
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9,539 |
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Long-term debt |
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729 |
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Deferred tax liability |
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23 |
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Total liabilities |
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9,203 |
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9,562 |
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Commitments and contingencies (Note 16) |
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Preferred stock, $1.00 par value, 2,000,000 authorized shares; none issued |
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Common stock, $0.01 par value, 100,000,000 shares authorized;
20,749,145 issued and 20,269,145 outstanding |
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207 |
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207 |
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Additional paid-in capital |
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40,648 |
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40,619 |
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Accumulated deficit |
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(31,014 |
) |
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(28,560 |
) |
Less: Treasury stock (480,000 shares) |
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(1,009 |
) |
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(1,009 |
) |
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Total stockholders equity |
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8,832 |
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11,257 |
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Total liabilities and stockholders equity |
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$ |
18,035 |
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$ |
20,819 |
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The accompanying notes are an integral part of these consolidated financial statements
F-4
ACCESS PLANS USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
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Dollars in thousands, except loss per share |
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2008 |
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2007 |
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2006 |
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Commission and service revenues |
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$ |
34,390 |
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$ |
28,421 |
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$ |
14,525 |
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Interest income on agent advances |
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781 |
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551 |
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Total revenue |
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35,171 |
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28,972 |
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14,525 |
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Commission expenses |
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19,654 |
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13,994 |
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3,686 |
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Provider network fees and other direct costs |
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4,781 |
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5,086 |
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3,329 |
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Interest expense attributable to funding agent advances |
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163 |
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Total direct costs |
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24,598 |
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19,080 |
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7,015 |
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|
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Gross margin |
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10,573 |
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|
9,892 |
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|
7,510 |
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|
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Personnel costs, including benefits |
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|
6,208 |
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|
5,383 |
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|
4,475 |
|
Other sales, general and administrative expenses |
|
|
4,399 |
|
|
|
5,548 |
|
|
|
4,181 |
|
Depreciation and intangible asset amortization |
|
|
1,026 |
|
|
|
809 |
|
|
|
669 |
|
Goodwill and intangible asset impairment charges |
|
|
|
|
|
|
3,978 |
|
|
|
2,800 |
|
Severance and other asset impairment charges |
|
|
164 |
|
|
|
696 |
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
11,797 |
|
|
|
16,414 |
|
|
|
12,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating loss |
|
|
(1,224 |
) |
|
|
(6,522 |
) |
|
|
(4,884 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
42 |
|
|
|
105 |
|
|
|
291 |
|
Interest expense |
|
|
(12 |
) |
|
|
(26 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
30 |
|
|
|
79 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss from continuing operations before
income taxes |
|
|
(1,194 |
) |
|
|
(6,443 |
) |
|
|
(4,643 |
) |
Provision for income tax expense (benefit) |
|
|
(6 |
) |
|
|
(656 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(1,188 |
) |
|
|
(5,787 |
) |
|
|
(4,657 |
) |
Loss from discontinued operations, net |
|
|
(1,266 |
) |
|
|
(7,368 |
) |
|
|
(3,067 |
) |
|
|
|
|
|
|
|
|
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|
Net loss |
|
$ |
(2,454 |
) |
|
$ |
(13,155 |
) |
|
$ |
(7,724 |
) |
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|
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Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
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Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
(0.30 |
) |
|
$ |
(0.34 |
) |
Discontinued operations |
|
|
(0.06 |
) |
|
|
(0.39 |
) |
|
|
(0.23 |
) |
|
|
|
|
|
|
|
|
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|
Total |
|
$ |
(0.12 |
) |
|
$ |
(0.69 |
) |
|
$ |
(0.57 |
) |
|
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|
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|
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|
|
|
|
|
|
|
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|
Weighted average number of common shares
outstanding, basic and diluted |
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|
20,269,145 |
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|
|
18,983,843 |
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|
|
13,486,562 |
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|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements
F-5
ACCESS PLANS USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Additional |
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Earnings |
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Total |
|
|
|
Common Stock |
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|
Paid-In |
|
|
(Accumulated |
|
|
Treasury |
|
|
Stockholders |
|
Dollars in thousands |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit) |
|
|
Stock |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
13,204,269 |
|
|
$ |
137 |
|
|
$ |
28,942 |
|
|
$ |
(7,664 |
) |
|
$ |
(1,051 |
) |
|
$ |
20,364 |
|
Changes during 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expense |
|
|
|
|
|
|
|
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
231 |
|
Issuance of stock in business
combination |
|
|
308,494 |
|
|
|
3 |
|
|
|
518 |
|
|
|
|
|
|
|
|
|
|
|
521 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,724 |
) |
|
|
|
|
|
|
(7,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
13,512,763 |
|
|
|
140 |
|
|
|
29,691 |
|
|
|
(15,388 |
) |
|
|
(1,051 |
) |
|
|
13,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expense |
|
|
|
|
|
|
|
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
|
401 |
|
Impact of business combinations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock |
|
|
6,756,382 |
|
|
|
67 |
|
|
|
10,473 |
|
|
|
|
|
|
|
|
|
|
|
10,540 |
|
Issuance of stock options |
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
79 |
|
Treasury stock adjustment |
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
(17 |
) |
|
|
42 |
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,155 |
) |
|
|
|
|
|
|
(13,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
20,269,145 |
|
|
|
207 |
|
|
|
40,619 |
|
|
|
(28,560 |
) |
|
|
(1,009 |
) |
|
|
11,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expense |
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
29 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,454 |
) |
|
|
|
|
|
|
(2,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
20,269,145 |
|
|
$ |
207 |
|
|
$ |
40,648 |
|
|
$ |
(31,014 |
) |
|
$ |
(1,009 |
) |
|
$ |
8,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-6
ACCESS PLANS USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,454 |
) |
|
$ |
(13,155 |
) |
|
$ |
(7,724 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
1,266 |
|
|
|
7,368 |
|
|
|
3,067 |
|
Non-cash charges: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense |
|
|
29 |
|
|
|
401 |
|
|
|
231 |
|
Depreciation and intangible asset amortization |
|
|
1,026 |
|
|
|
809 |
|
|
|
669 |
|
Provision for losses on receivables and advanced agent commissions |
|
|
491 |
|
|
|
349 |
|
|
|
39 |
|
Loss on disposal and impairment of fixed assets |
|
|
|
|
|
|
335 |
|
|
|
269 |
|
Goodwill and intangible asset impairment charges |
|
|
|
|
|
|
3,978 |
|
|
|
2,800 |
|
Deferred income taxes |
|
|
|
|
|
|
(433 |
) |
|
|
|
|
Changes in operating assets and liabilities (net of businesses acquired in 2007): |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(115 |
) |
|
|
165 |
|
|
|
82 |
|
Income taxes receivable (payable), net |
|
|
(69 |
) |
|
|
90 |
|
|
|
646 |
|
Advanced agent commissions |
|
|
(2,333 |
) |
|
|
(1,215 |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
(57 |
) |
|
|
1,571 |
|
|
|
68 |
|
Accounts payable and accrued liabilities, including commissions |
|
|
(702 |
) |
|
|
(731 |
) |
|
|
(629 |
) |
Unearned commissions and net deferred service and enrollment fees |
|
|
1,450 |
|
|
|
981 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating activities |
|
|
(1,468 |
) |
|
|
513 |
|
|
|
(447 |
) |
Net cash provided by (used in) discontinued operating activities |
|
|
(1,760 |
) |
|
|
922 |
|
|
|
1,172 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
(3,228 |
) |
|
|
1,435 |
|
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in unrestricted short-term investments |
|
|
560 |
|
|
|
200 |
|
|
|
(200 |
) |
(Increase) decrease in restricted short-term investments |
|
|
|
|
|
|
320 |
|
|
|
(1,170 |
) |
Purchase of fixed assets continuing operations |
|
|
(317 |
) |
|
|
(282 |
) |
|
|
(558 |
) |
Cash used in business combinations, net |
|
|
|
|
|
|
(832 |
) |
|
|
(1,045 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities from
continuing operations |
|
|
243 |
|
|
|
(594 |
) |
|
|
(2,973 |
) |
Purchase of fixed assets discontinued operations |
|
|
|
|
|
|
(23 |
) |
|
|
(290 |
) |
Proceeds from sale of discontinued operations, net |
|
|
664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
907 |
|
|
|
(617 |
) |
|
|
(3,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loan proceeds, net of origination fee |
|
|
1,490 |
|
|
|
3,033 |
|
|
|
|
|
Loan repayments |
|
|
(1,496 |
) |
|
|
(4,182 |
) |
|
|
|
|
Payments of capital leases |
|
|
(48 |
) |
|
|
(190 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities continuing operations |
|
|
(54 |
) |
|
|
(1,339 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(2,375 |
) |
|
|
(521 |
) |
|
|
(2,779 |
) |
Cash and cash equivalents at beginning of period |
|
|
2,711 |
|
|
|
3,232 |
|
|
|
6,011 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
336 |
|
|
$ |
2,711 |
|
|
$ |
3,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure: |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (paid) recovered, net |
|
$ |
(210 |
) |
|
$ |
249 |
|
|
$ |
1,117 |
|
Interest paid |
|
|
(148 |
) |
|
|
(233 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued in connection with business combinations |
|
$ |
|
|
|
$ |
10,540 |
|
|
$ |
521 |
|
Cash-in-trust (refunded) collected, net |
|
|
|
|
|
|
|
|
|
|
(5,585 |
) |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-7
ACCESS PLANS USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
Access Plans USA, Inc. (the Company) develops and distributes quality affordable consumer driven
healthcare programs for individuals, and to a lesser extent, employer groups. They include health
insurance plans and non-insurance healthcare discount programs designed to help provide solutions
for the millions of Americans who need access to affordable healthcare.
The Companys operations are currently organized under two business divisions:
|
|
Consumer Plan Division - develops and markets non-insurance healthcare discount medical
programs and association memberships. Since October 1, 2007, the Consumer Plan Division has
included the results of Protective Marketing Enterprises, Inc. which was acquired on that
date. The results of The Capella Group Inc. are also included in the Consumer Plan Division. |
|
|
Insurance Marketing Division - markets individual major medical health insurance products
through AHCP Agency, a national network of independent agents. Prior to the second quarter of
2008, this division also included the results of ACP Agency (a broad network of independent
agents that distributed Medicare insurance programs to individuals), which is now reported as
a discontinued operation. The Insurance Marketing division was formed on January 30, 2007, the
date the Company completed its merger with Insurance Capital Management USA, Inc. AHCP Agency
and ACP Agency are wholly-owned subsidiaries. |
As a result of the December 30, 2008 sale of the Companys El Paso based third-party administration
operations, previously reported results for the Regional Healthcare division are now included in
Discontinued Operations.
On November 13, 2008 the Company announced that its Board of Directors had approved an agreement to
merge the Company with Alliance HealthCard, Inc. Alliance HealthCard is the largest membership
benefits plan provider in the specialty rent-to-own market and over the past year has diversified
and grown its revenue by broadening its distribution of membership benefits and medical discount
programs through new wholesale and retail relationships.
|
|
Consistent with the merger amendment dated February 9, 2009, the closing occured effective April
1, 2009. |
|
|
At closing, Alliance HealthCard issued 6,800,000 of its shares to the Companys former
shareholders. |
|
|
Immediately after closing, the Companys former shareholders held approximately 31.5% of the
outstanding Alliance HealthCard shares. |
Note 2 Summary of Significant Accounting Policies
Basis of Presentation. The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the Companys wholly-owned
subsidiaries, Capella Group, Inc., Protective Marketing Enterprises, Inc and AHCP Agency. All
significant inter-company accounts and transactions have been eliminated. Certain reclassifications
have been made to prior period financial statements to conform to the current presentation of the
financial statements.
Use of Estimates. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Certain significant
estimates are required in the evaluation of goodwill and intangible assets for impairment as well
as the allowance for doubtful recoveries of advanced agent commissions. Actual results could differ
from those estimates and such differences could be material.
F-8
Note 2 Summary of Significant Accounting Policies, continued
Revenue Recognition. Revenue recognition varies based on source.
Consumer Plan. Consumer Plan division revenue primarily comprises monthly program membership
revenues billed throughout the month directly by the Company, either by electronic charge to the members
credit card or bank account, or by rendering billings to organizations accessing our products through private
label or wholesale arrangements. Such revenue is recognized ratably over the month.
The deferred revenue recorded at month-end principally comprises membership revenues billed during
the month for a period that expires after month-end, net of the related direct costs. Deferred
revenue also includes a provision for estimated membership refunds that will be made after
month-end together with a provision for membership enrollment and marketing representative fees,
net of related direct costs, that have been collected but not fully earned at month-end.
The Company records an allowance for uncollectible receivables based upon a review of the
aging of outstanding balances, the credit worthiness of the customer, and the history of
paying the amounts owed.
Insurance Marketing. Insurance Marketing division revenue reflects commissions and fees reported to
us by insurance companies for policies sold by the divisions agents. Commissions and fees
collected are recognized as earned on a monthly basis until such time as the underlying contract is
reported to the division as terminated. Revenue also includes interest income earned on commissions
advanced to the divisions agents.
Unearned commissions comprise commission advances received from insurance carriers but not yet
earned. Additionally, enrollment fees received are recorded as deferred revenue and amortized over
the expected weighted average life of the policies sold which currently approximates eighteen
months. Deferred revenue is reported net of related policy acquisition costs, principally lead and
marketing credits, which are capitalized and amortized over the same weighted average life, to the
extent such deferred costs do not exceed the related gross deferred revenue. Any excess costs are
expensed as incurred.
Commission Expense. Commission expense is based on the applicable rates applied to membership
revenues billed or insurance commissions collected and is recognized as incurred on a monthly
basis until such time as the underlying program membership or insurance policy is terminated.
The Insurance Marketing division advances agent commissions, currently for up to nine months, for
certain insurance programs. Collection of the commissions advanced (plus accrued interest) is
accomplished by withholding amounts earned by the agents on the policy upon which the advance was
made. In the event of early termination of the underlying policy, the division seeks to recover the
unpaid advance balance by withholding advanced and earned commissions on other policies sold by the
agent. The division also has the contractual right to pursue other sources of recovery, including
recovery from the agents managing the agent to whom advances were made.
Advanced agent commissions are reviewed and an allowance is provided for those balances where
recovery is considered doubtful. This allowance requires judgment and is based primarily upon
estimates of the recovery of future commissions expected to be earned by the agents with
outstanding balances and, where applicable, the agents responsible for their management. Advances
are written off when determined to be non-collectible.
Cash and Cash Equivalents. Cash and cash equivalents consist primarily of cash on deposit
or cash investments purchased with original maturities of three months or less.
F-9
Note 2 Summary of Significant Accounting Policies, continued
Restricted Short-Term Investments. Restricted short term investments represent investments
with original maturities of one year or less pledged to obtain bonds for regulatory licenses
and processing and collection arrangements for credit card and automated clearing house
payments.
Fixed Assets. Property and equipment are carried at cost less accumulated amortization.
Depreciation is provided using the straight-line method over the estimated useful lives of the
related assets for financial reporting purposes and principally on accelerated methods for tax
purposes. Leasehold improvements are depreciated using the straight-line method over their
estimated useful lives or the lease term, whichever is shorter. Ordinary maintenance and repairs
are charged to expense as incurred. Expenditures that extend the physical or economic life of
property and equipment are capitalized. The Company capitalizes both internal and external costs of
developing or obtaining computer software for internal use. Costs incurred to develop internal-use
software during the application development stage are capitalized, while data conversion, training
and maintenance costs associated with internal-use software are expensed as incurred. The estimated
useful lives of property and equipment are as follows:
|
|
|
Furniture and fixtures: 7 years |
|
|
|
|
Leasehold improvements: Over the term of the lease, or useful life, whichever is shorter |
|
|
|
|
Computers and office equipment: 3 to 5 years |
|
|
|
|
Software: 3 years |
Goodwill and Intangible Assets. The acquisition of businesses has been accounted for in accordance
with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.
Goodwill in such acquisitions represents the excess of the purchase price over the fair value of
net assets acquired, including the estimated fair value of identifiable finite life intangible
assets. Consistent with the criteria set forth in SFAS 141, the Company has established intangible
assets for acquired policies in-force, certain agent relationships and proprietary dental and
vision provider networks.
For annual reporting periods beginning after December 15, 2008, amended guidance pursuant to SFAS
141R applies to the accounting for business combinations. If this statement had been in effect for
the year ended December 31, 2007, the Company would have recorded a higher purchase price in
connection with the January 2007 merger of Insurance Capital Management USA, Inc. into the Company.
Intangible assets are amortized using the straight-line method over the following estimated useful
lives:
|
|
|
Acquired policies in-force: 3 to 4 years |
|
|
|
|
Agent relationships: 8 years |
|
|
|
|
Proprietary dental and vision provider networks: 8 years |
Additionally, consistent with SFAS 142 Goodwill and Other Intangible Assets, on September 30 of
each year management performs an annual assessment to determine if there is any impairment in the
recorded goodwill and intangible asset balances. This review and analysis is conducted more
frequently if an event occurs that indicates that it is likely that the fair value of the goodwill
and intangible assets is less than the carrying value. If the estimated fair value is lower, an
impairment charge is recorded.
The estimated fair value is based on various valuation methodologies, with emphasis placed on the
discounted value of estimated future cash flows. Asset impairment evaluations require management to
exercise significant judgment regarding the estimates used in the determination. Accordingly,
subsequent actual results may differ from the assumptions and estimates incorporated into the
periodic impairment evaluations.
F-10
Note 2 Summary of Significant Accounting Policies, continued
Stock Based Compensation. Stock based compensation is accounted for in accordance with SFAS 123 No.
Accounting for Stock-Based Compensation, as amended by SFAS No.l23(R) Share-Based Payment (SFAS
123(R)). Consistent with SFAS 123(R), the estimated fair value of stock options granted to
employees is calculated using a binomial lattice option-pricing model, and then adjusted for
expected forfeitures. The adjusted estimated fair value is amortized over the vesting period of
each option. Each reporting period, the previously calculated amortization charges are a) increased
by an amount equal to the cumulative expected forfeiture benefit previously recognized for any
options vesting in that period, and b) reduced by an amount equal to the cumulative amount of prior
period charges applicable to any non-vested stock options that are cancelled in the that period.
Income Taxes. Income taxes are accounted for in accordance with SFAS No. 109 Accounting for Income
Taxes as modified by Interpretation No. 48 Accounting for Uncertainty in Income Taxes.
Accordingly, a liability approach is applied to the calculation of deferred income taxes, which
represent expected future tax return consequences of the cumulative difference between amounts
reported for financial reporting and those that will be recorded on tax returns for the
corresponding financial reporting period.
Deferred tax benefits are only recognized when management has determined that realization is
probable. Additionally, any estimated penalties and interest related to filed tax return
positions are included as a component of income taxes payable.
Earnings per Share. Basic net earnings (loss) per common share is calculated by dividing the net
earnings (loss) by the weighted average number of common shares outstanding for the reporting
period. Diluted net earnings (loss) per common share adjusts for the dilutive effect of common
stock equivalents, comprising shares that might be issued upon exercise of in-the-money common
stock options. In periods where losses are reported, the weighted-average number of common shares
outstanding excludes common stock equivalents, as the inclusion would be anti-dilutive.
For each of the years in the three year period ended December 31, 2008, the Company reported a net
loss. Accordingly, all of the outstanding stock options set forth in Note 13 have been excluded
from the calculation of fully diluted earnings per share for each of the years in this three year
period.
Fair Value Measurements. SFAS No. 157 Fair Value Measurements (SFAS 157) establishes a
framework for measuring the fair value of assets and liabilities and requires additional disclosure
about fair value measurements. This statement, which is effective for financial statements with
fiscal years beginning after November 15, 2007, was subsequently amended by FASB Staff Position No.
157-2. The amendment delayed by one year the application of SFAS 157 to non-recurring financial
assets and liabilities.
The company has a number of recurring financial instruments, including cash, short-term
investments, receivables, advanced agent commissions, payables and debt obligations. None of these
instruments are held for trading purposes. The Company estimates that the fair value of these
financial instruments does not materially differ from the respective reported balance sheet
amounts. Accordingly, the adoption of SFAS 157-has not had a material impact on the Companys
financial statements and disclosures. The Company is currently evaluating what impact the
application of SFAS 157 to non-recurring financial assets and liabilities that are recognized or
disclosed at fair value, principally its goodwill and other intangible assets, will have on its
financial statements.
Recently Issued Accounting Standards. During 2008, the Financial Accounting Standards Board (FASB)
did not issue any pronouncements which are expected to have a significant effect on the reporting
of the Companys financial condition or results of operations.
F-11
Note 3 Discontinued Operations
Discontinued operations comprise:
|
|
Foresight TPA, During the third quarter of 2008, the Company formally commenced an initiative
to exit the third-party administration market. Accordingly, Foresight TPA, the former Regional
Healthcare division, has been reclassified as a discontinued operation. Effective December 30,
2008 the Company sold Foresight TPA to HealthScope Benefits Inc. and incurred a $100,000 net
loss in connection with this sale. At closing, Foresight TPA had a working capital deficit of
$45,000. This amount is recorded as a discontinued operation liability at December 31, 2008
and, pursuant to the terms of the sale agreement, was paid to HealthScope Benefits Inc. during
February 2009. |
|
|
ACP Agency. During June 2008, the Company sold all of ACP Agencys rights to future override
commissions on substantially all of the Medicare supplement business previously sold by agents
contracted with ACP Agency. Accordingly, this agency, which was previously included in the
Insurance Marketing Division, has been reclassified as a discontinued operation. The gain from
the sale of future override commissions aggregated $556,000, comprising: |
|
|
|
An initial gain of $385,000 recorded in June 2008. This gain consists of
$764,000 of proceeds received, less a $400,000 charge for accelerated intangible asset
amortization and a net benefit of $21,000 attributable to miscellaneous adjustments. |
|
|
|
An additional gain of $196,000 recorded in December 2008. This amount, which
was determined by the average policy termination rate of the business sold during the
six month period to December 31, 2008, is recorded as a discontinued operations asset
at December 31, 2008. The $196,000 of contingent proceeds was received during February
2009. |
|
|
|
Allocation of $25,000 of state and franchise taxes attributable to the gain on sale. |
|
|
Financial Services Care 125. This operation, which was discontinued in December 2006,
previously provided health savings account (HSA), health reimbursement arrangements (HRA) and
medical and dependant care flexible spending account (FSA) programs for sale by agents and
brokers. |
|
|
Vergance. Effective June 30, 2006, the Company discontinued this operation, which had
previously been included in the Consumer Plan Division. Vergance commenced operations in the
third quarter of 2005 selling neutraceutical products under the Natrience brand; however sales
were immaterial. |
The following table sets forth revenue for the discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total Revenue (excluding gain (loss) on sale): |
|
|
|
|
|
|
|
|
|
|
|
|
Foresight TPA |
|
$ |
3,223 |
|
|
$ |
6,583 |
|
|
$ |
7,409 |
|
ACP Agency |
|
|
1,501 |
|
|
|
4,887 |
|
|
|
|
|
Financial Services Care 125 |
|
|
|
|
|
|
|
|
|
|
69 |
|
Vergance |
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
4,724 |
|
|
$ |
11,470 |
|
|
$ |
7,534 |
|
|
|
|
|
|
|
|
|
|
|
F-12
Note 3 Discontinued Operations, continued
The following table sets forth net income (loss) from the discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Pre-tax income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Foresight TPA (a) |
|
$ |
(1,814 |
) |
|
$ |
(3,565 |
) |
|
$ |
(2,221 |
) |
ACP Agency (b) |
|
|
138 |
|
|
|
(3,738 |
) |
|
|
|
|
Financial Services Care 125 |
|
|
|
|
|
|
|
|
|
|
(121 |
) |
Vergance |
|
|
|
|
|
|
|
|
|
|
(789 |
) |
|
|
|
|
|
|
|
|
|
|
Total pre-tax loss from operations |
|
|
(1,676 |
) |
|
|
(7,303 |
) |
|
|
(3,131 |
) |
Provision for income tax expense (benefit) |
|
|
46 |
|
|
|
65 |
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
Total net loss from operations |
|
|
(1,722 |
) |
|
|
(7,368 |
) |
|
|
(3,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Foresight TPA |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
ACP Agency |
|
|
556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net loss |
|
$ |
(1,266 |
) |
|
$ |
(7,368 |
) |
|
$ |
(3,067 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
Foresight TPAs loss for the years ended December 31, 2007 and 2006 include goodwill
and asset impairment charges of $4,092,000 and $3,640,000, respectively. |
|
b) |
|
ACP Agencys loss for the year ended December 31, 2007 includes a $4,000,000 goodwill
impairment charge. |
Note 4 Business Acquisitions
On January 30, 2007, the Company completed its merger with Insurance Capital Management USA, Inc.
(ICM) and on October 1, 2007, the Company completed its acquisition of Protective Marketing
Enterprises, Inc. (PME) from Protective Life Insurance Company (Protective Life).
The ICM acquisition provided the Company with future commission revenue from a book of health
insurance policies in force, a broader range of insured health care products and services and an
established distribution channel of health insurance agents. The purchase consideration comprised
the issuance of 6,756,382 shares of Company common stock. 4,498,529 shares were issued on January
30, 2007 and an additional 2,257,853 shares were issued on May 31, 2007 based upon the acquired ICM
companies having achieved the adjusted EBITDA target of $1,250,000 for the year ended December 31,
2006. The recorded cost of the acquisition of $11,143,000 consisted of $10,540,000 attributable to
the issuance of the 6,756,382 shares and $603,000 of costs directly related to the acquisition.
This purchase price exceeded the estimated market value of ICMs net identifiable assets and
resulted in the recording of $10,087,000 of goodwill, of which $4,000,000 was attributed to the
subsequently discontinued ACP Agency operation. ICMs results of operations are included in our
financial statements from January 30, 2007 forward.
The PME acquisition provided the Company with a wholesaler of discount medical service products, an
existing base of consumer plan members, a proprietary dental and vision provider networks, and a
back office administrative platform. The net cash consideration for the acquisition was $851,000,
comprising a $1,098,000 payment to Protective Life, and a $41,000 payment of acquisition costs, less $288,000 of acquired
unrestricted cash.
F-13
Note 4 Business Acquisitions continued
The cost of the acquisitions of ICM and PME was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of ACP |
|
|
|
|
|
|
Combined |
|
|
|
ICM |
|
|
Agency to |
|
|
PME |
|
|
Total- |
|
|
|
(Acquired |
|
|
Discontinued |
|
|
(Acquired |
|
|
Continuing |
|
$ in thousands |
|
1/30/07) |
|
|
Operations |
|
|
10/1/07) |
|
|
Operations |
|
Unrestricted cash |
|
$ |
77 |
|
|
$ |
|
|
|
$ |
288 |
|
|
$ |
365 |
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
131 |
|
Accounts receivable, net |
|
|
915 |
|
|
|
(95 |
) |
|
|
205 |
|
|
|
1,025 |
|
Advanced agent commissions, net |
|
|
4,795 |
|
|
|
(756 |
) |
|
|
|
|
|
|
4,039 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
851 |
|
|
|
|
|
|
|
851 |
|
Fixed assets, net |
|
|
35 |
|
|
|
|
|
|
|
77 |
|
|
|
112 |
|
Goodwill, net |
|
|
10,087 |
|
|
|
(4,000 |
) |
|
|
|
|
|
|
6,087 |
|
Other intangible assets, net |
|
|
3,700 |
|
|
|
(720 |
) |
|
|
1,073 |
|
|
|
4,053 |
|
Other assets |
|
|
37 |
|
|
|
|
|
|
|
36 |
|
|
|
73 |
|
Non-current assets of discontinued operations |
|
|
|
|
|
|
4,720 |
|
|
|
|
|
|
|
4,720 |
|
Accounts payable and accrued liabilities |
|
|
(1,640 |
) |
|
|
292 |
|
|
|
(412 |
) |
|
|
(1,760 |
) |
Debt |
|
|
(2,404 |
) |
|
|
|
|
|
|
|
|
|
|
(2,404 |
) |
Unearned commissions |
|
|
(3,603 |
) |
|
|
955 |
|
|
|
|
|
|
|
(2,648 |
) |
Deferred service and enrollment fees, net |
|
|
(423 |
) |
|
|
342 |
|
|
|
(180 |
) |
|
|
(261 |
) |
Deferred tax liability, net |
|
|
(433 |
) |
|
|
|
|
|
|
|
|
|
|
(433 |
) |
Current liabilities of discontinued operations |
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,143 |
|
|
$ |
|
|
|
$ |
1,218 |
|
|
$ |
12,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
$ |
10,540 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,540 |
|
Cash payment |
|
|
|
|
|
|
|
|
|
|
1,098 |
|
|
|
1,098 |
|
Acquisition costs |
|
|
603 |
|
|
|
|
|
|
|
41 |
|
|
|
644 |
|
Issuance of stock options |
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,143 |
|
|
$ |
|
|
|
$ |
1,218 |
|
|
$ |
12,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judgment was exercised in the determination of the fair value of the acquired assets and
liabilities, especially with regard to the valuation of goodwill and other intangible assets.
Goodwill is deemed to have an infinite life and is subject to periodic analysis for possible
impairment. The other intangible assets represent the estimated value, at the date of the
acquisition, of:
|
|
ICM - Policies in force (Customer Contracts) of $ 1,800,000, of which $720,000 was
allocated to ACP Agency, and certain AHCP Agency relationships (Agent Relationships) of
$1,900,000. These assets are being amortized on a straight-line basis over three years and
eight years, respectively. |
|
|
PME - Memberships in force (Customer Contracts) of $482,000 and certain dental and
vision provider network contracts (Network Contracts) of $591,000. These assets are being
amortized on a straight-line basis over four and eight years, respectively. |
Goodwill and other intangible assets arising from the ICM acquisition are not deductible for
federal income tax purposes. Intangible assets arising from the PME acquisition are amortizable and
deductible for federal income tax purposes pursuant to an available Section 338 election.
F-14
The following pro-forma condensed results of operations have been prepared as if the Companys
acquisitions of ICM and PME occurred on January 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total Revenue (a) |
|
$ |
35,171 |
|
|
$ |
37,199 |
|
|
$ |
50,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(1,188 |
) |
|
$ |
(5,613 |
) |
|
$ |
(5,160 |
) |
Loss from discontinued operations |
|
|
(1.266 |
) |
|
|
(7,346 |
) |
|
|
(3,196 |
) |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,454 |
) |
|
$ |
(12,959 |
) |
|
$ |
(8,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
(0.28 |
) |
|
$ |
(0.27 |
) |
Discontinued operations |
|
|
(0.06 |
) |
|
|
(0.36 |
) |
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(0.12 |
) |
|
$ |
(0.64 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted |
|
|
20,269,145 |
|
|
|
20,242,944 |
|
|
|
19,188,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
PMEs decision to discontinue much of its marketing activities by the beginning
of 2007 contributed to a substantial decline in revenue relative to the prior year. |
Note 5 Accounts Receivable
Accounts receivable at December 31, 2008 and 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
From insurance carriers |
|
$ |
936 |
|
|
$ |
793 |
|
Other, including discount card private label and wholesale programs |
|
|
218 |
|
|
|
246 |
|
Allowance for doubtful accounts |
|
|
(116 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
1,038 |
|
|
$ |
964 |
|
|
|
|
|
|
|
|
Based on the information available to the Company, the Company believes its allowances for doubtful
accounts is adequate. However, actual write-offs might exceed the recorded allowance. The Company
recognized bad debt expense applicable to accounts receivable of $143,000, $37,000, and $39,000 for
the years ended December 31, 2008, 2007 and 2006, respectively. All of these charges were
attributable to discount card private label and wholesale programs.
Note 6 Advanced Agent Commissions
Advanced agent commissions at December 31, 2008 and 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Advances funded by: |
|
|
|
|
|
|
|
|
Insurance carriers |
|
$ |
5,159 |
|
|
$ |
3,683 |
|
Speciality lending corporation |
|
|
1,249 |
|
|
|
452 |
|
Commercial bank |
|
|
|
|
|
|
425 |
|
Self-funded |
|
|
1,267 |
|
|
|
782 |
|
|
|
|
|
|
|
|
Sub-total |
|
|
7,675 |
|
|
|
5,342 |
|
Allowance for doubtful recoveries |
|
|
(850 |
) |
|
|
(400 |
) |
|
|
|
|
|
|
|
Advanced agent commissions, net |
|
$ |
6,825 |
|
|
$ |
4,942 |
|
|
|
|
|
|
|
|
F-15
Note 6 Advanced Agent Commissions continued
The allowance for doubtful recoveries was determined based primarily upon estimates of the recovery
of future commissions expected to be earned by the agents to whom advances are outstanding and,
where applicable, the agents responsible for their management. The Company recognized bad debt
expense on advanced agent commissions of $450,000 in 2008 and $312,000 in 2007.
The allowance for doubtful recoveries reflects significant judgment regarding the estimates used in
the determination of the allowance. Accordingly, subsequent actual results may differ from the
assumptions and estimates incorporated into the analysis undertaken at December 31, 2008.
Note 7 Prepaid Expenses and Other Assets
Prepaid expenses and other assets at December 31, 2008 and 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Prepaid insurance charges |
|
$ |
97 |
|
|
$ |
88 |
|
Other items, including inventory |
|
|
58 |
|
|
|
66 |
|
|
|
|
|
|
|
|
Total prepaid expenses |
|
$ |
155 |
|
|
$ |
154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized CFG loan origination fee |
|
$ |
86 |
|
|
$ |
|
|
Office premises rent deposit |
|
|
39 |
|
|
|
39 |
|
Other items |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
125 |
|
|
$ |
69 |
|
|
|
|
|
|
|
|
Note 8 Fixed Assets
Fixed assets at December 31, 2008 and 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Furniture and fixtures |
|
$ |
86 |
|
|
$ |
83 |
|
Leasehold improvements |
|
|
251 |
|
|
|
172 |
|
Computer and office equipment |
|
|
1,344 |
|
|
|
1,195 |
|
Software |
|
|
986 |
|
|
|
955 |
|
|
|
|
|
|
|
|
Total cost |
|
|
2,667 |
|
|
|
2,405 |
|
Accumulated depreciation |
|
|
(2,135 |
) |
|
|
(1,958 |
) |
|
|
|
|
|
|
|
Total fixed assets, net |
|
$ |
532 |
|
|
$ |
447 |
|
|
|
|
|
|
|
|
The Company incurred depreciation charges of $232,000, $218,000 and $669,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
F-16
Note 9 Goodwill and Other Intangible Assets
The changes in the carrying amount of the Companys goodwill and other intangible assets for the
years ended
December 31, 2008, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible |
|
|
Combined |
|
$ in thousands |
|
Goodwill |
|
|
Assets |
|
|
Total |
|
Balance at December 31, 2005 |
|
$ |
6,179 |
|
|
$ |
|
|
|
$ |
6,179 |
|
Changes during 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
impairment charge Capella |
|
|
(2,800 |
) |
|
|
|
|
|
|
(2,800 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
3,379 |
|
|
|
|
|
|
|
3,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquistion of ICM |
|
|
10,087 |
|
|
|
3,700 |
|
|
|
13,787 |
|
Reclassification of allocated ACP Agency goodwill
and intangible assets to discontinued operations |
|
|
(4,000 |
) |
|
|
(720 |
) |
|
|
(4,720 |
) |
Acquistion of PME |
|
|
|
|
|
|
1,073 |
|
|
|
1,073 |
|
Intangible asset amortization charge |
|
|
|
|
|
|
(591 |
) |
|
|
(591 |
) |
Goodwill
impairment charge Capella |
|
|
(3,377 |
) |
|
|
|
|
|
|
(3,377 |
) |
Goodwill impairment charge ICM |
|
|
(600 |
) |
|
|
|
|
|
|
(600 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
5,489 |
|
|
|
3,462 |
|
|
|
8,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization charge |
|
|
|
|
|
|
(794 |
) |
|
|
(794 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
5,489 |
|
|
$ |
2,668 |
|
|
$ |
8,157 |
|
|
|
|
|
|
|
|
|
|
|
During 2007, the Company recorded additions to intangible assets subject to amortization of
$4,773,000, of which $720,000 was allocated to ACP Agency and subsequently reclassified to
discontinued operations. The components of the $4,053,000 of finite-lived intangible assets
acquired during 2007 and attributed to continuing operations (of which $2,980,000 is attributable
to ICM and $1,073,000 attributable to PME) are:
|
|
|
$1,562,000 Policies in-force (3.3 years); |
|
|
|
$1,900,000 Agent relationships (8 years); and |
|
|
|
$591,000 Network contracts (8 years). |
These assets have no significant residual values. Estimated future amortization expense for
those intangible assets for the next five years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
Total |
|
Amortization expense |
|
$ |
794 |
|
|
$ |
460 |
|
|
$ |
402 |
|
|
$ |
311 |
|
|
$ |
311 |
|
|
$ |
2,278 |
|
Capella goodwill impairment charges recorded in 2006 and 2007 related to the continued decline in
members and revenues and the failure of certain new product and marketing initiatives to achieve
expected results. At December 31, 2007, all of the previously recorded Capella goodwill had been
fully written off. All of the December 31, 2008 goodwill balance of $5,489,000 is attributable to
the January 2007 ICM merger transaction.
The above table excludes goodwill impairment charges attributable to discontinued operations. In
2007 Foresight TPA recorded a $4,092,000 impairment charge to reflect the loss of significant
contracts and ACP Agency recorded a $4,000,000 impairment charge attributable to the significant
decline in sales of Medicare supplemental policies. In 2006, Foresight TPA recorded a $3,640,000
goodwill impairment charge to reflect a decline in the number of lives covered under plans that it
administered. There was no recorded goodwill balance for discontinued operations at December 31,
2007 or December 31, 2008.
Goodwill is subject to impairment valuations as described above but is not subject to amortization.
To the extent that previously projected estimated future cash flows incorporated into the most
recent impairment analysis do not occur, then further goodwill impairment charges may occur.
F-17
Note 10 Accrued Liabilities
Accrued liabilities at December 31, 2008 and 2007 consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Accrued payroll and benefits |
|
$ |
197 |
|
|
$ |
287 |
|
Accrued professional fees |
|
|
138 |
|
|
|
177 |
|
Accrued settlement provision and defense costs |
|
|
347 |
|
|
|
202 |
|
Accrued agency convention and marketing credit costs |
|
|
292 |
|
|
|
236 |
|
Accrued administrative and processing charges |
|
|
|
|
|
|
338 |
|
Accrued membership refunds |
|
|
163 |
|
|
|
236 |
|
Other accruals |
|
|
353 |
|
|
|
545 |
|
|
|
|
|
|
|
|
Total accrued liabilities |
|
$ |
1,490 |
|
|
$ |
2,021 |
|
|
|
|
|
|
|
|
Note 11 Debt
Short-term and long-term debt at December 31, 2008 and 2007 consists of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Short-term debt |
|
$ |
520 |
|
|
$ |
1,255 |
|
Long-term debt |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
1,249 |
|
|
$ |
1,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from specialty lending corporation |
|
$ |
1,249 |
|
|
$ |
452 |
|
Commercial bank revolving lines of credit |
|
|
|
|
|
|
425 |
|
Promissory note from related party |
|
|
|
|
|
|
378 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
1,249 |
|
|
$ |
1,255 |
|
|
|
|
|
|
|
|
During March 2008, the Company obtained a new $1,605,000 loan from Commission Funding Group (CFG),
a specialty lending corporation. $731,000 of these proceeds were used immediately to fully repay
the prior CFG loan, the outstanding commercial bank revolving lines of credit, and the $115,000
loan origination fee. The current CFG loan matures March 2011, and the principal is repayable in
equal monthly installments. The current interest rate charge, which is variable, together with the
loan origination fee amortization charge, is currently 10%, the minimum rate provided by the loan
agreement. The loan may be prepaid without penalty. Collateral provided to CFG includes rights,
only in the event of a default, to certain AHCP Agency commissions from insurance carriers. Future
loan principal repayment obligations comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands |
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
Total |
|
Loan principal repayment obligations |
|
$ |
520 |
|
|
$ |
576 |
|
|
$ |
153 |
|
|
$ |
1,249 |
|
During September 2007, the Company obtained a $500,000 loan from the estate of Peter Nauert, the
former chairman and chief executive officer of the Company who passed away in August 2007. This
related party loan was paid in full during October 2008.
During February 2009, the Company obtained a stand-by line of credit facility from Alliance
HealthCard of up to $300,000. No amounts were drawn down under this facility, which was cancelled
effective April 1, 2009 in connection with the Companys merger into Alliance HealthCard on that
date.
Note 12 Operating Leases
The Company has leased various office spaces through December 15, 2011. For the years ended
December 31, 2008, 2007 and 2006, the Company incurred rent expense related to office space of
$376,000, $278,000 and $393,000, respectively. Future minimum lease commitments on this space are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
|
$ in thousands |
|
1 Year |
|
|
1-2 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
Total |
|
Future lease commitments |
|
$ |
288 |
|
|
$ |
295 |
|
|
$ |
262 |
|
|
$ |
|
|
|
$ |
845 |
|
F-18
Note 13 Stock Based Compensation
During the years ended December 31, 2008, 2007 and 2006, the Company granted 25,000, 397,500 and
310,000 common stock options, respectively. The fair value of each option award is estimated on the
date of the grant using the binomial lattice-option pricing model. The option pricing model
requires a number of assumptions, the most significant of which are:
|
|
|
Expected stock price volatility reflect historical stock price activity; applied a
72% factor for options granted in 2008, |
|
|
|
Expected life of options grant term (2008 option grants expire after 5 years and vest
25% over each of the first four years of the grant term), adjusted for an expected 31%
pre-vesting forfeiture based on historical experience |
|
|
|
|
Risk free interest rate based on the U.S Treasury yield curve in effect at the time of the grant (2.7% for 2008 grants) |
|
|
|
|
Dividend yield none |
Personnel costs for the years ended December 31, 2008, 2007 and 2006 include stock based
compensation charges of $29,000, $401,000 and $231,000, respectively.
Changes in outstanding and exercisable common stock options for the years ended December 31, 2008,
2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
Average |
|
|
Fair Value |
|
|
|
Number of |
|
|
Exercise |
|
|
at Grant |
|
|
|
Options |
|
|
Price |
|
|
Date |
|
Options outstanding at January 1, 2006 |
|
|
1,301,354 |
|
|
$ |
3.48 |
|
|
$ |
1.58 |
|
Changes during 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
310,000 |
|
|
$ |
1.76 |
|
|
$ |
0.95 |
|
Options exercised |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Options cancelled |
|
|
(184,000 |
) |
|
$ |
(4.13 |
) |
|
$ |
(1.77 |
) |
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2006 |
|
|
1,427,354 |
|
|
$ |
2.21 |
|
|
$ |
1.39 |
|
Changes during 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
397,500 |
|
|
$ |
1.90 |
|
|
$ |
0.93 |
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(507,354 |
) |
|
$ |
(2.64 |
) |
|
$ |
(1.61 |
) |
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007 |
|
|
1,317,500 |
|
|
$ |
1.95 |
|
|
$ |
1.16 |
|
Changes during 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
25,000 |
|
|
$ |
1.25 |
|
|
$ |
0.48 |
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
(403,000 |
) |
|
$ |
(1.94 |
) |
|
$ |
(1.34 |
) |
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008 |
|
|
939,500 |
|
|
$ |
1.94 |
|
|
$ |
1.07 |
|
|
|
|
|
|
|
|
|
|
|
All of the outstanding and exercisable common stock options at December 31, 2008, which are set
forth below, had an exercise price which was higher than the Companys closing stock price of $0.23
at that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Outstanding |
|
|
Average |
|
|
Average |
|
|
Outstanding |
|
|
Average |
|
|
|
at Dec. 31, |
|
|
Remaining |
|
|
Exercise |
|
|
at Dec. 31, |
|
|
Exercise |
|
Price Range |
|
2008 |
|
|
Life (years) |
|
|
Price |
|
|
2008 |
|
|
Price |
|
Exercise price below $1.76 |
|
|
282,000 |
|
|
|
3.1 |
|
|
$ |
1.35 |
|
|
|
257,000 |
|
|
$ |
1.36 |
|
Exercise price of $1.76 to $3.55 |
|
|
646,500 |
|
|
|
1.8 |
|
|
$ |
2.16 |
|
|
|
559,000 |
|
|
$ |
2.22 |
|
Exercise price above $3.55 |
|
|
11,000 |
|
|
|
0.2 |
|
|
$ |
3.88 |
|
|
|
11,000 |
|
|
$ |
3.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939,500 |
|
|
|
2.2 |
|
|
$ |
1.94 |
|
|
|
827,000 |
|
|
$ |
1.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Note 13 Stock Based Compensation, continued
The weighted average remaining life of the 827,000 exercisable options outstanding at December 31,
2008 is 2.0 years. There were 112,500 non-vested options outstanding at December 31, 2008. The
weighted average period over which these non-vested options will vest is 1.0 years and the
estimated total compensation cost which will be recognized over this period is $27,000. The
following table sets forth the change in non-vested options during the year ended December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Dec. 31, |
|
|
Year Ended December 31,2008 |
|
|
At Dec. 31, |
|
|
|
2007 |
|
|
Granted |
|
|
Vested |
|
|
Cancelled |
|
|
2008 |
|
Non-vested options |
|
|
309,000 |
|
|
|
25,000 |
|
|
|
(80,250 |
) |
|
|
(141,250 |
) |
|
|
112,500 |
|
Weighted average grant date
fair value |
|
$ |
1.11 |
|
|
$ |
0.49 |
|
|
$ |
1.30 |
|
|
$ |
1.06 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 Employee Benefit Plan
The Company has adopted a retirement plan that includes a 401(k) deferred compensation feature. All
employees who have completed at least six months of service and are 21 years of age or older may
participate in the plan. Through December 31, 2008, the Company made matching contributions of up
to 50% of a participants contributions limited to 3% of the participants annual compensation. The
Company matching contributions vest 20% per year and become fully vested after the participant has
6 or more years of service. During 2008, 2007 and 2006, the Company made $55,000, $51,000 and
$112,000, respectively, in matching contributions to the Plan. All participant contributions are
fully vested.
Note 15 Income Taxes
The income tax provision for the years ended December 31, 2008, 2007 and 2006 consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current provision |
|
$ |
65 |
|
|
$ |
(159 |
) |
|
$ |
(465 |
) |
Deferred provision |
|
|
|
|
|
|
(432 |
) |
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income tax expense (benefit) |
|
$ |
65 |
|
|
$ |
(591 |
) |
|
$ |
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision (benefit) for continuing operations |
|
$ |
(6 |
) |
|
$ |
(656 |
) |
|
$ |
14 |
|
Total tax provision (benefit) for discontinued operations |
|
|
71 |
|
|
|
65 |
|
|
|
(64 |
) |
|
|
|
|
|
|
|
|
|
|
Total provision for income tax expense (benefit) |
|
$ |
65 |
|
|
$ |
(591 |
) |
|
$ |
(50 |
) |
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of the provision for income taxes for continuing
operations with amounts determined by applying the statutory US federal income tax rate to the loss
before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Federal statutory rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Non-deductible goodwill impairment charges |
|
|
0.0 |
% |
|
|
-21.0 |
% |
|
|
-20.5 |
% |
State taxes included in the federal tax computation |
|
|
8.4 |
% |
|
|
-1.0 |
% |
|
|
-3.4 |
% |
Change in valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Net impact of purchase accounting ICM acquisition |
|
|
0.0 |
% |
|
|
6.7 |
% |
|
|
0.0 |
% |
Other changes in valuation allowance |
|
|
-39.5 |
% |
|
|
-11.7 |
% |
|
|
-20.6 |
% |
Other adjustments, net |
|
|
-2.9 |
% |
|
|
0.3 |
% |
|
|
-1.0 |
% |
|
|
|
|
|
|
|
|
|
|
Total federal tax provision |
|
|
0.0 |
% |
|
|
7.3 |
% |
|
|
-11.5 |
% |
State and franchise income taxes |
|
|
0.5 |
% |
|
|
2.9 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
Total provision for income tax (expense) benefit |
|
|
0.5 |
% |
|
|
10.2 |
% |
|
|
-0.3 |
% |
|
|
|
|
|
|
|
|
|
|
F-20
Note 15 Income Taxes, continued
Deferred income taxes reflect the net tax effects of temporary differences between the recorded
values of assets and liabilities for financial reporting purposes and the amounts used for income
tax reporting purposes. Significant temporary differences at December 31, 2008 and 2007 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
$ in thousands |
|
2008 |
|
|
2007 |
|
Deferred tax assets (liabilities) tax effect of: |
|
|
|
|
|
|
|
|
Net operating loss carry-forwards |
|
$ |
909 |
|
|
$ |
676 |
|
Net capital loss carry-forward |
|
|
2,189 |
|
|
|
|
|
Provision for losses on accounts receivable and agent advances |
|
|
339 |
|
|
|
221 |
|
Depreciation and impairment of fixed assets |
|
|
(6 |
) |
|
|
(30 |
) |
Accrued and prepaid expenses, net |
|
|
469 |
|
|
|
450 |
|
Intangible asset basis difference |
|
|
(642 |
) |
|
|
(1,026 |
) |
Valuation allowance |
|
|
(3,258 |
) |
|
|
(291 |
) |
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
At December 31, 2008 the Company had federal net operating loss (NOL) carry-forwards of
approximately $2,675,000, expiring at various dates through 2028, and, in connection with the sale
of Foresight TPA, a $6,439,000 net capital loss (NCL) carry-forward, which expires during 2013
This results in, assuming a 34% statutory tax rate, the $909,000 NOL the $2,189,000 NCL included in
the above table.
While the Company potentially has significant deferred tax assets, Internal Revenue Code Section
382 places a limitation on the amount of taxable income which can be offset by NOL carry-forwards
after a change in control of a loss corporation. Due to these provisions, which will apply
subsequent to the April 1, 2009 merger of the Company into Alliance HealthCard Inc., together with
a lack of earnings over the past three years, we have determined that it would be inappropriate to
record a net deferred tax asset balance at December 31, 2008. The company also believes that it is
unlikely that the capital loss carry-forward will be utilized during the applicable five-year
carry-forward period. Accordingly, during 2008 the deferred tax valuation allowance was increased
by $2,967,000 to $3,258,000 at December 31, 2008.
Note 16 Commitments and Contingencies
In the normal course of business, the Company may become involved in litigation or in settlement
proceedings relating to claims arising out of the Companys operations. Except as described below,
the Company is not a party to any legal proceedings, the adverse outcome of which, individually or
in the aggregate, could have a material adverse effect on the Companys business, financial
condition and results of operations.
a. |
|
William Andrew Rivell, M.D. and Alan B. Whitehouse,
M.D., individually and on behalf of all persons similarly situated, v. Private Health Care Systems
and The Capella Group, Inc.; Civil Action File No: CV106-176 was filed and remains pending in the
United States District Court for the Southern District of Georgia, Augusta Division. The plaintiffs
in this case allege that the contracts entered into by medical providers with our subsidiary, The
Capella Group, Inc. (Capella) through Capellas relationship with the Private Health Care Systems
network of providers (PHCS) did not allow for the use of the providers names to market a
discount medical plan whereby payment for services is made at the point of service by the consumer,
and not by a third party payor such as an insurance company. We vigorously contest this assertion
and intend to defend this case. The Plaintiffs are, however, seeking certification of this case
as a class action on behalf of all similarly-situated physicians nationwide. If the plaintiffs
succeed with such certification and ultimately prevail in the case, it could have a material
adverse affect on our financial condition and our results of operation. The case was originally
instituted on November 17, 2006, but was thereafter dismissed by the District Court. The United
States Court of Appeals for the Eleventh Circuit vacated such dismissal and remanded the case to
the District Court on March 24, 2008, in which court it remains pending. We cannot provide any
assurance regarding the outcome or the results of this litigation. |
F-21
Note 16 Commitments and Contingencies, continued
b. |
|
State of Texas v The Capella Group, Inc. et al. The State of Texas filed a lawsuit against
Capella on
April 28, 2005. The lawsuit was filed in the 98th District Court of Travis County,
Texas as case number
GV501264. The lawsuit alleged that Care Entreée, directly and through at least one other
party that
formerly resold the services of Care Entreées to the public, violated certain provisions of
the Texas
Deceptive Trade Practices Consumer Protection Act. The lawsuit sought, among other things,
injunctive
relief, unspecified monetary penalties and restitution. We settled that suit by entering into an
Agreed Final
Judgment and Permanent Injunction that was effective on January 6, 2009. The Agreement requires
us to
pay a total of $400,000 in penalties and fees. $100,000 of that amount was paid in December
2008. The
remaining amount is due in installments of $100,000 on January 1, 2010 and of $200,000 on June
1, 2010. |
c. |
|
Zermeno v Precis, Inc. The case styled Manuela Zermeno, individually and on behalf of the
general public;
and Juan A. Zermeno, individually and on behalf of the general public v Precis, Inc., and Does 1
through
100, inclusive was filed on August 14, 2003 in the Superior Court of the State of California
for the County
of Los Angeles under case number BC 300788. The Zermeno plaintiffs are former members of the
Care
Entreée discount healthcare program who allege that they (for themselves and for the general
public) are
entitled to injunctive, declaratory, and equitable relief under California Health and Safety
Code § 445
(Section 445). That provision governs medical referral services. The plaintiffs also sought
relief under
Business and Professions Code § 17200, Californias Unfair Competition Law (Section 17200). |
On December 21, 2007, we received a favorable verdict. The plaintiffs have appealed the judgment
in our favor. A negative result in this case could have a material affect on our financial
condition and would limit our ability (and that of other healthcare discount programs) to do
business in California. We believe that we have complied with all applicable statues and
regulations in the state of California. Although we believe the Plaintiffs claims are without
merit, we cannot provide any assurance regarding the outcome or results of this litigation.
d. |
|
States General Life Insurance Company. In February 2005, States General Life Insurance
Company
(SGLIC) was placed in permanent receivership by the Texas Insurance Commission (The State of
Texas v
States General Life Insurance Company, Cause No. GV-500484, in the 126th District
Court of Travis
County, Texas.) Pursuant to letters dated October 19, 2006, the Special Deputy Receiver (the
SDR) of
SGLIC asserted certain claims against ICM, its subsidiaries, Peter W. Nauert, ICMs Chairman and
Chief
Executive Officer, and G. Scott Smith, a former Executive Officer of ICM, totaling $2,839,000.
The SDR is
seeking recovery of certain SGLIC funds that it alleges were inappropriately transferred and
paid to or for
the benefit of ICM, its subsidiaries and Messrs. Nauert and Smith. These claims are based upon
assertions
of Texas law violations, including prohibitions against self-dealing, participation in breach of
fiduciary duty
and preferential and fraudulent transfers. Mr. Nauert was in control and Chairman of the Board
of SGLIC
when it was placed in receivership by the Texas Insurance Commission. The Company, its
subsidiaries and
Messrs. Nauert and Smith intend to exercise their full rights in defense of the SDRs asserted
claims. The
SDR filed its own action against SGLIC, pending in the 126th District Court of Travis
County, Texas under
cause No. GV-500484 and against Messrs. Nauert and Smith, ICM, certain subsidiaries of ICM and
other
parties, in the 126th District Court of Travis County, Texas under cause No.
D-l-GN-06-4697. Access Plans
has been named as a defendant in this action as a successor-in-interest to ICM. |
On May 6, 2008 our Motion for Summary Judgment on various matters was granted. The order
granting our motion dismissed the Special Deputy Receivers causes of action related to recovery
from affiliates, fraudulent transfers, avoidable preferences and under the Uniform Fraudulent
Transfer Act. The granting of our motion did not summarily dismiss the case, but it narrowed the
issues.
F-22
Note 16 Commitments and Contingencies, continued
In connection with the Companys acquisition of ICM and its subsidiaries, Mr. Nauert and the
Peter W. Nauert Revocable Trust have agreed to fully indemnify ICM and the Company against any
losses resulting from this matter. Although the Company can provide no assurance, we believe
that the ultimate outcome of these claims and lawsuits will not have a material adverse effect
on the Companys consolidated financial condition, results of operation, or liquidity, and no
amounts for any potential losses have been accrued at December 31, 2008.
e. |
|
American Insurance Agencies of Greater Florida, Inc. v. Americas Health Care/RX Plan
Agency, Inc., Access Plans USA, Inc. and William Gorski, Walter S. Bischofberger, and Louis
Gragnano; Case No. 2008CA002639NC, was filed on February, 2008, and remains pending in the
Circuit Court of the Twelfth Judicial Circuit, In and For Sarasota County, Florida. The
plaintiff is an insurance agency. The individual defendants are insurance agents that were
previously appointed by the plaintiff and now do business with our subsidiary, AHCP Agency.
The plaintiff alleges that the individual defendants violated non-competition agreements and
that the Company defendants used confidential information of the plaintiffs to poach the
agents and interfere with the contracts between the agents and the plaintiff agency. We
believe that we did not violate any agreement with the plaintiffs and that we did not use any
confidential information of the plaintiffs and we are defending this case. We cannot provide
any assurance regarding the outcome or the results of this litigation. |
At December 31, 2008, the Company had accrued $347,000, inclusive of defense costs, for the
resolution of the above matters. While it is possible that we may incur costs in excess of this
amount, we are unable to provide a reasonable estimate of the range of additional costs that may
be incurred.
Note 17 Credit Risk Concentration
The company maintains its cash in bank accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts and believes it is not exposed
to any significant risk.
The Companys Consumer Plan customers are not concentrated in any specific distribution
relationship. Two insurance carrier relationships account for 70% and 60% of Insurance Marketings
revenue for the years ended December 31, 2008 and 2007, respectively. These carriers accounted for
79% of the accounts receivable at December 31, 2008 and 59% of the unearned commissions at that
date. The majority of the revenue of the discontinued Foresight TPA operation was derived from
contractual relationships with a limited number of municipal entities.
Note 18 Related Party Transactions
During the year ended December 31, 2008, the Company repaid in full the loan it had obtained in
the prior year from the estate of Peter Nauert, the Companys former Chairman and CEO see note
11.
During the years ended December 31, 2008 and 2007, the Company charged Insurance Producers Group of
America, Inc. (IPG) $29,000 and $40,000, respectively for the sub-lease of certain office space,
and in 2007, modest administrative services. IPG is managed by individuals not related to the
Company, but Ian Stuart, the Companys Interim President and CEO (through March 31, 2009), owns
approximately 12% of the issued and outstanding shares of IPG. During March 2008, the Peter Nauert
estate sold its majority ownership interest in IPG to a third party.
Through January 2007, the Company paid $24,000 of rent to a company affiliated with the former CEO
of Foresight TPA (the discontinued operation which we sold on December 30, 2008) and also earned
revenue from this company of $146,000 and $684,000 for the years ended December 31, 2007 and 2006,
respectively.
F-23
Note 19 Segment Reporting
Historically, the Company pursued distinct marketing strategies for various divisions and
separately managed these divisions. While there has been a substantial narrowing of focus during
2008 and integration of critical support functions, the Company has elected to continue to
separately report the results of its Consumer Plan and Insurance Marketing divisions and to
segregate certain costs not directly allocable to these divisions, including costs attributable to
operating as a public entity, in Corporate and Other.
The table set forth below provides summary segment information for Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
Insurance |
|
|
|
|
|
|
Total |
|
|
|
Plan |
|
|
Marketing |
|
|
Corporate |
|
|
Continuing |
|
$ in thousands |
|
Division |
|
|
Division |
|
|
and Other |
|
|
Operations |
|
Year ended December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
14,230 |
|
|
$ |
20,919 |
|
|
$ |
22 |
|
|
$ |
35,171 |
|
Income (loss) before income taxes |
|
|
222 |
|
|
|
729 |
|
|
|
(2,145 |
) |
|
|
(1,194 |
) |
Provision for income taxes (benefit) |
|
|
13 |
|
|
|
25 |
|
|
|
(44 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
209 |
|
|
|
704 |
|
|
|
(2,101 |
) |
|
|
(1,188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held |
|
$ |
1,847 |
|
|
$ |
15,293 |
|
|
$ |
699 |
|
|
$ |
17,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
13,690 |
|
|
$ |
15,246 |
|
|
$ |
36 |
|
|
$ |
28,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(3,396 |
) |
|
|
(634 |
) |
|
|
(2,413 |
) |
|
|
(6,443 |
) |
Provision for income taxes (benefit) |
|
|
16 |
|
|
|
13 |
|
|
|
(685 |
) |
|
|
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(3,412 |
) |
|
|
(647 |
) |
|
|
(1,728 |
) |
|
|
(5,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held |
|
$ |
2,557 |
|
|
$ |
14,215 |
|
|
$ |
2,790 |
|
|
$ |
19,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
14,443 |
|
|
$ |
|
|
|
$ |
82 |
|
|
$ |
14,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,814 |
) |
|
|
|
|
|
|
(1,829 |
) |
|
|
(4,643 |
) |
Provision for income taxes (benefit) |
|
|
(9 |
) |
|
|
|
|
|
|
23 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(2,805 |
) |
|
|
|
|
|
|
(1,852 |
) |
|
|
(4,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets held |
|
$ |
5,448 |
|
|
$ |
|
|
|
$ |
5,887 |
|
|
$ |
11,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
CONSOLIDATING SCHEDULES
F-25
ACCESS PLANS USA, INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protective |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
AHCP |
|
|
ACP |
|
|
Foresight |
|
|
Legal |
|
|
Consolidated |
|
Dollars in thousands |
|
Capella |
|
|
Enterprise |
|
|
Agency |
|
|
Agency |
|
|
TPA |
|
|
Entities* |
|
|
Total |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51 |
|
|
$ |
141 |
|
|
$ |
81 |
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
60 |
|
|
$ |
336 |
|
Restricted short-term investments |
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
538 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments |
|
|
51 |
|
|
|
274 |
|
|
|
81 |
|
|
|
3 |
|
|
|
|
|
|
|
598 |
|
|
|
1,007 |
|
Accounts receivable, net |
|
|
74 |
|
|
|
28 |
|
|
|
936 |
|
|
|
(2 |
) |
|
|
|
|
|
|
2 |
|
|
|
1,038 |
|
Income taxes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced agent commissions, net |
|
|
|
|
|
|
|
|
|
|
6,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,825 |
|
Prepaid expenses |
|
|
50 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97 |
|
|
|
155 |
|
Deferred tax asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
175 |
|
|
|
310 |
|
|
|
7,842 |
|
|
|
197 |
|
|
|
|
|
|
|
697 |
|
|
|
9,221 |
|
Fixed assets, net |
|
|
532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532 |
|
Goodwill, net |
|
|
|
|
|
|
|
|
|
|
5,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,489 |
|
Other intangible assets, net |
|
|
|
|
|
|
833 |
|
|
|
1,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,668 |
|
Other assets |
|
|
|
|
|
|
1 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
707 |
|
|
$ |
1,144 |
|
|
$ |
15,253 |
|
|
$ |
197 |
|
|
$ |
|
|
|
$ |
734 |
|
|
$ |
18,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
42 |
|
|
$ |
41 |
|
|
$ |
9 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
416 |
|
|
$ |
508 |
|
Accrued commissions payable |
|
|
22 |
|
|
|
48 |
|
|
|
240 |
|
|
|
47 |
|
|
|
|
|
|
|
4 |
|
|
|
361 |
|
Accrued liabilities |
|
|
638 |
|
|
|
153 |
|
|
|
360 |
|
|
|
3 |
|
|
|
|
|
|
|
336 |
|
|
|
1,490 |
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
128 |
|
Short-term debt |
|
|
|
|
|
|
|
|
|
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520 |
|
Current portion of capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned commissions |
|
|
|
|
|
|
|
|
|
|
5,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,159 |
|
Deferred service and enrollment fees,
net of acquisition costs |
|
|
192 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263 |
|
Current liabilities of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
894 |
|
|
|
313 |
|
|
|
6,288 |
|
|
|
50 |
|
|
|
45 |
|
|
|
884 |
|
|
|
8,474 |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
729 |
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
894 |
|
|
|
313 |
|
|
|
7,017 |
|
|
|
50 |
|
|
|
45 |
|
|
|
884 |
|
|
|
9,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equitycomprising
common stock, paid-in capital,
accumulated earnings (deficit) and
inter-company accounts, less
treasury stock |
|
|
(187 |
) |
|
|
831 |
|
|
|
8,236 |
|
|
|
147 |
|
|
|
(45 |
) |
|
|
(150 |
) |
|
|
8,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
707 |
|
|
$ |
1,144 |
|
|
$ |
15,253 |
|
|
$ |
197 |
|
|
$ |
|
|
|
$ |
734 |
|
|
$ |
18,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other legal entities comprise the parent company, Access Plans USA, Inc. and other
intermediate holding companies that do not have any significant operating activity. |
F-26
ACCESS PLANS USA, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protective |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Marketing |
|
|
AHCP |
|
|
ACP |
|
|
Foresight |
|
|
Legal |
|
|
Consolidated |
|
Dollars in thousands |
|
Capella |
|
|
Enterprise |
|
|
Agency |
|
|
Agency |
|
|
TPA |
|
|
Entities* |
|
|
Total |
|
Commission and service revenues |
|
$ |
9,118 |
|
|
$ |
5,112 |
|
|
$ |
20,139 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
21 |
|
|
$ |
34,390 |
|
Interest income on agent advances |
|
|
|
|
|
|
|
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
9,118 |
|
|
|
5,112 |
|
|
|
20,920 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
35,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expenses |
|
|
2,213 |
|
|
|
2,562 |
|
|
|
14,872 |
|
|
|
. |
|
|
|
|
|
|
|
7 |
|
|
|
19,654 |
|
Provider network fees and other
direct costs |
|
|
2,724 |
|
|
|
915 |
|
|
|
1,140 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
4,781 |
|
Interest expense attributable to
funding agent advances |
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct costs |
|
|
4,937 |
|
|
|
3,477 |
|
|
|
16,175 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
24,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
4,181 |
|
|
|
1,635 |
|
|
|
4,745 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
10,573 |
|
Personnel costs, including benefits |
|
|
2,077 |
|
|
|
1,163 |
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
1,089 |
|
|
|
6,208 |
|
Other sales, general and
administrative expenses |
|
|
1,271 |
|
|
|
711 |
|
|
|
1,505 |
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
4,399 |
|
Depreciation and intangible asset
amortization |
|
|
111 |
|
|
|
277 |
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
1,026 |
|
Goodwill and intangible asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and other asset
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
3,459 |
|
|
|
2,151 |
|
|
|
4,016 |
|
|
|
|
|
|
|
|
|
|
|
2,171 |
|
|
|
11,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
722 |
|
|
|
(516 |
) |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
(2,159 |
) |
|
|
(1,224 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
24 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
42 |
|
Interest expense |
|
|
(5 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
19 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
741 |
|
|
|
(519 |
) |
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
(2,145 |
) |
|
|
(1,194 |
) |
Provision for income tax
expense (benefit) |
|
|
10 |
|
|
|
3 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
731 |
|
|
|
(522 |
) |
|
|
704 |
|
|
|
|
|
|
|
|
|
|
|
(2,101 |
) |
|
|
(1,188 |
) |
Income (loss) from discontinued
operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666 |
|
|
|
(1,932 |
) |
|
|
|
|
|
|
(1,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
731 |
|
|
$ |
(522 |
) |
|
$ |
704 |
|
|
$ |
666 |
|
|
$ |
(1,932 |
) |
|
$ |
(2,101 |
) |
|
$ |
(2,454 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other legal entities comprise the parent company, Access Plans USA, Inc., and
other intermediate holding companies that do not have any significant operating
activity. |
F-27
(b) Pro Forma Financial Information.
The unaudited pro forma financial statements giving effect to the acquisition of Access Plans USA,
Inc. by Alliance HealthCard, Inc. appear at pages PF-1 through PF-7 of this report.
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following unaudited pro forma condensed combining financial statements give effect
to the merger-acquisition of Access Plans USA, Inc. by Alliance HealthCard, Inc., based on the
assumptions and adjustments set forth in the accompanying notes to the unaudited pro forma
condensed combining financial statements. In addition, the unaudited pro forma condensed combining
statement of operations for the year ended September 30, 2008
also gives effect to the divesture of
Access HealthSource, Inc. and ACP Agency by Access Plans USA, Inc., that was a required condition of the merger
based on the assumptions and adjustments set forth in the accompanying notes.
The unaudited pro forma condensed combining financial statements assume the issuance of
6,800,000 shares of Alliance HealthCards common stock in connection with the merger-acquisition.
The unaudited pro forma condensed combining statement of operations for the year ended
September 30, 2008 also assumes the Alliance HealthCard common stock shares were outstanding for
that entire year.
The value assigned to the number of shares of Alliance HealthCards common stock issued
in connection with the proposed merger is based on Alliance HealthCards common stock price on
November 14, 2008, the date the merger-acquisition was announced. This results in a common stock
price of $0.60 for pro forma valuation purposes.
The purchase price of Alliance HealthCards acquisition of Access Plans USA, Inc. has
been allocated based on preliminary estimates of the fair value of the acquired assets and
liabilities. See Note 1 to the Notes to Unaudited Pro Forma Condensed Combining Balance Sheet. The
pro forma adjustments are subject to change pending a final analysis of the fair values of the
assets and liabilities of Access Plans USA. The impact of these changes could be material.
Periods Covered
The unaudited pro forma condensed combining statement of operations for the year ended
September 30, 2008 is based on the individual historical statements of operations of Alliance
HealthCard and Access Plans USA as if the merger-acquisition occurred on October 1, 2007. The
unaudited pro forma condensed combining statement of operations of Alliance HealthCard for the year
ended September 30, 2008 is based on the audited historical statement of operations of Alliance
HealthCard, Inc. The unaudited pro forma condensed combining statement presented for Access Plans USA, Inc. for
the year ended September 30, 2008 is based on its audited historical statement of operations for
the year ended December 31, 2007 adjusted for removal of the nine months ended on September 30,
2007 and the addition of its unaudited historical statement of operations for the nine months ended
September 30, 2008, adjusted to exclude its discontinued operations (the divesture of Access
Healthsource, Inc. and ACP Agency).
The unaudited pro forma unaudited condensed combined statements of operations of
Alliance HealthCard, Inc. for the three months ended December 31, 2008 are based on the unaudited
historical statement of operations of Alliance HealthCard, Inc. The unaudited pro forma condensed combining statement presented
for Access Plans USA, Inc. for the three months ended December 31, 2008 is based on its audited
historical statement of operations for the year ended December 31, 2008 adjusted for removal of the
nine months ended on September 30, 2008, adjusted to exclude its discontinued operations (the
divesture of Access Healthsource, Inc. and ACP Agency).
The unaudited pro forma condensed combining balance sheet as of December 31, 2008 is
based on the individual historical unaudited balance sheet of Alliance HealthCard, Inc. and audited
balance sheet of Access Plans USA, Inc. (adjusted to give effect to the assumed divesture of
Access HealthSource and ACP Agency), as if the merger-acquisition occurred on December 31, 2008.
The unaudited pro forma condensed combining financial statements are based on estimates
and assumptions. These estimates and assumptions are preliminary and have been made solely for
purposes of developing this pro forma information. Unaudited pro forma condensed combining
financial information is presented for illustrative purposes only and is not necessarily indicative
of the operating results that would have been achieved if the merger-acquisition had been
consummated as of the beginning of the period indicated, nor is it necessarily indicative of the
results of future operations. The pro forma condensed combining financial information does not give
effect to any cost savings or restructuring and integration costs that may result from the
integration of Access Plans USA, Inc. into Alliance HealthCard, Inc.
This unaudited pro forma condensed combining financial information is based upon and
should be read in conjunction with the respective historical consolidated financial statements and
related notes of Access Plans USA, Inc. appearing elsewhere in this report and those of Alliance
HealthCard, Inc. appearing in its Annual Report on Form 10-K filed with the U.S. Securities and
Exchange Commission (theCommission) on December 29, 2008 and in its Quarterly Report on Form
10-Q filed with the Commission on February 12, 2009 (each of which is incorporated by reference).
PR-1
ALLIANCE HEALTHCARD, INC.
UNAUDITED PRO-FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2008
(Dollars in thousands, except Earnings per Share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance |
|
|
Access |
|
|
|
|
|
|
|
|
|
Healthcard |
|
|
Plans |
|
|
Pro-Forma |
|
|
Pro-Forma |
|
|
|
Inc. |
|
|
USA, Inc. |
|
|
Adjustments |
|
|
Combined |
|
Cash and cash equivalents |
|
$ |
3,198 |
|
|
$ |
336 |
|
|
|
|
|
|
$ |
3,534 |
|
Restricted short-term investments |
|
|
157 |
|
|
|
671 |
|
|
|
|
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and short-term investments |
|
|
3,355 |
|
|
|
1,007 |
|
|
|
|
|
|
|
4,362 |
|
Accounts receivable, net |
|
|
2,679 |
|
|
|
1,038 |
|
|
|
|
|
|
|
3,717 |
|
Advanced agent commissions, net |
|
|
|
|
|
|
6,825 |
|
|
|
|
|
|
|
6,825 |
|
Prepaid expenses |
|
|
35 |
|
|
|
155 |
|
|
|
|
|
|
|
190 |
|
Assets of discontinued operations |
|
|
|
|
|
|
196 |
|
|
|
(196 |
)c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
6,069 |
|
|
|
9,221 |
|
|
|
(196 |
) |
|
|
15,094 |
|
Fixed assets, net |
|
|
166 |
|
|
|
532 |
|
|
|
(182 |
)b) |
|
|
516 |
|
Goodwill and other intangible assets, net |
|
|
4,117 |
|
|
|
8,157 |
|
|
|
(4,419 |
)a) b) |
|
|
7,855 |
|
Deferred tax asset |
|
|
565 |
|
|
|
|
|
|
|
|
|
|
|
565 |
|
Other assets |
|
|
100 |
|
|
|
125 |
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
11,017 |
|
|
$ |
18,035 |
|
|
$ |
(4,797 |
) |
|
$ |
24,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,043 |
|
|
$ |
508 |
|
|
|
|
|
|
|
1,551 |
|
Accrued commissions payable |
|
|
|
|
|
|
361 |
|
|
|
|
|
|
|
361 |
|
Liability for unrecognized tax benefit |
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
166 |
|
Other accrued liabilities |
|
|
1,352 |
|
|
|
1,490 |
|
|
|
|
|
|
|
2,842 |
|
Claims liability |
|
|
508 |
|
|
|
|
|
|
|
|
|
|
|
508 |
|
Income taxes payable |
|
|
310 |
|
|
|
128 |
|
|
|
|
|
|
|
438 |
|
Short-term debt |
|
|
|
|
|
|
520 |
|
|
|
|
|
|
|
520 |
|
Current portion of notes payable to related parties |
|
|
2,290 |
|
|
|
|
|
|
|
|
|
|
|
2,290 |
|
Unearned commissions |
|
|
|
|
|
|
5,159 |
|
|
|
|
|
|
|
5,159 |
|
Other deferred revenue |
|
|
722 |
|
|
|
263 |
|
|
|
|
|
|
|
985 |
|
Liabilities of discontinued operations |
|
|
|
|
|
|
45 |
|
|
|
(45 |
)c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
6,391 |
|
|
|
8,474 |
|
|
|
(45 |
) |
|
|
14,820 |
|
Long-term debt |
|
|
|
|
|
|
729 |
|
|
|
|
|
|
|
729 |
|
Related party notes payable, less current portion |
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,789 |
|
|
|
9,203 |
|
|
|
(45 |
) |
|
|
15,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
15 |
|
|
|
207 |
|
|
|
(200)a |
) |
|
|
22 |
|
Additional paid-in capital |
|
|
6,808 |
|
|
|
40,648 |
|
|
|
(36,575 |
)a) |
|
|
10,881 |
|
Accumulated deficit |
|
|
(2,595 |
) |
|
|
(31,014 |
) |
|
|
31,014 |
a) |
|
|
(2,595 |
) |
Less: Treasury stock |
|
|
|
|
|
|
(1,009 |
) |
|
|
1,009 |
a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
4,228 |
|
|
|
8,832 |
|
|
|
(4,752 |
) |
|
|
8,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
11,017 |
|
|
$ |
18,035 |
|
|
$ |
(4,797 |
) |
|
$ |
24,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
Purchase price of $4,080,000 based on the issuance of 6,800,000 shares @ $.60 per share plus
acquisition cost of $125,000. |
|
b) |
|
A goodwill and intangible asset of $3,870,000 was recorded based on (i) the difference between
the Purchase Price and the estimated fair market value of the acquired net assets of Access Plans
USA, (ii) an estimated fixed asset impairment charge of $182,000 attributable to expected
post-merger out-sourcing of the fulfillment operations of the Consumer Plan division, plus (iii)
accrual of estimated acquisition costs of $125,000. |
|
c) |
|
Eliminate assets and liabilities of Access Plans USAs discontinued operations, including its
subsidiary, Access Health Source. |
PR-2
ALLIANCE HEALTHCARD, INC.
UNAUDITED PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2008
(Dollars in thousands, except Earnings per Share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance |
|
|
Access |
|
|
|
|
|
|
|
|
|
Healthcard |
|
|
Plans |
|
|
Pro-Forma |
|
|
Pro-Forma |
|
|
|
Inc. |
|
|
USA, Inc. |
|
|
Adjustments |
|
|
Combined |
|
Total revenue |
|
$ |
20,913 |
|
|
$ |
35,550 |
|
|
$ |
|
|
|
$ |
56,463 |
|
Direct costs |
|
|
11,113 |
|
|
|
24,703 |
|
|
|
|
|
|
|
35,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
9,800 |
|
|
|
10,847 |
|
|
|
|
|
|
|
20,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs and other sales and
administrative expenses |
|
|
4,367 |
|
|
|
10,959 |
|
|
|
|
|
|
|
15,326 |
|
Depreciation and amortization |
|
|
551 |
|
|
|
1,018 |
|
|
|
|
|
|
|
1,569 |
|
Restructuring and severance charges |
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
164 |
|
Goodwill impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
4,918 |
|
|
|
12,141 |
|
|
|
|
|
|
|
17,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
4,882 |
|
|
|
(1,294 |
) |
|
|
|
|
|
|
3,588 |
|
Other income (expense) |
|
|
15 |
|
|
|
35 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
4,897 |
|
|
|
(1,259 |
) |
|
|
|
|
|
|
3,638 |
|
Income tax expense (benefit) |
|
|
2,189 |
|
|
|
(157 |
) |
|
|
(650 |
)d) |
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
2,708 |
|
|
|
(1,102 |
) |
|
|
650 |
|
|
|
2,256 |
|
Less dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available for common
stockholders |
|
$ |
2,708 |
|
|
$ |
(1,102 |
) |
|
$ |
650 |
|
|
$ |
2,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.18 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.18 |
|
|
$ |
(0.05 |
) |
|
|
|
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding (in 000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
14,798 |
|
|
|
20,269 |
|
|
|
(13,469 |
)a) |
|
|
21,598 |
|
Diluted |
|
|
15,263 |
|
|
|
20,269 |
|
|
|
(13,469 |
)a) |
|
|
22,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PR-3
ALLIANCE HEALTHCARD, INC.
UNAUDITED PRO-FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED DECEMBER 31, 2008
(Dollars in thousands, except Earnings per Share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance |
|
|
Access |
|
|
|
|
|
|
|
|
|
Healthcard |
|
|
Plans |
|
|
Pro-Forma |
|
|
Pro-Forma |
|
|
|
Inc. |
|
|
USA, Inc. |
|
|
Adjustments |
|
|
Combined |
|
Total revenue |
|
$ |
5,669 |
|
|
$ |
8,314 |
|
|
$ |
|
|
|
$ |
13,983 |
|
Direct costs |
|
|
3,088 |
|
|
|
5,764 |
|
|
|
|
|
|
|
8,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
2,581 |
|
|
|
2,550 |
|
|
|
|
|
|
|
5,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs and other sales and
administrative expenses |
|
|
1,216 |
|
|
|
1,456 |
|
|
|
|
|
|
|
2,672 |
|
Depreciation and amortization |
|
|
138 |
|
|
|
953 |
|
|
|
|
|
|
|
1,091 |
|
Restructuring and severance charges |
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
265 |
|
Goodwill impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
1,354 |
|
|
|
2,674 |
|
|
|
|
|
|
|
4,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
1,227 |
|
|
|
(124 |
) |
|
|
|
|
|
|
1,103 |
|
Other income (expense) |
|
|
(43 |
) |
|
|
3 |
|
|
|
|
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes |
|
|
1,184 |
|
|
|
(121 |
) |
|
|
|
|
|
|
1,063 |
|
Income tax expense (benefit) |
|
|
229 |
|
|
|
(45 |
) |
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing
operations |
|
|
955 |
|
|
|
(76 |
) |
|
|
|
|
|
|
879 |
|
Less dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available for common
stockholders |
|
$ |
955 |
|
|
$ |
(76 |
) |
|
$ |
|
|
|
$ |
879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
$ |
0.04 |
|
Diluted |
|
$ |
0.06 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding (in 000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
14,833 |
|
|
|
20,269 |
|
|
|
(13,469 |
)a) |
|
|
21,633 |
|
Diluted |
|
|
14,839 |
|
|
|
20,269 |
|
|
|
(13,469 |
)a) |
|
|
21,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PR-4
ALLIANCE HEALTHCARD, INC.
NOTES TO UNAUDITED PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Note 1 Basis for Presentation
The unaudited pro forma combined condensed financial statements present the pro forma effects
of the merger of Access Plans USA, Inc. with Alliance HealthCard, Inc., in accordance with the
terms and conditions of the Agreement and Plan of Merger dated November 13, 2008 and the First
Amendment to Agreement and Plan of Merger dated February 9, 2009.
The unaudited pro forma condensed combining statement of operations for the year ended
September 30, 2008 is based on the individual historical statements of operations of Alliance
HealthCard, Inc. and Access Plans USA, Inc. as if the merger-acquisition occurred on October 1,
2007. The unaudited pro forma condensed combining statement of operations of Alliance HealthCard
for the year ended September 30, 2008 is based on the audited historical statement of operations of
Alliance HealthCard. The unaudited pro forma condensed combining statement presented for Access Plans USA, Inc. for
the year ended September 30, 2008 is based on its audited historical statement of operations for
the year ended December 31, 2007 adjusted for removal of the nine months ended on September 30,
2007 and the addition of its unaudited historical statement of operations for the nine months ended
September 30, 2008, adjusted to exclude its discontinued operations (the divesture of Access
Healthsource, Inc. and ACP Agency).
The unaudited pro
forma condensed combined statements of operations of Alliance HealthCard, Inc.
for the three months ended December 31, 2008 is based on the unaudited historical statement
of operations of Alliance HealthCard for the three months ended December 31, 2008. The
unaudited pro forma condensed combining statement presented for Access Plans USA, Inc. for the
three months ended December 31, 2008 is based on its audited historical statement of
operations for the year ended December 31, 2008 adjusted for removal of the nine months ended
on September 30, 2008, adjusted to exclude its discontinued operations (the
divesture of Access Healthsource, Inc. and ACP Agency).
The unaudited pro forma condensed combining balance sheet as of December 31, 2008 is based on
the individual historical unaudited balance sheet of Alliance HealthCard, Inc. and the audited
balance sheet of Access Plans USA, Inc. as if the merger-acquisition occurred on December 31, 2008.
The pro forma financial information presented in the unaudited pro forma combined condensed
financial statements is not necessarily indicative of the financial position or results of
operations that would have been achieved had the operations been those of a single consolidated
corporate entity. The results of operations presented in the unaudited pro forma combined
statements of operations are not necessarily indicative of the combined results of future
operations of Alliance HealthCard, Inc. following consummation of the merger-acquisition.
Note 2 Pro Forma Adjustments
The accompanying unaudited pro forma combined condensed financial statements have been
adjusted to record and give effect to the merger-acquisition and the divesture of Access Plans USA,
Inc.s subsidiary Access HealthSource, Inc. as follows:
|
(a) |
|
On a pro forma basis, the purchase price of Access Plans USA is based on the issuance
of 6,800,000 shares of Alliance HealthCard, Inc. to the Access Plans USA, Inc. shareholders
multiplied by a per share price of $0.60 resulting in $4,205,000 (Purchase Price). The
per share price of Alliance HealthCard, Inc.s common stock is based on Alliance
HealthCard, Inc.s common stock price on November 14, 2008. This resulted in a common
stock price of $0.60 for pro forma valuation purposes and determining the Purchase Price. |
|
(b) |
|
A goodwill and intangible asset of $3,738,000 was recorded based on (i) the difference
between the Purchase Price and the estimated fair market value of the acquired net assets
of Access Plans USA, Inc., and (ii) an estimated fixed asset impairment charge of $182,000
primarily attributable to expected post-merger out-sourcing of the fulfillment operations
of the Consumer Plan division of Access Plans USA, Inc. . The total pro-forma goodwill and
intangible asset of $7,741,000 includes $4,243,000 attributable to Alliance HealthCard.
The allocation of the $3,738,000 between goodwill and intangible assets has not yet been
determined. |
PR-5
ALLIANCE HEALTHCARD, INC.
NOTES TO UNAUDITED PROFORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Note 2 Pro Forma Adjustments (continued)
|
(c) |
|
The unaudited pro forma combined condensed balance sheets were adjusted to eliminate
assets and liabilities of Access Plans USAs discontinued operations, including its
subsidiary, Access HealthSource, that was sold effective December 30, 2008. The pro-forma
Access Plans USA income statements exclude the results from discontinued operations. |
|
(d) |
|
The provision for income tax benefit for the year ended September 30, 2008 was adjusted
to give effect to the operating losses of access Plans USA which effectively reduces the
effective tax rate to 38%. |
PR-6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
June 15, 2009 |
Alliance HealthCard, Inc.
|
|
|
By: |
/s/ Rita McKeown
|
|
|
|
Rita McKeown, Chief Financial Officer |
|