UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June
30, 2015
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________
to __________
Commission File Number: 000-53012
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
(Exact name of registrant as specified in
its charter)
Delaware |
|
90-0687379 |
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
709 S. Harbor City Boulevard, Suite 250,
Melbourne, Florida 32901
(Address of principal executive offices)
(321) 725-0090
(Registrant’s telephone number, including
area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files. Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act:
Large accelerated filer |
¨ |
|
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
|
Smaller reporting company |
x |
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 14, 2015, there were 20,174,821
shares outstanding of the registrant’s Common Stock.
PART I
ITEM 1. FINANCIAL STATEMENTS
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
June 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
(unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 1,054,565 | | |
$ | 279,087 | |
Cash-restricted | |
| 372,822 | | |
| 318,259 | |
Accounts receivable, net | |
| 4,489,477 | | |
| 1,804,636 | |
Employee loans | |
| 577,286 | | |
| - | |
Prepaid and other current assets | |
| 228,443 | | |
| 153,296 | |
Capitalized financing costs, current portion | |
| 70,182 | | |
| 68,370 | |
Total current assets | |
| 6,792,775 | | |
| 2,623,648 | |
| |
| | | |
| | |
Property, plant and equipment, net of accumulated depreciation of $4,014,681 and $2,472,111 | |
| 8,103,672 | | |
| 8,294,298 | |
| |
| | | |
| | |
Other assets | |
| | | |
| | |
Deferred costs, net of amortization of $53,774 | |
| 3,172,653 | | |
| - | |
Capitalized financing costs, long term portion | |
| - | | |
| 37,775 | |
Patient list, net of accumulated amortization of $65,000 and $55,000 | |
| 235,000 | | |
| 245,000 | |
Patents, net of amortization of $28,650 and $19,100 | |
| 257,850 | | |
| 267,400 | |
Investments | |
| 23,026 | | |
| - | |
Deposits | |
| 2,571 | | |
| 2,571 | |
Total other assets | |
| 3,691,100 | | |
| 552,746 | |
| |
| | | |
| | |
Total assets | |
$ | 18,587,547 | | |
$ | 11,470,692 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 2,502,168 | | |
$ | 1,457,275 | |
Stock based payable | |
| 147,500 | | |
| 537,750 | |
Advances | |
| 353,000 | | |
| 224,000 | |
Line of credit, short term | |
| 2,474,982 | | |
| 1,237,000 | |
Convertible note payable, short term portion | |
| 1,415,920 | | |
| 2,148,835 | |
Notes payable, current portion | |
| 702,950 | | |
| 732,791 | |
Unearned revenue | |
| 60,876 | | |
| 38,763 | |
Deferred rent, short term portion | |
| 118,810 | | |
| - | |
Total current liabilities | |
| 7,776,206 | | |
| 6,376,414 | |
| |
| | | |
| | |
Long term debt: | |
| | | |
| | |
Deposits held | |
| 67,432 | | |
| 72,901 | |
Notes payable, long term portion | |
| 8,227,555 | | |
| 8,184,560 | |
Deferred rent, long term portion | |
| 1,489,636 | | |
| - | |
Total long term debt | |
| 9,784,623 | | |
| 8,257,461 | |
| |
| | | |
| | |
Total liabilities | |
| 17,560,829 | | |
| 14,633,875 | |
| |
| | | |
| | |
Stockholders' equity (deficit) | |
| | | |
| | |
Preferred stock, $0.01 par value; 1,000,000 shares authorized, Nil issued and outstanding | |
| - | | |
| - | |
Common stock, $0.001 par value; 100,000,000 shares authorized, 19,468,255 and 17,951,055 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively | |
| 19,468 | | |
| 17,951 | |
Additional paid in capital | |
| 17,465,052 | | |
| 12,671,942 | |
Accumulated deficit | |
| (16,319,116 | ) | |
| (15,853,076 | ) |
Total stockholders' equity (deficit) attributable to First Choice Healthcare Solutions, Inc. | |
| 1,165,404 | | |
| (3,163,183 | ) |
Non-controlling interest (Note 10) | |
| (138,686 | ) | |
| - | |
Total equity (deficit) | |
| 1,026,718 | | |
| (3,163,183 | ) |
Total liabilities and equity | |
$ | 18,733,531 | | |
$ | 11,470,692 | |
See the accompanying notes to these unaudited
condensed consolidated financial statements
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited)
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Patient service revenue | |
$ | 3,810,299 | | |
$ | 1,885,569 | | |
$ | 6,095,587 | | |
$ | 3,896,543 | |
Provision for bad debts | |
| (6,260 | ) | |
| (37,128 | ) | |
| (51,484 | ) | |
| (75,272 | ) |
Net patient service revenue less provision for bad debts | |
| 3,804,039 | | |
| 1,848,441 | | |
| 6,044,103 | | |
| 3,821,271 | |
Rental revenue | |
| 520,276 | | |
| 258,723 | | |
| 785,379 | | |
| 520,646 | |
Total revenue | |
| 4,324,314 | | |
| 2,107,164 | | |
| 6,829,482 | | |
| 4,341,917 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Salaries and benefits | |
| 2,125,481 | | |
| 1,090,806 | | |
| 3,071,601 | | |
| 2,156,327 | |
Other operating expenses | |
| 563,422 | | |
| 427,056 | | |
| 1,014,907 | | |
| 856,347 | |
General and administrative | |
| 1,649,870 | | |
| 669,208 | | |
| 2,203,154 | | |
| 1,075,120 | |
Depreciation and amortization | |
| 144,417 | | |
| 126,772 | | |
| 284,926 | | |
| 261,491 | |
Total operating expenses | |
| 4,483,190 | | |
| 2,313,842 | | |
| 6,574,588 | | |
| 4,349,285 | |
| |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations | |
| (158,875 | ) | |
| (206,678 | ) | |
| 254,894 | | |
| (7,368 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Miscellaneous income | |
| 40,369 | | |
| 750 | | |
| 41,119 | | |
| 1,500 | |
Amortization financing costs | |
| (19,229 | ) | |
| (25,466 | ) | |
| (39,915 | ) | |
| (41,372 | ) |
Interest expense, net | |
| (358,994 | ) | |
| (217,177 | ) | |
| (722,138 | ) | |
| (436,430 | ) |
Total other expense | |
| (337,854 | ) | |
| (241,893 | ) | |
| (720,934 | ) | |
| (476,302 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss before provision for income taxes | |
| (496,729 | ) | |
| (448,571 | ) | |
| (466,040 | ) | |
| (483,670 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income taxes (benefit) | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (496,729 | ) | |
| (448,571 | ) | |
| (466,040 | ) | |
| (483,670 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-controlling interest (Note 10) | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net Loss Attributable to First Choice Healthcare Solutions, Inc. | |
$ | (496,729 | ) | |
$ | (448,571 | ) | |
$ | (466,040 | ) | |
$ | (483,670 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per common share, basic and diluted | |
$ | (0.03 | ) | |
$ | (0.03 | ) | |
$ | (0.03 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding, basic and diluted | |
| 18,999,475 | | |
| 16,988,149 | | |
| 18,533,559 | | |
| 16,873,038 | |
See the accompanying notes to these unaudited
condensed consolidated financial statements
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 2015
(unaudited)
| |
| | |
| | |
| | |
| | |
Additional | | |
| | |
| | |
| |
| |
Preferred stock | | |
Common stock | | |
Paid in | | |
Accumulated | | |
Non-controlling | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Interest | | |
Total | |
Balance, December 31, 2014 | |
| - | | |
$ | - | | |
| 17,951,055 | | |
$ | 17,951 | | |
$ | 12,671,942 | | |
$ | (15,853,076 | ) | |
$ | - | | |
$ | (3,163,183 | ) |
Common stock issued for services rendered | |
| - | | |
| - | | |
| 506,000 | | |
| 506 | | |
| 529,494 | | |
| - | | |
| - | | |
| 530,000 | |
Common stock issued in settlement of notes payable and accrued interest | |
| - | | |
| - | | |
| 811,200 | | |
| 811 | | |
| 811,389 | | |
| - | | |
| - | | |
| 811,200 | |
Common stock issued in connection with loan extension | |
| - | | |
| - | | |
| 200,000 | | |
| 200 | | |
| 226,800 | | |
| - | | |
| - | | |
| 227,000 | |
Non-controlling interest of variable interest entry | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (138,686 | ) | |
| (138,686 | ) |
Fair value of options issued to acquire management control of variable
interest entity | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,226,427 | | |
| - | | |
| - | | |
| 3,226,427 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (466,040 | ) | |
| - | | |
| (466,040 | ) |
Balance, June 30, 2015 | |
| - | | |
$ | - | | |
| 19,468,255 | | |
$ | 19,468 | | |
$ | 17,465,052 | | |
$ | (16,319,116 | ) | |
$ | (138,686 | ) | |
$ | 1,026,718 | |
See the accompanying notes to these unaudited
condensed consolidated financial statements
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
| |
Six months June 30, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net Income (loss) | |
$ | (466,040 | ) | |
$ | (483,670 | ) |
Adjustments to reconcile net loss to cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 338,700 | | |
| 261,491 | |
Amortization of financing costs | |
| 39,915 | | |
| 41,371 | |
Bad debt expense | |
| 51,484 | | |
| 75,272 | |
Common stock issued in connection with loan extension | |
| 227,000 | | |
| - | |
Stock based compensation | |
| 139,750 | | |
| 96,000 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (556,635 | ) | |
| (858,362 | ) |
Prepaid expenses and other | |
| 237,431 | | |
| (85,044 | ) |
Restricted funds | |
| (54,563 | ) | |
| (25,207 | ) |
Employee loans | |
| (103,654 | ) | |
| - | |
Accounts payable and accrued expenses | |
| 160,359 | | |
| 453,192 | |
Deposits | |
| (5,469 | ) | |
| - | |
Deferred rent | |
| 39,603 | | |
| - | |
Unearned income | |
| 22,113 | | |
| (24,080 | ) |
Net cash provided by (used in) operating activities | |
| 69,994 | | |
| (549,037 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Cash from variable interest entity | |
| 679,673 | | |
| - | |
Purchase of equipment | |
| (40,065 | ) | |
| (87,982 | ) |
Net cash used in investing activities | |
| 639,608 | | |
| (87,982 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from advances | |
| 129,000 | | |
| - | |
Proceeds from lines of credit | |
| 355,656 | | |
| 350,000 | |
Net payments on notes payable | |
| (40,065 | ) | |
| (381,327 | ) |
Net cash provided by (used in) financing activities | |
| 65,876 | | |
| (31,327 | ) |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| 775,478 | | |
| (668,346 | ) |
Cash and cash equivalents, beginning of period | |
| 279,087 | | |
| 739,158 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 1,054,565 | | |
$ | 70,812 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the period for interest | |
$ | 594,211 | | |
$ | 436,528 | |
Cash paid during the period for taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure on non-cash investing and financing activities: | |
| | | |
| | |
Common stock issued in settlement of accrued expenses | |
$ | 15,000 | | |
$ | 166,340 | |
Common stock issued in settlement of line of credit | |
$ | - | | |
$ | 150,000 | |
Common stock issued in settlement of convertible note and interest | |
$ | 811,200 | | |
$ | 208,700 | |
Fair value of options issued to acquire management control of variable interest entity | |
$ | 3,226,427 | | |
$ | - | |
See the accompanying notes to these unaudited
condensed consolidated financial statements
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES; BASIS OF
PRESENTATION
A summary of the significant accounting
policies applied in the presentation of the accompanying unaudited condensed consolidated financial statements follows:
General
The (a) condensed consolidated balance
sheet as of December 31, 2014, which has been derived from the audited financial statements of First Choice Healthcare Solutions,
Inc. (“FCHS” and including, where appropriate, its consolidated subsidiaries and entities in which we have a controlling
financial interest, the “Company”), and (b) the unaudited condensed consolidated interim financial statements as of
June 30, 2015 of the Company have been prepared in accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. To determine
if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity
("VIE") model to the entity, otherwise the entity is evaluated under the voting interest model.
Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for
the three and six months ended June 30, 2015 are not necessarily indicative of results that may be expected for the year ending
December 31, 2015. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form
10-K, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2015.
Basis of Presentation
Effective April 4, 2012, Medical Billing
Assistance, Inc., a Colorado corporation (“Medical Billing”), merged with and into the Company. The effect of the merger
was that Medical Billing reincorporated from Colorado to Delaware (the “Reincorporation”). The Company is deemed to
be the successor issuer of Medical Billing under Rule 12g-3 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
As a result of the Reincorporation, the
Company changed its name to First Choice Healthcare Solutions, Inc. and its shares underwent an effective four-for-one reverse
split. Other than the foregoing, the Reincorporation did not result in any change in the business, management, fiscal
year, accounting, and location of the principal executive offices, assets or liabilities of the Company.
On April 2, 2012, the Company completed
its acquisition of First Choice Medical Group of Brevard, LLC (“First Choice – Brevard”), pursuant to the Membership
Interest Purchase Closing Agreement (the “Purchase Agreement”). The Company has been managing the practice of First
Choice – Brevard since November 1, 2011, pursuant to a Management Services Agreement.
Effective May 1, 2015, the Company, through
its recently formed wholly owned subsidiary, TBC Holdings of Melbourne, Inc., entered into an Operating and Control Agreement
(the Agreement”) with Brevard Orthopaedic Spine & Pain Clinic, Inc. (“The B.A.C.K. Center”), whereby the
Company will have sole and exclusive management and control of The B.A.C.K. Center, including, but not limited to, administrative,
financial, facility and business operations, including the requirement to absorb losses or right to receive economic benefits.
The initial term of the Agreement expires on December 31, 2016, with an option by the Company to extend the term until December
31, 2023.
The agreement allows the Company to hold
the current or potential rights that give it the power to direct the activities of the VIE that most significantly impact the VIE's
economic performance, combined with a variable interest that gives the Company the right to receive potentially significant benefits
or the obligation to absorb potentially significant losses. The Company has a controlling financial interest in the VIE. Rights
held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally.
When changes occur to the structure of the entity, the Company will reconsider whether it is subject to the VIE model. The Company
continuously evaluates whether it has a controlling financial interest in the VIE.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Non-controlling interests relate to the
third party ownership in a consolidated entity in which the Company has a controlling interest. For financial reporting purposes,
the entity's assets, liabilities, and operations are consolidated with those of the Company, and the non-controlling interest in
the entity is included in the Company's consolidated financial statements within the equity section of the consolidated Balance
Sheets.
The unaudited condensed consolidated financial
statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries FCID Holdings, Inc., MTMC
of Melbourne, Inc., Marina Towers, LLC, FCID Medical Inc., TBC Holdings of Melbourne, Inc. and First Choice – Brevard, 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.
Use of Estimates
The preparation of the financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification subtopic 605-10, “Revenue Recognition” (“ASC 605-10”) which
requires that four basic criteria be met before revenue can be recognized: (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. Provisions for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are recorded.
ASC 605-10 incorporates Accounting Standards
Codification subtopic 605-25, “Multiple-Element Arrangements” (“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.
The effect of implementing ASC 605-25 on the Company's financial position and results of operations was not significant.
The Company recognizes in accordance with
Accounting Standards Codification subtopic 954-310, “Health Care Entities” (“ASC 954-310”), 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 past history and identified trends for each of our payers.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Patient Service Revenue
The Company recognizes patient service
revenue associated with services provided to patients who have third-party payer coverage on the basis of contractual rates for
the services provided. For uninsured or self-pay patients that do not qualify for charity care, the Company recognizes revenue
on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). On
the basis of historical experience, a portion of the Company’s patient service revenue may be potentially uncollectible due
to patients who are unable or unwilling to pay for the services provided or the portion of their bill for which they are responsible.
Thus, the Company records a provision for bad debts related to potentially uncollectible patient service revenue in the period
the services are provided.
Rental Revenue
FCID Holdings, Inc. has one real estate
holding, Marina Towers, LLC, a 78,000 square foot, Class A, six-story building located on the Indian River in Melbourne, Florida.
In addition to housing our corporate headquarters and First Choice-Brevard, the building, which averages 95% annual occupancy,
also leases approximately 48,698 square feet of commercial office space to third party tenants. The Company recognizes rental revenue
associated with the period of time the facility is leased at the contractual lease rates (or on the basis of discounted rates,
if negotiated). In addition, beginning May 1, 2015, TBC Holdings of Melbourne, Inc., through The B.A.C.K. Center, subleases approximately
34,480 square feet of commercial office space to third party tenants.
Cash and Cash Equivalents
The Company considers cash and cash equivalents
to consist of cash on hand and investments having an original maturity of 90 days or less that are readily convertible into cash.
As of June 30, 2015, the Company had $1,054,565 in cash.
Concentrations of Credit Risk
The Company’s financial instruments
that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, 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.
Accounts Receivable
Accounts receivables are carried at their
estimated collectible amounts net of doubtful accounts. The Company analyzes its past 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.
|
· |
Rental receivables. Accounts receivables from rental activities are periodically evaluated for collectability in determining the appropriate allowance for doubtful account provision for bad debts and provision of bad debts. |
|
· |
Patient receivables. Accounts receivables from services provided to patients who have third-party coverage, the Company analyzes contractually due amounts and provides a provision for bad debts, 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 actually collected after all reasonable collection efforts have been exhausted, is charged off against the allowance for doubtful accounts. |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
As of June 30, 2015 and December 31, 2014,
the Company’s provision for bad debts was $1,648,785 and $1,482,212, respectively.
Capitalized Financing Costs
Capitalized financing costs represent costs
incurred in connection with obtaining the debt financing. These costs are amortized ratably and charged to financing expenses over
the term of the related debt. The amortization for the three and six months ended June 30, 2015 was $19,229 and $39,915, respectively;
and for the three and six months ended June 30, 2014 was $25,466 and $41,372, respectively. Accumulated amortization
of deferred financing costs were $287,091 and $231,369 at June 30, 2015 and December 31, 2014, respectively.
Segment Information
Accounting Standards Codification subtopic
“Segment Reporting” 280-10 (“ASC 280-10”) establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected information for those segments to be presented in interim
financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services
and geographic areas. 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 of the material financial information
related to the Company’s two principal operating segments (see Note 11 – Segment Information).
Patents
Intangible assets with finite lives are
amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized, but are tested for impairment
annually. The Company's intangible assets with finite lives are patent costs, which are amortized over their economic or legal
life, whichever is shorter. These patent costs were acquired on September 7, 2013 by the issuance of 636,666 shares of the Company's
common stock to a related party. The shares of common stock were valued at $286,500, which was estimated to be approximately the
fair value of the patent acquired and did not materially differ from the fair value of the common stock. The amortization for the
three and six months ended June 30, 2015 was $4,775 and $9,550, respectively; and for the three and six months ended June 30, 2014
was $-0-. Accumulated amortization of Patent costs were $28,650 and $19,100 at June 30, 2015 and December 31, 2014, respectively.
Patient List
Patient list is comprised of acquired
patients in connection with the acquisition of First Choice - Brevard and is amortized ratably over the estimated useful life
of 15 years. The amortization for the three and six months ended June 30, 2015 was $5,000 and $10,000, respectively; and for the
three and six months ended June 30, 2014 was $5,000 and $10,000, respectively. Accumulated amortization of patient list costs
were $65,000 and $55,000 at June 30, 2015 and December 31, 2014, respectively.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Property and Equipment
Property and equipment are stated at cost.
When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts
and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property
and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 5 to 39
years.
Deferred costs
On May 1, 2015, in connection with the
operating and control agreement with Brevard Orthopaedic Spine & Pain Clinic, Inc., the Company issued 3,000,000 options to
purchase the Company’s common stock at $1.35 per share, expiring on December 31, 2023 and vesting contingent on The B.A.C.K.
Center employees executing employment agreements with TBC Holding and the acquisition of the variable interest entity. The determined
fair value of $3,226,427, determined using the Black Scholes option pricing model with the following assumptions: Dividend yield:
0%; Volatility: 134.09% and Risk free rate: 2.12%, is amortized ratably to operations over an estimated 8.67 year life. The amortization
for the three and six months ended June 30, 2015 was $53,774. Accumulated amortization of the deferred costs were $53,774 at June
30, 2015.
Net Income (Loss) Per Share
The Company accounts for net income (loss)
per share in accordance with Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”),
which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the statement of operations
for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS.
Basic net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. It excludes
the dilutive effects of potentially issuable common shares such as those related to our issued convertible debt, warrants and stock
options. Diluted net loss per share for three and six months ended June 30, 2015 and June 30, 2014 does not reflect the effects
of 2,990,920 and 5,885,811 shares, respectively, potentially issuable upon the conversion of our convertible note payable or the
exercise of the Company's stock options and warrants (calculated using the treasury stock method) as including such would be anti-dilutive.
Fair Value
Accounting Standards Codification subtopic
825-10, “Financial Instruments” (“ASC 825-10”) requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term
borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.
All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed
in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest
rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined
and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company follows Accounting Standards
Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification
subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments
and certain other items at fair value. Neither of these statements had an impact on the Company’s financial position, results
of operations nor cash flows.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Stock-Based Compensation
Share-based compensation issued to employees
is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service
period. The Company measures the fair value of the share-based compensation issued to non-employees using the stock
price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair
value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value
than the value of the services being rendered. The measurement date is the earlier of (1) the date at which commitment for performance
by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is
complete.
As of June 30, 2015, the Company had
3,000,000 employee options outstanding to purchase shares of common stock (see above).
Investments
The Company has adopted Accounting Standards
Codification subtopic 323-10, Investments-Equity Methods and Joint Ventures (“ASC 323-10) which requires the accounting for
investments where the Company can exert significant influence, but not control of a joint venture or equity investment. The Company
owned a 0.6660% interest in a non-consolidated affiliate, Doctor’s Surgical Partnership, LTD. In accordance with the equity
method of accounting, investments in non-consolidated affiliates are carried at cost and adjusted for the Company’s proportionate
share of their undistributed earnings or losses.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) Number 2015-3 entitled “Simplifying the Presentation of Debt
Issuance Costs.” The new guidance specifies that debt issuance costs under the new standard are to be netted against the
carrying value of the financial liability. Under current guidance, debt issuance costs are recognized as a deferred charge and
reported as a separate asset on the balance sheet. The new guidance aligns the treatment of debt issuance costs and debt discounts
in that both reduce the carrying value of the liability. It is important to note that neither the recognition nor measurement of
debt issuance costs is changed as a result of the ASU. Amortization of debt issuance costs is to be recorded as interest expense
on the income statement.
The effective date of the new guidance
is for fiscal years beginning after December 15, 2015, for public business entities and interim periods within those
fiscal years. Early adoption is permitted for financial statements that have not been issued previously. The Company does not believe
the effect of the adoption of this standard to have a material impact on the Company’s consolidated financial statements.
There are other various updates recently issued, most of which represented technical corrections to the
accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial
position, results of operations or cash flows.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
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 condensed
consolidated financial statements, except as disclosed.
NOTE 2 – LIQUIDITY
The Company incurred various non-recurring
expenses in 2014 in connection with the planned development of its medical practice. Management believes the continuing trend
of positive growth before interest, taxes, depreciation and amortization into 2015 will support improved liquidity. In the fourth
quarter of 2013, the Company paid off or converted to equity a total of $1,238,480 in outstanding debt. Currently, the Company
has three main sources of liquidity, its line of credit with CT Capital, LP, patient service revenue received from FCID Medical,
Inc. and rental revenue received from its real estate interest, FCID Holdings, Inc. and TBC Holdings of Melbourne, Inc.
On June 13, 2013, the Company’s subsidiary,
First Choice – Brevard entered into a loan and security agreement with CT Capital, Ltd., d/b/a CT Capital, LP, a Florida
limited liability partnership for an accounts receivable line of credit in the maximum aggregate amount of $2,000,000. Under the
line of credit with CT Capital, the Company reduced the annual interest rate from 12% per annum to 6% per annum in exchange for
the issuance to CT Capital of 100,000 restricted shares of the Company’s common stock. As of June 30, 2015, the Company has
used $1,575,000 of the amount available under the line of credit.
The Company’s wholly owned subsidiary,
FCID Holdings, Inc. (“FCID Holdings”) operates its real estate interests. Currently, FCID Holdings has one real estate
holding, Marina Towers, LLC, a 78,000 square foot, Class A, six-story building located on the Indian River in Melbourne, Florida.
In addition to housing the Company’s corporate headquarters and First Choice – Brevard, the building, which averages
95% annual occupancy, also leases approximately 48,698 square feet of commercial office space to third party tenants. In addition,
beginning May 1, 2015, TBC Holdings of Melbourne, Inc., through The B.A.C.K. Center, subleases approximately 34,480 square feet
of commercial office space to third party tenants.
The Company believes that ongoing operations
of Marina Towers, LLC and the current positive cash balance 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 that is one year and one day from the filing of this report. However,
in order to execute the Company’s business development plan, which there can be no assurance it will do, 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 in order to conserve its cash.
NOTE 3 — CASH – RESTRICTED
Cash-restricted is comprised of funds deposited
to and held by the mortgage lender for payments of property taxes, insurance, replacements and major repairs of the Company's commercial
building. The majority of the restricted funds are reserved for tenant improvements. As of June 30, 2015, the Company had $372,822
in restricted cash as compared to $318,259 at December 31, 2014.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 4 — PROPERTY, PLANT, AND
EQUIPMENT
Property, plant and equipment at June 30, 2015 and December
31, 2014 are as follows:
| |
June 30, 2015 | | |
December 31, 2014 | |
Land | |
$ | 1,000,000 | | |
$ | 1,000,000 | |
Building | |
| 3,055,168 | | |
| 3,055,168 | |
Building improvements | |
| 4,098,910 | | |
| 3,970,603 | |
Automobiles | |
| 29,849 | | |
| 29,849 | |
Computer equipment | |
| 330,776 | | |
| 327,847 | |
Medical equipment | |
| 2,826,835 | | |
| 2,253,219 | |
Office equipment | |
| 776,815 | | |
| 129,723 | |
| |
| 12,118,353 | | |
| 10,766,409 | |
Less: accumulated depreciation | |
| (4,014,681 | ) | |
| (2,472,111 | ) |
| |
$ | 8,103,672 | | |
$ | 8,294,298 | |
During the three and six months ended June
30, 2015, depreciation expense charged to operations was $134,642 and $265,376, respectively; and during the three and six months
ended June 30, 2014, depreciation expense charged to operations was $126,772 and $261,491, respectively.
NOTE 5 — LINE OF CREDIT
Line of Credit, CT Capital
On June 13, 2013, the Company’s subsidiary,
First Choice – 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 $1,500,000 to First Choice - Brevard
with an interest rate of 12% per annum (the “Loan”). The maturity date of the Loan is December 31, 2016. Interest is
due and payable monthly. Upon default, the interest may be adjusted to the highest rate permissible by law. The Loan is secured
by the accounts receivable and assets of the Company’s subsidiary, First Choice – Brevard, which 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: 80% of all receivables to be 120 days
or less at the net collection rate of approximately 27% of total billings, excluding patient billings and collections. Additionally,
allowable accounts receivable will also include 50% of all accounts receivable protected by legal letters of protection.
At any time, the Lender may convert all or any portion 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. The Company did not record an embedded beneficial conversion feature
in the note since the fair value of the common stock did not exceed the conversion rate at the date of commitment.
On November 8, 2013, in consideration for
the issuance of 100,000 restricted shares of the Company’s common stock, the Lender agreed to modify its Loan. Under the
Loan Agreement, as amended, the annual rate of interest of the Loan was reduced from 12% per annum to 6% per annum and will remain
at 6% until November 1, 2015. All other terms under the Loan Agreement remain the same.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
On June 9, 2015, First Choice – Brevard
and the Lender entered into a Modification Agreement (“Modification”) further amending the Loan Agreement dated June
13, 2013, thereby increasing the Company’s accounts receivable line of credit from $1,500,000 to $2,000,000. All of the other
terms and conditions of the Loan Agreement, as amended, remain in full force and effect.
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 June 30, 2015 and December 31, 2014,
the outstanding balance was $1,575,000 and $1,237,000, respectively.
Line of Credit, Florida Business Bank
On June 27, 2012, The B.A.C.K. Center entered
into a Promissory Note (the “Loan Agreement”) with Florida Business Bank, a Florida banking corporation (the “Lender”).
Under the Loan Agreement, the Lender committed to make an accounts receivable line of credit in the maximum aggregate amount of
$1,000,000, with an interest rate of Prime floating plus 1.0%, as published in The Wall Street Journal, with a floor of
4.50% per annum (the “Loan”).
The Loan was modified on April 9, 2013,
allowing a temporary increase to $1,383,000 and allowing for a one time draw of up to $995,000 to be distributed to the shareholders
for the purposes of financing the capitalization of TBC Equipment Leasing, LLC. The one time draw was repaid within 45 days and
the availability under the Loan returned to $1,000,000. The modification allows for an interest rate of one month Libor floating
plus 2.75%, as published in The Wall Street Journal, with a floor of 2.96% per annum (2.96% at December 31, 2014 and 2013,
respectively).
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 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 June 30, 2015, 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 June 30, 2015, the outstanding balance on the Loan was $899,982.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 6 - CONVERTIBLE NOTES PAYABLE
Hillair Capital Investments, L.P.
On November 8, 2013, the Company entered
into a securities purchase agreement (the “Securities Purchase Agreement”) with Hillair Capital Investments L.P. ("Hillair")
in exchange for the issuance of (i) a $2,320,000, 8% original issue discount convertible debenture, which was originally due on
December 28, 2013 and subsequently extended on December 28, 2013 through November 1, 2015 (the “Debenture”), and (ii)
a common stock purchase warrant (the “Warrant”) to purchase up to 2,320,000 shares of the Company’s common stock
at an exercise price of $1.35 per share, which may be exercised on a cashless basis, until November 8, 2018. The Debenture and
the Warrant may not be converted if such conversion would result in Hillair beneficially owning in excess of 4.99% of the Company’s
common stock. Hillair may waive this 4.99% restriction with 61 days’ notice to the Company.
The Company issued to Hillair the Debenture
with the Warrant for the net purchase price of $2,000,000 (reflecting the $320,000 original issue discount of the Debenture). Until
the Debenture is no longer outstanding, the Debenture is convertible, in whole or in part at the option of Hillair, into shares
of common stock, subject to certain conversion limitations set forth above at a conversion price of $1.00 per share, subject to
adjustment for stock splits, stock dividends, and sales of securities or other distributions by the Company.
In connection with the issuance of the
Debenture, the Company issued the Warrant, granting the holder the right to acquire an aggregate of 2,320,000 shares of the Company’s
common stock at $1.35 per share. In accordance with ASC 470-20, the Company recognized the value attributable to the Warrant and
the conversion feature of the Debenture in the amount of $1,871,117 to additional paid-in capital and a discount against the notes.
The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions:
contractual terms of 3.6 years, an average risk free interest rate of 1.42%, a dividend yield of 0%, and volatility of 147.94%.
During the year ended December 31, 2013, the Company amortized $1,871,117 of the debt discount to operations as interest expense.
On January 30, 2015, the Company and Hillair
entered into an Extension Agreement (“Extension”) amending the 8% Original Issue Discount Secured Convertible Debenture
due November 1, 2015, in order to extend the Periodic Redemption due February 1, 2015, in the principal amount of $580,000 (the
“February Periodic Redemption”) to April 1, 2015.
In consideration of the Extension, the
Company issued to Hillair 100,000 shares of common stock valued at $99,000 and remitted a payment of $30,000. The Extension also
provides that, for an additional $20,000 payment (provided written notice and payment are made prior to March 15, 2015), the Company
may request that the February Periodic Redemption be extended to May 1, 2015.
On March 15, 2015, the Company provided
written notice and remitted $20,000 to Hillair to extend the February Redemption to May 1, 2015.
On April 9, 2015, the redemption terms
of the Debenture were further modified as follows: Hillair agreed to convert $580,000 of the principal amount of the February Periodic
Redemption into 580,000 shares of the Company’s common stock on or before May 1, 2015. In consideration of reducing the conversion
price of $100,000 principal amount of the Debenture from $1.00 to $0.50 per share, the $580,000 principal amount of the Debenture
due May 1, 2015 was extended to August 1, 2015.
As a result of the modification, Hillair
converted $100,000 principal amount of the Debenture, at $.50 per share, into 200,000 shares of the Company’s common stock;
and $580,000 principal amount of the February Periodic Redemption, at $1.00 per share, into 580,000 shares of the Company’s
common stock. In total, Hillair converted $680,000 principal amount of the Debenture into 780,000 shares of the Company’s
common stock. As a result of the transaction, the Company recorded the fair value of the 100,000 additional common shares issued
of $128,000 as current period interest expense.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
As of June 30, 2015, the outstanding principal
amount and interest of the Debenture was $1,415,920.
On August 3, 2015, the remaining outstanding
principal balance, and accrued interest, in the aggregate amount of $1,161,641 of the Debenture was fully satisfied three months
prior to its maturity date (see Note 13 – Subsequent Events).
NOTE 7— NOTES PAYABLE
Notes payable as of June 30, 2015 and December 31, 2014 are
comprised of the following:
| |
June 30, 2015 | | |
December 31, 2014 | |
Mortgage Payable | |
$ | 7,205,024 | | |
$ | 7,256,416 | |
Note Payable, GE Capital (construction), MRI | |
| 30,869 | | |
| 121,204 | |
Note Payable, GE Capital (construction), 2 | |
| 15,249 | | |
| 44,911 | |
Note Payable, GE Capital (MRI) | |
| 1,035,065 | | |
| 1,218,625 | |
Note Payable, GE Capital (X-ray) | |
| 120,241 | | |
| 142,349 | |
Note Payable, GE Arm | |
| 79,923 | | |
| 91,925 | |
Note Payable, Auto | |
| 13,331 | | |
| 16,383 | |
Note payable, Florida Business Bank | |
| 393,130 | | |
| - | |
Capital Lease Equipment | |
| 37,673 | | |
| 25,538 | |
| |
| 8,930,505 | | |
| 8,917,351 | |
Less current portion | |
| (702,950 | ) | |
| (732,791 | ) |
| |
$ | 8,227,555 | | |
$ | 8,184,560 | |
Mortgage Payable
On August 12, 2011, the Company refinanced
its existing mortgage note payable as described below providing additional working capital funds. The aggregate amount of the note
of $7,550,000 bears 6.10% interest per annum with monthly payments of $45,753 beginning in October 2011 based on a 30 year amortization
schedule with all remaining principal and interest due in full on September 16, 2016. The note is secured by land and the building
along with first priority assignment of leases and rents. Tenant rents are mailed to lockbox operated by the mortgage service company.
In addition, the Company's Chief Executive Officer provided a limited personal guaranty.
In connection with the refinancing of the
mortgage note payable, the Company incurred financing costs of $286,723 in the year 2011. The capitalized financing costs are amortized
ratably over the term of the mortgage note payable.
Note Payable — Equipment Financing
On May 21, 2012, the Company entered into
a note payable with GE Healthcare Financial Services (“GE Capital”) in the amount of approximately $2.4 million for
equipment financing.
The Company also currently has two construction
loans outstanding. As of December 2012, the construction loans are payable in 35 monthly payments (first three payments are $nil)
including interest at 7.38%. On May 29, 2012, the Company drew down a total of $450,000 against the first construction loan. On
September 24, 2012, the Company drew down a total of $150,000 against the second construction loan.
The Company entered into equipment finance
leases for a total aggregate amount of $2,288,679, subject to delivery and acceptance of the underlying equipment. All notes and
finance leases have been personally guaranteed by the Company's Chief Executive Officer.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
On September 27, 2012, the Company accepted
the delivery of MRI equipment under the equipment finance lease. As such, the component piece accepted of $1,771,390 is due over
60 months and the associated monthly payment is $0 for the first three months and $38,152 per month for the remaining 57 months
including interest at 7.9375% per annum. On March 8, 2013, the Company amended the equipment finance lease to interest only payments
of $11,779 for the first three months and $38,152 per month for the remaining monthly payments.
On August 22, 2012, the Company accepted
the delivery of X-ray equipment under the equipment finance lease. As such, the component piece accepted of $212,389 is due over
60 months and the associated monthly payment is $0 for the first three months and $4,300 per month for the remaining 57 months
including interest at 7.9375% per annum. On March 8, 2013, the Company amended the equipment finance lease to interest only payments
of $1,384 for the first three months and $4,575 per month for the remaining monthly payments.
On February 25, 2013, the Company accepted
the delivery of C-arm equipment under the equipment finance lease. As such, the component piece 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.
Note Payable — Auto
On May 21, 2012, the Company issued a note
payable, in the amount of $29,850, due in monthly installments of $593 including interest of 6.99%, due to mature in June 2017
and secured by related equipment. The outstanding balance on the note payable as of June 30, 2015 was $13,331.
Note Payable — Florida Business Bank
On June 27, 2012, The B.A.C.K. Center issued
a promissory note in the aggregate amount of $900,931, which bore 5.50% interest per annum with monthly payments of $14,753 beginning
in July 16, 2012, based on a six- year amortization schedule with all remaining principal and interest due in full on June 16,
2018.
The note was modified on April 9, 2013
requiring a principal and interest payment of $11,434 and a fixed interest rate of 3.89%. The note is secured by a hypothecated
first position lien on all assets leased to The B.A.C.K. Center by its subsidiary and the assignment of $634,000 of life insurance
from each Guarantor. The obligations under the note are guaranteed by the shareholders of The B.A.C.K. Center.
Capital Leases — Equipment
On June 11, 2013, the Company entered into
a lease agreement to acquire equipment with 48 monthly payments of $956 payable through June 1, 2017 with an effective interest
rate of 14.002% per annum. The Company may elect to acquire the leased equipment at a nominal amount at the end of the lease.
On October 25, 2011, The B.A.C.K. Center
entered into a lease agreement to acquire equipment with 60 monthly payments of $1,036 payable through October 26, 2016, with no
stated interest rate. The B.A.C.K. Center 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 June
30, 2015:
| |
Amount | |
Six months ended December 31, 2015 | |
$ | 404,326 | |
Year ended December 31, 2016 | |
| 7,779,410 | |
Year ended December 31, 2017 | |
| 654,891 | |
Year ended December 31, 2018 and thereafter | |
| 91,878 | |
Total | |
$ | 8,930,505 | |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 8 — CAPITAL STOCK
During the six months ended June 30, 2015,
the Company issued an aggregate of 200,000 shares of its common stock in connection with a loan extension (see Note 6 – Convertible
Notes Payable).
During the six months ended June 30, 2015,
the Company issued an aggregate of 811,200 shares of its common stock in exchange for conversion of notes payable of $780,000 and
$31,200 accrued interest.
During the six months ended June 30, 2015,
the Company issued an aggregate of 506,000 shares of its common stock to officers, employees and service providers at an aggregate
fair value of $530,000, of which $221,000 was expensed in 2014.
Stock-Based Payable
The Company is obligated to issue an aggregate
of 147,500 shares of its common stock to officers and consultants for past and future services as of June 30, 2015. The estimated
liability as of June 30, 2015 and December 31, 2014 of $147,500 ($1.00 per share) and $537,750 ($1.32 per share) was determined
based on services rendered. The shares were issued in reliance upon the exemption from registration under Section 4(a)(2) of the
Securities Act.
NOTE 9 — STOCK OPTIONS AND WARRANTS
Warrants
The following table summarizes the warrants
outstanding and the related exercise prices for the underlying shares of the Company's common stock as of June 30, 2015:
Warrants Outstanding | | |
| |
| | |
Warrants Exercisable | |
Price | | |
Outstanding | | |
Expiration Date | |
Weighted Price | | |
Exercisable | | |
Weighted Price | |
| | |
| | |
| |
| | |
| | |
| |
$ | 1.35 | | |
| 2,320,000 | | |
November 8, 2018 | |
$ | 1.35 | | |
| 2,320,000 | | |
$ | 1.35 | |
$ | 3.60 | | |
| 1,875,000 | | |
December 31, 2016 | |
$ | 3.60 | | |
| 1,875,000 | | |
$ | 3.60 | |
| | | |
| 4,195,000 | | |
| |
$ | 2.36 | | |
| 4,195,000 | | |
$ | 2.36 | |
The warrant to purchase up to 2,320,000
shares of the Company's common stock may be exercised on a cashless basis. The warrant to purchase up to 1,875,000 shares of the
Company's common stock may not be exercised on a cashless basis.
Transactions involving stock warrants issued
to non-employees are summarized as follows:
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
| |
Number of Shares | | |
Weighted Average Price Per Share | |
Outstanding at December 31, 2013: | |
| 4,195,000 | | |
$ | 2.36 | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Expired | |
| - | | |
| - | |
Outstanding at December 31, 2014: | |
| 4,195,000 | | |
$ | 2.36 | |
| |
| | | |
| | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Expired | |
| - | | |
| - | |
Outstanding at June 30,2015 | |
| 4,195,000 | | |
$ | 2.36 | |
Options
The following table summarizes the stock
option activity for the six months ended June 30, 2015:
| |
Shares | | |
Weighted- Average Exercise Price | | |
Weighted- Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at January 1, 2015 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Granted | |
| 3,000,000 | | |
| 1.35 | | |
| 8.67 | | |
| - | |
Canceled/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding at June 30, 2015 | |
| 3,000,000 | | |
$ | 1.35 | | |
| 8.50 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at June 30, 2015 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
The following table presents information related to stock options
at June 30, 2015:
Options Outstanding | | |
| |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
Exercisable | |
Exercise | | |
Number of | | |
Remaining Life | | |
Number of | |
Price | | |
Options | | |
In Years | | |
Options | |
| $1.35 | | |
| 3,000,000 | | |
| 8.50 | | |
| - | |
On May 1, 2015, in connection with the
Operating and Control Agreement with Brevard Orthopaedic Spine & Pain Clinic, Inc., the Company issued 3,000,000 options to
purchase the Company’s common stock at $1.35 per share, expiring on December 31, 2023 and vesting contingent on the variable
interest entity (VIE), The B.A.C.K. Center, being acquired by the Company and The B.A.C.K. Center employees executing employment
contracts with TBC Holdings. The determined fair value of $3,226,427, determined using the Black Scholes option pricing model
with the following assumptions: Dividend yield: 0%; Volatility: 134.09% and Risk free rate: 2.12%, is amortized ratably to operations
over an estimated 8.67 year life; and is recorded as deferred costs and amortized over the contract term of the Operating and
Control Agreement of the VIE.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 10 — VARIABLE INTEREST ENTITY
Effective May 1, 2015, the Company, through
its recently formed wholly owned subsidiary, TBC Holdings of Melbourne, Inc. entered into an Operating and Control Agreement (the
Agreement”) with Brevard Orthopaedic Spine & Pain Clinic, Inc. (“The B.A.C.K. Center”), whereby the Company
will have sole and exclusive management and control of The B.A.C.K. Center, including, but not limited to, administrative, financial,
facility and business operations including the requirement to absorb losses or right to receive economic benefits The initial
term of the Agreement expires on December 31, 2016, with an option by the Company to extend the term until December 31, 2023.
The Company issued 3,000,000 options to purchase the Company’s common stock, vesting contingent on The B.A.C.K. Center employees
signing employment contracts with TBD Holdings and the variable interest entity, The B.A.C.K. Center, being acquired by the Company
at $1.35 per share and expiring on December 31, 2023.
The Company has determined that The B.A.C.K.
Center is a Variable Interest Entity ("VIE") in accordance with Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") Topic 810, "Consolidation". 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 of 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 table below summarizes the assets and liabilities
associated with The B.A.C.K. Center as of June 30, 2015:
Current assets: | |
| | |
Cash | |
$ | 999,128 | |
Accounts receivable | |
| 2,038,218 | |
Due from First Choice Healthcare Solutions | |
| 25,368 | |
Other current assets | |
| 632,853 | |
Total current assets | |
| 3,695,567 | |
Property and equipment, net | |
| 31,463 | |
Other assets | |
| 23,026 | |
Total assets | |
$ | 3,750,056 | |
| |
| | |
Current liabilities: | |
| | |
Accounts payable and accrued liabilities | |
$ | 970,626 | |
Other current liabilities | |
| 1,086,469 | |
Total current liabilities | |
| 2,057,095 | |
Long term debt | |
| 1,831,647 | |
Total liabilities | |
| 3,888,742 | |
| |
| | |
Deficit | |
| (138,686 | ) |
Total liabilities and deficit | |
$ | 3,750,056 | |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Total revenues from The B.A.C.K. Center were
$2,206,102 for the three and six months ended June 30, 2015. Related expenses consisted primarily of salaries and benefits of $1,250,618,
general and administrative expenses of $969,706, depreciation of $3,223 and interest and financing costs of $7,923.
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:
Marina Towers, LLC, FCID Medical, Inc. and The B.A.C.K Center.
The Marina Towers, LLC segment derives revenue
from the operating leases of its owned building, FCID Medical segment derives revenue for medical services provided to patients,
and The B.A.C.K Center derives revenue for subleasing space within its building and medical services provided to patients.
Information concerning the operations of the
Company's reportable segments is as follows:
Summary Statement of Operations for the three
months ended June 30, 2015:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 1,873,219 | | |
$ | 1,930,820 | | |
$ | - | | |
$ | - | | |
$ | 3,804,039 | |
Rental revenue | |
| 375,512 | | |
| - | | |
| 256,132 | | |
| - | | |
| (111,368 | ) | |
| 520,276 | |
Total Revenue | |
| 375,512 | | |
| 1,873,219 | | |
| 2,186,952 | | |
| - | | |
| (111,368 | ) | |
| 4,324,315 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Salaries & benefits | |
| 3,000 | | |
| 781,064 | | |
| 1,250,618 | | |
| 90,799 | | |
| - | | |
| 2,125,481 | |
Other operating expenses | |
| 109,943 | | |
| 564,847 | | |
| - | | |
| - | | |
| (111,368 | ) | |
| 563,422 | |
General and administrative | |
| 24,148 | | |
| 319,237 | | |
| 917,456 | | |
| 389,029 | | |
| - | | |
| 1,649,870 | |
Depreciation and amortization | |
| 69,674 | | |
| 66,745 | | |
| 3,223 | | |
| 4,775 | | |
| - | | |
| 144,417 | |
Total operating expenses | |
| 206,765 | | |
| 1,731,893 | | |
| 2,171,297 | | |
| 484,603 | | |
| (111,368 | ) | |
| 4,483,190 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 168,747 | | |
| 141,326 | | |
| 15,655 | | |
| (484,603 | ) | |
| - | | |
| (158,875 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (109,300 | ) | |
| (68,798 | ) | |
| (7,264 | ) | |
| (173,632 | ) | |
| - | | |
| (358,994 | ) |
Amortization of financing costs | |
| (14,337 | ) | |
| (4,233 | ) | |
| (659 | ) | |
| - | | |
| - | | |
| (19,229 | ) |
Other income (expense) | |
| 21,219 | | |
| - | | |
| 19,150 | | |
| - | | |
| - | | |
| 40,369 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (loss): | |
| 66,329 | | |
| 68,295 | | |
| 26,882 | | |
| (658,235 | ) | |
| - | | |
| (496,729 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 66,329 | | |
$ | 68,295 | | |
$ | 26,882 | | |
$ | (658,235 | ) | |
$ | - | | |
$ | (496,729 | ) |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Summary Statement of Operations for the three
months ended June 30, 2014:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 1,848,441 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 1,848,441 | |
Rental revenue | |
| 367,460 | | |
| - | | |
| - | | |
| - | | |
| (108,737 | ) | |
| 258,723 | |
Total Revenue | |
| 367,460 | | |
| 1,848,441 | | |
| - | | |
| - | | |
| (108,737 | ) | |
| 2,107,164 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Salaries & benefits | |
| 3,000 | | |
| 996,555 | | |
| - | | |
| 91,251 | | |
| - | | |
| 1,090,806 | |
Other operating expenses | |
| 109,989 | | |
| 425,804 | | |
| - | | |
| - | | |
| (108,737 | ) | |
| 427,056 | |
General and administrative | |
| 21,903 | | |
| 328,909 | | |
| - | | |
| 318,396 | | |
| - | | |
| 669,208 | |
Depreciation and amortization | |
| 69,219 | | |
| 57,553 | | |
| - | | |
| - | | |
| - | | |
| 126,772 | |
Total operating expenses | |
| 204,111 | | |
| 1,808,821 | | |
| - | | |
| 409,647 | | |
| (108,737 | ) | |
| 2,313,842 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 163,349 | | |
| 39,620 | | |
| - | | |
| (409,647 | ) | |
| - | | |
| (206,678 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (114,067 | ) | |
| (55,951 | ) | |
| - | | |
| (47,159 | ) | |
| - | | |
| (217,177 | ) |
Amortization of financing costs | |
| (14,337 | ) | |
| (11,129 | ) | |
| - | | |
| - | | |
| - | | |
| (25,466 | ) |
Other income (expense) | |
| 750 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 750 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (loss): | |
| 35,695 | | |
| (27,460 | ) | |
| - | | |
| (456,806 | ) | |
| - | | |
| (448,571 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 35,695 | | |
$ | (27,460 | ) | |
$ | - | | |
$ | (456,806 | ) | |
$ | - | | |
$ | (448,571 | ) |
Summary Statement of Operations for the six
months ended June 30, 2015:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 4,113,283 | | |
$ | 1,930,820 | | |
$ | - | | |
$ | - | | |
$ | 6,044,103 | |
Rental revenue | |
| 750,833 | | |
| - | | |
| 256,132 | | |
| - | | |
| (221,586 | ) | |
| 785,379 | |
Total Revenue | |
| 750,833 | | |
| 4,113,283 | | |
| 2,186,952 | | |
| - | | |
| (221,586 | ) | |
| 6,829,482 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Salaries & benefits | |
| 6,000 | | |
| 1,618,051 | | |
| 1,250,618 | | |
| 196,932 | | |
| - | | |
| 3,071,601 | |
Other operating expenses | |
| 213,274 | | |
| 1,023,219 | | |
| - | | |
| - | | |
| (221,586 | ) | |
| 1,014,907 | |
General and administrative | |
| 46,790 | | |
| 610,396 | | |
| 917,456 | | |
| 628,512 | | |
| - | | |
| 2,203,154 | |
Depreciation and amortization | |
| 138,893 | | |
| 133,260 | | |
| 3,223 | | |
| 9,550 | | |
| - | | |
| 284,926 | |
Total operating expenses | |
| 404,957 | | |
| 3,384,926 | | |
| 2,171,297 | | |
| 834,994 | | |
| (221,586 | ) | |
| 6,574,588 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 345,876 | | |
| 728,357 | | |
| 15,655 | | |
| (834,994 | ) | |
| - | | |
| 254,894 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (219,796 | ) | |
| (120,582 | ) | |
| (7,264 | ) | |
| (374,496 | ) | |
| - | | |
| (722,138 | ) |
Amortization of financing costs | |
| (28,674 | ) | |
| (10,582 | ) | |
| (659 | ) | |
| - | | |
| - | | |
| (39,915 | ) |
Other income (expense) | |
| 21,969 | | |
| - | | |
| 19,150 | | |
| - | | |
| - | | |
| 41,119 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (loss): | |
| 119,375 | | |
| 597,193 | | |
| 26,882 | | |
| (1,209,490 | ) | |
| - | | |
| (466,040 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 119,375 | | |
$ | 597,193 | | |
$ | 26,882 | | |
$ | (1,209,490 | ) | |
$ | - | | |
$ | (466,040 | ) |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Summary Statement of Operations for the six
months ended June 30, 2014:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopaedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 3,821,271 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 3,821,271 | |
Rental revenue | |
| 736,971 | | |
| - | | |
| - | | |
| - | | |
| (216,325 | ) | |
| 520,646 | |
Total Revenue | |
| 736,971 | | |
| 3,821,271 | | |
| - | | |
| - | | |
| (216,325 | ) | |
| 4,341,917 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Salaries & benefits | |
| 6,000 | | |
| 1,976,438 | | |
| - | | |
| 173,889 | | |
| - | | |
| 2,156,327 | |
Other operating expenses | |
| 213,601 | | |
| 859,071 | | |
| - | | |
| - | | |
| (216,325 | ) | |
| 856,347 | |
General and administrative | |
| 43,722 | | |
| 565,161 | | |
| - | | |
| 466,237 | | |
| - | | |
| 1,075,120 | |
Depreciation and amortization | |
| 138,228 | | |
| 123,263 | | |
| - | | |
| - | | |
| - | | |
| 261,491 | |
Total operating expenses | |
| 401,551 | | |
| 3,523,933 | | |
| - | | |
| 640,126 | | |
| (216,325 | ) | |
| 4,349,285 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 335,420 | | |
| 297,338 | | |
| - | | |
| (640,126 | ) | |
| - | | |
| (7,368 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (226,091 | ) | |
| (115,288 | ) | |
| - | | |
| (95,051 | ) | |
| - | | |
| (436,430 | ) |
Amortization of financing costs | |
| (28,674 | ) | |
| (12,698 | ) | |
| - | | |
| - | | |
| - | | |
| (41,372 | ) |
Other income (expense) | |
| 1,500 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income (loss): | |
| 82,155 | | |
| 169,352 | | |
| - | | |
| (735,177 | ) | |
| - | | |
| (483,670 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | 82,155 | | |
$ | 169,352 | | |
$ | - | | |
$ | (735,177 | ) | |
$ | - | | |
$ | (483,670 | ) |
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopaedic | | |
Corporate | | |
Eliminations | | |
Total | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At June 30, 2015: | |
$ | 6,508,932 | | |
$ | 4,873,844 | | |
$ | 3,724,688 | | |
$ | 3,480,083 | | |
$ | - | | |
$ | 18,587,547 | |
At December 31, 2014: | |
$ | 6,726,759 | | |
$ | 4,407,749 | | |
$ | - | | |
$ | 336,184 | | |
$ | - | | |
$ | 11,470,692 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Assets acquired | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Three month ended June 30, 2015: | |
$ | 29,781 | | |
$ | 1,999 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 31,780 | |
Three months ended June 30, 2014: | |
$ | 6,319 | | |
$ | 70,665 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 76,984 | |
Six months ended June 30, 2015: | |
$ | 36,409 | | |
$ | 3,656 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 40,065 | |
Six months ended June 30, 2014: | |
$ | 16,758 | | |
$ | 71,224 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 87,982 | |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Litigation
On or about July 25, 2014, MedTRX Health Care
Solutions, LLC and MedTRX Collection Services, LLC (“MedTRX”) filed a demand for arbitration with the American Arbitration
Association (“AAA”) against FCID Medical, Inc. and First Choice Medical Group of Brevard, LLC (collectively, “First
Choice”). MedTRX claims that First Choice breached an exclusive five-year billing and collection agreement, dated December
9, 2011, (“Billing Agreement”) by engaging another billing service on or about June 1, 2014. MedTRX also claims that
First Choice failed to pay for services that MedTRX had performed prior to June 1, 2014, leaving a balance due of $93,280.84. MedTRX
claims total damages of “not less than $3 million.” On or about September 15, 2014, First Choice served its Answering
Statement and Counterclaims (“Answering Statement”). In the Answering Statement, First Choice denied all liability
to MedTRX due to MedTRX’s numerous material breaches of the Billing Agreement and asserted two counterclaims for fraudulent
inducement and negligence against MedTRX. On July 18, 2015, the arbitrator granted the Company’s request to withdraw its
Answer and Counterclaims and deemed the Company to have denied only the amount of damages claimed by MEDTRX. The parties are engaged
in discovery. The arbitration hearing is scheduled to commence on December 7, 2015. No assurance can be given that any amounts
ultimately due by the Company will not have a material impact on the Company’s financial condition.
The B.A.C.K. Center has a claim filed in Brevard
County, Florida Circuit Court against Health First Management, Inc. due to a contract dispute. A counterclaim was filed against
the Company. The case has been litigated for a substantial amount of time and a trial is anticipated to take place within the next
twelve months. The Company has vigorously defended against the counterclaim. The Company has accrued a possible loss contingency
of approximately $118,000.
From time to time, we may become involved in
various lawsuits and legal proceedings which arise in the ordinary course of business. 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.
Operating Leases
The B.A.C.K. Center leases office space under
various non-cancelable operating leases that expire at various dates through June 2026. Terms of the lease agreements provide for
rental payments ranging from approximately $4,200 to $200,000 per month. Certain leases include charges for sales and real estate
taxes and a proration of common area maintenance expenses. Under generally accepted accounting principles (GAAP), all rental payments,
including fixed rent increases, are recognized on a straight-line basis over the life of the lease. The GAAP rent expense and the
actual lease payments are reflected as deferred rent on the accompanying balance sheet. From the date of the Operating and Control
Agreement through June 30, 2015, lease expense amounted to $260,234, respectively.
The following is a schedule of future minimum
lease payments for all non-cancelable operating leases for each of the next five years ending December 31 and thereafter:
Six months ended December 31 2015: | |
$ | 1,732,268 | |
Year ended December 31, 2016 | |
| 3,494,547 | |
Year ended December 31, 2017 | |
| 3,444,197 | |
Year ended December 31, 2018 | |
| 3,444,209 | |
Year ended December 31, 2019 | |
| 3,444,221 | |
| |
$ | 15,559,442 | |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2015
Guarantees
Two of The B.A.C.K. Center’s shareholders
and a related party have guaranteed the full and prompt payment of the base rent, the additional rent and any all other sums and
charges payable by a tenant, its successors and assigns under the lease, and the full performance and observance of all the covenants,
terms, conditions and agreements for one of the above mentioned operating leases.
NOTE 13 – SUBSEQUENT EVENTS
Hillair Capital Investments, L.P.
On August 3, 2015, the remaining outstanding
principal balance and accrued interest in the aggregate amount of $1,161,641 of the Company’s 8% Original Issue Discount
Secured Convertible Debenture due November 1, 2015 (“Debenture”) issued to Hillair Capital Investments, L.P. was fully
satisfied three months prior to its maturity date. In accordance with the terms of the Debenture, the outstanding principal balance
and accrued interest was converted into shares of the Company’s Common Stock by dividing such amount by $1.00. As a result
of the extinguishment of the Debenture, the Company expects to record a final non-cash gain in the third quarter ending September
30, 2015, representing a $1,161,641 increase to total shareholders’ equity.
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.
Company Overview
Overview
First Choice Healthcare
Solutions, Inc. (“FCHS,” the “Company,” “we,” “our” or “us”) is engaged
in the creation of state-of-the-art, multi-specialty “Medical Centers of Excellence” primarily in select markets in
the southeastern region of the United States. We intend to own and operate these “Medical Centers of Excellence” under
the FCHS brand.
We believe by integrating
the synergistic mix of orthopedic, spine, neurology and interventional pain specialties with related diagnostic and ancillary services
and state-of-the-art equipment and technologies all in one location, or a “Medical Center of Excellence,” we are able
to:
|
· |
provide patients with convenient access to musculoskeletal and rehabilitative care via orthopedic, spine, neurology and interventional pain medicine treatment, diagnostics and ancillary care services, including, but not limited to magnetic resonance imaging (“MRI”), x-ray (“X-ray”), durable medical equipment (“DME”) and physical therapy (“PT”); |
|
· |
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; and ultimately, achieve strong, sustainable financial performance that serves to create long-term value for our stockholders. |
Our goal is to build a
network of non-physician-owned and operated Medical Centers of Excellence in diverse locations, primarily throughout the southeastern
region of the United States. By centralizing current and future Centers’ business management functions, including call center
operations, scheduling, billing, compliance, accounting, marketing, advertising, legal, information technology and record-keeping,
at our corporate headquarters, we will maintain efficiencies and scales of economies. We believe our structure will enable our
staff physicians to focus on the practice of medicine and the delivery of quality care to the patients we serve, as opposed to
having their time and attention focused on business administration responsibilities. We currently have 116 employees, including
physicians and physician assistants.
Our Healthcare Services Business
We currently own and operate
First Choice Medical Group of Brevard, LLC (“FCMG”), our model multi-specialty Medical Center of Excellence. FCMG will
serve as the model for replicating our “Medical Center of Excellence” strategy in our target expansion markets. Located
in Melbourne, Florida, FCMG specializes in the delivery of musculoskeletal medicine, via our strategically aligned sub-specialties
in orthopedics, neurology and interventional pain medicine, coupled with on-site diagnostic and ancillary services, including MRI,
X-ray, DME and rehabilitative care with multiple quality-focused goals centered on enriching our patients’ care experiences.
On May 1, 2015, through
our wholly-owned subsidiary, TBC Holdings of Melbourne, Inc., we entered into an Operating and Control Agreement (the “Agreement”)
with Brevard Orthopaedic Spine & Pain Clinic, Inc. (“The B.A.C.K. Center”), a premier spine, orthopaedic and pain
practice in Brevard County, Florida. The B.A.C.K. Center operates two medical offices located in Melbourne and Merritt Island,
Florida.
Our Real Estate Business
FCID Holdings, Inc. (“FCID
Holdings”) is our wholly owned subsidiary which operates our real estate interests. Currently, FCID Holdings has one real
estate holding, Marina Towers, LLC, a 78,000 square foot, Class A, six-story building located on the Indian River in Melbourne,
Florida. In addition to housing our corporate headquarters and FCMG, the building, which averages 95% annual occupancy, also leases
approximately 48,698 square feet of commercial office space to third party tenants. In addition, beginning May 1, 2015, TBC Holdings
of Melbourne, Inc., through The B.A.C.K. Center, subleases approximately 34,480 square feet of commercial office space to third
party tenants.
New Accounting
Pronouncements
In April 2015, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) Number 2015-3 entitled “Simplifying the Presentation
of Debt Issuance Costs.” The new guidance specifies that debt issuance costs under the new standard are to be netted against the
carrying value of the financial liability. Under current guidance, debt issuance costs are recognized as a deferred charge and
reported as a separate asset on the balance sheet. The new guidance aligns the treatment of debt issuance costs and debt discounts
in that both reduce the carrying value of the liability. It is important to note that neither the recognition nor measurement of
debt issuance costs is changed as a result of the ASU. Amortization of debt issuance costs is to be recorded as interest expense
on the income statement.
The effective date of the
new guidance is for fiscal years beginning after December 15, 2015, for public business entities and interim periods
within those fiscal years. Early adoption is permitted for financial statements that have not been issued previously. We do not
believe the effect of the adoption of this standard to have a material impact on the Company’s consolidated financial
statements.
There are other various updates recently issued,
most of which represented technical corrections to the accounting literature or application to specific industries and are not
expected to a have a material impact on the Company's financial position, results of operations or cash flows.
Results of Operations for the Three Months
Ended June 30, 2015 and 2014
Revenues
Total revenues increased
105% to $4,324,314 for the three months ended June 30, 2015 as compared to revenues of $2,107,164 for the same period in the prior
year. The increase is primarily attributed to the addition on May 1, 2015 of Brevard Orthopaedic Spine & Pain Clinic, Inc.
(“The B.A.C.K. Center”), which contributed revenues of $2,186,952 for the quarter, which was comprised of additional
patient services revenue of $1,930,820 and rental revenue of $256,132. Our existing patient services revenue increased by $24,778,
or 1%, after factoring provision for doubtful accounts. Rental revenue increased by $261,553, totaling $520,276 and $258,723 for
the three months ended June 30, 2015 and 2014, respectively, primarily due to the addition of revenue from The B.A.C.K. Center.
The provision for doubtful
accounts during the second quarter of 2015 totaled $6,260. The charge to the provision for doubtful accounts in the second quarter
2015 resulted from writing off old receivables from The B.A.C.K. Center. We adopted the provisions of ASU 2011-07 in 2014, which
requires that healthcare entities change the presentation of the statement of operations by reclassifying the provision for doubtful
accounts from an operating expense to a deduction from patient service revenues. All periods presented have been reclassified in
accordance with ASU 2011-07.
Operating Expenses
Operating expenses include
the following:
| |
Three Months Ended June 30, 2015 | | |
Three Months Ended June 30, 2014 | |
Salaries and Benefits | |
$ | 2,125,481 | | |
$ | 1,090,806 | |
Other operating expenses | |
| 563,422 | | |
| 427,056 | |
General and administrative | |
| 1,649,870 | | |
| 669,208 | |
Depreciation and amortization | |
| 144,417 | | |
| 126,772 | |
Total operating expenses | |
$ | 4,483,190 | | |
$ | 2,313,842 | |
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
95% to $2,125,481 for the three months ended June 30, 2015, compared to $1,090,806 for the three months ended June 30, 2014. The
increase was primarily due to the addition on May 1, 2015 of The B.A.C.K. Center, which represented an additional $1,250,618 in
the reporting period. The existing segments netted a reduction of $215,943 as compared to 2014. Other operating expenses increased
32% to $563,422 from $427,056 due to the increase in patient service volume from 2014 to 2015.
General and administrative
expenses for the three months ended June 30, 2015 increased 147% to $1,649,870, up from $669,208. The increase was largely attributable
to higher corporate expenses related to transaction costs associated with The B.A.C.K. Center, adding$969,706 in costs. We believe
that each additional sale or service and corresponding gross profit of such sale or service has minimal incremental offsetting
operating expenses. Thus, additional sales could contribute to profit at a higher rate of return on sales as a result of not needing
to expand operating expenses at the same pace as sales.
Depreciation and amortization
increased 14% from $126,772 for the three months ended June 30, 2014 to $144,417 for the three months ended June 30, 2015.
Net Income (Loss) on Operations
The loss from operations
for the three months ended June 30, 2015 declined 23% to $158,875, which compared to loss from operations of $206,678 for the same
period in the prior year. Notwithstanding non-cash expenses totaling $295,951 for the three months ended June 30, 2015, which included
stock-based compensation, depreciation and amortization, income from operations totaled $137,076. This compared to income from
operations of $53,222 after factoring $259,900 in non-cash stock-based compensation, depreciation and amortization recorded for
the three months ended June 30, 2014.
Interest Expense
Interest expense increased
measurably, rising 65% to $358,994 for the three months ended June 30, 2015, which compared to $217,177 for the three months ended
June 30, 2014. The increase primarily is due to a $128,000 non-cash interest payment to extend our convertible note payable due
to Hillair Capital Investments during the three months ended June 30, 2015 as compared to nil in the same period last year.
Net Income (Loss)
As a result of all the
above, our net loss decreased 11% to $496,729 for the three months ended June 30, 2015, which compared to a net loss of $448,571
for the same period in the previous year.
Results of Operations for the Six Months
Ended June 30, 2015 and 2014
Revenues
Total revenues increased
57% to $6,829,482 for the six months ended June 30, 2015 as compared to revenues of $4,341,917 for the same period in the prior
year. The increase is primarily attributed to the addition on May 1, 2015 of Brevard Orthopaedic Spine & Pain Clinic, Inc.
(“The B.A.C.K. Center”), which contributed revenues of $2,186,952 for the period, which was comprised of additional
patient services revenue of $1,930,820 and rental revenue of $256,132. Our existing patient services revenue increased by $290,012,
or 8%, after factoring provision for doubtful accounts. Rental revenue increased by $264,733, totaling $785,379 and $520,646 for
the six months ended June 30, 2015 and 2014, respectively, primarily due to the addition of revenues from The B.A.C.K. Center.
The provision for doubtful
accounts during the six months ended June 30, 2015 totaled $51,484. The charge to the provision for doubtful accounts in the first
quarter 2015 resulted from writing off old receivables from our prior MedTRX accounts receivable system, which was replaced by
athenahealth in June 2014. We adopted the provisions of ASU 2011-07 in 2014, which requires that healthcare entities change the
presentation of the statement of operations by reclassifying the provision for doubtful accounts from an operating expense to a
deduction from patient service revenues. All periods presented have been reclassified in accordance with ASU 2011-07.
Operating Expenses
Operating expenses include
the following:
| |
Six Months Ended June 30, 2015 | | |
Six Months Ended June 30, 2014 | |
Salaries and Benefits | |
$ | 3,071,601 | | |
$ | 2,156,327 | |
Other operating expenses | |
| 1,014,907 | | |
| 856,347 | |
General and administrative | |
| 2,203,154 | | |
| 1,075,120 | |
Depreciation and amortization | |
| 284,926 | | |
| 261,491 | |
Total operating expenses | |
$ | 6,574,588 | | |
$ | 4,349,285 | |
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 42% to $3,071,601 for the six months ended June 30, 2015, which compared to $2,156,327 for the six months ended June
30, 2014. The increase was primarily due to the addition on May 1, 2015 of The B.A.C.K. Center, which added additional costs of
$1,250,618 in the reporting period. The existing segments netted a reduction of $335,344 as compared to 2014. Other operating expenses
increased 18% to $1,014,907 from $856,347 due to the increase in patient services volume from 2014 to 2015.
General and administrative
expenses for the six months ended June 30, 2015 increased 105% to $2,203,154, up from $1,075,120. The increase was largely attributable
to higher corporate expenses related to transaction costs associated with The B.A.C.K. Center with $969,706 in additional costs.
We believe that each additional sale or service and corresponding gross profit of such sale or service has minimal incremental
offsetting operating expenses. Thus, additional sales could contribute to profit at a higher rate of return on sales as a result
of not needing to expand operating expenses at the same pace as sales.
Depreciation and amortization
increased 9% from $261,491 for the six months ended June 30, 2014 to $284,926 for the six months ended June 30, 2015.
Net Income (Loss) on Operations
Income from operations
for the six months ended June 30, 2015 increased $262,262 to $254,894, which compared to loss from operations of $7,368 for the
same period in the prior year. Notwithstanding non-cash expenses totaling $529,934 for the six months ended June 30, 2015, which
included stock-based compensation, depreciation and amortization, income from operations totaled $784,828. This compared to income
from operations of $425,395 after factoring $432,763 in non-cash stock-based compensation, depreciation and amortization recorded
for the six months ended June 30, 2014.
Interest Expense
Interest expense rose 65%
to $722,138 for the six months ended June 30, 2015, which compared to $436,430 for the six months ended June 30, 2014. The increase
is primarily due to a $227,000 non-cash interest payment to extend our convertible note payable due to Hillair Capital Investments
during the six months ended June 30, 2015 as compared to nil in the same period last year.
Net Income (Loss)
As a result of all the
above, our net loss decreased 4% to $466,040 for the six months ended June 30, 2015, which compared to a net loss of $483,670 for
the same period in the previous 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 loss by segment for the three and six months ended June 30, 2015 and 2014, respectively. The significant fluctuations in
the line items are described above.
For the Three Months Ended June 30, 2015:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 1,873,219 | | |
$ | 1,930,820 | | |
$ | - | | |
$ | - | | |
$ | 3,804,039 | |
Rental revenue | |
| 375,512 | | |
| - | | |
| 256,132 | | |
| - | | |
| (111,368 | ) | |
| 520,276 | |
Total Revenue | |
| 375,512 | | |
| 1,873,219 | | |
| 2,186,952 | | |
| - | | |
| (111,368 | ) | |
| 4,324,315 | |
Total operating expenses | |
| 206,765 | | |
| 1,731,893 | | |
| 2,171,297 | | |
| 484,603 | | |
| (111,368 | ) | |
| 4,483,190 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 168,747 | | |
| 68,295 | | |
| 15,655 | | |
| (484,603 | ) | |
| - | | |
| (158,875 | ) |
For the Three Months Ended June 30, 2014:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 1,848,441 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 1,848,441 | |
Rental revenue | |
| 367,460 | | |
| - | | |
| - | | |
| - | | |
| (108,737 | ) | |
| 258,723 | |
Total Revenue | |
| 367,460 | | |
| 1,848,441 | | |
| - | | |
| - | | |
| (108,737 | ) | |
| 2,107,164 | |
Total operating expenses | |
| 204,111 | | |
| 1,808,821 | | |
| - | | |
| 409,647 | | |
| (108,737 | ) | |
| 2,313,842 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 163,349 | | |
| 39,620 | | |
| - | | |
| (409,647 | ) | |
| - | | |
| (206,678 | ) |
For the Six Months Ended June 30, 2015:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 4,113,283 | | |
$ | 1,930,820 | | |
$ | - | | |
$ | - | | |
$ | 6,044,103 | |
Rental revenue | |
| 750,833 | | |
| - | | |
| 256,132 | | |
| - | | |
| (221,586 | ) | |
| 785,379 | |
Total Revenue | |
| 750,833 | | |
| 4,113,283 | | |
| 2,186,952 | | |
| - | | |
| (221,586 | ) | |
| 6,829,482 | |
Total operating expenses | |
| 404,957 | | |
| 3,384,926 | | |
| 2,171,297 | | |
| 834,994 | | |
| (221,586 | ) | |
| 6,574,588 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 345,876 | | |
| 597,193 | | |
| 15,655 | | |
| (834,994 | ) | |
| - | | |
| 254,894 | |
For the Six Months Ended June 30, 2015:
| |
Marina | | |
FCID | | |
Brevard | | |
| | |
Intercompany | | |
| |
| |
Towers | | |
Medical | | |
Orthopaedic | | |
Corporate | | |
Eliminations | | |
Total | |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Patient Service Revenue | |
$ | - | | |
$ | 3,821,271 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 3,821,271 | |
Rental revenue | |
| 736,971 | | |
| - | | |
| - | | |
| - | | |
| (216,325 | ) | |
| 520,646 | |
Total Revenue | |
| 736,971 | | |
| 3,821,271 | | |
| - | | |
| - | | |
| (216,325 | ) | |
| 4,341,917 | |
Total operating expenses | |
| 401,551 | | |
| 3,523,933 | | |
| - | | |
| 640,126 | | |
| (216,325 | ) | |
| 4,349,285 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) from operations: | |
| 335,420 | | |
| 297,338 | | |
| - | | |
| (640,126 | ) | |
| - | | |
| (7,368 | ) |
Liquidity and Capital Resources
As of June 30, 2015, we
had cash of $1,054,565, restricted cash of $372,822 and accounts receivable totaling $4,489,477. This compared to cash of $279,087,
restricted cash of $318,259 and accounts receivable of $1,804,636 as of the end of 2014.
The Marina Towers building
is 95% occupied. We believe that ongoing operations of Marina Towers, LLC, the current positive cash balance, along with continued
execution of Marina Tower's business development plan, will allow us to further improve our working capital; and that we will have
sufficient capital resources to meet projected cash flow requirements through the date that is one year plus a day from the filing
date of this report. However, there can be no assurance that we will be successful in fully executing our business development
plan.
Net cash provided by our
operating activities for the six months ended June 30, 2015 totaled $69,994, which compared to net cash used in our operations
for the six months ended June 30, 2014 of $549,037. The decrease in cash used was due primarily to a net loss of $466,040 for the
current period as compared to a net loss of $483,670 for the six months ended June 30, 2014. This was offset by stock-based compensation
of $139,750 and payment of the non-cash loan extension of $227,000 for the six months ended June 30, 2015 as compared to $96,000
for the same period last year. In addition, our operating assets increased by $477,421 and $968,613 for the six months ended June
30, 2015 and 2014, respectively; and our operating liabilities increased in 2015 by $216,606 as compared to increasing by $429,112
for the six months ended June 30, 2014.
Net cash flows provided
by investing activities was $639,608 for the six months ended June 30, 2015, compared to $87,982 used in investing activities for
the six months ended June 30, 2014. In 2015, we received $679,673 as part of the combining with The B.A.C.K. Center. Purchases
of equipment were $40,065 and $87,982 for the six months ended June 30, 2015 and 2014, respectively, due to less cash spent on
the purchase of equipment in 2015 compared to the prior year.
Cash flows provided by
financing activities was $65,876 for six months ended June 30, 2015, compared to net cash used in financing activities of $31,327
for the six months ended June 30, 2014. The cash flows provided by (used in) financing activities were the result of:
| |
Six Months ended June 30, 2015 | | |
Six Months ended June 30, 2014 | |
Proceeds from advances | |
$ | 129,000 | | |
$ | — | |
Proceeds from lines of credit | |
| 355,656 | | |
| 350,000 | |
Net payments on notes payable | |
| (418,780 | ) | |
| (381,327 | ) |
Net cash provided by (used in) financing activities | |
$ | 65,876 | | |
$ | (31,327 | ) |
On April 9, 2015, the redemption
terms of our debenture were further modified as follows: Hillair agreed to convert $580,000 of the principal amount of the February
Periodic Redemption into 580,000 shares of the Company’s common stock on or before May 1, 2015. In consideration of reducing
the conversion price of $100,000 principal amount of the Debenture from $1.00 to $0.50 per share, the $580,000 principal amount
of the Debenture due May 1, 2015 was extended to August 1, 2015.
Additionally, the modification
provides the Company, upon the payment of $150,000 (on or before July 1, 2015) and the reduction of the exercise price of the 2,320,000
warrants issued to Hillair from $1.35 per share to $1.00 per share, to extend the $580,000 principal amount of the Debenture plus
interest due August 1, 2015 and the balance of the principal amount of the Debenture plus interest due November 1, 2015 until January
15, 2016. Reducing the exercise price of the warrants would increase the number of warrants granted to Hillair by 601,481.
Subsequent to the end of the second quarter 2015, ended June 30, 2015, we announced that the remaining outstanding principal balance,
and accrued interest, in the aggregate amount of $1,161,641 of the Debenture was fully satisfied three months prior to its maturity
date on November 1, 2015. In accordance with the terms of the Debenture, the outstanding principal balance and accrued interest
was converted into shares of the Company’s Common Stock by dividing such amount by $1.00. As a result of the extinguishment
of the Debenture, the Company expects to record a final non-cash gain in the third quarter ending September 30, 2015, representing
a $1,161,641 increase to total shareholders’ equity.
Currently, we are actively
engaged in identifying and pursuing discussions with prospective acquisitions and/or implementation of operation and management
agreements that qualify as variable interest entities in accordance with generally accepted accounting practices in key target
markets — with those being largely in the southeastern U.S. Over the next 12 months, we expect to incur significant capital
costs to further develop and expand our medical operations. We plan to add another medical center of excellence and purchase additional
diagnostic equipment for our operations. We expect to need additional capital of approximately $4-6 million to fund the development
and expansion of our operations over the next 12 months. However, there can be no assurance that we will be able to negotiate acceptable
terms for, or find suitable candidates for, such acquisition.
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.
Off Balance Sheet Arrangements
We currently have no off-balance
sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
Our unaudited condensed
consolidated financial statements have been prepared by management in accordance with U.S. GAAP.
Recently Issued Accounting Pronouncements
There were various updated
recently issued, most of which represented technical corrections to the accounting literature or application to specific industries
and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Management does not believe
that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
Inflation
The effect of inflation
on our revenue and operating results was not significant.
Climate Change
We believe that neither
climate change, nor government regulations related to climate change, have had, or are expected to have, any material effect on
our operations.
Item 3. Quantitative
and Qualitative Disclosures about Market Risk
As a smaller reporting
company, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information required
by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and
Procedures
Pursuant to Rule 13a-15(b)
under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes
in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the quarter ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II
Item 1. Legal Proceedings
On or about July 25, 2014,
MedTRX Health Care Solutions, LLC and MedTRX Collection Services, LLC (“MedTRX”) filed a demand for arbitration with
the American Arbitration Association (“AAA”) against FCID Medical, Inc. and First Choice Medical Group of Brevard,
LLC (collectively, “First Choice”). MedTRX claims that First Choice breached an exclusive five-year billing and collection
agreement dated as of December 9, 2011 (“Billing Agreement”) by engaging another billing service on or about June 1,
2014. MedTRX also claims that First Choice failed to pay for services that MedTRX had performed prior to June 1, 2014 leaving a
balance due of $93,280.84. MedTRX claims total damages of “not less than $3 million”. On or about September 15, 2014,
First Choice served its Answering Statement and Counterclaims (“Answering Statement”). In the Answering Statement,
First Choice denied all liability to MedTRX due to MedTRX’s numerous material breaches of the Billing Agreement and asserted
two counterclaims for fraudulent inducement and negligence against MedTRX. On July 18, 2015, the arbitrator granted the Company’s
request to withdraw its Answer and Counterclaims and deemed the Company to have denied only the amount of damages claimed by MEDTRX.
The parties are engaged in discovery. The arbitration hearing is scheduled to commence on December 7, 2015. No assurance can be
given that any amounts ultimately due by the Company will not have a material impact on the Company’s financial condition.
The B.A.C.K. Center has
a claim filed, in Brevard County, Florida Circuit Court, against Health First Management, Inc. due to a contract dispute. A counterclaim
was filed against the Company. The case has been litigated for a substantial amount of time and a trial is anticipated to take
place within the next 12 months. The Company has vigorously defended against the counterclaim. The Company has accrued a possible
loss contingency of approximately $118,000.
From time to time, we may
become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. 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.
Item 1A. Risk Factors
There have been no material
changes to the Risk Factors reported in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
Issuances to Directors, Officers, Employees
and Service Providers
During the six months ended
June 30, 2015, we issued an aggregate of 506,000 shares of our common stock to certain service providers; and such shares had an
aggregate fair value of $530,000 of which $221,000 was expensed in 2014. The shares were issued in reliance upon the exemption
from registration under Section 4(a)(2) of the Securities Act.
Item 3. Defaults upon Senior
Securities
There has been no default
in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any
indebtedness of our Company.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 |
|
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).* |
31.2 |
|
Certification by the Principal Accounting Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).* |
32.1 |
|
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
32.2 |
|
Certification by the Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
|
FIRST CHOICE HEALTHCARE SOLUTIONS, INC. |
|
|
|
Dated: August 14, 2015 |
By: |
/s/ Christian C. Romandetti |
|
|
Christian C. Romandetti |
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
Dated: August 14, 2015 |
By: |
/s/ Donald A. Bittar |
|
|
Donald A. Bittar |
|
|
Interim Chief Financial Officer (Principal Accounting Officer) |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Christian C. Romandetti, certify that:
1) |
I have reviewed this Quarterly Report on Form 10-Q of First Choice Healthcare Solutions, Inc. (the “registrant”); |
|
|
2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; |
|
|
3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report; |
|
|
4) |
The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
|
5) |
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
By: |
/s/ Christian c. romandetti |
|
|
|
Christian C. Romandetti |
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
August 14, 2015 |
|
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Donald Bittar, certify that:
1) |
I have reviewed this Quarterly Report on Form 10-Q of First Choice Healthcare Solutions, Inc. (the “registrant”); |
|
|
2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report; |
|
|
3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
|
5) |
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions): |
|
|
|
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
b) |
Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
By: |
/s/ DONALD BITTAR |
|
|
|
Donald Bittar |
|
|
|
Interim Chief Financial Officer |
|
|
|
|
|
|
|
August 14, 2015 |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q of First Choice Healthcare Solutions, Inc. (the “Company”), as filed with the U.S. Securities and Exchange
Commission on the date hereof (the “Report”), I, Christian C. Romandetti, the Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 14, 2015 |
By: |
/s/ CHRISTIAN C. ROMANDETTI |
|
|
|
Christian C. Romandetti |
|
|
|
Chief Executive Officer |
|
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q of First Choice Healthcare Solutions, Inc. (the “Company”), as filed with the U.S. Securities and Exchange
Commission on the date hereof (the “Report”), I, Donald Bittar, the Interim Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: August 14, 2015 |
By: |
/s/ DONALD BITTAR |
|
|
|
Donald Bittar |
|
|
|
Interim Chief Financial Officer |
|
First Choice Healthcare ... (PK) (USOTC:FCHS)
Historical Stock Chart
From Jul 2024 to Jul 2024
First Choice Healthcare ... (PK) (USOTC:FCHS)
Historical Stock Chart
From Jul 2023 to Jul 2024