NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
First Choice Healthcare Solutions, Inc. (“FCHS,”
“the Company,” “we,” “our” or “us”) is actively engaged in implementing a defined
growth strategy aimed at building a network of localized, integrated healthcare services platforms comprised of non-physician-owned
medical centers of excellence, which concentrate on treating patients in the following specialties: Orthopaedics, Spine Surgery,
Interventional Pain Medicine, Physical Therapy and related diagnostic and ancillary services in key expansion markets throughout
the U.S.
The unaudited condensed consolidated financial
statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries: First Choice Medical Group
of Brevard LLC, Marina Towers, LLC, FCID Medical Inc., TBC Holdings of Melbourne, Inc., CCSC Holdings, Inc. and Crane Creek Surgical
Partners, LLC, along The B.A.C.K. Center which has been determined to be a variable interest entity (VIE). All significant intercompany
balances and transactions, including those involving the VIE, have been eliminated in consolidation.
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information. Accordingly, they do not include all the information and disclosures
required by U.S. GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting
only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated
financial statements of the Company as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017.
The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the operating
results for the full year ending December 31, 2018 or any other period. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December
31, 2017 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form
10-K on April 2, 2018.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of the financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. Significant estimates include the recoverability and useful lives
of long-lived assets, provision against bad debt, the fair value of the Company’s stock, and stock-based compensation. Actual
results may differ from these estimates.
Revenue recognition
On January 1, 2018, the Company adopted
the new revenue recognition accounting standard issued by the Financial Accounting Standards Board (“FASB”) and codified
in the ASC as Topic 606 (“ASC 606”). The revenue recognition standard in ASC 606 outlines a single comprehensive model
for recognizing revenue as performance obligations, defined in a contract with a customer as goods or services transferred to the
customer in exchange for consideration, are satisfied. The standard also requires expanded disclosures regarding the Company’s
revenue recognition policies and significant judgments employed in the determination of revenue.
The Company applied the modified retrospective
approach to all contracts when adopting ASC 606. As a result, at the adoption of ASC 606 what was previously classified
as the provision for bad debts in the statement of operations is now reflected as implicit price concessions (as defined in ASC
606) and therefore included as a reduction to net operating revenues in 2018. For changes in credit issues not assessed at the
date of service, the Company will prospectively recognize those amounts in other operating expenses on the statement of operations.
For periods prior to the adoption of ASC 606, the provision for bad debts has been presented consistent with the previous revenue
recognition standards that required it to be presented separately as a component of net operating revenues.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Patient service revenue
Our revenues generally relate to net patient
fees received from various payers and patients themselves under contracts in which our performance obligations are to provide
services to the patients. Revenues are recorded during the period our obligations to provide services are satisfied. The contractual
relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and
commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for
the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health
plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services
we provide to the related patients typically specify payments at amounts less than our standard charges and generally provide for
payments based upon predetermined rates for services or discounted fee-for-service rates. Management continually reviews the contractual
estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual
terms resulting from contract renegotiations and renewals.
Rental Revenue
In addition to housing our corporate headquarters
and First Choice Medical Group, the building leases 38,334 square feet of commercial office space to non-affiliated tenants. Our
corporate headquarters and FCID Medical offices currently utilize 4,274 square feet on the fifth floor of Marina Towers; and First
Choice Medical Group, including its MRI center and physical therapy center, currently occupies 21,902 square feet on the ground,
first and second floors.
Concentrations of credit risk
The Company’s financial instruments that
are exposed to a concentration of customer risk and accounts receivable risk. Occasionally, the Company’s cash in interest-bearing
accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
Revenues and accounts receivable are concentrated between two major payers with the approximate risk level outlined below.
|
Concentration of Risk
|
|
Revenue Concentration:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
|
2018
|
|
2017
|
|
Medicare
|
|
|
31.2
|
%
|
|
|
33.8
|
%
|
|
Commercial Payor 1
|
|
|
17.4
|
%
|
|
|
18.0
|
%
|
|
Commercial Payor 2
|
|
|
—
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30,
|
|
|
|
2018
|
|
2017
|
|
Medicare
|
|
|
32.7
|
%
|
|
|
35.7
|
%
|
|
Commercial Payor 1
|
|
|
16.6
|
%
|
|
|
18.4
|
%
|
|
Commercial Payor 2
|
|
|
—
|
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Receivable Concentration:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2018
|
|
2017
|
|
Medicare
|
|
|
24.4
|
%
|
|
|
20.6
|
%
|
|
Commercial Payor 1
|
|
|
—
|
|
|
|
15.3
|
%
|
|
Commercial Payor 2
|
|
|
13.1
|
%
|
|
|
13.8
|
%
|
Accounts receivable
Accounts receivables are carried at their estimated
collectible amounts net of doubtful accounts. The Company analyzes its history and identifies trends for each major payer sources
of revenue to estimate the appropriate allowance for doubtful accounts and provision for bad debts. Management regularly reviews
data about these major payer sources of revenue in evaluating the sufficiency of the allowance for doubtful accounts.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Patient Receivables: Accounts receivables due
for services provided to patients who have third-party coverage, such as an insurance company or government sponsored healthcare
programs or directly from patients. We continually monitor collections from our payors and maintain an allowance for bad debts
based upon specific payor collections issues that we have identified and our historical experience.
Rental Receivables: Accounts receivables from
rental activities are periodically evaluated for collectability in determining the appropriate allowance for bad debts.
Net
(loss) income per share
Basic net (loss) income per common share is
based upon the weighted-average number of common shares outstanding. Diluted net income per common share is based on the weighted-average
number of common shares outstanding and potentially dilutive common shares outstanding and computed as follows:
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to First Choice Healthcare Solutions, Inc.
|
|
$
|
(263,586
|
)
|
|
$
|
(440,398
|
)
|
|
$
|
447,301
|
|
|
$
|
(369,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares, basic
|
|
|
32,490,673
|
|
|
|
26,765,021
|
|
|
|
31,174,347
|
|
|
|
26,622,335
|
|
|
Weighted-average common shares, diluted
|
|
|
33,490,673
|
|
|
|
26,765,021
|
|
|
|
31,974,347
|
|
|
|
26,622,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
Diluted:
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
Potentially dilutive common shares from convertible
debt, options and warrants are determined by applying the treasury stock method to the assumed exercise of warrants and share options
are were excluded from the computation of the diluted net income per share because their inclusion would be anti-dilutive. In addition,
there were no vested restrict stock for periods presented. Potentially dilutive securities excluded from the basic and diluted
net income (loss) per share are as follows:
|
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Convertible line of credit
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
—
|
|
|
|
800,000
|
|
|
Warrants to purchase common stock
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
Options to purchase common stock
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
Restricted stock awards
|
|
|
1,201,910
|
|
|
|
510,000
|
|
|
|
1,201,910
|
|
|
|
510,000
|
|
|
|
|
|
6,876,910
|
|
|
|
6,185,000
|
|
|
|
6,076,910
|
|
|
|
6,185,000
|
|
Stock-based compensation
The Company measures the cost of services received
in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value
of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting
dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over
the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based
compensation expense is recorded by the Company in the same expense classifications in the condensed consolidated statements of
operations, as if such amounts were paid in cash. Upon exercise of a common stock equivalent, the Company issues new shares of
common stock out of its authorized shares.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Segment information
Operating segments are identified as components
of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision
maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed
herein represents all the material financial information related to the Company’s principal operating segments. (See Note
11 – Segment Reporting).
Treasury Stock
The Company uses the cost method when it purchases
its own common stock as treasury shares and displays treasury stock as a reduction of shareholders’ equity. As of September
30, 2018, the Company canceled all of its outstanding treasury stock.
Reclassifications
Certain reclassifications have been made to
prior period’s data to conform to the current year’s presentation. These reclassifications had no impact on reported
net income or losses.
Litigation Claims and Assessments
From time to time, we may become involved
in lawsuits and legal proceedings which arise in the ordinary course of business including potential disputes with patients. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that
may harm our business. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting
from negligence of our physicians. Currently, we have no pending litigation that is deemed to be material to the condensed
consolidated financial statements.
Recent accounting pronouncements
In May 2014, the FASB issued
Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” to supersede previous
revenue recognition guidance under current U.S. GAAP. The guidance presents a single five-step model for comprehensive revenue
recognition that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Two
options are available for implementation of the standard which is either the retrospective approach or cumulative effect adjustment
approach. The guidance becomes effective for annual reporting periods beginning after December 15, 2017, including interim periods
within that reporting period, with early adoption permitted. The Company adopted ASU 2014-09 using the modified retrospective transition
method in the first quarter of 2018 and such adoption did not have a material impact on the condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02—Leases
(Topic 842), requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except
for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement.
The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods
within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition
and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is evaluating
the effect that the updated standard will have on its financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15—Statement
of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance for eight specific
cash flow issues with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective
of reducing diversity in practice. The effective date for ASU 2016-15 is for annual periods beginning after December 15, 2017
and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2016-15 in the first quarter
of 2018 and such adoption did not have a material impact on the Company.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
In January 2017, the FASB issued ASU 2017-04,
Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by
eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the
impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value
of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies
for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We are evaluating the impact
of adopting this guidance on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition
of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or
businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017,
including interim periods within those periods. The Company adopted ASU 2017-01 in the first quarter of 2018 and such adoption
did not have a material impact on the condensed consolidated unaudited financial statements.
In July 2017, the FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value because of
the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities
that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is
triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible
instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent
beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance
(in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic
480 that now are presented as pending content in the Codification, to a scope exception.
Those amendments do not have an accounting
effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. The Company is currently reviewing the impact of adoption of
ASU 2017-11 on its financial statements.
In June 2018, the FASB issued ASU 2018-07,
Stock Compensation (Topic 718); Improvements to Non-employer Share-Based Payment Accounting. The amendment aligns the accounting
for share based payments issued to employees and non-employees. The amendments in this update are effective for public companies
for annual periods beginning after December 15, 2018, including interim periods within those periods. The Company is currently
reviewing the impact of the adoption of ASU 2018-07 on its financial statements.
Subsequent events
The Company evaluates events that have occurred
after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial
statements, except as disclosed.
NOTE 3 – LIQUIDITY
The Company believes that the current cash
balance and line of credit with CT Capital, LTD (See Note 4), along with continued execution of its business development
plan, will allow the Company to further improve its working capital; and currently anticipates that it will have sufficient capital
resources to meet projected cash flow requirements through the date at least one year from the filing of this report.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
However, to execute the Company’s business
development plan, which there can be no assurance we will achieve, the Company may need to raise additional funds through public
or private equity offerings, debt financings, corporate collaborations or other means and potentially reduce operating expenditures.
If the Company is unable to secure additional capital, it may be required to curtail its business development initiatives and take
additional measures to reduce costs to conserve its cash.
NOTE 4 — LINES OF CREDIT
Line of credit, CT Capital
FCMG - Brevard entered into a Loan and Security
Agreement (the “Loan Agreement”) with CT Capital, Ltd., d/b/a CT Capital, LP, a Florida limited liability partnership
(the “Lender”). Under the Loan Agreement, the Lender committed to make an accounts receivable line of credit in the
maximum aggregate amount of $2,500,000 to FCMG - Brevard with an interest rate of 6% per annum (the “Loan”). Interest
is due and payable monthly. The Lender may convert up to $2,000,000 of the outstanding principal amount or interest on the Loan
into common stock of the Company at a conversion price of $0.75 per share.
On December 27, 2017, the Loan Agreement with
CT Capital, Ltd. (“Lender”) was amended to extend the Maturity Date to December 31, 2019 and further provide that neither
the Company nor Lender shall effectuate any conversion of the Loan to the extent that after giving effect to any such conversion,
the Lender would beneficially own in excess of 9.99% of the number of shares of our Company’s shares of Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Loan by the Lender.
The obligations of the Company under the Loan
Agreement, as amended, are guaranteed by certain affiliates of the Company, including a personal guarantee issued by the Company’s
Chief Executive Officer.
As of September 30, 2018, and December 31,
2017, the outstanding balance was $1,100,000 and the remaining principal amount the Lender can convert into common stock is $600,000,
subject to the limitations set forth above. The balance available on the line of credit is $1,400,000 as of September 30, 2018.
Line of credit, Florida Business Bank
The B.A.C.K. Center is a party to a Promissory
Note with Florida Business Bank, a Florida banking corporation. Under the Loan Agreement, the Lender committed to make an accounts
receivable line of credit in the maximum aggregate amount of $1,383,000 (as amended), with an interest rate of Prime floating plus
1.0%, as published in
The Wall Street Journal
, with a floor of 2.75% per annum (as amended). The agreement renews annually
and was renewed on June 30, 2018.
Interest shall be due and payable monthly,
and principal is due on demand. The outstanding principal balance plus all accrued but unpaid interest shall be due on demand (the
“Maturity Date”). Upon default, the interest may be adjusted to the highest rate permissible by law.
The Loan is secured by all assets of The B.A.C.K.
Center now owned or hereafter acquired. The assets constitute the collateral for the repayment of the Loan.
The Loan Agreement also includes covenants,
representations, warranties, indemnities and events of default that are customary for facilities of this type. The advance rate
is defined as: 60% of eligible accounts receivables. Eligible receivables include all Medicare and Medicaid receivables less than
90 days old multiplied by a factor of 0.25, plus all other receivables less than 90 days old multiplied by a factor of 0.50. As
of September 30, 2018, The B.A.C.K. Center was not in compliance with certain loan covenants.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
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 September 30, 2018, and December 31, 2017, the outstanding balance
on the Loan was $440,024.
NOTE 5— NOTES PAYABLE AND CAPITAL LEASES
Notes payable is comprised of the following:
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Note Payable, GE Arm
|
|
$
|
—
|
|
|
$
|
12,536
|
|
|
Capital Leases- Equipment
|
|
|
383,426
|
|
|
|
77,162
|
|
|
|
|
|
383,426
|
|
|
|
89,698
|
|
|
Less current portion
|
|
|
(89,458
|
)
|
|
|
(29,552
|
)
|
|
Long term portion
|
|
$
|
293,968
|
|
|
$
|
60,146
|
|
Capital leases — equipment
On February 6, 2017, the Company entered into
a capital lease agreement to acquire equipment with 48 monthly payments of $611 payable through January 6, 2021 with an effective
interest rate of 14.561% per annum. The Company may elect to acquire the leased equipment for a nominal amount at the end
of the lease.
On June 22, 2017, the Company entered into
a lease agreement to acquire equipment with 60 monthly payments of $1,223 payable through June 2021 with an effective interest
rate of 5.00% per annum. The Company may elect to acquire the leased equipment for a nominal amount at the end of the lease.
During the nine months ended September
30, 2018, the Company entered into a lease agreement to acquire equipment with 60 monthly payments of $2,081 payable through December
2023 with an effective interest rate of 10.2% per annum. The Company may elect to acquire the leased equipment for a nominal
amount at the end of the lease.
During the nine months ended September
30, 2018, the Company entered into a lease agreement to acquire equipment with 60 monthly payments of $1,280 through June
2023 with an effective interest rate of 3.9%. The Company may elect to acquire the leased equipment for a nominal amount
at the end of the lease.
Aggregate principal maturities of long-term debt as of September
30, 2018
:
|
|
|
Amount
|
|
Year ended December 31, 2018
|
|
|
$
|
22,364
|
|
|
Year ended December 31, 2019
|
|
|
|
89,457
|
|
|
Year ended December 31, 2020
|
|
|
|
87,394
|
|
|
Year ended December 31, 2021
|
|
|
|
82,131
|
|
|
Year ended December 31, 2022 and thereafter
|
|
|
|
102,080
|
|
|
Total
|
|
|
$
|
383,426
|
|
NOTE 6 — REDEEMABLE COMMON STOCK
On February 6, 2018, the Company and Steward
Health Care System LLC (“Steward”) entered into a Stock Purchase Agreement (the “Purchase Agreement”).
Pursuant to the terms of the Purchase Agreement, Steward will acquire from the Company 5,000,000 shares of common stock of the
Company for cash consideration of $7,500,000. On March 1, 2018, the Company issued five (5) million shares of common stock in exchange
for cash proceeds of $7.5 million.
As a result of the transaction, Steward owned
15.5% of all of the issued and outstanding shares of common stock of the Company.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The Company has agreed that, upon demand from
Steward after the six month anniversary of the Closing Date, the Company shall use its reasonable best efforts to prepare and file
with the SEC, a registration statement and such other documents as may be necessary in the advice of counsel for the Company, and
use its commercially reasonable efforts to have such registration statement declared effective in order to comply with the provisions
of the Securities Act of 1933, as amended, so as to permit the registered resale of the common shares. As of September 30, 2018,
the Company has not received such demand.
In addition, the Company has agreed that, on
or after April 1, 2022, upon ninety (90) days prior written notice, Steward may sell fifty percent (50%) of the common stock to
the Company one-time during each of the following two (2) calendar years thereafter at a price equal to the purchase price under
the Purchase Agreement pro-rated for the number of shares being purchased. Notwithstanding the foregoing, the put option shall
automatically terminate and be of no further force and effect in the event the market capitalization (as defined in the Purchase
Agreement) of the Company is equal to or more than $100,000,000 at any time after the date of the Purchase Agreement.
Due to the nature of the put agreement as described
above, the Company has classified the net proceeds from the sale of the Company’s common stock as temporary equity.
NOTE 7 — CAPITAL STOCK
Common stock
During the nine months ended September 30,
2018, the Company issued 350,000 shares of common stock for employee stock compensation that was granted in 2017. The expense
for these shares is being amortized over the applicable vesting period.
During the nine months ended September 30,
2018, the Company issued an aggregate of 156,338 shares of its common stock to service providers at an aggregate fair value of
$195,375.
During the nine months ended September 30,
2018, the Company returned to authorized and cancelled 189,020 previously acquired common stock treasury shares with a carrying
value of $249,265.
During the nine months ended September 30,
2018, the Company cancelled 71,667 shares of common stock previously issued to a service provider.
NOTE 8 — STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
Options
The following table presents information related
to stock options at September 30, 2018:
|
Options Outstanding
|
|
|
Exercise
Price
|
|
Number of
Options
|
|
Weighted Average
Remaining Life in Years
|
|
Exercisable Number
of Options
|
|
$
|
1.35
|
|
|
|
3,000,000
|
|
|
|
5.25
|
|
|
|
—
|
|
Transactions involving stock options issued
are summarized as follows:
|
|
|
Number of
Shares
|
|
Weighted
Average Price
Per Share
|
|
Outstanding at December 31, 2017
|
|
|
|
3,000,000
|
|
|
|
1.35
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at September 30, 2018
|
|
|
|
3,000,000
|
|
|
$
|
1.35
|
|
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The aggregate intrinsic value of all outstanding
options of $0 represents the total intrinsic value, based on options with an exercise price less than the Company’s stock
price of $1.15 as of September 30, 2018, which would have been received by the option holders had those option holders exercised
their options as of that date.
Restricted Stock Units
(“RSU”)
Transactions involving restricted stock units
issued are summarized as follows:
|
Restricted share units as of December 31, 2017
|
|
|
|
921,100
|
|
|
Granted
|
|
|
|
443,386
|
|
|
Forfeited
|
|
|
|
(71,667
|
)
|
|
Unvested restricted shares as of September 30, 2018
|
|
|
|
1,292,819
|
|
During the nine months ended September 30,
2018, the Company granted 443,386 performance-based, restricted stock units vesting up to five years depending on the grant.
The estimated fair value of the granted restricted stock units of $443,386 is being recognized over the vesting periods.
As of September 30, 2018, stock-based compensation
related to restricted stock awards of $508,577 remains unamortized and is expected to be amortized over the weighted average remaining
period of 2.65 years.
Warrants
The Company previously issued 1,875,000 warrants
in 2011, which will expire on December 23, 2018. As of September 30, 2018, the aggregate intrinsic value of all warrants outstanding
and exercisable was zero.
NOTE 9 — VARIABLE INTEREST ENTITY
Brevard Orthopaedic Spine & Pain Clinic,
Inc.
The Company has determined that The B.A.C.K.
Center is a VIE
.
In evaluating whether the Company has the power to direct the activities of a VIE that most significantly
impact its economic performance, the Company considers the purpose for which the VIE was created, the importance of each of the
activities in which it is engaged and the Company’s decision-making role, if any, in those activities that significantly
determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration
of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise
of professional judgment in deciding which decision-making rights are most important.
In determining whether the Company has the
right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company evaluates
all its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual
arrangements). This evaluation considers all relevant factors of the entity’s structure, including: the entity’s capital
structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent
payments, as well as other contractual arrangements that have potential to be economically significant.
The evaluation of each of these factors in
reaching a conclusion about the potential significance of the Company’s economic interests is a matter that requires the
exercise of professional judgment. The assets of The B.A.C.K. Center can only be used to settle obligations of the VIE, additionally,
creditors of The B.A.C.K. Center do not have recourse against the general credit of the primary beneficiary.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The tables below summarize the assets and liabilities
associated with The B.A.C.K. Center as of September 30, 2018 and December 31, 2017:
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
523,388
|
|
|
$
|
238,402
|
|
|
Accounts receivable, net
|
|
|
4,537,938
|
|
|
|
3,526,789
|
|
|
Other current assets
|
|
|
951,305
|
|
|
|
765,236
|
|
|
Total current assets
|
|
|
6,012,631
|
|
|
|
4,530,427
|
|
|
Property and equipment, net
|
|
|
221,853
|
|
|
|
73,791
|
|
|
Other assets
|
|
|
22,005
|
|
|
|
22,005
|
|
|
Total assets
|
|
$
|
6,256,489
|
|
|
$
|
4,626,223
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
943,361
|
|
|
$
|
628,304
|
|
|
Due to First Choice Healthcare Solutions, Inc.
|
|
|
2,887,047
|
|
|
|
1,700,210
|
|
|
Other current liabilities
|
|
|
464,998
|
|
|
|
485,432
|
|
|
Total current liabilities
|
|
|
4,295,406
|
|
|
|
2,813,946
|
|
|
Long term debt
|
|
|
2,099,769
|
|
|
|
1,950,963
|
|
|
Total liabilities
|
|
|
6,395,175
|
|
|
|
4,764,909
|
|
|
Non-controlling interest
|
|
|
(138,686
|
)
|
|
|
(138,686
|
)
|
|
Total liabilities and deficit
|
|
$
|
6,256,489
|
|
|
$
|
4,626,223
|
|
Total revenues from The B.A.C.K. Center were
$4,054,740 and $12,292,240 for the three and nine months ended September 30, 2018. Related expenses consisted primarily of salaries
and benefits of $2,354,244 and $6,187,704, other operating expense of $954,733 and $2,816,883, general and administrative expenses
of $644,376 and $1,910,083, depreciation of $25,165 and $37,855, interest income (expense) and financing costs of $5,350 and $(15,532);
and other income of $41,346 and $120,148 for the three and nine months ended September 30, 2018. (See Note 11 – Segment Reporting)
Total revenues from The B.A.C.K. Center were
$3,416,530 and $10,386,645 for the three and nine months ended September 30, 2017. Related expenses consisted primarily of salaries
and benefits of $1,646,473 and $5,179,937, other operating expense of $899,722 and $2,576,227, general and administrative expenses
of $631,209 and $2,019,947, depreciation of $7,256 and $19,656, interest and financing costs of $4,255 and $12,640; and other income
of $37,731 and $129,082 for the three and nine months ended September 30, 2017, respectively. (See Note 11 – Segment Reporting)
Crane Creek Surgery Center
In 2015, the Company had determined that Crane
Creek is a VIE
.
In evaluating whether the Company has the power to direct the activities of a VIE that most significantly
impact its economic performance, the Company considers the purpose for which the VIE was created, the importance of each of the
activities in which it is engaged and the Company’s decision-making role, if any, in those activities that significantly
determine the entity’s economic performance as compared to other economic interest holders.
This evaluation requires consideration of all
facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional
judgment in deciding which decision-making rights are most important.
In determining whether the Company has the
right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company evaluates
all its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual
arrangements). This evaluation considers all relevant factors of the entity’s structure, including: the entity’s capital
structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent
payments, as well as other contractual arrangements that have potential to be economically significant. The evaluation of each
of these factors in reaching a conclusion about the potential significance of the Company’s economic interests is a matter
that requires the exercise of professional judgment.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
The assets of Crane Creek can only be used
to settle obligations of the VIE, additionally, creditors of the Crane Creek do not have recourse against the general credit of
the primary beneficiary.
On January 31, 2018 (effective January 1, 2018),
the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with HMA Blue Chip Investments,
LLC (“Blue Chip”). Pursuant to the terms of the Purchase Agreement, the Company acquired from Blue Chip 24.05 Class
B Units of membership interest in the Center for cash consideration of $400,000 (the “Transaction”), representing a
25% ownership interest in the Center. As a result of the Transaction, the Company holds a 65% ownership interest in the Center.
Termination and Assignment Agreement
On January 31, 2018 (effective January 1, 2018),
the Company entered into a Termination and Assignment Agreement (the “Termination Agreement”) with Crane Creek Surgical
Partners, LLC (the “Center”) and BCS-Management, LLC (“BCS”).
Pursuant to the terms of the Termination Agreement,
the Center and BCS will terminate their respective rights and obligations under that certain Amended and Restated Management Services
Agreement dated as of September 1, 2013 (the “Management Agreement”). Each of the Center and BCS has agreed to release
the other and certain other persons from any and all claims arising out of or relating to the Management Agreement, except for
claims arising out of the Termination Agreement and claims made by third parties against either party.
In addition, pursuant to the terms of the Termination
Agreement, BCS will assign, grant, convey and transfer to the Company all of BCS’s right, title and interest in and to the
Management Agreement, including but not limited to the right to accept management fees as set forth in the Management Agreement,
and the Company will assume all of BCS’s duties and obligations under the Management Agreement. Until September 30, 2018,
BCS will provide the Center business office, financial, accounting and other related services necessary to assist the transition
of the operation of the Center to the Company.
As a result of the Purchase agreement described
above, Crane Creek Surgical Partners, LLC became a majority-owned subsidiary of the Company effective January 1, 2018.
The tables below summarize the assets and liabilities
associated with the Crane Creek (as a VIE):
|
|
|
December 31.
2017
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
464,074
|
|
|
Accounts receivable, net
|
|
|
893,817
|
|
|
Other current assets
|
|
|
151,040
|
|
|
Total current assets
|
|
|
1,508,931
|
|
|
Property and equipment, net
|
|
|
396,136
|
|
|
Goodwill
|
|
|
899,465
|
|
|
Total assets
|
|
$
|
2,804,532
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
852,208
|
|
|
Capital leases, short term
|
|
|
12,001
|
|
|
Other current liabilities
|
|
|
251,588
|
|
|
Total current liabilities
|
|
|
1,115,797
|
|
|
Capital leases, long term
|
|
|
47,049
|
|
|
Deferred rent
|
|
|
559,239
|
|
|
Total liabilities
|
|
|
1,722,085
|
|
|
|
|
|
|
|
|
Equity-First Choice Healthcare Solutions, Inc.
|
|
|
432,979
|
|
|
Non-controlling interest
|
|
|
649,468
|
|
|
Total liabilities and deficit
|
|
$
|
2,804,532
|
|
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Total revenues from Crane Creek were $1,003,781
and $3,442,458 for the three and nine months ended September 30, 2017. Related expenses consisted primarily of salaries and benefits
of $286,526 and $878,033, practice supplies and operating expenses of $863,920 and $2,591,174, general and administrative expenses
of $123,091 and $427,454, depreciation of $193,853 and $250,147, interest expense of $1,373 and $2,712 and miscellaneous income
of $2,672 and $13,619 for the three and nine months ended September 30, 2017, respectively. (See Note 11 – Segment Reporting)
NOTE 10 — NON-CONTROLLING INTEREST
A reconciliation of The B.A.C.K. Center non-controlling
income attributable to the Company:
Net income attributable to non-controlling
interest for the three months ended September 30, 2018:
|
Net income
|
|
$
|
29,323
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
Net income attributable to non-controlling
interest for the three months ended September 30, 2017:
|
Net income
|
|
$
|
192,667
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
Net income attributable to non-controlling
interest for the nine months ended September 30, 2018:
|
Net income
|
|
$
|
1,186,839
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
Net income attributable to non-controlling
interest for the nine months ended September 30, 2017:
|
Net income
|
|
$
|
482,046
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
-0-
|
%
|
|
Net income attributable to the non-controlling interest
|
|
$
|
-0-
|
|
The following table summarizes the changes
in non-controlling interest for the nine months ended September 30, 2018:
|
Balance, December 31, 2017
|
|
$
|
(138,686
|
)
|
|
Transfer (to) from the non-controlling interest as a result of change in ownership
|
|
|
—
|
|
|
Net income attributable to the non-controlling interest
|
|
|
—
|
|
|
Balance, September 30, 2018
|
|
$
|
(138,686
|
)
|
A reconciliation of the Crane Creek non-controlling
income attributable to the Company:
Net income attributable to the non-controlling
interest for the three months ended September 30, 2018:
|
Net income
|
|
$
|
282,492
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
35
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
98,872
|
|
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Net loss attributable to non-controlling interest
for the three months ended September 30, 2017:
|
Net loss
|
|
$
|
(462,310
|
)
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
60
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
(277,386
|
)
|
Net income attributable to the non-controlling
interest for nine months ended September 30, 2018:
|
Net income
|
|
$
|
441,796
|
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
35
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
154,629
|
|
Net loss attributable to non-controlling interest
for the nine months ended September 30, 2017:
|
Net income
|
|
$
|
(693,443
|
)
|
|
Average Non-controlling interest percentage of profit/losses
|
|
|
60
|
%
|
|
Net income/loss attributable to the non-controlling interest
|
|
$
|
(416,066
|
)
|
The following table summarizes the changes
in non-controlling interest for the nine months ended September 30, 2018:
|
Balance, December 31, 2017
|
|
$
|
649,468
|
|
|
Transfer (to) from the non-controlling interest as a result of change in ownership
|
|
|
(270,611
|
)
|
|
Net income attributable to the non-controlling interest
|
|
|
155,803
|
|
|
Balance, September 30, 2018
|
|
$
|
534,660
|
|
Effective January 1, 2018, the Company acquired
a 25% interest in Crane Creek for a purchase price of $400,000. The excess payment of $129,389 over book value of $270,611 was
adjusted to the Company’s additional paid in capital.
NOTE 11 — SEGMENT REPORTING
The Company reports segment information based
on the “management” approach. The management approach designates the internal reporting used by management for making
decisions and assessing performance as the source of the Company’s reportable segments. The Company has three reportable
segments: FCID Medical, Inc., The B.A.C.K. Center and CCSC Holdings, Inc. (“CCSC”).
All reportable segments derive revenue for
medical services provided to patients; and The B.A.C.K Center additionally derives revenue for subleasing space within its building
and medical services provided to patients. With the sale and leaseback of Marina Towers on March 31, 2016, the Company will no
longer report segmented rental revenue received from third-party Marina Tower tenants under the segment heading “Marina Towers.”
Rather, the Company has consolidated rental revenue received from third-party tenants of Marina Towers under the “Corporate”
segment.
Information concerning the operations of the
Company’s reportable segments is as follows:
Summary Statement of Operations for the three
months ended September 30, 2018:
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
3,776,082
|
|
|
$
|
3,713,742
|
|
|
$
|
1,625,443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,115,267
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
340,998
|
|
|
|
—
|
|
|
|
437,172
|
|
|
|
(189,864
|
)
|
|
|
588,306
|
|
|
Total Revenue
|
|
|
3,776,082
|
|
|
|
4,054,740
|
|
|
|
1,625,444
|
|
|
|
437,172
|
|
|
|
(189,864
|
)
|
|
|
9,703,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
2,428,090
|
|
|
|
2,354,244
|
|
|
|
301,714
|
|
|
|
356,773
|
|
|
|
|
|
|
|
5,440,822
|
|
|
Other operating expenses
|
|
|
681,614
|
|
|
|
954,733
|
|
|
|
879,573
|
|
|
|
409,852
|
|
|
|
(176,004
|
)
|
|
|
2,749,769
|
|
|
General and administrative
|
|
|
325,169
|
|
|
|
644,377
|
|
|
|
91,525
|
|
|
|
459,705
|
|
|
|
(13,860
|
)
|
|
|
1,506,916
|
|
|
Depreciation and amortization
|
|
|
90,582
|
|
|
|
25,165
|
|
|
|
23,169
|
|
|
|
86,579
|
|
|
|
—
|
|
|
|
225,495
|
|
|
Total operating expenses
|
|
|
3,525,455
|
|
|
|
3,978,519
|
|
|
|
1,295,981
|
|
|
|
1,312,909
|
|
|
|
(189,864
|
)
|
|
|
9,923,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
250,626
|
|
|
|
76,221
|
|
|
|
329,462
|
|
|
|
(875,737
|
)
|
|
|
—
|
|
|
|
(219,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest income (expense)
|
|
|
(17,421
|
)
|
|
|
5,350
|
|
|
|
2,705
|
|
|
|
22,470
|
|
|
|
—
|
|
|
|
13,105
|
|
|
Miscellaneous Income (expense)
|
|
|
—
|
|
|
|
41,346
|
|
|
|
688
|
|
|
|
750
|
|
|
|
—
|
|
|
|
42,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before income taxes:
|
|
|
233,205
|
|
|
|
122,917
|
|
|
|
332,855
|
|
|
|
(852,517
|
)
|
|
|
—
|
|
|
|
(163,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
233,205
|
|
|
|
122,917
|
|
|
|
332,855
|
|
|
|
(852,517
|
)
|
|
|
—
|
|
|
|
(163,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,048
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(100,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
233,205
|
|
|
$
|
122,917
|
|
|
$
|
232,807
|
|
|
$
|
(852,517
|
)
|
|
$
|
—
|
|
|
$
|
(263,587
|
)
|
Summary Statement of Operations for the three
months ended September 30, 2017:
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
3,026,457
|
|
|
$
|
3,096,807
|
|
|
$
|
1,003,781
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,127,045
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
319,723
|
|
|
|
|
|
|
|
425,433
|
|
|
|
(183,708
|
)
|
|
|
561,448
|
|
|
Total Revenue
|
|
|
3,026,457
|
|
|
|
3,416,530
|
|
|
|
1,003,781
|
|
|
|
425,433
|
|
|
|
(183,708
|
)
|
|
|
7,688,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
1,860,965
|
|
|
|
1,646,473
|
|
|
|
286,526
|
|
|
|
293,916
|
|
|
|
—
|
|
|
|
4,087,880
|
|
|
Other operating expenses
|
|
|
600,242
|
|
|
|
899,722
|
|
|
|
863,920
|
|
|
|
401,860
|
|
|
|
(170,297
|
)
|
|
|
2,595,447
|
|
|
General and administrative
|
|
|
221,463
|
|
|
|
631,209
|
|
|
|
123,091
|
|
|
|
412,446
|
|
|
|
(13,411
|
)
|
|
|
1,374,798
|
|
|
Depreciation and amortization
|
|
|
75,009
|
|
|
|
7,256
|
|
|
|
193,853
|
|
|
|
85,562
|
|
|
|
—
|
|
|
|
361,680
|
|
|
Total operating expenses
|
|
|
2,757,679
|
|
|
|
3,184,660
|
|
|
|
1,467,390
|
|
|
|
1,193,784
|
|
|
|
(183,708
|
)
|
|
|
8,419,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
268,778
|
|
|
|
231,870
|
|
|
|
(463,609
|
)
|
|
|
(768,351
|
)
|
|
|
—
|
|
|
|
(731,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(22,138
|
)
|
|
|
(4,255
|
)
|
|
|
(1,373
|
)
|
|
|
141
|
|
|
|
—
|
|
|
|
(27,625
|
)
|
|
Other income (expense)
|
|
|
—
|
|
|
|
37,731
|
|
|
|
2,672
|
|
|
|
750
|
|
|
|
—
|
|
|
|
41,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) before income taxes:
|
|
|
246,640
|
|
|
|
265,346
|
|
|
|
(462,310
|
)
|
|
|
(767,460
|
)
|
|
|
—
|
|
|
|
(717,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
246,640
|
|
|
|
265,346
|
|
|
|
(462,310
|
)
|
|
|
(767,460
|
)
|
|
|
—
|
|
|
|
(717,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
277,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
277,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
246,640
|
|
|
$
|
265,346
|
|
|
$
|
(184,924
|
)
|
|
$
|
(767,460
|
)
|
|
$
|
—
|
|
|
$
|
(440,398
|
)
|
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
Summary Statement of Operations for the nine
months ended September 30, 2018:
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
10,591,621
|
|
|
$
|
11,259,484
|
|
|
$
|
4,292,727
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,143,832
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
1,032,756
|
|
|
|
—
|
|
|
|
1,303,698
|
|
|
|
(568,464
|
)
|
|
|
1,767,990
|
|
|
Total Revenue
|
|
|
10,591,621
|
|
|
|
12,292,240
|
|
|
|
4,292,727
|
|
|
|
1,303,698
|
|
|
|
(568,464
|
)
|
|
|
27,911,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
6,325,175
|
|
|
|
6,187,704
|
|
|
|
880,073
|
|
|
|
1,113,094
|
|
|
|
|
|
|
|
14,506,047
|
|
|
Other operating expenses
|
|
|
2,068,688
|
|
|
|
2,816,883
|
|
|
|
2,501,813
|
|
|
|
1,225,000
|
|
|
|
(526,965
|
)
|
|
|
8,085,419
|
|
|
General and administrative
|
|
|
877,376
|
|
|
|
1,910,084
|
|
|
|
280,667
|
|
|
|
1,159,073
|
|
|
|
(41,498
|
)
|
|
|
4,185,701
|
|
|
Depreciation and amortization
|
|
|
257,637
|
|
|
|
37,855
|
|
|
|
72,585
|
|
|
|
258,238
|
|
|
|
—
|
|
|
|
626,315
|
|
|
Total operating expenses
|
|
|
9,528,876
|
|
|
|
10,952,526
|
|
|
|
3,735,138
|
|
|
|
3,755,405
|
|
|
|
(568,464
|
)
|
|
|
27,403,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
1,062,745
|
|
|
|
1,339,714
|
|
|
|
557,589
|
|
|
|
(2,451,707
|
)
|
|
|
—
|
|
|
|
508,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
17,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,400
|
|
|
Interest income (expense)
|
|
|
(52,049
|
)
|
|
|
(15,532
|
)
|
|
|
525
|
|
|
|
19,429
|
|
|
|
—
|
|
|
|
(47,626
|
)
|
|
Miscellaneous Income (expense)
|
|
|
—
|
|
|
|
120,148
|
|
|
|
2,592
|
|
|
|
2,250
|
|
|
|
—
|
|
|
|
124,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before income taxes:
|
|
|
1,010,696
|
|
|
|
1,444,330
|
|
|
|
578,106
|
|
|
|
(2,430,028
|
)
|
|
|
—
|
|
|
|
603,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
1,010,696
|
|
|
|
1,444,330
|
|
|
|
578,106
|
|
|
|
(2,430,028
|
)
|
|
|
—
|
|
|
|
603,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(155,804
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(155,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
1,010,696
|
|
|
$
|
1,444,330
|
|
|
$
|
422,302
|
|
|
$
|
(2,430,028
|
)
|
|
$
|
—
|
|
|
$
|
447,301
|
|
Summary Statement of Operations for the nine
months ended September 30, 2017:
|
|
|
FCID
|
|
Brevard
|
|
|
|
|
|
Intercompany
|
|
|
|
|
|
Medical
|
|
Orthopaedic
|
|
CCSC
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Patient Service Revenue
|
|
$
|
9,074,335
|
|
|
$
|
9,383,159
|
|
|
$
|
3,442,458
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,899,952
|
|
|
Rental revenue
|
|
|
—
|
|
|
|
1,003,486
|
|
|
|
|
|
|
|
1,300,550
|
|
|
|
(580,451
|
)
|
|
|
1,723,585
|
|
|
Total Revenue
|
|
|
9,074,335
|
|
|
|
10,386,645
|
|
|
|
3,442,458
|
|
|
|
1,300,550
|
|
|
|
(580,451
|
)
|
|
|
23,623,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries & benefits
|
|
|
4,979,621
|
|
|
|
5,179,937
|
|
|
|
878,033
|
|
|
|
770,823
|
|
|
|
|
|
|
|
11,808,414
|
|
|
Other operating expenses
|
|
|
1,896,333
|
|
|
|
2,576,227
|
|
|
|
2,591,174
|
|
|
|
1,230,797
|
|
|
|
(538,078
|
)
|
|
|
7,756,453
|
|
|
General and administrative
|
|
|
586,039
|
|
|
|
2,019,947
|
|
|
|
427,454
|
|
|
|
1,172,676
|
|
|
|
(42,373
|
)
|
|
|
4,154,743
|
|
|
Depreciation and amortization
|
|
|
218,230
|
|
|
|
19,656
|
|
|
|
250,147
|
|
|
|
256,559
|
|
|
|
—
|
|
|
|
744,592
|
|
|
Total operating expenses
|
|
|
7,680,223
|
|
|
|
9,786,767
|
|
|
|
4,146,808
|
|
|
|
3,430,855
|
|
|
|
(580,451
|
)
|
|
|
24,464,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from operations:
|
|
|
1,394,112
|
|
|
|
599,878
|
|
|
|
(704,350
|
)
|
|
|
(2,130,305
|
)
|
|
|
—
|
|
|
|
(840,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
(74,439
|
)
|
|
|
(12,640
|
)
|
|
|
(2,712
|
)
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
(89,806
|
)
|
|
Other income (expense)
|
|
|
—
|
|
|
|
129,082
|
|
|
|
13,619
|
|
|
|
2,250
|
|
|
|
—
|
|
|
|
144,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) before income taxes:
|
|
|
1,319,673
|
|
|
|
716,320
|
|
|
|
(693,443
|
)
|
|
|
(2,128,070
|
)
|
|
|
—
|
|
|
|
(785,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Loss)
|
|
|
1,319,673
|
|
|
|
716,320
|
|
|
|
(693,443
|
)
|
|
|
(2,128,070
|
)
|
|
|
—
|
|
|
|
(785,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
416,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
416,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to First Choice Healthcare Solutions
|
|
$
|
1,319,673
|
|
|
$
|
716,320
|
|
|
$
|
(277,377
|
)
|
|
$
|
(2,128,070
|
)
|
|
$
|
—
|
|
|
$
|
(369,454
|
)
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report on
Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Forward-looking
statements reflect the current view about future events. When used in this quarterly report on Form 10-Q, the words “anticipate,”
“believe,” “estimate,” “expect,” “future,” “intend,” “plan,”
or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements.
Such statements include, but are not limited to, statements contained in this quarterly report on Form 10-Q relating to our business
strategy, our future operating results, and our liquidity and capital resources outlook. Forward-looking statements are based on
our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking
statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult
to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither
statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any
of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking
statements include, without limitation, the execution of our strategy to grow our business by hiring additional physicians to create
Medical Centers of Excellence that fit our defined criteria; evolving healthcare laws and regulations; changes in the rates or
methods of third-party reimbursements for medical services; accelerated pace of consolidation in the hospital industry; changes
in our medical technology as it relates to our services and procedures; any failures in our information technology systems to protect
the privacy and security of protected information and other similar cyber security risks; our ability to raise capital to fund
continuing operations; and other factors relating to our industry, our operations and results of operations and any new Medical
Centers of Excellence that we may open. Should one or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended
or planned.
Factors or events that
could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We
cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including
the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements
to actual results.
Overview
First Choice Healthcare
Solutions, Inc. (“FCHS,” “the Company,” “we,” “our” or “us”) is actively
engaged in implementing a defined growth strategy aimed at building a network of localized, integrated healthcare services platforms
comprised of non-physician-owned medical centers of excellence, which concentrate on treating patients in the following specialties:
Orthopaedics, Spine Surgery, Interventional Pain Medicine, Physical Therapy and related diagnostic and ancillary services in key
high growth markets throughout the Southeastern U.S.
The implementation of our
business plan, thus far, has allowed us to confirm that by integrating the synergistic mix of Orthopaedic, Spine Surgery, Interventional
Pain specialties and Physical Therapy with related diagnostic and ancillary services and state-of-the-art equipment and technologies
across legacy brick-and-mortar boundaries, we are able to effectively:
|
|
●
|
provide patients with direct and convenient access to musculoskeletal and rehabilitative care via our best-in-class team of surgeons, physicians and care specialists, and wide array of ancillary and diagnostic services, which includes, but is not limited to, magnetic resonance imaging (“MRI”), X-ray, Lab testing durable medical equipment (“DME”) and physical/occupational therapy (“PT/OT”);
|
|
|
|
|
|
|
●
|
empower physicians to collaborate as a unified care team, optimizing care coordination and improving outcomes;
|
|
|
|
|
|
|
●
|
advance the quality and cost effectiveness of our patients’ healthcare, thereby achieving faster recoveries at materially reduced costs; and
|
|
|
|
|
|
Managing over 100,000 patient
visits each year, our flagship system (“Melbourne System”) serves Florida’s high growth Space Coast region and
is comprised of the following well established Medical Centers of Excellence: First Choice Medical Group (“FCMG”),
The B.A.C.K. Center (“TBC”) and Crane Creek Surgery Center (“CCSC”).
Results of Operations
Three Months Ended September 30, 2018 as Compared to Three
Months Ended September 30, 2017
The following is a discussion
of the results of operations for the three ended September 30, 2018 compared to the three months ended September 30, 2017.
Revenues
Total revenue was $9,703,574
for the three months ended September 30, 2018, increasing 26% from $7,688,493 in the same period, prior year. Net patient service
revenue accounted for $9,115,267 of total revenue in 2018, and rental revenue was $588,306. This compared to net patient service
revenue of $7,127,045 and rental revenue of $561,448 for the three months ended September 30, 2017. The increase primarily was
attributable to First Choice Medical Group (“FCMG”) increase by $749,624 or 25%, Brevard Orthopedic Spine & Pain
Clinic, Inc. (“The B.A.C.K. Center”) increase by $616,935 or 20% and Crane Creek Surgical Center (“Center”)
increase by $621,664 or 62% for the same period last year, after factoring provision for doubtful accounts. Rental revenue increased
by $26,858, totaling $588,306 and $561,448 for the three months ended September 30, 2018 and 2017, respectively.
Operating Expenses
Operating expenses include
the following:
|
|
|
Three Months Ended September 30, 2018
|
|
Three Months Ended September 30, 2017
|
|
Salaries and benefits
|
|
$
|
5,440,822
|
|
|
$
|
4,087,880
|
|
|
Other operating expenses
|
|
|
2,749,769
|
|
|
|
2,595,447
|
|
|
General and administrative
|
|
|
1,506,915
|
|
|
|
1,374,798
|
|
|
Depreciation and amortization
|
|
|
225,495
|
|
|
|
361,680
|
|
|
Total operating expenses
|
|
$
|
9,923,001
|
|
|
$
|
8,419,805
|
|
The major components of
operating expenses include practice salaries and benefits, practice supplies and other operating costs, depreciation and general
and administrative expenses, which included legal, accounting and professional fees associated with being a public entity.
Salaries and benefits
increased 33% to $5,440,822 for the three months ended September 30, 2018, compared to $4,087,880 for the three months ended September
30, 2017. The increase was primarily due to the addition of physicians, physician assistants and physical therapy professional
personnel in the later part of 2017 and first quarter of 2018. Other operating expenses increased 6% to $2,749,769 from
$2,595,447 due to the increase in patient service volume from 2017 to 2018 stemming from the addition of new personnel and one-time
expenses related to setting up new physical therapy locations.
General and administrative
expenses was $1,506,915 for the three months ended September 30, 2018 as compared to $1,374,798 for the three months ended September
30, 2017, an increase of $132,117. The increase in spending is primarily related to legal costs associated with planned acquisitions
and recruitment and retention of providers.
Depreciation and amortization
decreased 37.7% from $361,680 reported for the three months ended September 30, 2017 to $225,495 reported for the three months
ended September 30, 2018. The decrease is primarily due to decreased depreciation expense relating to the Company’s aging
equipment.
Net Loss from Operations
Net loss from operations
for the three months ended September 30, 2018 totaled $219,429, which compared to a loss from operations of $731,312 for the prior
year. The reduction is a result of the increased revenue, net of increased operating expenses discussed above.
Interest Income (expense)
Interest income increased
to $13,105 for the three months ended September 30, 2018, which compared to interest expense of $27,625 for the three months ended
September 30, 2017. The increase primarily is due to short term interest received from cash accounts as compared to the same period
last year and the payoff of the Company’s equipment loans for diagnostic imaging equipment.
Net Loss attributable to FCHS Shareholders
As a result of all the
above, we reported net loss of $(263,587) for the three months ended September 30, 2018 as compared to net loss from $(440,398)
reported for the same year period in the prior year.
Segment Results
The Company reports segment
information based on the “management” approach. The management approach designates the internal reporting used by management
for making decisions and assessing performance as the source of the Company’s reportable segments.
Summary Statement of Operations
for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 are detailed in Note 11
of the accompanying unaudited condensed consolidated financial statements.
Nine Months Ended September 30, 2018 as Compared to Nine
Months Ended September 30, 2017
The following is a discussion
of the results of operations for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.
Revenues
Total revenue was $27,911,823
for the nine months ended September 30, 2018, increasing 18% from $23,623,537 in the same period, prior year. Net patient service
revenue, accounted for $26,143,832 of total revenue in 2018, and rental revenue was $1,767,990. This compared to net patient service
revenue of $21,899,952 and rental revenue of $1,723,585 for the nine months ended September 30, 2017. The increase primarily was
attributable to FCMG increase by $1,517,286 or 17%, The B.A.C.K. Center increase by $1,876,325 or 20% and Crane Center increase
by $850,270 or 25% for the same period last year, after factoring provision for doubtful accounts. Rental revenue increased by
$44,405, totaling $1,767,990 and $1,723,585 for the nine months ended September 30, 2018 and 2017, respectively.
Operating Expenses
Operating expenses include
the following:
|
|
|
Nine Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2017
|
|
Salaries and benefits
|
|
$
|
14,506,047
|
|
|
$
|
11,808,414
|
|
|
Other operating expenses
|
|
|
8,085,419
|
|
|
|
7,756,453
|
|
|
General and administrative
|
|
|
4,185,701
|
|
|
|
4,154,743
|
|
|
Depreciation and amortization
|
|
|
626,315
|
|
|
|
744,592
|
|
|
Total operating expenses
|
|
$
|
27,403,482
|
|
|
$
|
24,464,202
|
|
The major components of
operating expenses include practice salaries and benefits, practice supplies and other operating costs, depreciation and general
and administrative expenses, which included legal, accounting and professional fees associated with being a public entity.
Salaries and benefits
increased 22.8% to $14,506,047 for the nine months ended September 30, 2018, compared to $11,808,414 for the nine months ended
September 30, 2017. The increase was primarily due to the addition of physicians, physician assistants and physical therapy professional
personnel in the later part of 2017 and the first quarter of 2018. Other operating expenses increased 4% to $8,085,419
from $7,756,453 due to the increase in patient service volume from 2017 to 2018 stemming from the addition of new personnel and
one-time expenses related to setting up new physical therapy locations.
General and administrative
and other operating expenses was $4,185,701 for the nine months ended September 30, 2018 as compared to $4,154,743 for the nine
months ended September 30, 2017 an increase of $30,958. The increase in spending primarily related to legal costs associated with
potential acquisitions and startup costs of additional providers for our existing business.
Depreciation and amortization
decreased 15.9% from $744,592 reported for the nine months ended September 30, 2017 to $626,315 reported for the nine months ended
September 30, 2018. The decrease is primarily due to decreased depreciation expense relating to the Company’s aging of equipment.
Net Income (Loss) from Operations
Net income (loss) from
operations for the nine months ended September 30, 2018 totaled $508,341, which compared to a loss from operations of $(840,665)
for the prior year. The increase is a result of the increased revenue, net with increased operating expenses discussed above.
Interest Expense, net
Interest expense, net declined
47% to $47,626 for the nine months ended September 30, 2018, which compared to interest expense of $89,806 for the nine months
ended September 30, 2017. The decrease primarily is due to a reduction in overall debt as compared to the same period last year.
Net Income(loss) attributable to FCHS Shareholders
As a result of all the
above, we reported net income of $447,301 for the nine months ended September 30, 2018 as compared to net loss of $369,454 reported
for the same year period in the prior year.
Segment Results
The Company reports segment
information based on the “management” approach. The management approach designates the internal reporting used by management
for making decisions and assessing performance as the source of the Company’s reportable segments.
Summary Statement of Operations
for the three and nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017 are detailed
in Note 11 of the accompanying unaudited condensed consolidated financial statements.
Liquidity and Capital Resources
As of September 30, 2018,
we had cash of $7,677,797 and accounts receivables, net totaling $11,231,760. This compared to cash of $2,695,482 and accounts
receivable, net of $11,119,757 for the same period in 2017.
The Company believes that
the current cash balance and line of credit available with CT Capital, LTD as of September 30, 2018, along with continued
execution of its business development plan, will allow the Company to further improve its working capital; and currently anticipates
that it will have sufficient capital resources to meet projected cash flow requirements through the date at least one year from
the filing of this report.
However, in order to execute
the Company’s business development plan, which there can be no assurance we will achieve, the Company may need to raise additional
funds through public or private equity offerings, debt financings, corporate collaborations or other means and potentially reduce
operating expenditures. If the Company is unable to secure additional capital, it may be required to curtail its business development
initiatives and take additional measures to reduce costs to conserve its cash.
Net cash used in our operating
activities for the nine months ended September 30, 2018 totaled $1,062,901, which compared to net cash used in our operations for
the nine months ended September 30, 2017 of $1,118,499. The decrease in cash used for the nine months ended September 30, 2018
was due primarily to our 2018 net income as compared to a net loss in 2017 and our net increase in our operating liabilities of
$418,179 as compared to a net increase of $564,036 for the nine months ended September 30, 2017 partially offset by our growth
in accounts receivables.
Net cash flows used in
investing activities was $1,068,564 for the nine months ended September 30, 2018, compared to $281,618 used by investing
activities for the nine months ended September 30, 2017. Investing activities for 2018 was comprised of $400,000 to acquire an
additional 25% interest in Crane Creek, $685,964 to purchase equipment and proceeds from sale of equipment of $17,400 as
compared to $281,618 to purchase equipment in same period, prior year.
Net cash provided in financing
activities was $7,776,986 for nine months ended September 30, 2018, compared to net cash used in financing activities of $6,024,152
for the nine months ended September 30, 2017. The cash flows used in our financing activities were the result of:
|
|
|
Nine Months Ended
September 30,
2018
|
|
Nine Months Ended
September 30,
2017
|
|
Proceeds from sale of common stock
|
|
$
|
7,500,000
|
|
|
$
|
—
|
|
|
Proceeds from note payable
|
|
|
338,245
|
|
|
|
86,713
|
|
|
Proceeds from settlement, due to non-controlling interest
|
|
|
—
|
|
|
|
6,521,655
|
|
|
Proceeds from line of credit
|
|
|
—
|
|
|
|
500
|
|
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(187,121
|
)
|
|
Payments on notes payable
|
|
|
(44,517
|
)
|
|
|
(397,595
|
)
|
|
Net cash provided by financing activities
|
|
$
|
7,793,728
|
|
|
$
|
6,024,152
|
|
Our aim is to distinguish
our Medical Centers of Excellence from our competition by earning our Centers’ reputations as premier destinations for clinically
superior, patient-centric care which is coordinated across our patients’ entire care continuums. By doing so, we deliver
more meaningful and collaborative doctor-patient experiences, provide more accurate diagnoses resulting from care coordination,
effective treatment plans, faster recoveries, and materially reduced costs.
Our strategic focus
is to grow and partner with Steward Healthcare to expand our orthopaedic and spine care delivery platform into Steward’s
35 nationwide hospital systems. Currently we are utilizing two Steward facilities and are in the process of evaluating the next
hospital to implement our targeted delivery platform.
On February 6, 2018, the Company entered into
a strategic partnership with Steward Health Care System, LLC (“Steward”). As part of the strategic partnership,
Steward made an investment into the Company in the amount of $7.5 million for 5 million shares, allowing the Company to continue
to expand its business model and geographic footprint nationally. On March 1, 2018, the Company issued five (5) million shares
of common stock in exchange for cash proceeds of $7.5 million.
Our business model is centered
on our team of employed and contracted physicians constituting a “group practice” under The Ethics in Patient Referral
Act of 1989, as amended (more commonly known as the Stark Law), thereby permitting us to optimize revenue generation from both
physicians and ancillary services, while also providing our employed care providers with the ability to utilize our on-site diagnostic
and ancillary services. Physician-owned practices, on the other hand, may be subject to prevailing federal regulations (e.g., The
Ethics in Patient Referral Act of 1989, as amended; more commonly known as the “Stark Law”), which may limit their
ability to refer patients for certain healthcare services provided by entities in which a physician-owner(s) has a financial interest.
Our growth will be fueled
by hiring best-in-class Orthopaedic physicians currently practicing in our target expansion markets. We will identify physicians
in those markets that are seeking an alternative to owning and operating their own private practices or being employed by local
hospitals. As necessary we will add diagnostic and ancillary services, to include an ambulatory surgery center, MRI, X-Ray, DME,
Lab testing and PT/OT will also be added to these platforms.
We believe that our centralized
system of operations will continue to allow us to achieve measurable cost and productivity efficiencies as we expand the number
of centers and platforms we own and operate. We have specifically designed our centralized back office system to alleviate staff
physicians from business administrative responsibilities associated with operating a medical practice or clinic, enabling them
to focus strictly on caring for our patients (allowing “Doctors to be Doctors”). This is extremely attractive to physicians
who own and manage their own private practices or clinics and devote valuable time and resources towards addressing business concerns
– time and resources that might otherwise be spent on treating their patients.
There can be no assurance
that our cash flow will increase in the near future from anticipated new business activities, or that revenues generated from our
existing operations will be sufficient to allow us to continue to pursue new customer programs or profitable ventures.
Inflation
Our opinion is that inflation
has not had, and is not expected to have, a material effect on our operations.
Off-Balance Sheet Arrangements
At September 30, 2018,
we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures
or capital resources.
New Accounting Pronouncements
We do not expect recent
accounting pronouncements will have a material impact on our condensed consolidated financial position, results of operations or
cash flows. See Footnote 2 in the accompanying condensed consolidated financial statements for additional information.