Quarterly report pursuant to Section 13 or 15(d)

VARIABLE INTEREST ENTITY

v3.7.0.1
VARIABLE INTEREST ENTITY
6 Months Ended
Jun. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
VARIABLE INTEREST ENTITY

NOTE 9 — VARIABLE INTEREST ENTITY

 

Brevard Orthopaedic Spine & Pain Clinic, Inc.

 

Effective May 1, 2015, the Company, through its 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 we 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. We issued 3,000,000 options to purchase our Company’s Common Stock at $1.35 per share with vesting contingent on The B.A.C.K. Center employees signing employment contracts with First Choice – Brevard. The initial term of the Agreement relating to the options expired on December 31, 2016, with the Company having the right to extend the term until December 31, 2023. We exercised our option to extend the term until December 31, 2017.

 

The Company has determined that The B.A.C.K. Center is a Variable Interest Entity (“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 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 tables below summarize the assets and liabilities associated with The B.A.C.K. Center as of June 30, 2017 and December 31, 2016:

 

   

June 30,

2017

   

December 31,

2016

 
Current assets:                
Cash   $ 608,790     $ 355,491  
Accounts receivable     4,860,247       4,830,054  
Other current assets     827,864       691,847  
Total current assets     6,296,901       5,877,392  
Property and equipment, net     75,245       70,444  
Other assets     22,005       22,005  
Total assets   $ 6,394,151     $ 5,969,841  
Current liabilities:                
Accounts payable and accrued liabilities   $ 987,774     $ 904,684  
Due to First Choice Healthcare Solutions, Inc.     3,159,066       2,867,539  
Other current liabilities     677,447       677,446  
Total current liabilities     4,824,287       4,449,669  
Long term debt     1,708,550       1,658,858  
Total liabilities     6,532,837       6,108,527  
Non-controlling interest     (138,686 )     (138,686 )
Total liabilities and deficit   $ 6,394,151     $ 5,969,841  

 

Total revenues from The B.A.C.K. Center were $3,539,460 and $6,970,115 for the three and six months ended June 30, 2017. Related expenses consisted primarily of salaries and benefits of $1,814,747 and $3,533,464, other operating expense of $820,023 and $1,676,505, general and administrative expenses of $821,101 and $1,541,333, depreciation of $6,238 and $12,400, interest and financing costs of $4,481 and $8,385; and other income of $45,667 and $91,351 for the three and six months ended June 30, 2017, respectively. (See Note 11 – Segment Reporting)

 

Total revenues from The B.A.C.K. Center were $3,562,161 and $6,955,158 for the three and six months ended June 30, 2016. Related expenses consisted primarily of salaries and benefits of $1,762,710 and $3,220,621, other operating expenses of $782,619 and$1,564,117, general and administrative expenses of $769,315 and $1,492,807, depreciation of $5,701 and $11,216, interest and financing costs of $3,947 and $7,394; and other income of $44,506 and $101,231 for the three and six months ended June 30, 2016, respectively. (See Note 11 – Segment Reporting)

 

Crane Creek Surgery Center

 

Effective October 1, 2015, the Company, through its then newly formed wholly owned subsidiary, CCSC Holdings, Inc., acquired a 40% interest in Crane Creek Surgery Center (“Crane Creek”).

 

In connection with the investment, the Company is entitled to 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 Crane Creek.

 

The Company has determined that Crane Creek is a Variable Interest Entity (“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 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.

 

The tables below summarize the assets and liabilities associated with the Crane Creek as of June 30, 2017 and December 31, 2016:

 

   

June 30,

2017

   

December 31,

2016

 
Current assets:                
Cash   $ 313,182     $ 353,367  
Accounts receivable     1,222,641       1,180,907  
Other current assets     116,757       129,430  
Total current assets     1,652,580       1,663,704  
Property and equipment, net     578,647       623,185  
Goodwill     899,465       899,465  
Total assets   $ 3,130,692     $ 3,186,354  
 Current liabilities:                
Accounts payable and accrued liabilities   $ 635,366     $ 461,489  
Other current liabilities     251,588       251,588  
Total current liabilities     886,954       713,077  
Deferred rent     557,645       556,051  
Total liabilities     1,444,599       1,269,128  
                 
Equity-First Choice Healthcare Solutions, Inc.     674,438       766,891  
Non-controlling interest     1,011,655       1,150,335  
Total liabilities and deficit   $ 3,130,692     $ 3,186,354  

 

Total revenues from Crane Creek were $1,248,252 and $2,438,677 for the three and six months ended June 30, 2017. Related expenses consisted primarily of salaries and benefits of $293,208 and $591,507, practice supplies and operating expenses of $875,132 and $1,727,254, general and administrative expenses of $168,009 and $304,363, depreciation of $28,145 and $56,294, interest expense of $473 and $1,339 and miscellaneous income of $7,279 and $10,947 for the three and six months ended June 30, 2017, respectively. (See Note 11 – Segment Reporting)

 

Total revenues from Crane Creek were $1,446,053 and $2,717,361 for the three and six months ended June 30, 2016. Related expenses consisted primarily of salaries and benefits of $314,056 and $607,393, practice supplies and operating expenses of $830,261 and $1,539,907, general and administrative expenses of $125,893 and $235,168, depreciation of $(22,244) and $49,012, interest expense of $1,361 and $10,087, gain on sale of equipment of $23,378 and $23,378 and miscellaneous income of $1,556 and $2,938 for the three and six months ended June 30, 2016, respectively. (See Note 11 – Segment Reporting)