UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
(Amendment No. 1)
CURRENT
REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): December 31, 2015
Foundation
Healthcare, Inc.
(Exact name of registrant as specified in charter)
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| Oklahoma |
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001-34171 |
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20-0180812 |
| (State or Other Jurisdiction
of Incorporation) |
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(Commission
File Number) |
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(IRS Employer
Identification No.) |
14000 N. Portland Avenue, Suite 200
Oklahoma City, Oklahoma 73134
(Address of Principal Executive Offices) (Zip Code)
(405) 608-1700
(Registrant’s telephone number, including area code)
(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 (see General Instruction A.2. below):
| ¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01 Completion of Acquisition or Disposition of Assets.
On December 31, 2015, we closed the Acquisition comprising substantially all of the hospital assets and hospital operating entity of
University General Hospital, consisting of a sixty-nine bed acute care hospital located in the Medical City area of Houston, Texas (“UGH”). The purchase price of the UGH Hospital was $33 million. The Hospital will be operated as Foundation
Surgical Hospital of Houston. A copy of the press release announcing the completion of the UGH transaction is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Item 1.01 Entry into a Material Definitive Agreement.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of Registrant.
Effective December 31, 2015, we entered into a Credit Agreement (the “TCB Credit Facility”) with Texas Capital Bank, National
Association (“TCB”). The TCB Credit Facility replaces the Bank SNB Credit Facility and consolidates all of our and our subsidiaries’ debt in the principal amount of $28.4 million, which we refer to as the Term Loan, and provides for
an additional revolving loan in the amount of $12.5 million, which we refer to as the Revolving Loan. We have also entered into a number of ancillary agreements in connection with the TCB Credit Facility, including deposit account control
agreements, subsidiary guarantees, security agreements and promissory notes.
Maturity Dates. The Term Loan
matures on December 30, 2018 and the Revolving Loan matures on December 30, 2020.
Interest
Rates. Borrowings under the TCB Credit Facility are made, at our option, as either Base Rate loans or LIBOR loans. “Base Rate” for any day is the highest of (i) the Prime Rate, (ii) the Federal Funds
Rate plus one half of one percent (0.5%), and (iii) Adjusted LIBOR plus one percent (1.00%). LIBOR loans are based on either the one month, two month or three month LIBOR rate at our option. The interest rate is either a Base Rate or LIBOR plus
the Applicable Margins based on our Senior Debt to EBITDA Ratio, as defined. The Applicable Margins are as follows:
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| Pricing
Level |
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Senior Debt to EBITDA
Ratio |
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Base Rate Portion |
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LIBOR Portion
and Letter
of Credit Fee |
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Commitment Fee |
| 1 |
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< 2.00:1 |
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2.75% |
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3.75% |
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0.375% |
| 2 |
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³ 2.00:1 but < 2.50:1 |
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3.00% |
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4.00% |
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0.375% |
| 3 |
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³ 2.50:1 |
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3.25% |
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4.25% |
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0.375% |
The Applicable Margin in effect will be adjusted within 45 days following the end of each quarter based on our
Senior Debt to EBITDA ratio. The Senior Debt to EBITDA Ratio is calculated by dividing all of our senior indebtedness (excluding capital lease obligations for the Houston Hospital), that is by our EBITDA for the preceding four fiscal quarters.
EBITDA is defined in the TCB Credit Facility as our net income plus (b) the sum of the following: interest expense; income taxes; depreciation; amortization; extraordinary losses determined in accordance with GAAP; cash and
noncash stock compensation expense; and other non-recurring expenses reducing such net income which do not represent a cash item in such period or any future period, minus (c) the sum of the
following: income tax credits; extraordinary gains determined in accordance with GAAP; and all non-recurring, non-cash items increasing net income.
Interest and Principal Payments. We are required to make quarterly payments of principal and interest on the
Term Loan. The first four quarterly payments on the Term Loan will be $1,013,393, on the first day of each April, July, October, and January during the term hereof, commencing April 1, 2016. We are required to make quarterly payments on the
Revolving Loan equal to the accrued and unpaid interest. All unpaid principal and interest on the Term Loan and Revolving Loan must be paid on the respective maturity dates of each Loan.
Borrowing Base. Our ability to borrow money under the Revolving Loan is limited to our Borrowing Base. Our
Borrowing Base is equal to the sum of (i) 80% of the eligible account of our San Antonio Hospital multiplied by our ownership of the San Antonio Hospital, not to exceed the outstanding principal balance of the intercompany note
payable by the San Antonio Hospital to us, (ii) 80% of the eligible account of our El Paso Hospital multiplied by our ownership of the El Paso Hospital, not to exceed the outstanding principal balance of the intercompany note payable by
the El Paso Hospital to us, and (iii) 80% of the eligible account of our Houston Hospital multiplied by our ownership of the Houston Hospital, not to exceed the outstanding principal balance of the intercompany note payable by the
Houston Hospital to us.
Increase in Revolving Loan. Provided, that we are not in default, we may request
one or more increases in the maximum amount of the Revolving Loan not to exceed $10 million; provided any request for an increase must be at least $5 million.
Mandatory Prepayments. We must make mandatory prepayments of the
Term Loans in the following situations, among others:
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• |
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We must apply 100% of the net proceeds from our sale of worn out and obsolete equipment not necessary or useful for the conduct of our business; |
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• |
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Commencing with the fiscal year ending December 31, 2016, we must apply 50% of our Excess Cash Flow for such fiscal year to the installment payments due on our Term Loan; |
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• |
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We must apply 50% of the net cash proceeds from the issuance of equity interests to the installment payments due on our Term Loan; provided that no prepayment need to be made for the year ended December 31, 2016
once we have made mandatory prepayments in excess of $10,000,000; |
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• |
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We must apply 100% of the net cash proceeds from the issuance of debt (other than certain permitted debt) to the prepayment of the Term Loan; |
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We must prepay 100% of the net cash proceeds paid to us other than in the ordinary course of business; and |
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• |
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We must prepay 100% of the net cash proceeds we receive from the prepayment of intercompany notes. |
Voluntary Prepayments. We may prepay amounts under the Term Loan or Revolving Loan at any time provided that we
are required to pay a prepayment fee of 2% of the amount prepaid if payment is made prior to the first anniversary, 1.5% if the prepayment is made after the first anniversary but prior to the second anniversary and 1% if the prepayment is made after
the second anniversary but prior to the third anniversary.
Guaranties. Each of our direct or indirect
wholly-owned subsidiaries jointly and severally and unconditionally guaranty payment of our obligations owed to Lenders.
Financial
Covenants:
Debt to EBITDA Ratio. As of December 31, 2015, we must maintain a Debt
to EBITDA Ratio, not in excess of 3.50 to 1.00. Thereafter, we must maintain a Debt to EBITDA Ratio as of the last day of any fiscal quarter, not in excess of (a) 3.25 to 1.00 for the fiscal quarters ending December 31,
2015, March 31, 2016, June 30, 2016 and September 30, 2016; (b) 2.75 to 1.00 for the fiscal quarters ending December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017;
(c) 2.50 to 1.00 for the fiscal quarters ending December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018; and (d) 2.25 to 1.00 for the fiscal quarter ending December 31, 2018 and at the end
of each fiscal quarter thereafter.
Senior Debt to EBITDA Ratio. As of December 31,
2015, we must maintain a Senior Debt to EBITDA Ratio not in excess of 3.00 to 1.00. Thereafter, we must maintain a Senior Debt to EBITDA Ratio as of the last day of any fiscal quarter, not in excess of (a) 3.00 to 1.00 for the fiscal quarters
ending December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016; (b) 2.50 to 1.00 for the fiscal quarters ending December 31, 2016, March 31, 2017, June 30, 2017 and
September 30, 2017; (c) 2.25 to 1.00 for the fiscal quarters ending December 31, 2017, March 31, 2018, June 30, 2018 and September 30, 2018; and (d) 2.00 to 1.00 for the fiscal quarter ending
December 31, 2018 and at the end of each fiscal quarter thereafter.
Pre-Distribution Fixed Charge Coverage
Ratio. We must maintain as of the last day of any fiscal quarter a Pre-Distribution Fixed Charge Coverage Ratio not in excess of 1.30 to 1.00.
Post-Distribution Fixed Charge Coverage Ratio. We must maintain as of the last day of any fiscal
quarter, a Post-Distribution Fixed Charge Coverage Ratio not in excess of 1.05 to 1.00.
Capital
Expenditures. We shall not make capital expenditures in excess of $5,000,000 during any fiscal year.
Collateral. Payment and performance of our obligations under the TCB Credit Facility are secured in general by
all of our and our guarantors’ assets.
Negative Covenants. The TCB Credit Facility has restrictive
covenants that, among other things, restricts our ability to:
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Incur additional indebtedness; |
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• |
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Create or incur additional liens on our assets; |
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• |
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Engage in mergers or acquisitions; |
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Pay dividends or make any other payment or distribution in respect of our equity interests; |
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Make loans and investments; |
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Engage in transaction with affiliates; |
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Engage in any sale and leaseback arrangements; and |
Defaults and Remedies. In addition to the general defaults of
failure to perform our obligations under the Loan Agreement, events of default also include the occurrence of a change in control, as defined, and the loss of our Medicare or Medicaid certification, collateral casualties, entry of a uninsured
judgment of $500,000 or more, failure of first liens on collateral and the termination of any of our management agreements that represent more than 10% of our management fees for the preceding 18 month period. In the event of a monetary default, all
of our obligations due under the TCB Credit Facility shall become immediately due and payable. In the event of a non-monetary default, we have 10 days or in some cases three days to cure before Texas Capital Bank has the right to declare our
obligations due under the TCB Credit Facility immediately due and payable.
A copy of the Credit Agreement is filed herewith as Exhibit
10.1 and is incorporated herein by reference. The foregoing summary of the Credit Agreement is qualified in its entirety by reference to the exhibits filed herewith.
Item 9.01. Financial Statements and Exhibits.
| (a) |
Financial Statements and Businesses Acquired. |
The audited financial statements of
University General Hospital, LP consisting of Balance Sheets for at December 31, 2015 and 2014, Statements of Operations for the years ended December 31, 2015 and 2014, Statements of Partners’ Deficit for the years ended
December 31, 2015 and 2014, and the Statements of Cash Flows for the years ended December 31, 2015 and 2014, and the related notes are attached as Exhibit 99.2 to this Current Report on Form 8-K.
| (b) |
Pro Forma Financial Information. |
The unaudited pro forma combined condensed financial
information of Foundation Healthcare, Inc. and University General Hospital, LP as of and for the year ended December 31, 2015 are attached as Exhibit 99.3 to this Current Report on Form 8-K.
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| Exhibit No. |
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Description |
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| 10.1 |
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Credit Agreement, dated December 31, 2015, by and between Foundation Healthcare, Inc. and Texas Capital Bank, National Association is incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on January 6, 2016. |
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| 99.1 |
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Press Release dated January 4, 2016 is incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2016. |
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| 99.2+ |
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Audited Financial Statements of University General Hospital, LP |
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| 99.3+ |
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Unaudited Pro Forma Condensed Combined Financial Information |
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.
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FOUNDATION HEALTHCARE, INC. |
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| Date: March 17, 2016 |
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By: |
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/s/ STANTON NELSON |
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Stanton Nelson |
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Chief Executive Officer |
EXHIBIT INDEX
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| Exhibit No. |
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Exhibit |
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| 10.1 |
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Credit Agreement, dated December 31, 2015, by and between Foundation Healthcare, Inc. and Texas Capital Bank National Association is incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 6, 2016. |
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| 99.1 |
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Press Release dated January 4, 2016 is incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2016. |
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99.2+
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Audited Financial Statements of University General Hospital, LP |
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| 99.3+ |
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Unaudited Pro Forma Condensed Combined Financial Information |
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
INDEX TO FINANCIAL STATEMENTS
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Page |
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| Report of Independent Registered Public Accounting Firm |
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F-2 |
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| Balance Sheets as of December 31, 2015 and 2014 |
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F-3 |
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| Statements of Operations for the Years Ended December 31, 2015 and 2014 |
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F-4 |
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| Statements of Partners’ Deficit for the Years Ended December 31, 2015 and 2014 |
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F-5 |
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| Statements of Cash Flows for the Years Ended December 31, 2015 and 2014 |
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F-6 |
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| Notes to Financial Statements |
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F-7 |
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F-1
Exhibit 99.2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee, Board of Directors,
and Shareholders of Foundation Healthcare, Inc.
We have audited the accompanying balance sheets of University General Hospital, LP, debtor-in-possession, (the “Company”) as of December 31,
2015 and 2014, and the related statements of operations, partners’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits 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 audits 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 on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
University General Hospital, LP as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial
statements, during the year ended December 31, 2015, the Company filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code, and on December 31, 2015 the Company was purchased by Foundation HealthCare, Inc. This
condition raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Hein & Associates LLP
Denver, Colorado
March 17, 2016
F-2
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
DEBTOR IN POSSESSION
Balance Sheets
As of
December 31, 2015 and 2014
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2015 |
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2014 |
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| ASSETS |
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| Cash |
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$ |
— |
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$ |
93,472 |
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| Accounts receivable, net of allowance for doubtful accounts of $15,205,000 and $11,171,000,respectively |
|
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7,229,061 |
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11,193,352 |
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| Receivables from affiliates |
|
|
— |
|
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2,080,731 |
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| Supplies inventories |
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|
1,688,908 |
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1,621,651 |
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| Prepaid and other current assets |
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1,740,724 |
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1,474,329 |
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| Total current assets |
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10,658,693 |
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16,463,535 |
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| Property and equipment, net |
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39,437,182 |
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43,769,088 |
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| Other assets |
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306,735 |
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|
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362,062 |
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| Total assets |
|
$ |
50,402,610 |
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$ |
60,594,685 |
|
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| LIABILITIES AND PARTNERS’ DEFICIT |
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| Liabilities not subject to compromise: |
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| Current liabilities: |
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| Accounts payable |
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$ |
566,518 |
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$ |
29,506,680 |
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| Accrued liabilities |
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1,022,059 |
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|
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6,661,456 |
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| Payables to affiliates |
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— |
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44,935,452 |
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| Short-term debt |
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— |
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1,576,710 |
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| Current portion of long-term debt |
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— |
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10,308,264 |
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| Current portion of capital lease obligations |
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|
1,416,163 |
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|
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1,506,161 |
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| Payroll taxes payable to Internal Revenue Service |
|
|
4,954,762 |
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|
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4,887,837 |
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| Franchise tax payable |
|
|
1,726,060 |
|
|
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1,451,210 |
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| Other current liabilities |
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— |
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204,723 |
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| Total current liabilities |
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9,685,562 |
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|
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101,038,493 |
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|
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| Long-term debt, net of current portion |
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— |
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1,546,734 |
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| Capital lease obligations, net of current portion |
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28,965,305 |
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29,723,745 |
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| Liabilities subject to compromise (Notes 2 and 7) |
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88,471,157 |
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— |
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| Total liabilities |
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127,122,024 |
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|
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132,308,972 |
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| Commitments and contingencies (Note 8) |
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| Partners’ deficit: |
|
|
|
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|
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| Paid-in capital |
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|
26,211,582 |
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|
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26,211,582 |
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| Accumulated deficit |
|
|
(102,930,996 |
) |
|
|
(97,925,869 |
) |
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|
|
|
|
|
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| Total partners’ deficit |
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|
(76,719,414 |
) |
|
|
(71,714,287 |
) |
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|
|
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|
|
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| Total liabilities and partners’ deficit |
|
$ |
50,402,610 |
|
|
$ |
60,594,685 |
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|
|
|
|
|
|
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|
|
See Accompanying Notes to Financial Statements
F-3
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
DEBTOR IN POSSESSION
Statements of Operations
For the Years Ended December 31, 2015 and 2014
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2015 |
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2014 |
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| Revenues: |
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|
|
|
|
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| Patient services |
|
$ |
60,416,633 |
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|
$ |
77,217,219 |
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| Provision for doubtful accounts |
|
|
(6,645,830 |
) |
|
|
(4,908,280 |
) |
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|
|
|
|
|
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|
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| Net patient services revenue |
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|
53,770,803 |
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|
|
72,308,939 |
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| Other revenue |
|
|
233,547 |
|
|
|
512,553 |
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|
|
|
|
|
|
|
|
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| Revenues |
|
|
54,004,350 |
|
|
|
72,821,492 |
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|
|
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| Operating Expenses: |
|
|
|
|
|
|
|
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| Salaries and benefits |
|
|
26,820,678 |
|
|
|
31,721,012 |
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| Supplies |
|
|
11,297,153 |
|
|
|
15,601,763 |
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| Other operating expenses |
|
|
13,683,943 |
|
|
|
43,914,484 |
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| Impairment of goodwill |
|
|
— |
|
|
|
7,473,312 |
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| Depreciation and amortization |
|
|
4,018,682 |
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|
|
4,972,841 |
|
|
|
|
|
|
|
|
|
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| Total operating expenses |
|
|
55,820,456 |
|
|
|
103,683,412 |
|
|
|
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| Other Income (Expense): |
|
|
|
|
|
|
|
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| Interest expense, net |
|
|
(2,115,502 |
) |
|
|
(2,412,076 |
) |
| Write-off of notes receivable from affiliates |
|
|
(3,348,936 |
) |
|
|
(30,066,831 |
) |
| Other income (expense) |
|
|
2,275,417 |
|
|
|
2,743,492 |
|
|
|
|
|
|
|
|
|
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| Net other income (expense) |
|
|
(3,189,021 |
) |
|
|
(29,735,415 |
) |
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(5,005,127 |
) |
|
$ |
(60,597,335 |
) |
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Financial Statements
F-4
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
DEBTOR IN POSSESSION
Statements of Partners’ Deficit
For the Years Ended December 31, 2015 and 2014
|
|
|
|
|
|
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|
|
|
|
|
|
| |
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Paid-in
Capital |
|
|
Accumulated
Deficit |
|
|
Total |
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| Balances, January 1, 2014 |
|
$ |
26,211,582 |
|
|
$ |
(37,328,534 |
) |
|
$ |
(11,116,952 |
) |
| Net loss |
|
|
— |
|
|
|
(60,597,335 |
) |
|
|
(60,597,335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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| Balances, December 31, 2014 |
|
|
26,211,582 |
|
|
|
(97,925,869 |
) |
|
|
(71,714,287 |
) |
| Net loss |
|
|
— |
|
|
|
(5,005,127 |
) |
|
|
(5,005,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balances, December 31, 2015 |
|
$ |
26,211,582 |
|
|
$ |
(102,930,996 |
) |
|
$ |
(76,719,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Financial Statements
F-5
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
DEBTOR IN POSSESSION
Statements of Cash Flows
For the Years Ended December 31, 2015 and 2014
|
|
|
|
|
|
|
|
|
| |
|
2015 |
|
|
2014 |
|
| Operating activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(5,005,127 |
) |
|
$ |
(60,597,335 |
) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
4,018,682 |
|
|
|
4,972,841 |
|
| Provision for doubtful accounts |
|
|
6,645,830 |
|
|
|
4,908,280 |
|
| Impairment of goodwill |
|
|
— |
|
|
|
7,473,311 |
|
| Write off of receivables from affiliates |
|
|
3,348,936 |
|
|
|
30,066,831 |
|
| (Gain) Loss on divestitures |
|
|
(1,366,972 |
) |
|
|
2,012,416 |
|
| Forgiveness of notes payable to affiliates |
|
|
(53,405 |
) |
|
|
(4,755,751 |
) |
| Changes in assets and liabilities – |
|
|
|
|
|
|
|
|
| Accounts receivable, net of provision for doubtful accounts |
|
|
(2,681,539 |
) |
|
|
3,424,937 |
|
| Receivables from affiliates |
|
|
(1,268,205 |
) |
|
|
(24,441,189 |
) |
| Supplies inventories |
|
|
(67,257 |
) |
|
|
825,916 |
|
| Prepaid and other current assets |
|
|
(266,395 |
) |
|
|
3,115,465 |
|
| Other assets |
|
|
55,327 |
|
|
|
64,474 |
|
| Accounts payable |
|
|
2,017,406 |
|
|
|
16,055,692 |
|
| Accrued liabilities |
|
|
711,796 |
|
|
|
(1,900,255 |
) |
| Payable to affiliates |
|
|
(5,545,882 |
) |
|
|
17,903,733 |
|
| Payroll taxes payable to Internal Revenue Service |
|
|
66,925 |
|
|
|
2,378,436 |
|
| Franchise taxes payable |
|
|
274,850 |
|
|
|
491,248 |
|
| Other current liabilities |
|
|
(148,096 |
) |
|
|
(4,126,225 |
) |
|
|
|
|
|
|
|
|
|
| Net cash provided by (used in) operating activities |
|
|
736,874 |
|
|
|
(2,127,175 |
) |
|
|
|
|
|
|
|
|
|
| Investing activities: |
|
|
|
|
|
|
|
|
| Purchase of property and equipment |
|
|
(69,140 |
) |
|
|
(125,487 |
) |
|
|
|
|
|
|
|
|
|
| Net cash provided by (used in) investing activities |
|
|
(69,140 |
) |
|
|
(125,487 |
) |
|
|
|
|
|
|
|
|
|
| Financing activities: |
|
|
|
|
|
|
|
|
| Debt proceeds |
|
|
1,443,047 |
|
|
|
4,880,144 |
|
| Debt payments |
|
|
(1,625,105 |
) |
|
|
(1,895,117 |
) |
| Capital lease payments |
|
|
(579,148 |
) |
|
|
(638,893 |
) |
|
|
|
|
|
|
|
|
|
| Net cash provided by (used in) financing activities |
|
|
(761,206 |
) |
|
|
2,346,134 |
|
|
|
|
|
|
|
|
|
|
| Net change in cash |
|
|
(93,472 |
) |
|
|
93,472 |
|
| Cash at beginning of year |
|
|
93,472 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Cash at end of year |
|
$ |
— |
|
|
$ |
93,472 |
|
|
|
|
|
|
|
|
|
|
| Cash paid for interest and taxes: |
|
|
|
|
|
|
|
|
| Interest expense |
|
$ |
91,796 |
|
|
$ |
368,954 |
|
| Franchise taxes |
|
$ |
— |
|
|
$ |
— |
|
See Accompanying Notes to Financial Statements
F-6
Exhibit 99.2
UNIVERSITY GENERAL HOSPITAL, LP
DEBTOR IN POSSESSION
Notes to Financial Statements
For the Years Ended December 31, 2015 and 2014
Note 1 – Nature of Business
University
General Hospital, LP (the “Company”) is a Texas limited Partnership. During the years ended December 31, 2015 and 2014, the Company was a subsidiary of University General Health System, Inc. (“UGHS”). The Company operates a
69-bed physician owned general acute care hospital in Houston, Texas.
Note 2 – Chapter 11 Proceedings and 363 Sale
Since its inception, UGHS incurred significant operating losses which resulted in extreme liquidity constraints. As a result, on
February 27, 2015, UGHS, along with certain of its subsidiaries including the Company, filed a voluntary petition for relief under Chapter 11 (“Chapter 11 Proceedings”) of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the
U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”).
On November 6, 2015, Foundation Healthcare, Inc.
(“Foundation”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with UGHS to purchase substantially all of the assets and selected assumed liabilities of the Company pursuant to Section 363 of the Bankruptcy
Code (referred to as “363 Sale”). The 363 Sale was completed on December 31, 2015 at a total purchase price of $33 million.
Note 3 –
Summary of Significant Accounting Policies
Presentation of financial statements – As noted in Note 2 – Chapter 11
Proceedings and 363 Sale, substantially all of the Company’s assets were sold on December 31, 2015. The accompanying financial statements reflect the financial position of the Company immediately prior to the 363 Sale.
Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires
management of the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue recognition and accounts receivable – The Company recognizes revenues in the period in which services are
performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives
for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations, preferred provider organizations and other private insurers are generally less than the
Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to
their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s financial statements are recorded at the net amount expected to be received.
Contractual Discounts and Cost Report Settlements – The Company derives a significant portion of its revenues from Medicare,
Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its financial statements. The Medicare and Medicaid regulations and various
managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation
of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular
review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying statements of operations.
F-7
Exhibit 99.2
Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services
are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. The adjustments for estimated cost report settlements
were $148,096 and $4,126,224 in 2015 and 2014, respectively. The net cost report settlements owed by the Company was approximately $56,627 and $204,723 at December 31, 2015 and 2014, respectively, and is included in prepaid and other
liabilities in the accompanying balance sheets. The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs.
Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance
with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.
Provision and Allowance for Doubtful Accounts – To provide for accounts receivable that could become uncollectible in the
future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles,
co-payments or other amounts due from individual patients.
The Company’s general policy is to verify insurance coverage prior to the
date of admission for a patient admitted to our hospitals and to verify insurance coverage prior to a patient’s first outpatient visit. The Company’s estimate for the allowance for doubtful accounts is calculated by providing a reserve
allowance based upon the age of an account balance. Generally the Company applies the collection rates to the gross accounts receivable amounts for the first 151 days for both inpatient and outpatient to determine the contractual adjustment, the
remaining amount is assessed for collectability. As such, the Company then reserves the full account balances to uncollectible accounts for greater than 151 days. This method is monitored based on the Company’s historical cash collections
experience and other factors, including management’s plans related to collections. Collections are impacted by the effectiveness of the Company’s collection efforts with non-governmental payors and regulatory or administrative disruptions
with the fiscal intermediaries that pay the Company’s governmental receivables.
Due to the nature of the healthcare industry and the
reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values at the time products or services are provided. Inherent in these estimates is the
risk that they will have to be revised or updated as additional information becomes available, which could have a material impact on the Company’s operating results and cash flows in subsequent periods. Specifically, the complexity of many
third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.
The patient and their third party insurance provider typically share in the payment for the Company’s products and services. The amount
patients are responsible for includes co-payments, deductibles, and amounts not covered due to the provider being out-of-network. Due to uncertainties surrounding deductible levels and the number of out-of-network patients, the Company is not
certain of the full amount of patient responsibility at the time of service. The Company estimates amounts due from patients prior to service and generally collects those amounts prior to service. Remaining amounts due from patients are then billed
following completion of service.
F-8
Exhibit 99.2
The activity in the allowances for doubtful accounts for the years ending December 31, 2015 and 2014 follows:
|
|
|
|
|
|
|
|
|
| |
|
2015 |
|
|
2014 |
|
| Balances at beginning of year |
|
$ |
11,171,000 |
|
|
$ |
29,964,000 |
|
| Provisions recognized as reduction in revenues |
|
|
6,645,830 |
|
|
|
4,908,280 |
|
| Write-offs, net of recoveries |
|
|
(2,611,830 |
) |
|
|
(23,701,280 |
) |
|
|
|
|
|
|
|
|
|
| Balances at end of year |
|
$ |
15,205,000 |
|
|
$ |
11,171,000 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – The Company considers all highly liquid temporary cash investments
with an original maturity of three months or less to be cash equivalents. Certificates of deposit with original maturities of more than three months are also considered cash equivalents if there are no restrictions on withdrawing funds from the
account.
Supplies inventories – Supplies inventories are stated at the lower of cost or market and primarily include
operating supplies used in the direct or indirect treatment of patients. The Company uses the first in–first out method of accounting for substantially all of its inventories.
Property and equipment – Property and equipment is stated at cost and depreciated using the straight line method to depreciate the
cost of various classes of assets over their estimated useful lives. At the time assets are sold or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and depreciation accounts; profits and losses on such
dispositions are reflected in current operations. Fully depreciated assets are written off against accumulated depreciation. Assets under capital leases are amortized using the straight-line method over the shorter of the estimated useful life of
the assets or life of the lease term, excluding any lease renewals, unless the lease renewals are reasonably assured. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
The estimated useful lives of the Company’s property and equipment are
as follows:
|
|
|
|
|
| Asset Class |
|
Useful Life |
|
|
| Buildings |
|
40 years |
|
|
| Furniture and equipment |
|
3 to 15 years |
|
|
| Computer equipment and software |
|
3 to 5 years |
|
|
| Leasehold improvements |
|
5 to 30 years |
|
or remaining lease period,
whichever is shorter |
Long-lived assets – The Company evaluates its long-lived assets for possible impairment whenever
circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows. Fair value estimates are derived from established market values of comparable assets or internal
calculations of estimated future net cash flows. The Company’s estimates of future cash flows are based on assumptions and projections it believes to be reasonable and supportable. The Company’s assumptions take into account revenue and
expense growth rates, patient volumes, changes in payor mix and changes in legislation and other payor payment patterns. There Company did not recognize any impairment charges against long-lived assets in 2015 and 2014.
Goodwill – Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently
if indicators of impairment exist or if a decision is made to sell a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic
conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash
flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill. Goodwill is allocated among and evaluated for impairment at the reporting
unit level.
The Financial Accounting Standards Board (“FASB”) guidance on testing goodwill for impairment provides an entity
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that the estimated fair value of a reporting unit is less than its
carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step
F-9
Exhibit 99.2
quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative
assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative
assessment or proceeds directly to the two-step quantitative impairment test.
The Company evaluates goodwill for impairment at least on
an annual basis and more frequently if certain indicators are encountered. Goodwill is to be tested at the reporting unit level, defined as an ASC or hospital (referred to as a component), with the fair value of the reporting unit being
compared to its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired. The Company completed its annual impairment test as of
December 31, 2014, and determined that goodwill was fully impaired.
Legal Issues – For asserted claims and assessments,
liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as the nature of the
matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters, among others. Once an
unfavorable outcome is deemed probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is
disclosed and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an
unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis or sooner if significant changes in matters have occurred to determine if a change in the likelihood of an
unfavorable outcome or the estimate of a loss is necessary.
Income Taxes – The Company’s partners have elected to have
the Company’s income taxed as a partnership under provisions of the Internal Revenue Code and a similar section of the state income tax law. Therefore, taxable income or loss is reported to the individual partners for inclusion in its
respective tax returns and no provision for federal and state income taxes is included in these financial statements. The Company records Texas franchise tax in the period incurred as an operating expense.
Electronic Health Record Incentive Payments – The American Recovery and Reinvestment Act of 2009 provides for Medicare and
Medicaid incentive payments beginning in 2011 for eligible hospitals and professionals that adopt and meaningfully use certified electronic health record (“EHR”) technology. The Company recognizes income related to Medicare and Medicaid
incentive payments using a gain contingency model that is based upon when the Company has demonstrated meaningful use of certified EHR technology for the applicable period and the cost report information for the full cost report year that will
determine the final calculation of the incentive payment is available.
Medicaid EHR incentive calculations and related payment amounts
are based upon prior period cost report information available at the time the Company adopts, implements or demonstrates meaningful use of certified EHR technology for the applicable period, and are not subject to revision for cost report data filed
for a subsequent period. Thus, incentive income recognition occurs at the point the Company adopts, implements or demonstrates meaningful use of certified EHR technology for the applicable period, as the cost report information for the full cost
report year that will determine the final calculation of the incentive payment is known at that time.
Medicare EHR incentive calculations
and related initial payment amounts are based upon the most current filed cost report information available at the time the Company demonstrates meaningful use of certified EHR technology for the applicable period. However, unlike Medicaid,
this initial payment amount will be adjusted based upon an updated calculation using the annual cost report information for the cost report period that began during the applicable payment year. Thus, incentive income recognition occurs at the
point the Company demonstrates meaningful use of certified EHR technology for the applicable period and the cost report information for the full cost report year that will determine the final calculation of the incentive payment is available. The
Company has not met the appropriate measures to qualify for the Medicare HER incentive as of December 31, 2015.
F-10
Exhibit 99.2
Recently Adopted and Recently Issued Accounting Guidance
Issued Guidance
In
January 2015, the FASB issued changes to the presentation of extraordinary items. Such items are defined as transactions or events that are both unusual in nature and infrequent in occurrence, and, currently, are required to be presented
separately in an entity’s income statement, net of income tax, after income from continuing operations. The changes eliminate the concept of an extraordinary item and, therefore, the presentation of such items will no longer be required.
Notwithstanding this change, an entity will still be required to present and disclose a transaction or event that is both unusual in nature and infrequent in occurrence in the notes to the financial statements. These changes become effective for the
Company on January 1, 2016. Management has determined that the adoption of these changes will not have an impact on the Company’s financial statements.
In February 2015, the FASB issued changes to the analysis that an entity must perform to determine whether it should consolidate certain
types of legal entities. These changes (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should
consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a
scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of
1940 for registered money market funds. These changes become effective for us on January 1, 2016. Management is currently evaluating the potential impact of these changes on the Company’s financial statements.
In April 2015, the FASB issued changes to the presentation of debt issuance costs. Currently, such costs are required to be presented as
a noncurrent asset in an entity’s balance sheet and amortized into interest expense over the term of the related debt instrument. The changes require that debt issuance costs be presented in an entity’s balance sheet as a direct deduction
from the carrying value of the related debt liability. The amortization of debt issuance costs remains unchanged. These changes become effective for the Company on January 1, 2016. There were no debt issuance costs recorded on the balance
sheets at December 31, 2015 and 2014.
In July 2015, the FASB issued changes to the subsequent measurement of inventory.
Currently, an entity is required to measure its inventory at the lower of cost or market, whereby market can be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The changes require that
inventory be measured at the lower of cost and net realizable value, thereby eliminating the use of the other two market methodologies. Net realizable value is defined as the estimated selling prices in the ordinary course of business less
reasonably predictable costs of completion, disposal, and transportation. These changes do not apply to inventories measured using LIFO (last-in, first-out) or the retail inventory method. Currently, the Company applies the net realizable value
market option to measure its inventories at the lower of cost or market. These changes become effective for the Company on January 1, 2017. Management has determined that the adoption of these changes will not have an impact on the
Company’s financial statements.
In November 2015, the FASB issued changes to the classification of deferred taxes. The
intention of this update is to simplify the presentation of deferred taxes by requiring that deferred tax liabilities and deferred tax assets be classified as noncurrent in a classified statement of financial position. This amendment is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, and may be applied either prospectively or retrospectively to all periods presented. Early application is permitted as to the beginning of an
interim period or annual reporting period. Management has determined that the adoption of these changes will not have an impact on the Company’s financial statements.
In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a
comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to
result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this principle, an entity should apply the following steps: (i) identify
the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue
when, or as, the entity satisfies a performance obligation. These changes become effective for the Company on January 1, 2018. Management is currently evaluating the potential impact of these changes on the Company’s financial statements.
F-11
Exhibit 99.2
In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern.
Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent,
there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt
about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice with respect to whether, when, and how an entity discloses the relevant conditions and events in its financial
statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that
financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii)
management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was
not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the
entity’s ability to continue as a going concern. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Company’s financial
statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the financial statements in a given reporting
period.
Note 4 - Property and Equipment
Following are the components of property and equipment included in the accompanying balance sheets as of December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
| |
|
2015 |
|
|
2014 |
|
| Building under capital lease |
|
$ |
27,406,478 |
|
|
$ |
27,406,478 |
|
| Fixtures and equipment |
|
|
34,355,444 |
|
|
|
37,262,158 |
|
| Equipment under capital leases |
|
|
1,028,978 |
|
|
|
1,028,978 |
|
| Leasehold improvements |
|
|
23,316,698 |
|
|
|
23,253,243 |
|
| Computer equipment and software |
|
|
7,305,773 |
|
|
|
6,115,882 |
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation |
|
|
(53,976,189 |
) |
|
|
(51,297,651 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
39,437,182 |
|
|
$ |
43,769,088 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2015 and 2014 was $4,018,682 and $4,972,841,
respectively.
Note 5 - Goodwill
Changes in
the carrying amount of goodwill during the year ended December 31, 2014 were as follows:
|
|
|
|
|
| |
|
2014 |
|
| Balance, beginning of year |
|
$ |
7,473,311 |
|
| Impairment |
|
|
(7,473,311 |
) |
|
|
|
|
|
| Balance, end of year |
|
$ |
— |
|
|
|
|
|
|
Goodwill must be tested for impairment at least once a year. Carrying values are compared with fair
values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if
management believes indicators of impairment exist. The performance of the test involves a two-step process.
F-12
Exhibit 99.2
The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including
goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the
carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test
involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill. During 2014, management determined that the projected cash flows from the continuing operations of the Company were
not sufficient to support the carrying value of the recorded goodwill. As a result, management evaluated the fair value of the goodwill and determined that it was fully-impaired.
Note 6 – Borrowings and Capital Lease Obligations
The Company’s short-term debt obligations as of December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rate (1) |
|
|
2015 |
|
|
2014 |
|
| Insurance premium financings |
|
|
3.6 |
% |
|
$ |
— |
|
|
$ |
1,576,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Effective rate as of December 31, 2015 |
The Company’s insurance premium financing
notes payable were included in the Company’s bankruptcy liquidation plan. See Note 2 – Chapter 11 Proceedings and 363 Sale and Note 7 – Liabilities Subject to Compromise for further information.
The Company’s long-term debt as of December 31, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rate (1) |
|
Maturity Date |
|
2015 |
|
|
2014 |
|
| Notes payable – affiliates |
|
0.0 – 22.3% |
|
Jul. 2013 – Sep. 2016 |
|
$ |
— |
|
|
$ |
5,248,570 |
|
| Notes payable – settlements |
|
6% |
|
May 2013 – Mar. 2016 |
|
|
— |
|
|
|
5,443,673 |
|
| Notes payable – equity investments |
|
2.4 –15% |
|
Oct. 2017 – Apr. 2028 |
|
|
— |
|
|
|
1,162,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
— |
|
|
|
11,854,998 |
|
| Less: Current portion of long-term debt |
|
|
|
|
|
|
— |
|
|
|
(10,308,264 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt |
|
|
|
|
|
$ |
— |
|
|
$ |
1,546,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Effective rate as of December 31, 2015 |
The Company’s long-term debt was included in
the liabilities subject to compromise in the accompanying balance sheet as of December 31, 2015. See Note 2 – Chapter 11 Proceedings and 363 Sale and Note 7 – Liabilities Subject to Compromise for further information.
The Company’s capital lease obligations as of December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rate (1) |
|
Maturity
Date |
|
2015 |
|
|
2014 |
|
| Capital lease – building |
|
6.7% |
|
Jul. 2036 |
|
$ |
29,961,560 |
|
|
$ |
30,261,186 |
|
| Capital leases – equipment |
|
3.6 –9.0% |
|
Feb. 2014 – Mar. 2017 |
|
|
419,908 |
|
|
|
968,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
30,381,468 |
|
|
|
31,229,906 |
|
| Less: Current portion of capital leases |
|
|
|
|
|
|
(1,416,163 |
) |
|
|
(1,506,161 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital lease obligations |
|
|
|
|
|
$ |
28,965,305 |
|
|
$ |
29,723,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Effective rate as of December 31, 2015 |
The Company has entered into a capital lease covering the UGH
hospital facility that is collateralized by the leased
facility. The capital lease bears interest at a fixed rate of 6.7%. As of December 31, 2015,
the Company is required to make monthly principal and interest payments under the capital leases totaling $193,611.
F-13
Exhibit 99.2
The Company has entered into various capital leases that are collateralized by certain computer and medical equipment used by the Company. The capital leases
bear interest at fixed rates ranging from 3.6% to 9.0%. The Company is required to make monthly principal and interest payments under the capital leases totaling $25,600.
At December 31, 2015, future maturities of capital leases were as follows:
|
|
|
|
|
| 2016 |
|
$ |
2,704,337 |
|
| 2017 |
|
|
2,473,937 |
|
| 2018 |
|
|
2,397,137 |
|
| 2019 |
|
|
2,397,137 |
|
| 2020 |
|
|
2,397,137 |
|
| Thereafter |
|
|
37,355,376 |
|
Note 7 – Liabilities Subject to Compromise
As noted in Note 2 – Chapter 11 Proceedings and 363 Sale, the Company filed for bankruptcy protection in February 2015 and in
January 2016, the Bankruptcy Court approved UGHS’ Chapter 11 Plan of Liquidation. The Company’s liabilities subject to compromise under the liquidation as of December 31, 2015 follows:
|
|
|
|
|
| |
|
2015 |
|
| Accounts payable |
|
$ |
29,465,782 |
|
| Accrued liabilities |
|
|
6,093,643 |
|
| Payables to affiliates |
|
|
39,389,570 |
|
| Short-term debt |
|
|
1,524,461 |
|
| Other current liabilities |
|
|
325,917 |
|
| Notes payable – affiliates |
|
|
5,065,355 |
|
| Notes payable – settlements |
|
|
5,443,673 |
|
| Notes payable – equity investments |
|
|
1,162,756 |
|
|
|
|
|
|
| Liabilities subject to compromise |
|
$ |
88,471,157 |
|
|
|
|
|
|
None of the liabilities subject to compromise listed above were assumed by Foundation in the 363 Sale. The
amount of liabilities subject to compromise represent known or potential pre-petition claims to be addressed in connection with the bankruptcy proceedings. Such liabilities are reported at the Debtors’ current estimate, where an estimate is
determinable, of the allowed claim amount, even though they may settle for lesser amounts. These claims remain subject to future adjustments, which may result from: negotiations; actions of the Bankruptcy Court; disputed claims; rejection of
contracts and unexpired leases; the determination as to the value of any collateral securing claims; proofs of claims; or other events. Refer to Note 2, “Chapter 11 Proceedings and 363 Sale” for additional information.
Note 8 – Commitments and Contingencies
Legal Issues
The Company is exposed to asserted and unasserted legal claims encountered in the normal course of business, including claims for
damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for
damages, including punitive damages that may not be covered by insurance. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company.
Note 9 – Fair Value Measurements
Fair
value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value,
the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and
assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in
order of priority of observability and objectivity of pricing inputs:
F-14
Exhibit 99.2
| |
• |
|
Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities. |
| |
• |
|
Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs
would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by
observable market data. |
| |
• |
|
Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions
that market participants would use in pricing the asset or liability. |
The fair value measurement level for an asset or
liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
Recurring Fair Value Measurements: The carrying value of the Company’s financial assets and financial liabilities is
their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximated their fair value. At
December 31, 2015 and 2014, the carrying value of the Company’s capital lease obligations approximated their fair value. The fair value of the Company’s capital lease obligations were valued using Level 3 inputs. At December 31,
2015, the carrying value of the Company’s liabilities subject to compromise represents the historical basis of the respective liabilities. The fair value of the liabilities subject to compromise, as of December 31, 2015, is not
determinable. See Note 10 – Subsequent Events for additional information on the approved bankruptcy plan of liquidation.
Nonrecurring Fair Value Measurements:
Goodwill Impairment – During 2014, management determined that an impairment indicator existed related to the Company’s ongoing
hospital business. As a result, management tested goodwill for impairment. The impairment test resulted in an impairment charge of $7.5 million.
The fair value measurements for the Company’s assets measured at fair value on a nonrecurring basis as of December 31, 2015 and 2014
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total |
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total Gains
(Losses) |
|
| December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
7,473,311 |
|
Note 10 – Subsequent Events
Management evaluated all activity of the Company and concluded that no material subsequent events have occurred that would require recognition
in the financial statements or disclosure in the notes to the financial statements, except as noted below:
On January 11, 2016, the
Bankruptcy Court approved UGHS’ Chapter 11 Plan of Liquidation. See Note 2 – Chapter 11 Proceedings and 363 Sale and Note 7 – Liabilities Subject to Compromise for additional information. Under the Chapter 11
Bankruptcy Plan of Liquidation, the Company’s liabilities subject to compromise were classified into the five categories. The categories and their respective treatment in the liquidation plan follows:
Class H1 – Miscellaneous Secured Claims: claimant shall receive either (i) the proceeds of the collateral securing such claim after
satisfaction in full of all superior liens; or (ii) the collateral securing claim in full and final satisfaction of the claim.
F-15
Exhibit 99.2
Class H2 – Priority Non-Tax Claims: claimant will be paid in cash and in full by the trustee.
Class H3 – General Unsecured Claims: trustee shall distribute available cash on a pro rata basis to unsecured claimants.
Class H4 – Subordinated Claims: claimant shall receive a pro rata share of available cash after payment in full of all Class H3 claims.
Class H5 – Interests in the Company: all equity interests in the Company are transferred to Foundation.
F-16
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 31, 2015, Foundation Healthcare, Inc. (referred to as the “Company,” “we,” “us,” and
“our” closed the acquisition comprising substantially all of the hospital assets and hospital operating entity of University General Hospital, LP (“UGH”), consisting of a sixty-nine bed acute care hospital located in the Medical
City area of Houston, Texas (collectively referred to as the “Acquisition”). The purchase price of UGH was $33 million. Subsequent to the Acquisition, UGH will be operated as Foundation Surgical Hospital of Houston.
We have included the unaudited balance sheet of the Company as of December 31, 2015 which reflects the acquisition of UGH. The
unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 was prepared as if the acquisition had occurred on the first day of the period presented and combines the historical unaudited consolidated
statement of operations of the Company with the historical audited consolidated statement of operations of UGH.
The unaudited pro forma
condensed combined financial information has been prepared for informational purposes only, to show the effect of the combination of the Company and UGH on a historical basis. These financial statements do not purport to be indicative of the
results of operations that would have actually occurred had the business combination been in effect at that date, nor do they project the expected results of operations or financial position for any future period or date.
The unaudited pro forma condensed combined financial statements do not reflect any adjustments for non-recurring items or anticipated
synergies resulting from the acquisition. The purchase price allocation is not finalized, because we are still in the process of finalizing our estimates of the fair value of UGH’s property, equipment and intangible assets. Accordingly, we
have prepared the pro forma adjustments based on assumptions that we believe are reasonable but that are subject to change as additional information becomes available and the preliminary purchase price allocation is finalized.
1
Exhibit 99.3
FOUNDATION HEALTHCARE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2015
|
|
|
|
|
| ASSETS |
|
|
|
|
| Cash and cash equivalents |
|
$ |
5,062,492 |
|
| Accounts receivable, net |
|
|
30,383,942 |
|
| Receivables from affiliates |
|
|
509,886 |
|
| Supplies inventories |
|
|
3,737,901 |
|
| Prepaid and other current assets |
|
|
4,161,620 |
|
| Current assets from discontinued operations |
|
|
197,307 |
|
|
|
|
|
|
| Total current assets |
|
|
44,053,148 |
|
|
|
|
|
|
| Property and equipment, net |
|
|
53,515,123 |
|
| Equity method investment in affiliates |
|
|
3,012,631 |
|
| Intangible assets, net |
|
|
7,022,170 |
|
| Goodwill |
|
|
10,423,858 |
|
| Other assets |
|
|
1,259,029 |
|
| Other assets from discontinued operations |
|
|
8,713 |
|
|
|
|
|
|
| Total assets |
|
$ |
119,294,672 |
|
|
|
|
|
|
| LIABILITIES, PREFERRED NONCONTROLLING INTERESTS AND TOTAL DEFICIT |
|
|
|
|
| Liabilities: |
|
|
|
|
| Accounts payable |
|
$ |
9,060,060 |
|
| Accrued liabilities |
|
|
12,877,711 |
|
| Preferred noncontrolling interests dividends payable |
|
|
157,887 |
|
| Short-term debt |
|
|
308,769 |
|
| Current portion of long-term debt |
|
|
10,429,750 |
|
| Other current liabilities |
|
|
590,827 |
|
| Current liabilities from discontinued operations |
|
|
1,735,615 |
|
|
|
|
|
|
| Total current liabilities |
|
|
35,160,619 |
|
|
|
|
|
|
| Long-term debt, net of current portion |
|
|
69,954,911 |
|
| Deferred lease incentive |
|
|
7,672,745 |
|
| Other liabilities |
|
|
6,479,181 |
|
|
|
|
|
|
| Total liabilities |
|
|
119,267,456 |
|
| Preferred noncontrolling interest |
|
|
6,960,000 |
|
| Equity: |
|
|
|
|
| Foundation HealthCare shareholders’ deficit: |
|
|
|
|
| Common stock |
|
|
1,730 |
|
| Paid-in capital |
|
|
20,885,915 |
|
| Accumulated deficit |
|
|
(32,130,178 |
) |
|
|
|
|
|
| Total Foundation HealthCare shareholders’ deficit |
|
|
(11,242,533 |
) |
| Noncontrolling interests |
|
|
4,309,749 |
|
|
|
|
|
|
| Total deficit |
|
|
(6,932,784 |
) |
|
|
|
|
|
| Total liabilities, preferred noncontrolling interests and total deficit |
|
$ |
119,294,672 |
|
|
|
|
|
|
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
2
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Historical |
|
|
Pro Forma
Adjustments |
|
|
Pro Forma
Combined |
|
| |
|
Foundation |
|
|
UGH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Notes 2 - 3 |
) |
|
|
|
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Patient services |
|
$ |
121,197,748 |
|
|
$ |
60,416,633 |
|
|
$ |
— |
|
|
$ |
181,614,381 |
|
| Provision for doubtful accounts |
|
|
(6,359,423 |
) |
|
|
(6,645,830 |
) |
|
|
— |
|
|
|
(13,005,253 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net patient services revenue |
|
|
114,838,325 |
|
|
|
53,770,803 |
|
|
|
— |
|
|
|
168,609,128 |
|
| Management fees from affiliates |
|
|
5,449,354 |
|
|
|
— |
|
|
|
— |
|
|
|
5,449,354 |
|
| Other revenue |
|
|
5,852,145 |
|
|
|
233,547 |
|
|
|
— |
|
|
|
6,085,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
126,139,824 |
|
|
|
54,004,350 |
|
|
|
— |
|
|
|
180,144,174 |
|
| Equity in earnings of affiliates |
|
|
1,369,488 |
|
|
|
— |
|
|
|
— |
|
|
|
1,369,488 |
|
| Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and benefits |
|
|
33,870,730 |
|
|
|
26,820,678 |
|
|
|
— |
|
|
|
60,691,408 |
|
| Supplies |
|
|
27,759,861 |
|
|
|
11,297,153 |
|
|
|
— |
|
|
|
39,057,014 |
|
| Other operating expenses |
|
|
53,928,367 |
|
|
|
13,683,943 |
|
|
|
— |
|
|
|
67,612,310 |
|
| Depreciation and amortization |
|
|
5,697,962 |
|
|
|
4,018,682 |
|
|
|
1,109,675 |
(a) |
|
|
10,826,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
121,256,920 |
|
|
|
55,820,456 |
|
|
|
1,109,675 |
|
|
|
178,187,051 |
|
| Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense, net |
|
|
(1,059,855 |
) |
|
|
(2,115,502 |
) |
|
|
(839,498 |
)(b) |
|
|
(4,014,855 |
) |
| Other income (expense) |
|
|
38,226 |
|
|
|
(1,073,519 |
) |
|
|
1,073,519 |
(c) |
|
|
38,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net other (expense) |
|
|
(1,021,629 |
) |
|
|
(3,189,021 |
) |
|
|
234,021 |
|
|
|
(3,976,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from continuing operations, before taxes |
|
|
5,230,763 |
|
|
|
(5,005,127 |
) |
|
|
(875,654 |
) |
|
|
(650,018 |
) |
| Benefit for income taxes |
|
|
718,612 |
|
|
|
— |
|
|
|
|
|
|
|
718,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) from continuing operations, net of taxes |
|
|
5,949,375 |
|
|
|
(5,005,127 |
) |
|
|
(875,654 |
) |
|
|
68,594 |
|
| Income (loss) from discontinued operations, net of taxes |
|
|
6,593,188 |
|
|
|
— |
|
|
|
|
|
|
|
6,593,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
|
12,542,563 |
|
|
|
(5,005,127 |
) |
|
|
(875,654 |
) |
|
|
6,661,782 |
|
| Less: Net income (loss) attributable to noncontrolling interests |
|
|
6,645,210 |
|
|
|
— |
|
|
|
— |
|
|
|
6,645,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) attributable to Foundation HealthCare |
|
|
5,897,353 |
|
|
|
(5,005,127 |
) |
|
|
(875,654 |
) |
|
|
16,572 |
|
| Preferred noncontrolling interests dividends |
|
|
(706,395 |
) |
|
|
— |
|
|
|
— |
|
|
|
(706,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) attributable to Foundation HealthCare common stock |
|
$ |
5,190,958 |
|
|
$ |
(5,005,127 |
) |
|
$ |
(875,654 |
) |
|
$ |
(689,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per share of common stock, basic and diluted |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of common shares outstanding |
|
|
17,267,301 |
|
|
|
|
|
|
|
|
|
|
|
17,267,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
3
Exhibit 99.3
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The pro
forma condensed combined financial statements present the pro forma effects of the acquisition by Foundation Healthcare, Inc. (the “Company” or “Foundation”) of substantially all of the hospital assets and hospital operating
entity of University General Hospital, consisting of a sixty-nine bed acute care hospital located in the Medical City area of Houston, Texas (“UGH”) for $23.8 million, net of liabilities assumed (the “Acquisition”).
The accompanying unaudited balance sheet of the Foundation reflects the Acquisition and is being included for information purposes
only. The accompanying unaudited pro forma combining consolidated statement of operations is presented assuming the Acquisition was consummated on the first day of the period presented.
The historical information presented for Foundation (i) as of December 31, 2015 and the year then ended, is derived from the unaudited
consolidated financial statements contained in the Company’s Current Report on Form 8-K filed on March 16, 2016.
The
historical information presented for UGH for the year ended December 31, 2015, is derived from the audited consolidated statements of UGH.
The pro forma financial information presented in the unaudited pro forma combining consolidated financial statements is not necessarily
indicative of the financial position and results of operations that would have been achieved had the assets and liabilities been owned by a single corporate entity. The results of operations presented in the unaudited pro forma combining
statements of operations are not necessarily indicative of the results of future operations of Foundation following consummation of the Acquisition.
The accompanying unaudited balance sheet of the Company as of December 31, 2015 includes the recording of the excess fair value over the
net assets acquired (goodwill) of UGH of $9.6 million as a result of the purchase accounting. The fair values of the assets acquired and liabilities assumed are preliminary and based on estimates of the identifiable intangible assets, estimates
of the fair value of inventories and fixed assets, and estimates of the fair value of liabilities. Due to the timing of the acquisition, it was not practical for the fair value appraisals of UGH to be completed at the time of this
report. The final appraisals of UGH could result in changes, which could be significant.
(2) THE ACQUISITION
The preliminary purchase price allocation for the Acquisition which is reflected in the accompanying balance sheet at December 31, 2015 of the
Company, is as follows:
|
|
|
|
|
| |
|
Preliminary |
|
| Accounts receivable |
|
$ |
7,229,000 |
|
| Supplies inventories |
|
|
1,689,000 |
|
| Other current assets |
|
|
328,000 |
|
|
|
|
|
|
| Total current assets |
|
|
9,246,000 |
|
|
|
|
|
|
| Fixed assets |
|
|
39,437,000 |
|
| Intangible assets and goodwill |
|
|
9,450,000 |
|
|
|
|
|
|
| Total assets acquired |
|
|
58,133,000 |
|
|
|
|
|
|
| Liabilities assumed: |
|
|
|
|
| Accounts payable and accrued liabilities |
|
|
1,589,000 |
|
| Current portion of long-term debt and capital lease obligations |
|
|
4,741,000 |
|
|
|
|
|
|
| Total current liabilities |
|
|
6,329,000 |
|
| Long-term debt and capital lease obligations, net of current portion |
|
|
28,004,000 |
|
|
|
|
|
|
| Total liabilities assumed |
|
|
34,333,000 |
|
|
|
|
|
|
| Net assets acquired |
|
$ |
23,800,000 |
|
|
|
|
|
|
4
Exhibit 99.3
(3) PRO FORMA ADJUSTMENTS – THE ACQUISITION:
The accompanying unaudited pro forma consolidated financial statements have been adjusted to give effect to the following:
| |
(a) |
The estimated additional annual depreciation expense to be incurred by the Company on the fixed assets of UGH. |
| |
(b) |
The estimated additional annual interest expense which will be incurred subsequent to the Acquisition on the $17.5 million in long-term debt and capital lease obligations of the Company used to fund the Acquisition.
|
| |
(c) |
The elimination of the 2015 non-operating expense of UGH which was related to the forgiveness of notes payable to affiliates. |
(4) NET INCOME PER SHARE
Pro forma
per share calculations for Foundation are based upon the weighted average number of common stock shares assuming the Acquisition occurred on the first day of the period presented.
5