EX-99.2 3 ea141144ex99-2_soctelemed.htm AUDITED COMBINED BALANCE SHEETS OF ACCESS PHYSICIANS AS OF DECEMBER 31, 2020 AND 2019, AND THE AUDITED COMBINED STATEMENTS OF INCOME, CHANGES IN MEMBERS' EQUITY AND CASH FLOWS OF ACCESS PHYSICIANS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Exhibit 99.2

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC

 

AND AFFILIATED COMPANIES

 

COMBINED FINANCIAL STATEMENTS

 

For the Years Ended December 31, 2020 and 2019

with

Independent Auditors’ Report

 

 

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES

 

TABLE OF CONTENTS

 

  Page
   
INDEPENDENT AUDITORS’ REPORT 1
   
FINANCIAL STATEMENTS:  
   
Combined Balance Sheets 2
   
Combined Statements of Income 3
   
Combined Statements of Changes in Members’ Equity 4
   
Combined Statements of Cash Flows 5
   
Notes to Combined Financial Statements 6

 

i

 

 

INDEPENDENT AUDITORS’ REPORT

 

To the Board of Directors of

Access Physicians Management Services Organization, LLC and Affiliated Companies

 

We have audited the accompanying combined financial statements of Access Physicians Management Services Organization, LLC (a Texas limited liability company) and affiliated companies (collectively, the “Company”) which comprise the combined balance sheets as of December 31, 2020 and 2019, and the related combined statements of income, changes in members’ equity and cash flows for the years then ended, and the related notes to the combined financial statements.

 

Management’s Responsibility for the Financial Statements

 

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

 

Auditors’ Responsibility

 

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

 

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

 

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

 

Opinion

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

/s/ Huselton, Morgan and Maultsby P.C.

 

Dallas, Texas
March 19, 2021

 

1

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
December 31, 2020 and 2019

 

   2020   2019 
Assets        
Current assets:        
Cash and cash equivalents  $2,082,431   $3,690,278 
Accounts receivable, net   4,856,060    3,158,929 
Inventories   1,373,853    298,856 
Prepaid expenses   341,280    174,463 
Total current assets   8,653,624    7,322,526 
Property and equipment, net   210,120    148,428 
Other assets   408,925    36,292 
Total assets  $9,272,669   $7,507,246 
           
LIABILITIES AND MEMBERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,111,671   $2,054,489 
Accounts payable, related party   166,050    83,755 
Accrued expenses   1,491,669    247,375 
Member interest redemption payable, current       100,000 
Notes payable, current   2,003,707    1,488,909 
Total current liabilities   5,773,097    3,974,528 
Deferred tax liability   8,007     
Member interest redemption payable, long-term   175,000    175,000 
Notes payable, long-term   2,125,000    1,186,242 
Total liabilities   8,081,104    5,335,770 
Members’ equity   1,191,565    2,171,476 
Total liabilities and members’ equity  $9,272,669   $7,507,246 

 

See accompanying notes to combined financial statements.

 

2

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
COMBINED STATEMENT OF INCOME
For the Years Ended December 31, 2020 and 2019

 

   2020   2019 
Revenues:        
TeleMedicine  $15,768,287   $9,815,750 
Hybrid   10,181,833    6,773,978 
In person   327,825    957,481 
Other   822,213    344,710 
Total revenues   27,100,158    17,891,919 
           
Cost of revenues:          
TeleMedicine   8,802,445    5,973,754 
Hybrid   8,219,249    5,281,939 
In person   201,534    662,436 
Other   433,836    149,398 
Total cost of revenues   17,657,064    12,067,527 
           
Operating expenses:          
Payroll and benefits   6,682,331    3,880,105 
General and administrative   2,607,683    1,589,400 
Legal fees   406,209    724,892 
Rent   155,042    176,217 
Bad debt   342,828    166,916 
Depreciation and amortization   92,185    59,750 
Total operating expenses   10,286,278    6,597,280 
Loss from operations   (843,184)   (772,888)
           
Other income (expense):          
Other income   4,452     
Due diligence and related non-recurring expense   (149,465)   (246,637)
Interest expense   (175,916)   (209,887)
Total other expense   (320,929)   (456,524)
Loss before provision for taxes   (1,164,113)   (1,229,412)
Provision for federal taxes   (60,997)    
Provision for state taxes – US 9   (26,142)    
Provision for state taxes – all other entities   (28,659)   (39,070)
Net loss before non-controlling interest   (1,279,911)   (1,268,482)
Less: net income attributable to non-controlling interest   413,407    67,346 
Net loss  $(1,693,318)  $(1,335,828)

 

See accompanying notes to combined financial statements.

 

3

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CHANGES IN MEMBERS’ EQUITY
For the Years Ended December 31, 2020 and 2019

 

   Controlling Interest   Non-Controlling Interest   Total Members’ Equity 
Balance at January 1, 2019  $(1,224,010)  $63,965   $(1,160,045)
Contributions   9,875,003        9,875,003 
Distributions   (5,000,000)       (5,000,000)
Redemption of member’s interest   (275,000)       (275,000)
Net (loss) income   (1,335,828)   67,346    (1,268,482)
Balance at December 31, 2019   2,040,165    131,311    2,171,476 
Contributions   300,000        300,000 
Net (loss) income   (1,693,318)   413,407    (1,279,911)
Balance at December 31, 2020  $646,847   $544,718   $1,191,565 

 

See accompanying notes to combined financial statements.

 

4

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2020 and 2019

 

   2020   2019 
Cash flows from operating activities:        
Net loss  $(1,693,318)  $(1,335,828)
Adjustments to reconcile net loss to net cash used by operating activities:          
Income attributable to non-controlling interest   413,407    67,346 
Depreciation and amortization   92,185    59,750 
Deferred tax liability   8,007     
Bad debt   342,828    166,916 
           
Changes in operating assets and liabilities:          
(Increase) decrease in:          
Accounts receivable   (2,039,959)   (852,714)
Inventories   (1,074,997)   (211,714)
Prepaid expenses   (166,817)   (22,305)
Other assets   (372,633)   (24,888)
Increase (decrease) in:          
Accounts payable   57,182    768,990 
Accounts payable, related party   82,295    68,164 
Accrued expenses   1,244,294    144,782 
Net cash used by operating activities   (3,107,526)   (1,171,501)
           
Cash flows from investing activities:          
Purchase of property and equipment   (153,877)   (64,664)
Net cash used by investing activities   (153,877)   (64,664)
           
Cash flows from financing activities:          
Proceeds from line of credit   2,015,707    3,473,000 
Proceeds from notes payable   3,000,000     
Payments on line of credit   (2,000,000)   (3,362,950)
Payments on notes payable   (1,562,151)   (236,442)
Payments on member interest redemption payable   (100,000)   (200,100)
Contributions from members   300,000    9,875,003 
Distributions to members       (5,000,000)
Net cash provided by financing activities   1,653,556    4,548,511 
Net (decrease) increase in cash and cash equivalents   (1,607,847)   3,312,346 
Cash and cash equivalents, beginning of the year   3,690,278    377,932 
Cash and cash equivalents, end of the year  $2,082,431   $3,690,278 
           
Supplemental information:          
State taxes paid  $33,500   $22,200 
Interest paid  $172,275   $199,357 
           
Non-cash investing and financing activities:          
Reacquisition of member interest financed through member interest redemption payable  $   $275,000 

 

See accompanying notes to combined financial statements.

 

5

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

1. PRINCIPLES OF COMBINATION, ORGANIZATION, AND NATURE OF OPERATIONS

 

Principles of Combination

 

The combined financial statements include the accounts of Access Physicians Management Services Organization, LLC (“MSO”), Access Physicians, PLLC (“AP”), AP US 9, PC (“US 9”), and AP US 14, PA (“US 14”), collectively referred to as the (“Company”), which are affiliated by virtue of common ownership. All material intercompany balances and transactions have been eliminated in combination. The combined Company does not form a legal entity.

 

AP has a 51 percent ownership interest in Access Physicians: Pulmonary & Critical Care, Series PLLC (“Pulmonary”). Pulmonary has been fully consolidated into the financial statement of AP and a non-controlling interest is stated separately as required under the provisions of FASB ASC 810, Consolidations. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Organization and Nature of Operations

 

MSO was formed in Texas on September 8, 2017, and provides management services to its clinical affiliates, such as AP, US 9, and US 14. AP was formed in Texas on May 13, 2013, as a professional limited liability company authorized to provide physician services. US 9 was formed in California on June 13, 2018, as a professional corporation authorized to provide physician services in California and a few other states. US 14 was formed in Kansas on February 17, 2020, as a professional association authorized to provide medical services in Kansas. The Company is headquartered in Dallas, Texas. MSO provides telemedicine technology services and products throughout the United States. AP and US 9 are admitted to do business in multiple states and are authorized to provide physician services in those states.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting

 

The accompanying combined financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

 

New Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and subsequently issued additional accounting pronouncements amending this ASU through January 2021. These updates, collectively ASC 606, provide a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance in U.S. generally accepted accounting principles. Under the new standard, revenue is recognized in accordance with 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. The Company adopted ASC 606 on January 1, 2020 on a modified retrospective basis and applied it to those contracts that were not completed as of the adoption date. Prior periods have not been restated. There was no material cumulative effect of initially applying the standard.

 

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40), which requires companies to consider implementation and development costs incurred in a hosting arrangement that is a service contract, and to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The Company adopted ASU 2018-15 on January 1, 2020 on a modified retrospective basis and applied to development efforts that were not completed as of the adoption date. Prior periods have not been restated and there was no material cumulative effect of applying the standard.

 

6

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

2. SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require leases to be recorded as an asset on the balance sheet for the right to use the leased asset and a liability for the corresponding lease obligation for leases with terms of more than twelve months. ASU 2016-02 is effective for nonpublic companies for fiscal years beginning after December 15, 2021, with early adoption permitted. Management is responsible for reviewing this standard, determining its applicability, and implementing it in future accounting periods.

 

Use of Estimates

 

Management uses estimates and assumptions in preparing the combined financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses.

 

Significant estimates and assumptions are used for, but not limited to: (a) allowance for contractual revenue adjustments, (b) allowance for doubtful accounts; and (c) depreciation lives of long-lived assets. Future events and their effects cannot be predicated with certainty; accordingly, the accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in its evaluation, as considered necessary. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

For purposes of the combined statements of cash flows, management considers all highly liquid investments with an original maturity of less than three months to be cash or cash equivalents.

 

Allowance for Doubtful Accounts

 

The Company’s accounts receivable are reported net of estimated allowances for doubtful accounts and contractual adjustments. The allowance for doubtful accounts is based on review of outstanding receivables and historical collection information. In evaluating the collectability of accounts receivable, the Company analyzes its history and identifies trends for each of its payer and other sources of revenue to estimate the appropriate allowance for contractual adjustments and provision for bad debts. Management regularly reviews data about these major sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Inventories

 

Inventoried materials primarily consist of telemedical equipment. The Company reports inventory at the lower of first-in, first-out cost and net realizable value. Net realizable value is based on the selling price.

 

Property and Equipment

 

Property and equipment are stated at cost. Maintenance and repairs that do not extend the useful life are expensed as incurred. Additions and improvements in excess of $1,000 and a useful life over one year are capitalized. In addition, the Company capitalizes purchases that extend the useful life of a fixed asset that would otherwise be obsolete. Depreciation is computed using the straight line method over the estimated useful lives of the depreciable assets, which range from five to seven years.

 

7

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

2. SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Internal Use Software

 

The Company capitalizes certain costs related to developed or modified software solely for its internal use and cloud based applications used to deliver its platform. The Company capitalizes costs during the application development stage once the preliminary project stage is complete, management authorizes and commits to funding the project, and it is probable that the project will be completed and that the software will be used to perform the function intended. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Capitalized internal use software costs reflected as other assets in the accompanying Combined Balance Sheets total $378,732 and $0 as of December 31, 2020 and 2019, respectively. Amortization expense related to internal use software totals $34,509 and $0 for the years ended December 31, 2020 and 2019, respectively.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments, none of which are held for trading purposes, include cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. Management estimates that the fair value of all financial instruments as of December 31, 2020 and 2019 does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying combined financial statements.

 

Income Taxes

 

Under the Internal Revenue Code (“Code”), the income or loss of MSO and AP is recognized by the companies’ respective individual members for federal income tax purposes. Accordingly, no provision for federal income tax for MSO or AP has been provided for in the accompanying combined financial statements. US 9 and US 14 are liable for federal and state income tax. US 14’s federal income tax liability is immaterial for the year ended December 31, 2020, and, therefore, no provision for federal income tax for US 14 is reflected in the accompanying financial statements. US 9’s federal income tax liability is immaterial for the year ended December 31, 2019, and, therefore, no provision for federal income tax for US 9 is reflected in the accompanying financial statements.

 

US 9 and US 14 account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the combined financial statements. Under this method, management determines deferred tax assets and liabilities on the basis of the difference between the financial statement and tax bases of assets and liabilities by using the enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

US 9 and US 14 recognize deferred tax assets to the extent management believes that these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If US 9 or US 14 determined they would be able to realize the deferred tax assets in the future in excess of the net recorded amount, and adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

US 9 and US 14 records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than not recognition threshold, US 9 and US 14 recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

 

Management has evaluated the Company’s tax positions and has not identified any uncertain tax positions that would not be sustained in a federal or state income tax examination. Accordingly, no provision for uncertainties in income taxes has been made in the accompanying consolidated financial statements. The Company is subject to routine audits by taxing jurisdictions; however, no audits for any tax periods are in progress.

 

8

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

2. SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

Revenue Recognition

 

Revenue is recognized in accordance with 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. The Company adopted ASC 606 on January 1, 2020 on a modified retrospective basis and applied to those contracts that were not completed as of the adoption date. Prior periods have not been restated. There was no material cumulative effect of initially applying the standard.

 

Performance Obligations

 

Telemedicine Carts

 

Customers who enter into telemedicine physician services are sold an access cart with a computer and camera in order to properly facilitate meetings between patients, on-site health professionals, and remote physicians. Satisfaction of this performance obligation occurs upon delivery to the customer when control is transferred. AP then recognizes the cart revenue at a point in time, upon delivery. The Company has assurance-type warranties that do not result in separate performance obligations. Revenue relating to telemedicine carts is included within telemedicine revenues on the Combined Statements of Income.

 

Cart Implementation, Education, & Training

 

After delivery of the telemedicine access carts, the installation and implementation of the carts is performed. Related training and education are also part of the implementation of the cart within the customer’s location. MSO provides installation of telemedicine carts and related training for customers. MSO, AP, and US 9 bill customers on a monthly basis for their respective products and services based on contracted terms for those products and services. Satisfaction of this performance obligation occurs as services are provided throughout the 6-week implementation program, and therefore, the entities recognize the implementation revenue over the period in which services are rendered. Revenue relating to cart implementation, education, and training is included within other revenues on the Combined Statements of Income.

 

Administrative/IT Support

 

U.S.-based health IT professionals provide technology and administrative support services, including monthly monitoring and communication of telemedicine support issues, coordination of technology upgrades and maintenance. MSO performs servicing of the carts. MSO, AP, and US 9 bill customers on a monthly basis for their respective products and services based on contracted terms for those products and services. MSO bills its own facility clients at pre-determined rates for its technical support services. Satisfaction of this performance obligation occurs over time, during the period IT services are being provided to the customer. Therefore, the entities recognize the revenue related to IT support performed over the period in which services are rendered. Revenue relating to administrative/IT support is included within telemedicine revenues on the Combined Statements of Income.

 

Physician Services

 

Assigned physicians from the Company provide various health services (in-person, telemedicine, and hybrid) with the majority being telemedicine coverage. Physician services include, but are not limited to, neurology, pulmonary, cardiology, and maternal fetal medicine. AP and US 9 provide physician services via the telemedicine carts, in person, or in a hybrid method. MSO, AP, and US 9 bill customers on a monthly basis for their respective products and services based on contracted terms for those products and services. AP and US 9 bill healthcare facility clients at pre-determined hourly rates for their physician services. Revenues received for the provision of health care services are recorded at AP’s and US 9’s established billings rates less adjustments to revenue, contractual discounts and bad debts. AP and US 9 receive payments from patients, third-party payers, and others for services rendered. The third-party payers pay AP and US 9 based on contracted rates or the entities’ billed charges. Satisfaction of this performance obligation occurs over time, during the period the physician services are being provided to the customer. Therefore, the entities recognize the revenue related to physician services performed over the period in which the services are rendered. Revenue relating to physician services is allocated respectively within telemedicine, hybrid, and in person revenues on the combined statements of income.

 

9

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

2. SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

AP and US 9’s patient service revenue related to physicians services, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the years ended December 31, 2020 and 2019, from these major payer sources, is as follows:

 

   2020   2019 
Medicare/Medicaid  $1,969,168   $882,932 
Managed care   2,345,004    670,540 
Commercial   623,073    565,625 
Private pay   139,903    512,538 
Other   59,084     
Net patient service revenue before provision for bad debts  $5,136,232   $2,631,635 

 

Concentrations

 

The cash balances of the Company are held primarily at Comerica Bank in Dallas, Texas. If cash balances exceed the amounts covered by insurance provided by the Federal Deposit Insurance Corporation (“FDIC”), the excess balances could be at risk of loss. The amount at risk of loss as of December 31, 2020 is $1,144,174.

 

During the year ended December 31, 2020, there were no significant concentrations of the Company’s revenues. During the year ended December 31, 2019, one customer accounted for approximately 13 percent of revenues earned. Management does not believe it is subject to significant risk due to this customer concentration.

 

Medical Malpractice Insurance

 

The Company has obtained a claims-made-based medical malpractice insurance policy with coverage for losses in excess of $1,000,000 per occurrence and $3,000,000 in the aggregate per annual policy period.

 

As of December 31, 2020 and 2019, no medical malpractice claims were on file against the Company. The cost of medical malpractice insurance coverage was $139,636 and 137,346 for the years ended December 31, 2020 and 2019, respectively.

 

Advertising Costs

 

Advertising costs are expensed as incurred. For the years ended December 31, 2020 and 2019, advertising costs total $257,670 and $41,711, respectively.

 

Subsequent Events

 

Management has evaluated subsequent events through March 19, 2021, the date the combined financial statements were available to be issued, and determined there were no items to disclose.

 

10

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

3. ACCOUNTS RECEIVABLE

 

The following is a summary of accounts receivable by major classification and the related allowance for doubtful accounts as of December 31, 2020 and 2019

 

   2020   2019 
Accounts receivable – medical facilities  $3,704,165   $1,900,663 
Accounts receivable – insurance billings   1,515,949    1,277,895 
Other receivables   500    2,097 
Less: allowance for doubtful accounts   (364,554)   (21,726)
Total  $4,856,060   $3,158,929 

 

Bad debt expense for the years ended December 31, 2020 and 2019 totals $342,828 and $166,916, respectively.

 

4. PROPERTY AND EQUIPMENT

 

The following is a summary of property and equipment by major classification and related accumulated depreciation as of December 31, 2020 and 2019:

 

   2020   2019 
Access equipment & technology  $180,749   $180,749 
Furniture & fixtures   145,780    91,045 
Computer equipment   134,772    70,137 
Leasehold improvements   21,984    21,984 
    483,285    363,915 
Less: accumulated depreciation   (273,165)   (215,487)
Total  $210,120   $148,428 

 

Depreciation expense for the years ended December 31, 2020 and 2019 totals $ 57,676 and $59,750, respectively.

 

5. INCOME TAXES

 

The provision for state taxes includes amounts payable to the various states in which the Company operates in the form of margin, franchise, and income tax. State taxes payable are included in accrued expenses on the accompanying balance sheets.

 

The components of income tax expense related to US 9 for the year ended December 31, 2020 are as follows:

 

   2020 
Current – Federal  $55,392 
Current – State   23,740 
    79,132 
Deferred – Federal   5,605 
Deferred – State   2,402 
    8,007 
Income tax expense  $87,139 

 

For the year ended December 31, 2020, the actual income tax benefit differed from the expected tax expense computed by applying a blended rate of 30 percent comprised of the U.S. federal corporate tax rate of 21 percent and state tax rates totaling 9 percent to income before income taxes. These differences are summarized as follows:

 

   2020 
Computed expected tax expense  $79,132 
Temporary differences   8,007 
Income tax expense  $87,139 

 

11

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

5. INCOME TAXES (cont.)

 

The tax effects of significant items comprising deferred tax assets and liabilities as of December 31, 2020 is as follows:

 

   2020 
Deferred tax liability:    
Accounts receivable  $(46,879)
Accounts payable   16,807 
Overhead allocation payable   18,145 
Management fee payable   3,920 
Deferred tax liability  $(8,007)

 

As of December 31, 2019, the Company had a net operating loss carryforward totaling $20,599 which was used to offset taxable income in 2020.

 

6. NOTES PAYABLE AND OTHER LONG-TERM DEBT

 

Notes Payable

 

Notes payable as of December 31, 2020 and 2019 consists of the following:

 

   2020   2019 
Line of credit with Comerica Bank totaling $3,000,000 payable in interest installments based off unpaid principal balance, bearing interest at a rate equal to the National Prime Rate plus 1.00 percentage point, and a lump sum payment of the entire principal balance due on demand, maturing at October 31, 2021, secured by substantially all assets of the Company.  $1,253,707   $1,238,000 
Term note payable to Comerica Bank totaling $3,000,000, payable in monthly interest installments of $62,500 that are inclusive of principal and interest, bearing interest at 4.25 percent, maturing at December 19, 2024, secured by substantially all assets of the Company.   2,875,000     
Note payable to Comerica Bank, payable in monthly installments of $9,570 that are inclusive of principal and interest, bearing interest at 5.5 percent. This note was restructured with the $3,000,000 term note payable and closed during 2020.       248,882 
Note payable to Comerica Bank, payable in monthly installments of $4,624 that are inclusive of principal and interest, bearing interest at 6.5 percent. This note was restructured with the $3,000,000 term note payable and closed during 2020.       139,545 
Note payable to Comerica Bank, payable in monthly installments of $7,771 that are inclusive of principal and interest, bearing interest at six percent. This note was restructured with the $3,000,000 term note payable and closed during 2020.       586,971 
Note payable to Comerica Bank, payable in monthly installments of $5,805 that are inclusive of principal and interest, bearing interest at 1.75 percent over the prime rate. This note was restructured with the $3,000,000 term note payable and closed during 2020.       461,753 
    4,128,707    2,675,151 
Less: notes payable, current   (2,003,707)   (1,488,909)
Total  $2,125,000   $1,186,242 

 

12

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

6. NOTES PAYABLE AND OTHER LONG-TERM DEBT (cont.)

 

Member Interest Redemption Payable

 

On August 2, 2019, AP entered into a redemption agreement to reacquire units of a member’s equity interest for $275,000. AP simultaneously entered into a note agreement with the member which requires the redemption amount to be paid in quarterly interest installments based on the unpaid principle balance through August 2, 2023 and two principal payments. The first principal payment of $100,000 was made during the year ended December 31, 2020 and the second principal payment will be made on or before the maturity date of August 2, 2023. The member interest redemption payable bears interest at a rate of 5 percent annually and totals $175,000 and $275,000 at December 31, 2020 and 2019, respectively.

 

For the years ended December 31, 2020 and 2019, interest expense totals $175,916 and $209,887, respectively. Future maturities of the notes payable and member’s interest redemption payable over the next five years are as follows:

 

2021  $2,003,707 
2022   750,000 
2023   925,000 
2024   625,000 
2025    
Thereafter    
Total  $4,303,707 

 

7. OPERATING LEASES

 

The Company maintains operating lease agreements for office spaces and advertising space from third party lessors. The lease for the corporate office in Dallas, Texas is non-cancellable through December 2022. All other operating leases are month-to-month contracts. Rent expense for the years ended December 31, 2020 and 2019 related to all leases totals $155,042 and $176,217, respectively.

 

Future minimum lease payments required under the initial terms of all the outstanding leases are as follows for years ending December 31:

 

2021  $166,397 
2022   166,397 
2023   166,397 
2024   166,397 
2025   166,397 
Thereafter   55,466 
Total  $887,451 

 

13

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

8. NET PATIENT SERVICE REVENUE

 

Net patient service revenue related to physician services reflected in the accompanying combined statement of income consists of the following for the years ended December 31, 2020 and 2019:

 

   2020   2019 
Gross patient service revenue  $23,006,972   $8,753,636 
Deductions from gross patient service revenue:          
Medicare contractual adjustments   (6,604,406)   (3,232,448)
Other contractual adjustments   (11,266,334)   (2,889,553)
Net patient service revenue before provision for bad debts   5,136,232    2,631,635 
Less: provision for bad debts   (342,828)   (166,916)
Net patient service revenue  $4,793,404   $2,464,719 

 

A significant portion of AP’s, US 9’s, and US 14’s revenue is concentrated by payer mix. The concentration of net revenue by payer class for both patients and third-party payers at December 31, 2020 and 2019 is as follows:

 

   2020   2019 
Medicare/Medicaid   38%   34%
Managed care   46%   25%
Commercial   12%   22%
Private pay   3%   19%
Other   1%   0%
Total   100%   100%

 

9. RELATED PARTY TRANSACTIONS

 

Amounts due from OnSite Physician Coverage, PLLC total $219 and $4,057 as of December 31, 2020 and 2019, respectively.

 

Amounts (due to)/from Access Physicians: Neurology, PLLC total $(37,309) and $32,061 as of December 31, 2020 and 2019, respectively.

 

Certain members of the Company provide services including, but not limited to, physician, management, and legal services. Amounts paid to members for services provided total $4,027,933 and $119,896 for the years ended December 31, 2020 and 2019, respectively. Amounts payable to members for services provided total $203,067 and $47,637 as of December 31, 2020 and 2019, respectively.

 

10. EMPLOYEE BENEFIT PLAN

 

The Company sponsors a 401(k) plan for the benefit of employees. The 401(k) plan allows participants to defer the maximum amount allowed by the Internal Revenue Service from their compensation. The Company elected not to contribute a match contribution to the plan during the years ended December 31, 2020 and 2019.

 

11. EQUITY

 

One hundred shares of US 14 common stock with a par value of $1 per share are authorized and 50 shares are issued and outstanding as of December 31, 2020. Although US 14 is an association with a stockholder, all equity holders in the accompanying combined financial statements are referred to as “members” for simplification purposes.

 

Two hundred shares of US 9 common stock with a par value of $0.001 per share are authorized and 100 shares are issued and outstanding as of December 31, 2020 and 2019. Although US 9 is a corporation with a stockholder, all equity holders in the accompanying combined financial statements are referred to as “members” for simplification purposes.

 

14

 

 

ACCESS PHYSICIANS MANAGEMENT SERVICES ORGANIZATION, LLC
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2020 and 2019

 

11. EQUITY (cont.)

 

AP is owned by two physicians who are also members of MSO, with each of those physicians owning 50 percent of AP.

 

As of December 31, 2020, and 2019, MSO’s membership units authorized, issued, and outstanding are as follows:

 

   2020 
Class  Authorized   Issued   Outstanding 
Series A Preferred   4,044,815    4,044,815    4,044,815 
Class A Common   7,686,847    7,686,847    7,686,847 
Class A Incentive   350,676    350,676    350,676 
Class B Profit Interest   1,965,020    1,965,020    1,712,331 
Total Units   14,047,358    14,047,358    13,794,669 

 

   2019 
Class  Authorized   Issued   Outstanding 
Series A Preferred   3,926,316    3,926,316    3,926,316 
Class A Common   11,963,838    8,037,522    8,037,522 
Class B Profit Interest   1,671,781    990,000    990,000 
Total Units   17,561,935    12,953,838    12,953,838 

 

On April 29, 2020, the Board approved the issuance of additional Class B units to key employees of MSO. The Class B units are subject to the vesting over a four year period, with the first 25 percent of such Class B units vesting following 12 months of continued employment or service, and the remaining Class B units vesting in equal monthly installments over the following 36 months, or on other terms as the Board may approve as set forth in the applicable award agreement. The authorization of new Class B units amounted to 1,965,020 units and did not exceed 14.1 percent of total number of shares outstanding. The Class B units have an original issue price per unit of $0.

 

On June 1, 2020, MSO was authorized to issue up to 350,676 additional Class A units (Class A Incentive units) to two of its members in consideration for services provided or to be provided to the Company. Immediately prior to the grant of any Class A Incentive units by MSO, the founders transferred a number of Class A Common units to the Company as a capital contribution equal to fifty percent of the number of Class A Incentive Units to be granted by the Company. Class A Incentive units have an original issue price per unit of $1.53.

 

12. COVID-19

 

The Company is closely monitoring the impact of the pandemic of the novel strain of coronavirus, known as COVID-19, on all aspects of its business, including how it has impacted and may continue to impact the Company’s customers, employees, suppliers, and vendors. While the Company did not incur significant disruptions in its operations during the fiscal year ended December 31, 2020 from COVID-19, due to uncertainties surrounding the COVID-19 pandemic, it is unable to predict the impact that COVID-19 will have on its financial position, operating results and cash flows in future periods.

 

 

15