NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 1— ORGANIZATION, BUSINESS AND PRINCIPLES OF CONSOLIDATION
A summary of the significant accounting policies
applied in the presentation of the accompanying consolidated financial statements follows:
Basis and business 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.
Brevard
Orthopaedic Spine & Pain Clinic, Inc.
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.
Crane
Creek Surgery Center
Effective
October 1, 2015, the Company, through its recently formed wholly owned subsidiary, CCSC Holdings, Inc., acquired
a 40% interest
in Crane Creek Surgery Center (“Crane Creek”) in exchange for an investment of $560,000 comprised of $140,000 cash
and a promissory note for $420,000 which bears 8% interest per annum, matures April 15, 2016 and is personally guaranteed by the
Company’s Chief Executive Officer. In connection with the investment, the Company is entitled 51% voting rights for all decisions
that most significantly affect the economic performance of Crane Creek. The 40% equity interest acquired entitles the Company to
40% of the profit or loss of Crank Creek.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
The acquisition of the 40% equity interest
along with the 51% voting rights acquired gives the Company the power to direct the activities of Crane Creek that most significantly
impact the Crane Creek’s economic performance, combined with the right to receive potentially significant benefits or the
obligation to absorb potentially significant losses, the Company has determined it is the primary beneficiary of Crane Creek and
consolidation is required as a VIE. 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.
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 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., First Choice – Brevard,
Surgical Partners of Melbourne, Inc. and CCSC Holdings, Inc., along with two VIE, The B.A.C.K. Center and Crane Creek. All significant
intercompany balances and transactions, including those involving the VIE, have been eliminated in consolidation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates include
the recoverability and useful lives of long-lived assets, the fair value of the Company’s stock, and stock-based compensation.
Actual results may differ from these estimates.
Revenue recognition
The Company recognizes revenue 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 CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 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 Holding had one real
estate holding, Marina Towers, a Class A 78,000 square foot, six-story building located on the Indian River in Melbourne, Florida.
The address is 709 South Harbor City Boulevard, Melbourne, Florida 32901. In addition to housing our corporate headquarters and
First Choice Medical Group, the building, which averages 95% annual occupancy, also leases commercial office space to tenants.
Our corporate headquarters currently utilizes 2,521 square feet on the fifth floor of Marina Towers; and First Choice Medical Group,
including its MRI center and Physical Therapy center, currently occupies 26,838 square feet on the ground, first and second floors.
Until March 2016, Marina Towers was owned by Marina Towers, LLC, a subsidiary owned by FCID Holdings (99%) and MTMC of Melbourne,
Inc. (1%), both wholly owned subsidiaries of the Company.
On March 31, 2016, we completed
the sale of Marina Towers to Global Medical REIT Inc. for a purchase price of $15.45 million. In addition, our wholly owned subsidiary,
Marina Towers, LLC, leased back the entire facility via a 10-year absolute triple-net master lease agreement that will expire in
2026 and be renewable for two five-year periods on the same terms and conditions as the primary lease term with the exception of
rent, which will be adjusted to the prevailing market rent at renewal and will escalate in successive years during the extended
lease period.
Until Marina Towers’
sale on March 31, 2016, the Company recognized 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
Cash consist of cash held in bank demand deposits. The
Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. As of
December 31, 2015, the Company had $1,594,998 cash, of which $1,556,303 held by VIE.
Concentrations of credit risk
The Company’s financial instruments
that are exposed to a concentration of credit risk are cash and accounts receivable. Occasionally, the Company’s cash and
cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions
is periodically reviewed by senior management.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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.
|
●
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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.
|
As of December 31, 2015 and 2014, the Company’s
provision for bad debts was $2,498,398 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 years ended December 31, 2015 and 2014 was $75,833 and $82,744 respectively.
Accumulated amortization of deferred financing costs was $266,950 and $231,369 at December 31, 2015 and 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 17 – 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
year ended December 31, 2015 and 2014 was $19,100 and $19,100, respectively. Accumulated amortization of patent costs was $38,200
and $19,100 at December 31, 2015 and 2014, respectively.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 expenses for the year ended December 31, 2015 and 2014 was $20,000 and $20,000, respectively. Accumulated amortization
of patient list costs was $75,000 and $55,000 at December 31, 2015 and 2014, respectively.
Long-lived assets
The Company follows FASB ASC 360-10-15-3,
“Impairment or Disposal of Long-lived Assets,” which established a “primary asset” approach to determine
the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived
asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable
if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
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
20 to 39 years.
The Company evaluates the recoverability of
long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of
intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition
of the asset. ASC 360-10 also requires assets to be disposed of is reported at the lower of the carrying amount or the fair value
less costs to sell.
At December 31, 2015, the Company management
performed an evaluation of its goodwill and other acquired intangible assets for purposes of determining the implied fair value
of the assets at December 31, 2015. The test indicated that the recorded remaining book value of its goodwill in connection with
the consolidation of Crane Creek did not exceed its fair value for the year ended December 31, 2015. Considerable management judgment
is necessary to estimate the fair value. Accordingly, actual results could vary significantly from management’s estimates.
Net
loss per share
The Company computes basic net loss per share
by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for
the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include
the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the
“treasury stock” and/or “if converted” methods as applicable. The computation of basic and diluted loss
per share for the year ended December 31, 2015 and 2014 excludes potentially dilutive securities when their inclusion would be
anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.
Potentially
dilutive securities excluded from the computation of basic and diluted net income (loss) per share are as follows:
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
|
|
2015
|
|
2014
|
Convertible notes and line of credit
|
|
|
2,566,888
|
|
|
|
3,385,835
|
|
Warrants to purchase common stock
|
|
|
4,324,630
|
|
|
|
4,195,000
|
|
Options to purchase common stock
|
|
|
3,000,000
|
|
|
|
—
|
|
Totals
|
|
|
9,891,518
|
|
|
|
7,580,835
|
|
Stock-based compensation
The Company measures the cost of services received
in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value
of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting
dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over
the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based
compensation expense is recorded by the Company in the same expense classifications in the consolidated statements of operations,
as if such amounts were paid in cash.
Income taxes
The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements
or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets
and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in
effect for the years in which the temporary differences are expected to reverse.
The Company adopted the provisions of Accounting
Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that
there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as
of December 31, 2015 and 2014. The Company does not expect any significant changes in its unrecognized tax benefits within twelve
months of the reporting date.
The Company’s policy is to classify assessments,
if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements
of operations.
Deferred costs
On May 1, 2015, in connection with the operating
and control agreement with Brevard Orthopaedic Spine & Pain Clinic, Inc., the Company reserved 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 year ended December 31, 2015 was $215,096. Accumulated amortization of the deferred costs was $215,096 at December 31,
2015.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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.
Fair value
Accounting Standards Codification subtopic
825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments.
ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it
would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes
three levels of inputs that may be used to measure fair value:
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●
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Level 1 - Quoted prices in active markets for identical assets or liabilities.
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●
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Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived
valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market
data for substantially the full term of the assets or liabilities.
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|
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●
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Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement
of fair value of assets or liabilities.
|
To the extent that valuation is based on models
or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on
the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s cash,
accounts receivable, accounts payable, short-term borrowings (including lines of credit and notes payable), and other current assets
and liabilities approximate fair value because of their short-term maturity.
As of December 31, 2015 and 2014, the Company
did not have any items that would be classified as level 1, 2 or 3 disclosures.
Recent accounting pronouncements
In November 2015, the FASB issued (ASU) 2015-17,
Balance Sheet Classification of Deferred Taxes.
Currently deferred taxes for each tax jurisdiction are presented as a net
current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance
requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified
as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods
beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter
of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact
on the Company’s financial position, results of operations or cash flows, and did not have any effect on prior periods due
to the full valuation allowance against the Company’s net deferred tax assets.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
In January 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification
and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments,
financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting
from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods
beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment
to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted
except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific
credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.
The FASB issued ASU 2016-02, Leases (Topic
842). ASU 2016-01 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should
recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset
representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is
permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented
using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity).
Early application is permitted for all public business entities and all nonpublic business entities upon issuance. The Company
has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results
of operations.
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.
Subsequent events
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial
statements, except as disclosed.
NOTE 3 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY
PLANS
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 in 2015 will support improved liquidity. In 2015, the Company
converted to equity a total of $2,892,314 in outstanding debt, advances and accrued interest. 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
TBC Holdings of Melbourne, 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 $1,500,000. 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. On
June 9, 2015, First Choice – Brevard entered into a modification agreement amending the loan and security agreement, increasing
the maximum aggregate amount available from $1,500,000 to $2,000,000 and on December 14, 2015, increasing the maximum aggregate
available from $2,000,000 to $2,500,000 and extending the maturity date to July 30, 2017 in exchange for 100,000 restricted shares
of the Company’s common stock. All other terms and conditions of the loan agreement remain in full force and effect. As of
December 31, 2015, the Company has used $2,150,000 of the amount available under the line of credit. (See Note 7 – Lines
of Credit)
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
FCID Holding had one real
estate holding, Marina Towers, a Class A 78,000 square foot, six-story building located on the Indian River in Melbourne, Florida.
The address is 709 South Harbor City Boulevard, Melbourne, Florida 32901. In addition to housing our corporate headquarters and
First Choice Medical Group, the building, which averages 95% annual occupancy, also leases commercial office space to tenants.
Our corporate headquarters currently utilizes 2,521 square feet on the fifth floor of Marina Towers; and First Choice Medical Group,
including its MRI center and Physical Therapy center, currently occupies 26,838 square feet on the ground, first and second floors.
Until March 2016, Marina Towers was owned by Marina Towers, LLC, a subsidiary owned by FCID Holdings (99%) and MTMC of Melbourne,
Inc. (1%), both wholly owned subsidiaries of the Company.
On March 31, 2016, we completed
the sale of Marina Towers to Global Medical REIT Inc. for a purchase price of $15.45 million. In addition, our wholly owned subsidiary,
Marina Towers, LLC, leased back the entire facility via a 10-year absolute triple-net master lease agreement that will expire in
2026 and be renewable for two five-year periods on the same terms and conditions as the primary lease term with the exception of
rent, which will be adjusted to the prevailing market rent at renewal and will escalate in successive years during the extended
lease period. Until Marina Towers’ sale on March 31, 2016, the Company recognized 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.
The Company
believes that the current positive cash balance, along with continued execution of its business development plan and the sale and
leaseback of Marina Towers, 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 4 — 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 December 31, 2015 the Company had $359,414 in restricted cash as compared to $318,259 at December 31, 2014.
NOTE 5 — PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at December 31, 2015 and 2014 are
as follows:
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
|
|
2015
|
|
2014
|
Land
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Building
|
|
|
3,055,168
|
|
|
|
3,055,168
|
|
Building improvements
|
|
|
4,211,749
|
|
|
|
3,970,603
|
|
Automobiles
|
|
|
—
|
|
|
|
29,849
|
|
Computer equipment
|
|
|
340,065
|
|
|
|
327,847
|
|
Medical equipment
|
|
|
2,822,027
|
|
|
|
2,253,219
|
|
Office equipment
|
|
|
260,141
|
|
|
|
129,723
|
|
|
|
|
11,689,150
|
|
|
|
10,766,409
|
|
Less: accumulated depreciation
|
|
|
(3,075,648
|
)
|
|
|
(2,472,111
|
)
|
|
|
$
|
8,613,502
|
|
|
$
|
8,294,298
|
|
During
the year ended December 31, 2015 and 2014, depreciation expense charged to operations was $598,789 and $512,984, respectively.
NOTE 6 — ADVANCES
At December 31, 2015 and 2014, the Company
received an aggregate of $43,082 and $224,000, respectively, as cash advances from non-related parties. The advances are due upon
demand with an interest rate of 12% per annum.
NOTE 7 — LINES 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 up until December 31,2016, 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.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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.
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.
On December 14, 2015, First Choice-Brevard
entered into a Modification Agreement (“Modification”) amending the Loan and Security Agreement dated June 13, 2013.
The Modification Agreement increased the Company’s accounts receivable line of credit from $2,000,000 to $2,500,000 and extended
the maturity date of the Loan Agreement to June 30, 2017 (“Maturity Date”). In addition, the Company agreed to maintain
an outstanding balance of not less than $1,000,000 until the Maturity Date (“Minimum Borrowing”) and provide sixty
(60) days prior written notice to prepay up to $1,000,000 of the outstanding indebtedness in excess of the Minimum Borrowing. All
of the other terms and conditions of the Loan Agreement remain in full force and effect.
In consideration
of the $500,000 increase in the accounts receivable line of credit, the Company agreed to issue to the Lender 100,000 shares of
its common stock, valued at $92,000. The $500,000 increase may be repaid by the Company at any time, and is not subject to the
conversion provisions set forth in the Loan Agreement.
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
December 31, 2015 and 2014, the outstanding balance was $2,150,000 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.
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 December 31, 2015, The B.A.C.K. Center had not violated the loan covenants.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 December 31, 2015, the outstanding balance on the Loan was $416,888.
NOTE 8 — SETTLEMENT PAYABLE
On November 2, 2015, the Company and MedTRX
Collection Services, Inc. signed a settlement and mutual release agreement, whereby the parties have agreed to settle all disputes
and the pending arbitration actions and release each other from all claims, counterclaims, liabilities and obligations, except
for obligations stipulated in the settlement or as otherwise reserved.
The settlement terms provided for the Company
to pay MedTRX cash consideration of $500,000 upon signing of the settlement agreement, $650,000 cash paid over time in accordance
with the terms and conditions of two non-interest bearing promissory notes – one for $550,000 and one for $100,000 –
and 400,000 shares of the Company’s Common Stock.
In connection with the settlement, on November
6, 2015, the Company issued 400,000 shares of its Common Stock, valued at $1.15 per share, and two non-interest bearing promissory
notes in aggregate of $650,000, due the earlier of a) April 2, 2016, b) the date real estate (as identified) is sold, financed
or transferred or c) date the stock payment (as described above) is redeemed. As of December 31, 2015, the balance due on outstanding
settlement promissory notes was $600,000. However, we paid the notes in full on April 1, 2016.
The Company charged an aggregate of $2,017,208
as litigation settlement expenses for the year ended December 31, 2015 inclusive of legal fees incurred.
Colin
Halpern, a former member of our Board of Directors, is the Managing Member of MedTRX Provider Network, LLC, which is an affiliate
of MedTRX. He received 35,000 shares of Common Stock as part of the settlement.
NOTE 9 — NOTE PAYABLE, RELATED PARTY
On November 2, 2015, the Company acquired a
40% interest in Crane Creek Surgery Center (“Crane Creek”) in exchange for an investment of $560,000 comprised of $140,000
cash and a promissory note for $420,000 which bears 8% interest per annum, matures April 15, 2016 and is personally guaranteed
by the Company’s Chief Executive Officer. The promissory note was issued to certain equity owners of
The
B.A.C.K. Center, an entity consolidated with the Company under VIE accounting. The outstanding principal and interest for the 12
months ended December 31, 2015 totaled $428,645.
NOTE 10 - CONVERTIBLE NOTES PAYABLE
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.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 $0.50 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.
In July 2015 and August 2015, the Company
issued an aggregate of 1,425,707 shares of common stock in full settlement of the outstanding convertible note payable and related
accrued interest in the aggregate amount of $1,425,707.
NOTE 11— NOTES PAYABLE
Notes payable as of December 31, 2015 and 2014 are comprised of
the following:
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
|
|
2015
|
|
2014
|
Mortgage Payable
|
|
$
|
7,153,262
|
|
|
$
|
7,256,416
|
|
Note Payable, GE Capital (construction), MRI
|
|
|
—
|
|
|
|
121,204
|
|
Note Payable, GE Capital (construction), 2
|
|
|
—
|
|
|
|
44,911
|
|
Note Payable, GE Capital (MRI)
|
|
|
844,098
|
|
|
|
1,218,625
|
|
Note Payable, GE Capital (X-ray)
|
|
|
97,232
|
|
|
|
142,349
|
|
Note Payable, GE Arm
|
|
|
67,455
|
|
|
|
91,925
|
|
Note Payable, Auto
|
|
|
—
|
|
|
|
16,383
|
|
Capital Lease Equipment
|
|
|
26,716
|
|
|
|
25,538
|
|
|
|
|
8,188,763
|
|
|
|
8,917,351
|
|
Less current portion
|
|
|
(7,652,941
|
)
|
|
|
(732,791
|
)
|
|
|
$
|
535,822
|
|
|
$
|
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.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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.
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 note was fully paid as of December 31, 2015.
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. The note was fully paid as
of December 31, 2015.
Note payable — SRS Software, LLC
On July 31, 2015, the Company entered into
a Settlement and Release Agreement (“Agreement”) in regard to litigation filed against the Company for breach of an
exclusive billing and collection agreement. In connection with the Agreement, the Company issued a promissory note for $70,000
with monthly payments of $10,000 and remaining unpaid balance and accrued interest due December 31, 2015 at 8% per annum. The note
was fully paid as of December 31, 2015.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 December
31, 2015
:
|
|
Amount
|
Year ended December 31, 2016
|
|
|
$
|
7,652,941
|
|
Year ended December 31, 2017
|
|
|
|
519,226
|
|
Year ended December 31, 2018
|
|
|
|
16,596
|
|
Total
|
|
|
$
|
8,188,763
|
|
NOTE 12 — RELATED PARTY TRANSACTIONS
The Company’s President and shareholders
have advanced funds to the Company for working capital purposes since the Company’s inception. No formal repayment terms
or arrangements exist and the Company is not accruing interest on these advances. As of December 31, 2015 and 2014, all advances
had been repaid.
On November 2, 2015, the Company acquired a
40% interest in Crane Creek Surgery CenterCreek”) in exchange for an investment of $560,000 comprised of $140,000 cash and
a promissory note for $420,000 which bears 8% interest per annum, matures April 15, 2016 and is personally guaranteed by the Company’s
Chief Executive Officer. The promissory note was issued to certain equity owners of
The B.A.C.K.
Center, an entity consolidated with the Company under VIE accounting.
NOTE 13 — CAPITAL STOCK
Preferred stock
The Company is authorized to issue 1,000,000
shares $0.01 par value preferred stock. As of December 31, 2015 and 2014, none was issued and outstanding.
Common stock
The Company is authorized to issue 100,000,000
shares of $0.001 par value common stock. As of December 31, 2015 and 2014, and 22,867,626 and 17,951,055 shares were issued and
outstanding, respectively.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
During the year ended December 31, 2014, the
Company issued an aggregate of 200,000 shares of its common stock in conversion of principal due on the line of credit of $150,000.
During the year ended December 31, 2014, the
Company issued 336,557 shares of its common stock in the conversion of convertible notes payable, and accrued interest of $336,557.
During the year ended December 31, 2014, the
Company issued 200,000 shares of its common stock to various consultants and employees for 2013 services rendered, valued at $166,340
and expensed in 2013.
During the year ended December 31, 2014, the
Company issued an aggregate of 100,000 shares of its common stock for various consulting services rendered at an aggregate fair
value of $124,750.
During the year ended December 31, 2014, the
Company issued 100,000 shares of common stock for future services of $98,000 of which the Company expensed $85,750 in 2014 and
will expense $12,250 in 2015. The Company recorded the fair value as prepaid expenses and amortizes the fair value of the shares
issued as stock based compensation during the requisite service period to operations. During the year ended December 31, 2014,
the Company recorded $98,000 as stock-based compensation.
During
the year ended December 31, 2014, the Company issued 30,000 shares of common stock for the settlement of financing costs associated
with the Hillair 8% Debenture and included as part of the loan acquisition cost expensed in the year ended December 31, 2013.
During the year ended December 31, 2014, the
Company issued an aggregate of 237,250 shares of its common stock in employee incentives and board compensation at an aggregate
fair value of $237,250. The shares issued to employees were discretionary stock incentives to reward and retain key employees and
not issued as part of the 2011 Incentive Stock Plan.
During the year ended December 31, 2015, the
Company issued an aggregate of 200,000 shares of its common stock in connection with a loan extension, valued at $227,000.
(see Note 10 – Convertible Notes Payable).
During the year ended December 31, 2015, the
Company issued an aggregate of 2,236,907 shares of its common stock in exchange for conversion of notes payable of $2,120,000 and
$116,907 accrued interest. During the year ended December 31, 2015, the Company issued an aggregate of 485,486 shares of its common
stock in exchange for previous advances of $615,500 and $39,907 accrued interest.
During the year ended December 31, 2015, the
Company issued an aggregate of 1,559,178 shares of its common stock to officers, employees and service providers at an aggregate
fair value of $1,683,776, of which $221,000 was expensed in 2014.
During the year ended December 31, 2015, the
Company issued 400,000 shares of its common stock as part of a settlement agreement (See Note 8-Settlement Payable) at a fair value
of $460,000.
During the year ended December 31, 2015, the
Company issued 35,000 shares of its common stock as payment of services of a previous board of director member at a fair value
of $40,250.
During the year ended December 31, 2015, the
Company issued 485,486 shares of its common stock in settlement of previous related party advances and accrued interest of $655,407.
During the year ended December 31, 2015,
the Company sold 129,630 shares of common stock to an investor for an aggregate purchase price of $175,000. The investor also
received a five-year warrant to purchase 129,630 shares of the Company’s common stock at an exercise price of $1.35
per share.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Stock-based payable
The Company
is obligated to issue an aggregate of 1,217,071 shares of its common stock to officers and consultants for past and future services.
The estimated liability as of December 31, 2015 of $1,198,900 ($0.85 per share) was determined based on services rendered in 2015.
The shares were issued in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act.
NOTE 14 — 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 December 31, 2015:
Warrants Outstanding
|
|
|
|
|
|
Warrants Exercisable
|
Price
|
|
Outstanding
|
|
Expiration Date
|
|
Weighted
Price
|
|
Exercisable
|
|
Weighted
Price
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.35
|
|
|
|
2,449,630
|
|
|
November 2018 ~ November 2020
|
|
$
|
1.35
|
|
|
|
2,449,630
|
|
|
$
|
1.35
|
|
$
|
3.60
|
|
|
|
1,875,000
|
|
|
December 31, 2016
|
|
$
|
3.60
|
|
|
|
1,875,000
|
|
|
$
|
3.60
|
|
|
|
|
|
|
4,324,630
|
|
|
|
|
$
|
2.32
|
|
|
|
4,324,630
|
|
|
$
|
2.32
|
|
On November 2, 2015, the Company issued 129,630
warrants to purchase the Company’s common stock at $1.35 per share for five years in connection with the sale of the Company’s
common stock.
The warrants
to purchase up to 2,449,630 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.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Transactions involving stock warrants issued
are summarized as follows:
|
|
Number of
Shares
|
|
Weighted
Average Price
Per Share
|
Outstanding at December 31, 2013:
|
|
|
|
4,195,000
|
|
|
$
|
2.36
|
|
Issued
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2014:
|
|
|
|
4,195,000
|
|
|
|
2.36
|
|
Issued
|
|
|
|
129,630
|
|
|
|
1.35
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2015
|
|
|
|
4,324,630
|
|
|
$
|
2.32
|
|
Options
The following table presents information related to stock options
at December 31, 2015:
Options Outstanding
|
|
|
Exercise
Price
|
|
Number of
Options
|
|
Weighted Average
Remaining Life in Years
|
|
Exercisable Number of Options
|
$
|
1.35
|
|
|
|
3,000,000
|
|
|
8.00
|
|
|
|
—
|
|
On May 1, 2015, in connection with the Operating
and Control Agreement with Brevard Orthopaedic Spine & Pain Clinic, Inc. (The B.A.C.K. Center), 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 CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Transactions involving stock options issued
are summarized as follows:
|
|
Number of
Shares
|
|
Weighted
Average Price
Per Share
|
Outstanding at December 31, 2013:
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2014:
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
|
3,000,000
|
|
|
|
1.35
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at December 31, 2015
|
|
|
|
3,000,000
|
|
|
$
|
1.35
|
|
NOTE 15 — VARIABLE INTEREST ENTITY
Brevard Orthopaedic Spine & Pain Clinic,
Inc.
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.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 assets of The B.A.C.K. Center can only be used to settle obligations of
the VIE, additionally, creditors of The B.A.C.K. Center do not have recourse against the general credit of the primary beneficiary.
The table below summarizes the assets and liabilities
associated with The B.A.C.K. Center at acquisition date of May 1, 2015 and as of December 31, 2015:
|
|
May 1,
2015
|
|
December 31,
2015
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
679,673
|
|
|
$
|
996,986
|
|
Accounts receivable
|
|
|
2,179,690
|
|
|
|
3,727,419
|
|
Other current assets
|
|
|
786,210
|
|
|
|
819,757
|
|
Total current assets
|
|
|
3,645,573
|
|
|
|
5,544,162
|
|
Property and equipment, net
|
|
|
34,685
|
|
|
|
60,978
|
|
Other assets
|
|
|
26,978
|
|
|
|
18,231
|
|
Total assets
|
|
$
|
3,707,236
|
|
|
$
|
5,623,371
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
962,819
|
|
|
$
|
1,877,690
|
|
Due to First Choice Healthcare Solutions, Inc.
|
|
|
—
|
|
|
|
1,729,882
|
|
Other current liabilities
|
|
|
882,326
|
|
|
|
427,229
|
|
Total current liabilities
|
|
|
1,845,145
|
|
|
|
4,034,801
|
|
Long term debt
|
|
|
2,000,777
|
|
|
|
1,727,256
|
|
Total liabilities
|
|
|
3,845,922
|
|
|
|
5,762,057
|
|
Non-controlling interest
|
|
|
(138,686
|
)
|
|
|
(138,686
|
)
|
Total liabilities and deficit
|
|
$
|
3,707,236
|
|
|
$
|
5,623,371
|
|
Total revenues from The B.A.C.K. Center were
$10,392,691 from May 1, 2015 through December 31, 2015. Related expenses consisted primarily of salaries and benefits of $3,928,244,
general and administrative expenses of $3,928,244, depreciation of $18,404 and interest and financing costs of $28,525. (See Note
17 – Segment Reporting)
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Below is selected pro forma financial data
based on acquisition of The B.A.C.K. Center occurring January 1, 2015 (unaudited):
Total Revenue:
|
|
$
|
22,281,407
|
|
Net loss
|
|
|
3,346,754
|
|
Loss per common share, basic and diluted
|
|
$
|
(0.17
|
)
|
Crane
Creek Surgery Center
Effective
October 1, 2015, the Company, through its recently formed wholly owned subsidiary, CCSC Holdings, Inc., acquired
a 40% interest
in Crane Creek Surgery Center (“Crane Creek”) in exchange for an investment of $560,000 comprised of $140,000 cash
and a promissory note for $420,000 which bears 8% interest per annum, matures April 15, 2016 and is personally guaranteed by the
Company’s Chief Executive Officer. In connection with the investment, the Company is entitled 51% voting rights for all decisions
that most significantly affect the economic performance of Crane Creek. The 40% equity interest acquired entitles the Company to
40% of the profit or loss of Crank Creek.
The Company has determined that Crane Creek
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 assets of Crane Creek can only be used
to settle obligations of the VIE, additionally, creditors of the Crane Creek do not have recourse against the general credit of
the primary beneficiary.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
The table below summarizes the assets and
liabilities associated with the Crane Creek at acquisition date of effective October 1, 2015 and as of December 31, 2015:
|
|
October 1,
2015
|
|
December 31,
2015
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
164,323
|
|
|
$
|
559,318
|
|
Accounts receivable
|
|
|
706,957
|
|
|
|
816,889
|
|
Total current assets
|
|
|
871,280
|
|
|
|
1,376,207
|
|
Property and equipment, net
|
|
|
690,132
|
|
|
|
712,830
|
|
Goodwill
|
|
|
899,465
|
|
|
|
899,465
|
|
Total assets
|
|
$
|
2,460,877
|
|
|
$
|
2,988,502
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
675,125
|
|
|
$
|
441,368
|
|
Other current liabilities
|
|
|
251,588
|
|
|
|
251,588
|
|
Total current liabilities
|
|
|
926,713
|
|
|
|
692,956
|
|
Deferred rent
|
|
|
554,164
|
|
|
|
532,752
|
|
Total liabilities
|
|
|
1,480,877
|
|
|
|
1,225,708
|
|
|
|
|
|
|
|
|
|
|
Equity-First Choice Healthcare Solutions, Inc
|
|
|
140,000
|
|
|
|
705,118
|
|
Non-controlling interest
|
|
|
840,000
|
|
|
|
1,057,676
|
|
Total liabilities and deficit
|
|
$
|
2,460,877
|
|
|
$
|
2,988,502
|
|
Total revenues from the Crane Creek were $1,124,798
from October 1, 2015 through December 31, 2015. Related expenses consisted primarily of salaries and benefits of $311,450, practice
supplies and operating of $287,349, general and administrative expenses of $111,009, depreciation of $55,749 and miscellaneous
income of $3,554. (See Note 17 – Segment Reporting)
Below is selected pro forma financial data
based on acquisition of the Crane Center occurring January 1, 2015 (unaudited):
Total Revenue:
|
|
$
|
22,210,701
|
|
Net loss
|
|
|
3,467,220
|
|
Loss per common share, basic and diluted
|
|
$
|
(0.17
|
)
|
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 16 — NON-CONTROLLING INTEREST
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.
A reconciliation of the non-controlling income
attributable to the Company:
Net loss attributable to non-controlling interest
for the period ended December 31, 2015:
Net loss
|
|
$
|
1,951,294
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
Net loss attributable to the non-controlling interest
|
|
$
|
-0-
|
|
|
|
|
|
|
The following table summarizes the changes in non-controlling interest from May 1, 2015 to December 31, 2015:
|
|
Balance, May 1, 2015
|
|
$
|
(138,686
|
)
|
Transfer (to) from the non-controlling interest as a result of change in ownership
|
|
|
—
|
|
Net income attributable to the non-controlling interest
|
|
|
—
|
|
Balance, December 31, 2015
|
|
$
|
(138,686
|
)
|
Effective
October 1, 2015, the Company, through its recently formed wholly owned subsidiary, CCSC Holdings, Inc., acquired
a 40% interest
in Crane Creek Surgery Center (“Crane Creek”) in exchange for an investment of $560,000 comprised of $140,000 cash
and a promissory note for $420,000 which bears 8% interest per annum, matures April 15, 2016 and is personally guaranteed by the
Company’s Chief Executive Officer. In connection with the investment, the Company is entitled 51% voting rights for all decisions
that most significantly affect the economic performance of Crane Creek. The 40% equity interest acquired entitles the Company to
40% of the profit or loss of Crank Creek.
A reconciliation of the non-controlling income
attributable to the Company:
Net loss attributable to non-controlling interest
for the period ended December 31, 2015:
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Net loss
|
|
$
|
362,794
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
60
|
%
|
Net loss attributable to the non-controlling interest
|
|
$
|
217,676
|
|
|
|
|
|
|
The following table summarizes the changes in non-controlling interest from October 1, 2015 to December 31, 2015:
|
|
Balance, October 1, 2015
|
|
$
|
840,000
|
|
Transfer (to) from the non-controlling interest as a result of change in ownership
|
|
|
—
|
|
Net income attributable to the non-controlling interest
|
|
|
217,676
|
|
Balance, December 31, 2015
|
|
$
|
1,057,676
|
|
NOTE 17 — 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 and the Crane Center segments 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 year
ended December 31, 2015:
|
|
Marina
|
|
FCID
|
|
Brevard
|
|
The Crane
|
|
|
|
Intercompany
|
|
|
|
|
Towers
|
|
Medical
|
|
Orthopaedic
|
|
Center
|
|
Corporate
|
|
Eliminations
|
|
Total
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
—
|
|
|
$
|
7,537,761
|
|
|
$
|
9,108,139
|
|
|
$
|
1,124,797
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,770,697
|
|
Rental revenue
|
|
|
1,558,083
|
|
|
|
—
|
|
|
|
681,227
|
|
|
|
|
|
|
|
—
|
|
|
|
(492,343
|
)
|
|
|
1,746,967
|
|
Total Revenue
|
|
|
1,558,083
|
|
|
|
7,537,761
|
|
|
|
9,789,366
|
|
|
|
1,124,797
|
|
|
|
—
|
|
|
|
(492,343
|
)
|
|
|
19,517,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
12,000
|
|
|
|
3,421,210
|
|
|
|
4,084,312
|
|
|
|
311,450
|
|
|
|
1,508,768
|
|
|
|
—
|
|
|
|
9,337,740
|
|
Other operating expenses
|
|
|
443,367
|
|
|
|
1,861,195
|
|
|
|
—
|
|
|
|
287,349
|
|
|
|
—
|
|
|
|
(492,343
|
)
|
|
|
2,099,568
|
|
General and administrative
|
|
|
112,920
|
|
|
|
1,246,383
|
|
|
|
3,738,436
|
|
|
|
111,009
|
|
|
|
1,935,790
|
|
|
|
—
|
|
|
|
7,144,538
|
|
Litigation settlement
|
|
|
—
|
|
|
|
401,958
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,615,250
|
|
|
|
—
|
|
|
|
2,017,208
|
|
Depreciation and amortization
|
|
|
278,611
|
|
|
|
266,025
|
|
|
|
18,404
|
|
|
|
55,749
|
|
|
|
234,196
|
|
|
|
—
|
|
|
|
852,985
|
|
Total operating expenses
|
|
|
846,898
|
|
|
|
7,196,771
|
|
|
|
7,841,152
|
|
|
|
765,557
|
|
|
|
5,294,004
|
|
|
|
(492,343
|
)
|
|
|
21,452,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
711,185
|
|
|
|
340,990
|
|
|
|
1,948,214
|
|
|
|
359,240
|
|
|
|
(5,294,004
|
)
|
|
|
—
|
|
|
|
(1,934,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(442,505
|
)
|
|
|
(243,531
|
)
|
|
|
(20,621
|
)
|
|
|
(10,545
|
)
|
|
|
(503,778
|
)
|
|
|
—
|
|
|
|
(1,220,980
|
)
|
Amortization of financing costs
|
|
|
(57,348
|
)
|
|
|
(10,582
|
)
|
|
|
(7,903
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(75,833
|
)
|
Other income (expense)
|
|
|
23,469
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,554
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) before income taxes:
|
|
|
234,801
|
|
|
|
86,877
|
|
|
|
1,919,690
|
|
|
|
352,249
|
|
|
|
(5,797,782
|
)
|
|
|
—
|
|
|
|
(3,204,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
234,801
|
|
|
|
86,877
|
|
|
|
1,919,690
|
|
|
|
352,249
|
|
|
|
(5,797,782
|
)
|
|
|
—
|
|
|
|
(3,204,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(217,676
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(217,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
234,801
|
|
|
$
|
86,877
|
|
|
$
|
1,919,690
|
|
|
$
|
134,573
|
|
|
$
|
(5,797,782
|
)
|
|
$
|
—
|
|
|
$
|
(3,421,841
|
)
|
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Summary Statement of Operations for the year
ended December 31, 2014:
|
|
Marina
Towers
|
|
FCID
Medical
|
|
Corporate
|
|
Intercompany
Eliminations
|
|
Total
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net patient service revenue
|
|
$
|
—
|
|
|
$
|
7,053,603
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,053,603
|
|
Rental revenue
|
|
|
1,483,948
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(434,949
|
)
|
|
|
1,048,999
|
|
Total Revenue
|
|
|
1,483,948
|
|
|
|
7,053,603
|
|
|
|
—
|
|
|
|
(434,949
|
)
|
|
|
8,102,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,000
|
|
|
|
3,733,140
|
|
|
|
1,016,433
|
|
|
|
—
|
|
|
|
4,761,573
|
|
Other operating expenses
|
|
|
430,041
|
|
|
|
1,902,688
|
|
|
|
—
|
|
|
|
(434,949
|
)
|
|
|
1,897,780
|
|
General and administrative
|
|
|
89,359
|
|
|
|
1,168,826
|
|
|
|
1,176,074
|
|
|
|
—
|
|
|
|
2,434,259
|
|
Depreciation and amortization
|
|
|
276,666
|
|
|
|
256,318
|
|
|
|
19,100
|
|
|
|
—
|
|
|
|
552,084
|
|
Total operating expenses
|
|
|
808,066
|
|
|
|
7,060,972
|
|
|
|
2,211,607
|
|
|
|
(434,949
|
)
|
|
|
9,645,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
675,882
|
|
|
|
(7,369
|
)
|
|
|
(2,211,607
|
)
|
|
|
—
|
|
|
|
(1,543,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(451,962
|
)
|
|
|
(225,427
|
)
|
|
|
(189,312
|
)
|
|
|
—
|
|
|
|
(866,701
|
)
|
Amortization of financing costs
|
|
|
(57,348
|
)
|
|
|
(25,396
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,744
|
)
|
Other income (expense)
|
|
|
3,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss):
|
|
|
169,572
|
|
|
|
(258,192
|
)
|
|
|
(2,400,919
|
)
|
|
|
—
|
|
|
|
(2,489,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
169,572
|
|
|
$
|
(258,192
|
)
|
|
$
|
(2,400,919
|
)
|
|
$
|
—
|
|
|
$
|
(2,489,539
|
)
|
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
Selected financial data:
|
|
Marina
|
|
FCID
|
|
Brevard
|
|
The Crane
|
|
|
|
Intercompany
|
|
|
|
|
Towers
|
|
Medical
|
|
Orthopaedic
|
|
Center
|
|
Corporate
|
|
Eliminations
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2015:
|
|
$
|
6,309,955
|
|
|
$
|
4,391,192
|
|
|
$
|
5,623,370
|
|
|
$
|
3,013,011
|
|
|
$
|
3,286,460
|
|
|
$
|
—
|
|
|
$
|
22,623,988
|
|
At December 31, 2014:
|
|
$
|
6,726,759
|
|
|
$
|
4,407,749
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
336,184
|
|
|
$
|
—
|
|
|
$
|
11,470,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
$
|
59,345
|
|
|
$
|
23,837
|
|
|
$
|
44,696
|
|
|
$
|
78,447
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
206,325
|
|
Year ended December 31, 2014
|
|
$
|
16,758
|
|
|
$
|
128,467
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
145,225
|
|
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Service contracts
The Company carries various service contracts
on its office building for repairs, maintenance and inspections. Certain contracts are long term and non-cancellable. After 2015,
we no longer have these obligations. All contracts are now on a month-to-month basis.
Employment agreement with Christian Romandetti,
CEO
The Company entered a formal five-year employment
agreement (the “Employment Agreement”) with Christian “Chris” Romandetti, dated March 20, 2014 and effective
January 1, 2014, to serve as the Company’s President and Chief Executive Officer. Pursuant to the terms and conditions set
forth in the Employment Agreement, Mr. Romandetti is entitled to receive an annual base salary of $250,000, which shall increase
no less than 5% per annum for the term of the Employment Agreement.
Mr. Romandetti, upon successfully achieving
annual revenue milestones, is entitled to receive a bonus equal to 10% of his salary when $7.1 million in total annual revenue
is reported in a fiscal year scaling up to a bonus equal to 800% of his salary if and when $100 million in total annual revenue
is reported in a fiscal year. If the Company is unable to pay any portion of the bonus compensation when due because of insufficient
liquidity or applicable restrictions under prevailing debt financing agreements, then, as an accommodation to the Company, Mr.
Romandetti shall be able to convert bonus compensation into shares of the Company’s common stock at a 30% discount to the
average closing price during the first calendar month after the end of the fiscal year. Mr. Romandetti will also be entitled to
receive a strategic bonus of $100,000, payable in cash, on the sixth month anniversary of opening each new center of excellence.
Pursuant to the Company achieving specific
financial performance benchmarks established by the Board of Directors, Mr. Romandetti will also be entitled to receive a cashless
option to purchase up to one million shares of common stock per year. The exercise price of the options will be the fair market
value of the average closing price of the stock during the first calendar month after the end of the fiscal year. Mr. Romandetti
shall have up to five years from the date of the annual option grant to exercise the option. In addition to the above compensation
consideration, Mr. Romandetti will be entitled to receive annual restricted stock compensation equal to 100% of the total base
salary and bonus compensation. The fair market value of the restricted stock grant shall be determined using the average closing
price of the common stock during the first calendar month after the end of the fiscal year.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
In addition, Mr. Romandetti’s Employment
Agreement provides that, upon Mr. Romandetti’s death, disability, termination for any reason other than “Cause”
(as such term is defined in the Employment Agreement) or resignation for “Good Reason” (as such term is defined in
the Employment Agreement), the Company will pay to Mr. Romandetti 12 months of his annual base salary at the time of separation
in accordance with the Corporation’s usual payroll practices.
Based on achieving key performance objectives
in 2015, Mr. Romandetti was entitled to receive total bonus compensation of $625,000, 787,500 shares of Common Stock and an option
to purchase 535,000 shares of Common Stock at $1.00 per share. Mr. Romandetti elected to relinquish 519,643 shares and the options
to purchase 535,000 shares.
Litigation
MedTRX
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.
On November 2, 2015, the Company and MedTRX
signed a settlement and mutual release agreement, whereby the parties have agreed to settle all disputes and the pending arbitration
actions and release each other from all claims, counterclaims, liabilities and obligations, except for obligations stipulated in
the settlement or as otherwise reserved. The settlement terms provided for First Choice to pay MedTRX cash consideration of $500,000
upon signing of the settlement agreement, $650,000 cash paid over time in accordance with the terms and conditions of two non-interest
bearing promissory notes – one for $550,000 and one for $100,000 – and 400,000 restricted shares of the Company’s
common stock. First Choice paid the notes in full on April 1, 2016. (See Note 8 – Settlement Payable)
Litigation – Health First Management
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.
Operating leases
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
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 December 31, 2015, lease expense amounted to $2,360,986.
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:
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
|
|
|
|
|
$
|
13,827,174
|
|
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 19 — LOSS PER SHARE
The following table presents the computation of basic and diluted
loss per share:
|
|
2015
|
|
2014
|
Net loss available for common shareholders
|
|
$
|
(3,421,841
|
)
|
|
$
|
(2,489,539
|
)
|
Basic net loss per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.14
|
)
|
Weighted average common shares outstanding-basic
|
|
|
20,117,582
|
|
|
|
17,249,921
|
|
Diluted net loss share
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
Weighted average common shares outstanding-Diluted
|
|
|
20,117,582
|
|
|
|
17,249,921
|
|
During
the year ended December 31, 2015 and 2014, common stock equivalents are not considered in the calculation of the weighted average
number of common shares outstanding because they would be anti-dilutive, thereby decreasing the net loss per common share.
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
NOTE 20 - INCOME TAXES
The Company has adopted Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns.
Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and
tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Temporary differences primarily include stock compensation and other equity-related non-cash charges, capitalized financing costs,
the basis difference of derivative liabilities and certain accruals.
Due to the reverse acquisition of First Choice
Healthcare Solutions, Inc. by FCID Holdings, Inc. on December 29, 2010, the net operating loss carry forwards of First Choice Healthcare
Solutions, Inc. incurred prior to that date may not be useable for income tax purposes. As through September 30, 2010 FCID Holdings,
Inc. was inactive, and FCID Holdings, Inc.’s active subsidiary is a limited liability company and through September 30, 2010
passed no income through to FCID Holdings, Inc. for federal and state income tax purposes, FCID Holdings, Inc. through September
30, 2010 incurred no income tax at the corporate level.
At December 31, 2015, the Company has available
for federal income tax purposes a net operating loss carry forward of approximately $5,500,000 that may be used to offset future
taxable income. Components of deferred tax assets as of December 31, 2015 are comprised primarily of stock based compensation and
debt discounts in connection with convertible notes. No income taxes were recorded on the earnings in 2014 and 2013 as a result
of the utilization of any carry forwards.
Deferred net tax asset consist of the following at December 31,
2015 and 2014:
|
|
2015
|
|
2014
|
Deferred tax asset
|
|
$
|
201,500
|
|
|
$
|
210,000
|
|
Less valuation allowance
|
|
|
(201,500
|
)
|
|
|
(210,000
|
)
|
Net deferred tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
The provision for income taxes consists of the following:
|
|
2015
|
|
|
2014
|
|
Current tax (benefit)
|
|
$
|
|
|
|
$
|
|
|
Adjustment for prior year accrual
|
|
|
—
|
|
|
|
—
|
|
Net provision (benefit)
|
|
$
|
|
|
|
$
|
|
|
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
The provision for Federal taxes differs from
that computed by applying Federal statutory rates to the loss before any Federal income tax (benefit), as indicated in the following:
|
|
2015
|
|
2014
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes net of Federal benefit
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
|
38.6
|
%
|
|
|
38.6
|
%
|
The Company files income tax returns in the
U.S. Federal jurisdiction, and various state jurisdictions. The Company is no longer subject to U.S. Federal, state and local,
or non-U.S. income tax examinations by tax authorities for years before 2011.
The Company follows the provision of uncertain
tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1. The Company recognized no increase in the liability
for unrecognized tax benefits. The Company has no tax position for which the ultimate deductibility is highly certain but for which
there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized tax
benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods
presented. The Company had no accruals for interest and penalties at December 31, 2015 and 2014.
NOTE 21 – SUBSEQUENT EVENTS
Sale
and Leaseback of Marina Towers
On March
31, 2016, the Company’s wholly owned subsidiary, Marina Towers, LLC, a Florida limited liability company, completed the
sale of Marina Towers, a 78,000 square-foot medical office building located on the Melbourne riverfront, for a purchase price
of $15.45 million to Global Medical REIT Inc. The facility is located at
709 S. Harbor City Blvd., Melbourne, FL on 1.9
acres of land. The acquisition includes the site and building, an easement on the adjacent property to the north for surface parking,
all tenant leases, and above and below ground garages (the “Property”). The net cash proceeds from the sale of Marina
Towers was approximately $8 million, which will be used to strengthen the Company’s balance sheet, support key expansion
initiatives and help to position the Company to pursue an up-listing to a national stock exchange later this year.
The entire facility was leased back to Marina
Towers, LLC via a 10-year absolute triple-net master lease agreement that expires in 2026. The tenant has two successive options
to renew the lease for five-year periods on the same terms and conditions as the primary non-revocable lease term with the exception
of rent, which will be adjusted to the prevailing fair market rent at renewal and will escalate in successive years during the
extended lease period.
The lease is classified as operating lease
and any gains realized on the sale/leaseback transaction will be deferred and will be credited to operations over the initial lease
term
FIRST CHOICE HEALTHCARE
SOLUTIONS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015
The following is a schedule of future minimum
lease payments for the non-cancelable operating lease for each of the next five years ending December 31 and thereafter:
Year ended December 31, 2016
|
|
|
$
|
828,506
|
Year ended December 31, 2017
|
|
|
|
1,104,675
|
Year ended December 31, 2018
|
|
|
|
1,104,675
|
Year ended December 31, 2019
|
|
|
|
1,121,246
|
Year ended December 31, 2020
|
|
|
|
1,143,670
|
Year ended December 31, 2021 and thereafter
|
|
|
|
6,387,969
|
|
|
|
|
$
|
11,690,741
|
MedTRX
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.
On November 2, 2015, the Company and MedTRX
signed a settlement and mutual release agreement, whereby the parties have agreed to settle all disputes and the pending arbitration
actions and release each other from all claims, counterclaims, liabilities and obligations, except for obligations stipulated in
the settlement or as otherwise reserved. The settlement terms provided for First Choice to pay MedTRX cash consideration of $500,000
upon signing of the settlement agreement, $650,000 cash paid over time in accordance with the terms and conditions of two non-interest
bearing promissory notes – one for $550,000 and one for $100,000 – and 400,000 restricted shares of the Company’s
common stock.
First Choice paid the notes in full on April
1, 2016. (See Note 8 – Settlement Payable)
F-38