See the accompanying notes to these unaudited condensed
consolidated financial statements
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
NOTE
1 — BASIS OF PRESENTATION
First
Choice Healthcare Solutions, Inc. (“FCHS,” “the Company,” “we,” “our” or “us”)
is actively engaged in implementing a defined growth strategy aimed at building a network of localized, integrated healthcare
services platforms comprised of non-physician-owned medical centers of excellence, which concentrate on treating patients in the
following specialties: Orthopaedics, Spine Surgery, Interventional Pain Medicine and related diagnostic and ancillary services
in key high growth markets.
The
unaudited condensed consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned
subsidiaries: First Choice Medical Group of Brevard LLC, Marina Towers, LLC, FCID Medical Inc., TBC Holdings of Melbourne, Inc.,
CCSC Holdings, Inc. and Crane Creek Surgical Partners, LLC., along with the VIE, The B.A.C.K. Center. All significant
intercompany balances and transactions, including those involving the VIE, have been eliminated in consolidation.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they
do not include all of the information and disclosures required by U.S. GAAP for annual financial statements. In the opinion of
management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary
for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2018 and for
the three months ended March 31, 2018 and 2017. The results of operations for the three months ended March 31, 2018 are not necessarily
indicative of the operating results for the full year ending December 31, 2018 or any other period. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related
disclosures of the Company as of December 31, 2017 and for the year then ended, which were filed with the Securities and Exchange
Commission on Form 10-K on April 2, 2018.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
Use
of estimates
The
preparation of the financial statements in conformity with United States generally accepted accounting principles (“U. S.
GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates. Significant estimates include the recoverability and useful lives of long-lived
assets, provision against bad debt, the fair value of the Company’s stock, and stock-based compensation. Actual results
may differ from these estimates.
Revenue
recognition
The
Company recognizes revenue when: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based
on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability
of those amounts.
The
Company recognizes, significant patient service revenue at the time the services are rendered, even though it does not assess
the patient’s ability to pay. Therefore, The Company’s interim and annual periods reports disclose both, its policy
for assessing and disclosing the timing and amount of uncollectable patient service revenue recognized as doubtful. Qualitative
and quantitative information about significant changes in the allowance for doubtful accounts related to patient accounts receivable
are disclosed in the Company’s reports. These estimates are based upon the history and identified trends for each of our
payers.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
Patient
fee revenue
Patient
fee revenue, net of contractual allowance and discounts, consists of net patient fees received from insurance companies, third
party payors (including federal and state agencies), hospitals and patients themselves based mainly upon established contractual
billing rates, less allowances for contractual adjustments and discounts. Patient fee revenue is recorded in the period in which
the services are provided
Rental
Revenue
In
addition to housing our corporate headquarters and First Choice Medical Group, the building leases 38,334 square feet of commercial
office space to non-affiliated tenants. Our corporate headquarters and FCID Holdings offices currently utilize 4,274 square feet
on the fifth floor of Marina Towers; and First Choice Medical Group, including its MRI center and Physical Therapy center, currently
occupies 21,902 square feet on the ground, first and second floors.
Concentrations
of credit risk
The
Company’s financial instruments that are exposed to a concentration of customer risk and accounts receivable risk. Occasionally,
the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability
of these institutions is periodically reviewed by senior management. Revenues and accounts receivable are concentrated between
two major payers with the approximate risk level outlined below.
|
Concentration of Risk
|
|
Revenue Concentration:
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
2017
|
|
Medicare
|
|
|
36.0
|
%
|
|
|
35.5
|
%
|
|
Commercial Payor 1
|
|
|
15.9
|
%
|
|
|
19.0
|
%
|
|
Commercial Payor 2
|
|
|
—
|
|
|
|
11.0
|
%
|
Receivable
Concentration:
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2018
|
|
2017
|
|
Medicare
|
|
|
24.6
|
%
|
|
|
22.9
|
%
|
|
Commercial Payor 1
|
|
|
11.6
|
%
|
|
|
17.4
|
%
|
|
Commercial Payor 2
|
|
|
11.9
|
%
|
|
|
11.7
|
%
|
Accounts
receivables
Accounts
receivables are carried at their estimated collectible amounts net of doubtful accounts. The Company analyzes its history and
identifies trends for each major payer sources of revenue to estimate the appropriate allowance for doubtful accounts and provision
for bad debts. Management regularly reviews data about these major payer sources of revenue in evaluating the sufficiency of the
allowance for doubtful accounts.
Patient
receivables: Accounts receivables from services provided to patients who have third-party coverage, the Company analyzes contractually
due amounts and provides an allowance for doubtful accounts, if necessary. The Company records a provision for bad debts in the
period of service on the basis of past experience or when indications are the patients are unable or unwilling to pay the portion
of their bill for which they are responsible. The difference between the standard rates (or the discounted rates if negotiated)
and the amounts collected after all reasonable collection efforts have been exhausted, is charged off against the allowance for
doubtful accounts.
Rental
receivables: Accounts receivables from rental activities are periodically evaluated for collectability in determining the appropriate
allowance for doubtful accounts.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
In
the year ended 2017, the Company changed its estimates of the allowance for doubtful accounts related to its customers, primarily
based on historical experience of write-offs of outstanding accounts receivable. The result of this change in estimate resulted
in an increase compared to the year ended December 31, 2016 to the allowance for doubtful accounts by approximately $3.2 million
in the year ended 2017. As of March 31, 2018, and December 31, 2017, the Company’s allowance for doubtful accounts was $7,563,566
and $7,285,004 respectively.
Net
(loss) income per share
Basic
net (loss) income per common share is based upon the weighted-average number of common shares outstanding. Diluted net income
per common share is based on the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding
and computed as follows:
|
|
|
Three Months ended March 31,
|
|
|
|
2018
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
Net income attributable to First Choice Healthcare Solutions, Inc.
|
|
$
|
279,338
|
|
|
$
|
202,519
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares, basic
|
|
|
28,610,793
|
|
|
|
26,252,505
|
|
|
Weighted-average common shares, diluted
|
|
|
29,410,793
|
|
|
|
27,052,505
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
Diluted:
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Potentially
dilutive common shares from convertible debt, options and warrants are determined by applying the treasury stock method to the
assumed exercise of warrants and share options are were excluded from the computation of the diluted net income per share because
their inclusion would be anti-dilutive. In addition, there were no vested restrict stock for periods presented. Potentially dilutive
securities excluded from the basic and diluted net income per share are as follows:
|
|
|
March 31,
|
|
|
|
2018
|
|
2017
|
|
Warrants to purchase common stock
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
Options to purchase common stock
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
Restricted stock awards
|
|
|
1,248,777
|
|
|
|
660,000
|
|
|
Total
|
|
|
6,123,777
|
|
|
|
5,535,000
|
|
Stock-based
compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of
the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete.
The fair value amount is then recognized over the period during which services are required to be provided in exchange for the
award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications
in the unaudited condensed consolidated statements of operations, as if such amounts were paid in cash. Upon exercise of a common
stock equivalent, the Company issues new shares of common stock out of its authorized shares.
Segment
information
Operating
segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation
by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance.
The information disclosed herein represents all the material financial information related to the Company’s principal operating
segments. (See Note 11 – Segment Reporting).
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
Treasury
Stock
The
Company uses the cost method when it purchases its own common stock as treasury shares and displays treasury stock as a reduction
of shareholders’ equity. As of March 31, 2018 the Company canceled all of its outstanding treasury stock.
Reclassifications
Certain
reclassifications have been made to prior period’s data to conform to the current year’s presentation. These reclassifications
had no impact on reported income.
Litigations, Claims and Assessments
From time to time, we may become involved
in lawsuits and legal proceedings which arise in the ordinary course of business including potential disputes with patients. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting
from the negligence of our physicians. Currently, we have no pending litigation that is deemed to be material to the consolidated
financial statements.
Recent
accounting pronouncements
In
May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
2014-09 “Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S.
GAAP. The guidance presents a single five-step model for comprehensive revenue recognition that requires an entity to 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. Two options are available for implementation of the
standard which is either the retrospective approach or cumulative effect adjustment approach. The guidance becomes effective for
annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early
adoption permitted. The Company adopted ASU 2014-09 using the modified retrospective transition method in the first quarter of
2018 and such adoption did not have a material impact on the condensed consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring lessees to recognize a right-of-use asset and a
lease liability on the balance sheet for all leases except for short-term leases. For lessees, leases will continue to be classified
as either operating or finance leases in the income statement. The effective date of the new standard for public companies is
for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted.
The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the
beginning of the earliest comparative period presented. The Company is evaluating the effect that the updated standard will have
on its financial statements and related disclosures.
In
August 2016, the FASB issued ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments. ASU 2016-15 provides guidance for eight specific cash flow issues with respect to how cash receipts and cash payments
are classified in the statements of cash flows, with the objective of reducing diversity in practice. The effective date
for ASU 2016-15 is for annual periods beginning after December 15, 2017and interim periods within those fiscal years. Early adoption
is permitted. The Company adopted ASU 2016-15 in the first quarter of 2018 and such adoption did not have a material impact on
the Company.
In
January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify
the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures
to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be
required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this
update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments
in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as
acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual
periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 in
the first quarter of 2018 and such adoption did not have a material impact on the Company.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
In
July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480),
Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round features. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when
assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements
for equity-classified instruments.
As
a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as
a derivative liability at fair value because of the existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the
effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are
now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with
Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a
scope exception.
Those
amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted
for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently
reviewing the impact of adoption of ASU 2017-11 on its financial statements.
Subsequent
events
The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based
upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the consolidated financial statements, except as disclosed.
NOTE
3 – LIQUIDITY
The
Company incurred various non-recurring expenses in 2017 in connection with the planned development of its Healthcare Services
Business. Management believes continued growth in 2018 will support improved liquidity. On March 1, 2018 the Company received
$7.5 million in cash in exchange for issuing five million shares of common stock.
The
Company believes that the current cash balance and line of credit (see notes), along with continued execution of its business
development plan, will allow the Company to further improve its working capital; and currently anticipates that it will have sufficient
capital resources to meet projected cash flow requirements through the date at least one year from the filing of this report.
However,
to execute the Company’s business development plan, which there can be no assurance we will achieve, the Company may need
to raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other means
and potentially reduce operating expenditures. If the Company is unable to secure additional capital, it may be required to curtail
its business development initiatives and take additional measures to reduce costs to conserve its cash.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
NOTE
4 — LINES OF CREDIT
Line
of credit, CT Capital
FCMG
- Brevard entered into a Loan and Security Agreement (the “Loan Agreement”) with CT Capital, Ltd., d/b/a CT Capital,
LP, a Florida limited liability partnership (the “Lender”). Under the Loan Agreement, the Lender committed to make
an accounts receivable line of credit in the maximum aggregate amount of $2,500,000 to FCMG - Brevard with an interest rate of
6% per annum (the “Loan”). Interest is due and payable monthly. The Lender may convert up to $2,000,000 of the outstanding
principal amount or interest on the Loan into common stock of the Company at a conversion price of $0.75 per share.
On
December 27, 2017, the Loan Agreement with CT Capital, Ltd. (“Lender”) was amended to extend the Maturity Date to
December 31, 2019 and further provide that neither the Company nor Lender shall effectuate any conversion of the Loan to the extent
that after giving effect to any such conversion, the Lender would beneficially own in excess of 9.99% of the number of shares
of our Company’s shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of the Loan by the Lender.
The
obligations of the Company under the Loan Agreement, as amended, are guaranteed by certain affiliates of the Company, including
a personal guarantee issued by the Company’s Chief Executive Officer.
As
of March 31, 2018, and December 31, 2017, the outstanding balance was $1,100,000 and the remaining principal amount the Lender
can convert into common stock is $600,000, subject to the limitations set forth above. The balance available on the line of credit
is $1,400,000 as of March 31, 2018.
Line
of credit, Florida Business Bank
The
B.A.C.K. Center is a party to a Promissory Note with Florida Business Bank, a Florida banking corporation. Under the Loan Agreement,
the Lender committed to make an accounts receivable line of credit in the maximum aggregate amount of $1,383,000 (as amended),
with an interest rate of Prime floating plus 1.0%, as published in
The Wall Street Journal
, with a floor of 2.75% per annum
(as amended). The agreement annually renews on June 30, 2018.
Interest
shall be due and payable monthly, and principal is due on demand. The outstanding principal balance plus all accrued but unpaid
interest shall be due on demand (the “Maturity Date”). Upon default, the interest may be adjusted to the highest rate
permissible by law.
The
Loan is secured by all assets of The B.A.C.K. Center now owned or hereafter acquired. The assets constitute the collateral for
the repayment of the Loan.
The
Loan Agreement also includes covenants, representations, warranties, indemnities and events of default that are customary for
facilities of this type. The advance rate is defined as: 60% of eligible accounts receivables. Eligible receivables include all
Medicare and Medicaid receivables less than 90 days old multiplied by a factor of 0.25, plus all other receivables less than 90
days old multiplied by a factor of 0.50. As of March 31, 2018, The B.A.C.K. Center had not violated the loan covenants.
The
obligations of The B.A.C.K Center under the Loan Agreement are guaranteed by the shareholders of The B.A.C.K. Center. The Loan
Agreement is also guaranteed in the amount of $950,000 by related parties of The B.A.C.K. Center. As of March 31, 2018, and December
31, 2017, the outstanding balance on the Loan was $440,024.
NOTE
5— NOTES PAYABLE
Notes
payable as of March 31, 2018 and 2017 are comprised of the following:
|
|
|
March
31.
2018
|
|
December
31.
2017
|
|
Note Payable, GE Arm
|
|
$
|
5,063
|
|
|
$
|
12,536
|
|
|
Capital Leases- Equipment
|
|
|
193,740
|
|
|
|
77,162
|
|
|
|
|
|
198,803
|
|
|
|
89,698
|
|
|
Less current portion
|
|
|
(49,515
|
)
|
|
|
(29,552
|
)
|
|
Long term portion
|
|
$
|
149,288
|
|
|
$
|
60,146
|
|
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
Note
payable — equipment financing
On
February 25, 2013, the Company accepted the delivery of C-arm equipment under the equipment finance lease. As such, the component
price accepted of $124,797 is due over 63 months and the associated monthly payment is $0 for the first three months and $2,388
for the remaining 60 months, including interest at 7.39% per annum.
Capital
leases — equipment
On
February 6, 2017, the Company entered into a capital lease agreement to acquire equipment with 48 monthly payments of $611 payable
through January 6, 2021 with an effective interest rate of 14.561% per annum. The Company may elect to acquire the leased equipment
at a nominal amount at the end of the lease.
In
June 2017, the Company entered into a lease agreement to acquire equipment with 60 monthly payments of $1,223 payable through
June 2021 with an effective interest rate of 5.00% per annum. The Company may elect to acquire the leased equipment at a nominal
amount at the end of the lease.
On
January 29, 2018 the Company entered into a lease agreement to acquire equipment with 60 monthly payments of $1,925 payable through
December 2018 with an effective interest rate of 10.2% per annum. The Company may elect to acquire the leased equipment at a nominal
amount at the end of the lease.
Aggregate
principal maturities of long-term debt as of March 31, 2018
:
|
|
|
Amount
|
|
Year ended December 31, 2018
|
|
|
$
|
29,763
|
|
|
Year ended December 31, 2019
|
|
|
|
35,602
|
|
|
Year ended December 31, 2020
|
|
|
|
38,967
|
|
|
Year ended December 31, 2021
|
|
|
|
35,555
|
|
|
Year ended December 31, 2022 and beyond
|
|
|
|
58,916
|
|
|
Total
|
|
|
$
|
198,803
|
|
NOTE
6 — TEMPORARY EQUITY 2022 PUT OPTION
On
February 6, 2018, the Company and Steward Health Care System LLC (“Steward”) entered into a Stock Purchase Agreement
(the “Purchase Agreement”).Pursuant to the terms of the Purchase Agreement, Steward will acquire from the Company
5,000,000 shares of common stock of the Company for cash consideration of $7,500,000. As a result of the transaction, Steward
owned 15.5% of all of the issued and outstanding shares of common stock of the Company.
The
Company has agreed that, upon demand from Steward after the six month anniversary of the Closing Date, the Company shall use its
reasonable best efforts to prepare and file with the Securities and Exchange Commission, a registration statement and such other
documents as may be necessary in the advice of counsel for the Company, and use its commercially reasonable efforts to have such
registration statement declared effective in order to comply with the provisions of the Securities Act of 1933, as amended, so
as to permit the registered resale of the common shares.
In
addition, the Company has agreed that, on or after April 1, 2022, upon ninety (90) days prior written notice, Steward may sell
fifty percent (50%) of the common stock to the Company one-time during each of the following two (2) calendar years thereafter
at a price equal to the purchase price under the Purchase Agreement pro-rated for the number of shares being purchased. Notwithstanding
the foregoing, the put option shall automatically terminate and be of no further force and effect in the event the market capitalization
(as defined in the Purchase Agreement) of the Company is equal to or more than $100,000,000 at any time after the date of the
Purchase Agreement.
Due
to the nature of the put agreement as described above, the Company has classified to temporary equity the net proceeds from the
sale of the Company’s common stock.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
NOTE
7 — CAPITAL STOCK
Common
stock
During
the three months ended March 31, 2018, the Company issued an aggregate of 9,571 shares of its common stock to a service provider
at an aggregate fair value of $13,575.
During
the three months ended March 31, 2018 the Company returned to authorized and cancelled 189,020 previously acquired common
stock treasury shares with a carrying value of $249,265.
During
the three months ended March 31, 2018, the Company cancelled a net of 5,000 shares of common stock previously issued to a service
provider.
NOTE
8 — STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
Options
The
following table presents information related to stock options at March 31, 2018:
|
Options Outstanding
|
|
|
Exercise
Price
|
|
Number of
Options
|
|
Weighted Average
Remaining Life in Years
|
|
Exercisable Number
of Options
|
|
$
|
1.35
|
|
|
|
3,000,000
|
|
|
|
5.75
|
|
|
|
—
|
|
Transactions
involving stock options issued are summarized as follows:
|
|
|
Number of
Shares
|
|
Weighted
Average Price
Per Share
|
|
Outstanding at December 31, 2017:
|
|
|
|
3,000,000
|
|
|
|
1.35
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at March 31, 2018
|
|
|
|
3,000,000
|
|
|
$
|
1.35
|
|
The
aggregate intrinsic value of all outstanding options of $210,000 represents the total pretax intrinsic value, based on options
with an exercise price less than the Company’s stock price of $1.42 as of March 31, 2018, which would have been received
by the option holders had those option holders exercised their options as of that date.
Restricted
Stock Units (“RSU”)
Transactions
involving restricted stock units issued are summarized as follows:
|
Restricted share units as of December 31, 2017
|
|
|
|
921,100
|
|
|
Granted
|
|
|
|
327,677
|
|
|
Forfeited
|
|
|
|
—
|
|
|
Unvested restricted shares as of March 31, 2018
|
|
|
|
1,248,777
|
|
In
2018, the Company granted 327,677 performance-based, restricted stock units vesting over four or five years depending on the
grant. The estimated fair value of the granted restricted stock units of $167,000 is being recognized over the vesting
periods.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
As
of March 31, 2018, stock-based compensation related to restricted stock awards of $1,056,963 remains unamortized and is expected
to be amortized over the weighted average remaining period of 3.46 years.
The
Company previously issued warrants of 1,875,000 in 2011, since 2011 no additional warrants have been issued and will expire on
December 23, 2018. As of March 31, 2018, the aggregate intrinsic value of all warrants was zero.
NOTE
9 — VARIABLE INTEREST ENTITY
Brevard
Orthopaedic Spine & Pain Clinic, Inc.
The
Company has determined that The B.A.C.K. Center is a VIE
.
In evaluating whether the Company has the power to direct the
activities of a VIE that most significantly impact its economic performance, the Company considers the purpose for which the VIE
was created, the importance of each of the activities in which it is engaged and the Company’s decision-making role, if
any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest
holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s
future performance and the exercise of professional judgment in deciding which decision-making rights are most important.
In
determining whether the Company has the right to receive benefits or the obligation to absorb losses that could potentially be
significant to the VIE, the Company evaluates all its economic interests in the entity, regardless of form (debt, equity, management
and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s
structure, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests
relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be
economically significant.
The
evaluation of each of these factors in reaching a conclusion about the potential significance of the Company’s economic
interests is a matter that requires the exercise of professional judgment. The assets of The B.A.C.K. Center can only be used
to settle obligations of the VIE, additionally, creditors of The B.A.C.K. Center do not have recourse against the general credit
of the primary beneficiary.
The
tables below summarize the assets and liabilities associated with The B.A.C.K. Center as of March 31, 2018 and December 31, 2017:
|
|
|
March
31,
2018
|
|
December
31,
2017
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
478,740
|
|
|
$
|
238,402
|
|
|
Accounts receivable, net
|
|
|
4,129,865
|
|
|
|
3,526,789
|
|
|
Other current assets
|
|
|
725,957
|
|
|
|
765,236
|
|
|
Total current assets
|
|
|
5,334,562
|
|
|
|
4,530,427
|
|
|
Property and equipment, net
|
|
|
209,950
|
|
|
|
73,791
|
|
|
Other assets
|
|
|
22,005
|
|
|
|
22,005
|
|
|
Total assets
|
|
$
|
5,566,517
|
|
|
$
|
4,626,223
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
854,018
|
|
|
$
|
628,304
|
|
|
Due to First Choice Healthcare Solutions, Inc.
|
|
|
2,287,502
|
|
|
|
1,700,210
|
|
|
Other current liabilities
|
|
|
492,141
|
|
|
|
485,432
|
|
|
Total current liabilities
|
|
|
3,633,661
|
|
|
|
2,813,946
|
|
|
Long term debt
|
|
|
2,071,542
|
|
|
|
1,950,963
|
|
|
Total liabilities
|
|
|
5,705,203
|
|
|
|
4,764,909
|
|
|
Non-controlling interest
|
|
|
(138,686
|
)
|
|
|
(138,686
|
)
|
|
Total liabilities and deficit
|
|
$
|
5,566,517
|
|
|
$
|
4,626,223
|
|
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
Total
revenues from The B.A.C.K. Center were $3,974,593 for the three months ended March 31, 2018. Related expenses consisted primarily
of salaries and benefits of $1,776,997, other operating expense of $938,794, general and administrative expenses of $618,337
depreciation of $10,190, interest and financing costs of $4,810; and other income of $38,553 for the three months ended March
31, 2018. (See Note 11 – Segment Reporting)
Total
revenues from The B.A.C.K. Center were $3,430,655 for the three months ended March 31, 2017. Related expenses consisted primarily
of salaries and benefits of $1,718,717, operating expenses of $856,482, general and administrative expenses of $638,798, depreciation
of $6,162, interest and financing costs of $3,904; and other income of $45,684 for the three months ended March 31, 2017. (See
Note 11 – Segment Reporting)
Crane
Creek Surgery Center
In
2015, the Company had determined that Crane Creek is a VIE
.
In evaluating whether the Company has the power to direct the
activities of a VIE that most significantly impact its economic performance, the Company considers the purpose for which the VIE
was created, the importance of each of the activities in which it is engaged and the Company’s decision-making role, if
any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest
holders.
This
evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future
performance and the exercise of professional judgment in deciding which decision-making rights are most important.
In
determining whether the Company has the right to receive benefits or the obligation to absorb losses that could potentially be
significant to the VIE, the Company evaluates all its economic interests in the entity, regardless of form (debt, equity, management
and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s
structure, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests
relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be
economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of
the Company’s economic interests is a matter that requires the exercise of professional judgment.
The
assets of Crane Creek can only be used to settle obligations of the VIE, additionally, creditors of the Crane Creek do not have
recourse against the general credit of the primary beneficiary.
On
January 31, 2018 effective January 1, 2018), the Company entered into a Membership Interest Purchase Agreement (the “Purchase
Agreement”) with HMA Blue Chip Investments, LLC (“Blue Chip”).Pursuant to the terms of the Purchase Agreement,
the Company acquired from Blue Chip 24.05 Class B Units of membership interest in the Center for cash consideration of $400,000
(the “Transaction”), representing a 25% ownership interest in the Center. As a result of the Transaction, the Company
held a 65% ownership interest in the Center.
Termination
and Assignment Agreement
On
January 31, 2018 (effective January 1. 2018), the Company entered into a Termination and Assignment Agreement (the “Termination
Agreement”) with Crane Creek Surgical Partners, LLC (the “Center”) and BCS-Management, LLC (“BCS”).
Pursuant
to the terms of the Termination Agreement, the Center and BCS will terminate their respective rights and obligations under that
certain Amended and Restated Management Services Agreement dated as of September 1, 2013 (the “Management Agreement”).
Each of the Center and BCS has agreed to release the other and certain other persons from any and all claims arising out of or
relating to the Management Agreement, except for claims arising out of the Termination Agreement and claims made by third parties
against either party.
In
addition, pursuant to the terms of the Termination Agreement, BCS will assign, grant, convey and transfer to the Company all of
BCS’s right, title and interest in and to the Management Agreement, including but not limited to the right to accept management
fees as set forth in the Management Agreement, and the Company will assume all of BCS’s duties and obligations under the
Management Agreement. Until March 31, 2018, BCS will provide the Center business office, financial, accounting and other related
services necessary to assist the transition of the operation of the Center to the Company.
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
As
a result of the Purchase agreement described above, Crane Creek Surgical Partners, LLC became a majority-owned subsidiary of the
Company effective January 1, 2018.
The
tables below summarize the assets and liabilities associated with the Crane Creek as of December 31, 2017 (as a VIE):
|
|
|
December
31.
2017
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
464,074
|
|
|
Accounts receivable, net
|
|
|
893,817
|
|
|
Other current assets
|
|
|
151,040
|
|
|
Total current assets
|
|
|
1,508,931
|
|
|
Property and equipment, net
|
|
|
396,136
|
|
|
Goodwill
|
|
|
899,465
|
|
|
Total assets
|
|
$
|
2,804,532
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
852,208
|
|
|
Capital leases, short term
|
|
|
12,001
|
|
|
Other current liabilities
|
|
|
251,588
|
|
|
Total current liabilities
|
|
|
1,115,797
|
|
|
Capital leases, long term
|
|
|
47,049
|
|
|
Deferred rent
|
|
|
559,239
|
|
|
Total liabilities
|
|
|
1,722,085
|
|
|
|
|
|
|
|
|
Equity-First Choice Healthcare Solutions, Inc.
|
|
|
432,979
|
|
|
Non-controlling interest
|
|
|
649,468
|
|
|
Total liabilities and deficit
|
|
$
|
2,804,532
|
|
Total
revenues from Crane Creek were $1,190,425 for the three months ended March 31, 2017. Related expenses consisted primarily of salaries
and benefits of $298,299, surgical supplies and operating expenses of $852,122, general and administrative expenses of $136,354,
depreciation of $28,149, interest expense of $866 and miscellaneous income of $3,668 for the three months ended March 31, 2017.
(See Note 11 – Segment Reporting)
NOTE
10 — NON-CONTROLLING INTEREST
A
reconciliation of The B.A.C.K. Center non-controlling income attributable to the Company:
Net
loss attributable to non-controlling interest for the three months ended March 31, 2018:
|
Net income
|
|
$
|
587,292
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
Net
income attributable to non-controlling interest for the three months ended March 31, 2017:
|
Net income
|
|
$
|
170,872
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
The
following table summarizes the changes in non-controlling interest for the three months ended March 31, 2018:
|
Balance, December 31, 2017
|
|
$
|
(138,686
|
)
|
|
Transfer (to) from the non-controlling interest
as a result of change in ownership
|
|
|
--
|
|
|
Net income attributable
to the non-controlling interest
|
|
|
--
|
|
|
Balance, March
31, 2018
|
|
$
|
(138,686
|
)
|
A
reconciliation of the Crane Creek non-controlling income attributable to the Company:
Net
income attributable to the non-controlling interest for the three months ended March 31, 2018:
|
Net income
|
|
$
|
15,858
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
35
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
5,550
|
|
Net
income attributable to non-controlling interest for the three months ended March 31, 2017:
|
Net loss
|
|
$
|
(121,698
|
)
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
60
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
(73,018
|
)
|
The
following table summarizes the changes in non-controlling interest for the three months ended March 31, 2018
:
|
Balance, December 31, 2017
|
|
$
|
649,468
|
|
|
Transfer (to) from the non-controlling interest as a result of change in ownership
|
|
|
(270,611
|
)
|
|
Net income attributable to the non-controlling interest
|
|
|
5,550
|
|
|
Balance, March 31, 2018
|
|
$
|
384,407
|
|
Effective
January 1, 2018, the Company acquired a 25% interest in Crane Creek for a purchase price of $400,000. The excess payment of $129,389
over book value of $270,611 was adjusted to the Company’s additional paid in capital.
NOTE
11 — SEGMENT REPORTING
The
Company reports segment information based on the “management” approach. The management approach designates the internal
reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The Company has three reportable segments: FCID Medical, Inc., The B.A.C.K. Center and CCSC Holdings, Inc. (“CCSC”).
All
reportable segments derive revenue for medical services provided to patients; and The B.A.C.K Center additionally derives revenue
for subleasing space within its building and medical services provided to patients. With the aforementioned sale and leaseback
of Marina Towers on March 31, 2016, the Company will no longer report segmented rental revenue received from third-party Marina
Tower tenants under the segment heading “Marina Towers.” Rather, the Company has consolidated rental revenue received
from third-party tenants of Marina Towers under the “Corporate” segment for both the 2017 and 2016 comparable reporting
periods; and will continue to do so hereafter.
Information
concerning the operations of the Company’s reportable segments is as follows:
Summary
Statement of Operations for the three months ended March 31, 2018:
FIRST
CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2018
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
3,363,648
|
|
|
$
|
3,634,091
|
|
|
$
|
1,205,370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,203,110
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
340,502
|
|
|
|
|
|
|
|
430,144
|
|
|
|
(187,859
|
)
|
|
|
582,787
|
|
|
Total Revenue
|
|
|
3,363,648
|
|
|
|
3,974,593
|
|
|
|
1,205,370
|
|
|
|
430,144
|
|
|
|
(187,859
|
)
|
|
|
8,785,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
1,928,803
|
|
|
|
1,776,997
|
|
|
|
266,466
|
|
|
|
357,020
|
|
|
|
|
|
|
|
4,329,285
|
|
|
Other operating expenses
|
|
|
677,250
|
|
|
|
938,794
|
|
|
|
786,519
|
|
|
|
404,369
|
|
|
|
(174,145
|
)
|
|
|
2,632,786
|
|
|
General and administrative
|
|
|
265,428
|
|
|
|
618,337
|
|
|
|
71,185
|
|
|
|
412,599
|
|
|
|
(13,714
|
)
|
|
|
1,353,836
|
|
|
Depreciation and amortization
|
|
|
80,051
|
|
|
|
10,190
|
|
|
|
26,004
|
|
|
|
85,667
|
|
|
|
—
|
|
|
|
201,912
|
|
|
Total operating expenses
|
|
|
2,951,532
|
|
|
|
3,344,318
|
|
|
|
1,150,174
|
|
|
|
1,259,655
|
|
|
|
(187,859
|
)
|
|
|
8,517,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
412,116
|
|
|
|
630,275
|
|
|
|
55,196
|
|
|
|
(829,511
|
)
|
|
|
—
|
|
|
|
268,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(17,313
|
)
|
|
|
(4,810
|
)
|
|
|
(1,481
|
)
|
|
|
93
|
|
|
|
—
|
|
|
|
(23,512
|
)
|
|
Other income (expense)
|
|
|
—
|
|
|
|
38,553
|
|
|
|
1,019
|
|
|
|
750
|
|
|
|
—
|
|
|
|
40,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before income taxes:
|
|
|
394,803
|
|
|
|
664,018
|
|
|
|
54,734
|
|
|
|
(828,668
|
)
|
|
|
—
|
|
|
|
284,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
394,803
|
|
|
|
664,018
|
|
|
|
54,734
|
|
|
|
(828,668
|
)
|
|
|
—
|
|
|
|
284,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,550
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
394,803
|
|
|
$
|
664,018
|
|
|
$
|
49,184
|
|
|
$
|
(828,668
|
)
|
|
$
|
—
|
|
|
$
|
279,338
|
|
Summary
Statement of Operations for the three months ended March 31, 2017:
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
2,860,986
|
|
|
$
|
3,090,579
|
|
|
$
|
1,190,425
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,141,990
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
340,076
|
|
|
|
|
|
|
|
431,850
|
|
|
|
(193,563
|
)
|
|
|
578,363
|
|
|
Total Revenue
|
|
|
2,860,986
|
|
|
|
3,430,655
|
|
|
|
1,190,425
|
|
|
|
431,850
|
|
|
|
(193,563
|
)
|
|
|
7,720,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
1,460,235
|
|
|
|
1,718,717
|
|
|
|
298,299
|
|
|
|
239,124
|
|
|
|
—
|
|
|
|
3,716,375
|
|
|
Other operating expenses
|
|
|
591,151
|
|
|
|
856,482
|
|
|
|
852,122
|
|
|
|
408,861
|
|
|
|
(179,433
|
)
|
|
|
2,529,183
|
|
|
General and administrative
|
|
|
160,310
|
|
|
|
638,798
|
|
|
|
136,354
|
|
|
|
252,502
|
|
|
|
(14,130
|
)
|
|
|
1,173,834
|
|
|
Depreciation and amortization
|
|
|
69,741
|
|
|
|
6,162
|
|
|
|
28,149
|
|
|
|
85,436
|
|
|
|
—
|
|
|
|
189,488
|
|
|
Total operating expenses
|
|
|
2,281,437
|
|
|
|
3,220,159
|
|
|
|
1,314,924
|
|
|
|
985,923
|
|
|
|
(193,563
|
)
|
|
|
7,608,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
579,549
|
|
|
|
210,496
|
|
|
|
(124,499
|
)
|
|
|
(554,073
|
)
|
|
|
—
|
|
|
|
111,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(27,558
|
)
|
|
|
(3,904
|
)
|
|
|
(866
|
)
|
|
|
254
|
|
|
|
—
|
|
|
|
(32,074
|
)
|
|
Other income (expense)
|
|
|
—
|
|
|
|
45,684
|
|
|
|
3,668
|
|
|
|
750
|
|
|
|
—
|
|
|
|
50,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income before income taxes:
|
|
|
551,991
|
|
|
|
252,276
|
|
|
|
(121,697
|
)
|
|
|
(553,069
|
)
|
|
|
—
|
|
|
|
129,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
551,991
|
|
|
|
252,276
|
|
|
|
(121,697
|
)
|
|
|
(553,069
|
)
|
|
|
—
|
|
|
|
129,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
73,018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to First Choice Healthcare Solutions
|
|
$
|
551,991
|
|
|
$
|
252,276
|
|
|
$
|
(48,679
|
)
|
|
$
|
(553,069
|
)
|
|
$
|
—
|
|
|
$
|
202,519
|
|
NOTE
12 – SUBSEQUENT EVENTS
On
April 23, 2018 the Company signed a four year operating lease for approximately $700,000 of equipment for the Company’s
CCSC division. The lease requires 16 quarterly payments of $49,230.
|
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This
quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (“Exchange
Act”). Forward-looking statements reflect the current view about future events. When used in this quarterly report on Form
10-Q, the words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our
management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this
quarterly report on Form 10-Q relating to our business strategy, our future operating results, and our liquidity and capital resources
outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy
and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated
by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance.
We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual
results to differ materially from those in the forward-looking statements include, without limitation, the execution of our strategy
to grow our business by hiring additional physicians to create Medical Centers of Excellence that fit our defined criteria; evolving
healthcare laws and regulations; changes in the rates or methods of third-party reimbursements for medical services; accelerated
pace of consolidation in the hospital industry; changes in our medical technology as it relates to our services and procedures;
any failures in our information technology systems to protect the privacy and security of protected information and other similar
cyber security risks; our ability to raise capital to fund continuing operations; and other factors relating to our industry,
our operations and results of operations and any new Medical Centers of Excellence that we may open. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or planned.
Factors
or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict
all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable
law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
Overview
Overview
First
Choice Healthcare Solutions, Inc. (“FCHS,” “the Company,” “we,” “our” or “us”)
is actively engaged in implementing a defined growth strategy aimed at building a network of localized, integrated healthcare
services platforms comprised of non-physician-owned medical centers of excellence, which concentrate on treating patients in the
following specialties: Orthopaedics, Spine Surgery, Interventional Pain Medicine and related diagnostic and ancillary services
in key high growth markets throughout the Southeastern U.S.
The
implementation of our business plan, thus far, has allowed us to confirm that by integrating the synergistic mix of Orthopaedic,
Spine Surgery and Interventional Pain specialties with related diagnostic and ancillary services and state-of-the-art equipment
and technologies across legacy brick-and-mortar boundaries, we are able to effectively:
|
|
●
|
provide
patients with direct and convenient access to musculoskeletal and rehabilitative care via our best-in-class team of surgeons,
physicians and care specialists, and wide array of ancillary and diagnostic services, which includes, but is not limited to,
magnetic resonance imaging (“MRI”), X-ray, durable medical equipment (“DME”) and physical/occupational
therapy (“PT/OT”);
|
|
|
|
|
|
|
●
|
empower physicians
to collaborate as a unified care team, optimizing care coordination and improving outcomes;
|
|
|
|
|
|
|
●
|
advance the quality
and cost effectiveness of our patients’ healthcare, thereby achieving faster recoveries at materially reduced costs;
and
|
|
|
|
|
|
|
●
|
achieve
strong, sustainable financial performance that serves to create long-term value for our stockholders.
|
Managing
over 100,000 patient visits each year, our flagship system (“Melbourne System”) serves Florida’s high growth
Space Coast region and is comprised of the following well established Medical Centers of Excellence: First Choice Medical Group
(“FCMG”), The B.A.C.K. Center (“TBC”) and Crane Creek Surgery Center (“CCSC”).
Results
of Operations
Year
Ended March 31, 2018 as Compared to Year Ended December 31, 2017
The
following is a discussion of the results of operations for the year ended March 31, 2018 compared to the three months ended March
31, 2017.
Revenues
Total
revenue was $8,785,897 for the three months ended March 31, 2018, increasing14% from $7,720,353 in the same period, prior year.
Net patient service revenue, less provision for bad debts of $278,562, accounted for $8,203,110 of total revenue in 2018, and
rental revenue was $582,787. This compared to net patient service revenue of $7,141,990 and rental revenue of $578,363 for the
three months ended March 31, 2017. The increase primarily was attributable to First Choice Medical Group (“FCMG”)
increase by $502,662 or 18%, Brevard Orthopedic Spine & Pain Clinic, Inc. (“The B.A.C.K. Center”) increase by
$543,512 or 18% and Crane Creek Surgical Center (“Center”) increase by $14,945 or 1% for the same period last year,
after factoring provision for doubtful accounts. Rental revenue increased by $4,424, totaling $582,787 and $578,363 for the three
months ended March 31, 2018 and 2017, respectively.
Operating
Expenses
Operating
expenses include the following:
|
|
|
Three Months Ended March, 31,
2018
|
|
Three Months Ended March 31, 2017
|
|
Salaries and benefits
|
|
$
|
4,329,285
|
|
|
$
|
3,716,375
|
|
|
Other operating expenses
|
|
|
2,632,786
|
|
|
|
2,529,183
|
|
|
General and administrative
|
|
|
1,353,836
|
|
|
|
1,173,834
|
|
|
Depreciation and amortization
|
|
|
201,912
|
|
|
|
189,488
|
|
|
Total operating expenses
|
|
$
|
8,517,819
|
|
|
$
|
7,608,880
|
|
The
major components of operating expenses include practice salaries and benefits, practice supplies and other operating costs, depreciation
and general and administrative expenses, which included legal, accounting and professional fees associated with being a public
entity.
Salaries
and benefits increased 16.5% to $4,329,285 for the three months ended March 31, 2018, compared to $3,716,375 for the three months
ended March 31, 2017. The increase was primarily due to the addition of physicians, physician assistants and physical therapy
professional personnel in the later part of 2016 and 2017. Other operating expenses increased 4.1%.to $2,632,786 from $2,529,183
due to the increase in patient service volume from 2017 to 2018 stemming from the addition of new personnel and one-time expenses
related to setting up new physical therapy locations.
General
and administrative and other operating expenses was $1,353,836 for the three months ended March 31, 2018 as compared to $1,173,834
for the three months ended March 31, 2017, primarily to increases in professional service fees relating to our strategic partnership
with Steward Health Care and taking controlling interest in the Crane Creek Surgery Center.
Depreciation
and amortization increased 7% from $201,912 reported for the three months ended March 31, 2018 to $189,488 reported for the three
months ended March 31, 2017. The increase is primarily due to increased depreciation expense relating to the Company’s expansion
of ancillary services.
Net
Income (Loss) from Operations
Net
income from operations for the three months ended March 31, 2018 totaled $268,078, which compared to an income from operations
of $111,473 for the prior year. The increase is a result of the increased revenue, net with increased operating expenses discussed
above.
Interest
Expense
Interest
expense declined 27% to $23,512 for the three months ended March 31, 2018, which compared to interest expense of $32,074 for the
three months ended March 31, 2017. The decrease primarily is due to a reduction in overall debt as compared to the same period
last year.
Net
Income attributable to FCHS Shareholders
As
a result of all the above, we reported net income of $284,888 for the three months ended March 31, 2018 as compared to net income
from $129,501 reported for the same year period in the prior year.
Segment
Results
The
Company reports segment information based on the “management” approach. The management approach designates the internal
reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.
The
following are the revenues, operating expenses and net income (loss) by segment for the three months e ended March 31, 2018 and
2017, respectively.
Summary
Statement of Operations for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 are detailed
in Note 11 of the accompanying unaudited condensed financial statements.
Liquidity
and Capital Resources
As
of March 31, 2018, we had cash of $8,474,437 and accounts receivables, net totaling $9,908,563. This compared to cash of $3,901,489
and accounts receivable, net of $10,390,140for the same period in 2017.
The
Company believes that the current cash balance and line of credit (see notes, there is $1,400,000 available as of March 31, 2018,
along with continued execution of its business development plan, will allow the Company to further improve its working capital;
and currently anticipates that it will have sufficient capital resources to meet projected cash flow requirements through the
date at least one year from the filing of this report.
However,
in order to execute the Company’s business development plan, which there can be no assurance we will achieve, the Company
may need to raise additional funds through public or private equity offerings, debt financings, corporate collaborations or other
means and potentially reduce operating expenditures. If the Company is unable to secure additional capital, it may be required
to curtail its business development initiatives and take additional measures to reduce costs to conserve its cash.
Net
cash used in our operating activities for the three months ended March 31, 2018 totaled $414,251, which compared to net cash used
in our operations for the three months ended March 31, 2017 of $410,408. The increase in cash used for the three months ended
March 31, 2018 was due primarily to net decrease in our operating liabilities of $187,958 as compared to a net increase of $422,627
for the three months ended March 31, 2017.
Net
cash flows used in investing activities was $735,951 for the three months ended March 31, 2018, compared to $173,729 provided
by investing activities for the three months ended March 31, 2017. Investing activities for 2018 was comprised of $400,000 to
acquire an additional 25% interest in Crane Creek and $335,951 to purchase equipment as compared to $173,729 in same period, prior
year.
Net
cash provided in financing activities was $7,609,105for year ended March 31, 2018, compared to net cash used in financing activities
of $108,012 for the three months ended March 31, 2017. The cash flows used in our financing activities were the result of:
|
|
|
Three Months Ended
March 31,
2018
|
|
Three Months Ended
March 31,
2017
|
|
Proceeds from sale of common stock
|
|
$
|
7,500,000
|
|
|
$
|
—
|
|
|
Proceeds from note payable
|
|
|
120,709
|
|
|
|
22,113
|
|
|
Payments on notes payable
|
|
|
(11,604
|
)
|
|
|
(130,125
|
)
|
|
Net cash provided by (used in) financing activities
|
|
$
|
7,609,105
|
|
|
$
|
(108,012
|
)
|
Our
aim is to distinguish our Medical Centers of Excellence from our competition by earning our Centers’ reputations as premier
destinations for clinically superior, patient-centric care which is coordinated across our patients’ entire care continuums.
By doing so, we deliver more meaningful and collaborative doctor-patient experiences, provide more accurate diagnoses resulting
from care coordination, effective treatment plans, faster recoveries, and materially reduced costs.
Our
strategic focus is to grow and partner with Steward Healthcare to expand our orthopaedic and spine care delivery platform into
Steward’s 36 nationwide hospital systems. Currently we are utilizing two Steward facilities and are in the process of evaluating
the next hospital to implement our targeted delivery platform.
On
February 6, 2018, the Company entered into a strategic partnership with Steward Health Care System (“Steward”).As
part of the strategic partnership, Steward made an investment into the Company in the amount of $7.5 million for 5 million shares,
allowing the Company to continue to expand its business model and geographic footprint nationally. On March 1, 2018, the Company
issued five (5) million shares of common stock in exchange for cash proceeds of $7.5 million.
Our
business model is centered on our team of physicians being employees, thereby permitting us to optimize revenue generation from
both physicians and ancillary services, while also providing our employed care providers with the ability to utilize our on-site
diagnostic and ancillary services. Physician-owned practices, on the other hand, may be subject to prevailing federal regulations
(e.g., The Ethics in Patient Referral Act of 1989, as amended; more commonly known as the “Stark Law”), which may
limit their ability to refer patients for certain healthcare services provided by entities in which a physician-owner(s) has a
financial interest.
Our
growth will be fueled by hiring best-in-class Orthopaedic physicians currently practicing in our target expansion markets. We
will identify physicians in those markets that are seeking an alternative to owning and operating their own private practices
or being employed by local hospitals. As necessary we will add diagnostic and ancillary services, to include an ambulatory surgery
center, MRI, X-Ray, DME and PT/OT will also be added to these platforms.
We
believe that our centralized system of back office operations will continue to allow us to achieve measurable cost and productivity
efficiencies as we expand the number of centers and platforms we own and operate. We have specifically designed our centralized
back office system to alleviate staff physicians from business administrative responsibilities associated with operating a medical
practice or clinic, enabling them to focus strictly on caring for our patients (allowing “Doctors to be Doctors”).
This is extremely attractive to physicians who own and manage their own private practices or clinics and devote valuable time
and resources towards addressing business concerns – time and resources that might otherwise be spent on treating their
patients.
There
can be no assurance that our cash flow will increase in the near future from anticipated new business activities, or that revenues
generated from our existing operations will be sufficient to allow us to continue to pursue new customer programs or profitable
ventures.
Inflation
Our
opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
Climate
Change
Our
opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have,
any material effect on our operations.
Off-Balance
Sheet Arrangements
At
March 31, 2018, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources.
New
Accounting Pronouncements
We
do not expect recent accounting pronouncements will have a material impact on our condensed consolidated financial position, results
of operations or cash flows. See Footnote 2 in the accompanying condensed consolidated financial statements for additional information.