Item 4.02.
|
Non-Reliance
on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
|
On March 29, 2019, AAC Holdings, Inc. (the Company), the
Audit Committee (the Audit Committee) of the Companys Board of Directors and executive management, in consultation with the Companys independent registered public accounting firm, BDO USA, LLP (BDO), determined
that adjustments to certain of its previously issued financial statements audited by BDO and unaudited quarterly financial statements reviewed by BDO are necessary. The adjustments relate to estimates of accounts receivable, , provision for doubtful
accounts and revenue for the relevant periods described below.
The adjustments will result in estimated increases to net income of
approximately $11.8 million and $14.3 million, for the nine months ended September 30, 2018 and the year ended December 31, 2017, respectively. The adjustments will also result in an estimated decrease of net income of
approximately $13.5 million for the year ended December 31, 2016. Periods prior to 2016 will also be impacted as a result of the adjustments, which will result in an estimated cumulative effect adjustment of approximately
$24.7 million, recorded as a reduction to stockholders equity on the balance sheet as of January 1, 2016. The adjustments will not affect the previously reported net operating cash flows. The Company is diligently working to complete
its review of the restated financial statements, and, therefore, the estimated adjustments described in the immediately preceding sentences are preliminary in nature.
Subsequent to the year ended December 31, 2018 and as part of the preparation of the Companys
year-end
financial statements, the Company, in consultation with BDO, used recently developed financial database analytical tools, in order to analyze cash collection trends for historical and prospective
periods relating to its accounts receivable (including client-related diagnostic testing accounts receivable), provision for doubtful accounts and revenue.
As a result of this review and after consultation and deliberation with regard to the
appropriate accounting treatment, including discussion as to the size of the adjustments, the Audit Committee, Company executive management and BDO concurred that the adjustments described above should be recorded through restatements with regard to
the relevant historical periods. The restatements do not implicate misconduct with respect to the Company, its management or its employees.
The Companys previously issued annual financial statements audited by BDO and included in the Companys annual report on Form
10-K
for the years ended December 31, 2017 and 2016 and the unaudited financial statements reviewed by BDO and included in the Companys quarterly reports on Form
10-Q
for the quarters ended September 30, 2018 and 2017, June 30, 2018 and 2017, and March 31, 2018 and 2017, will be restated to properly reflect accounts receivable balances. Accordingly, the
Companys previously issued consolidated financial statements included in those reports, the related reports of the Companys independent auditors, BDO, and the related financial information should not be relied upon.
The adjustments do not relate to the change in estimate that the Company made during the three months ended September 30, 2018 and
effective as of July 1, 2018, regarding our estimate of the collectability of accounts receivable, specifically relating to accounts where the Company has received a partial payment from a commercial insurance company and we are continuing to
pursue additional collections for the balance that we estimate remains outstanding or partial payment accounts receivable.
Based on this assessment, the Company expects to report a material weakness in the Companys internal controls over financial reporting,
and, therefore, conclude that internal controls over financial reporting as of December 31, 2018 are not effective. Although the assessment is not yet complete, management expects to recommend to the Audit Committee certain remedial actions.
The Company filed a Form
12b-25
on March 19, 2019 relating to its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2018 (the Form
10-K).
The Company expects to file the Form
10-K,
including the restated Financial Statements, by no later than April 2, 2019, the expiration date of the extension period provided by
Rule 12b-25
of the Securities Exchange Act of 1934, as amended.
However, there can be no assurance that the Form
10-K
will be filed on or prior to such date. The Audit Committee and the Companys management have discussed the matters disclosed in this Current Report
on Form
8-K
(this Report) with BDO, its independent regulated accounting firm.