Quarterly report pursuant to Section 13 or 15(d)

VARIABLE INTEREST ENTITY

v3.10.0.1
VARIABLE INTEREST ENTITY
9 Months Ended
Sep. 30, 2018
Variable Interest Entity  
VARIABLE INTEREST ENTITY

NOTE 9 — VARIABLE INTEREST ENTITY

 

Brevard Orthopaedic Spine & Pain Clinic, Inc.

 

The Company has determined that The B.A.C.K. Center is a VIE. In evaluating whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and the Company’s decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

 

In determining whether the Company has the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, the Company evaluates all its economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s structure, including: the entity’s capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have potential to be economically significant.

 

The evaluation of each of these factors in reaching a conclusion about the potential significance of the Company’s economic interests is a matter that requires the exercise of professional judgment. The assets of The B.A.C.K. Center can only be used to settle obligations of the VIE, additionally, creditors of The B.A.C.K. Center do not have recourse against the general credit of the primary beneficiary.

 

The tables below summarize the assets and liabilities associated with The B.A.C.K. Center as of 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.

 

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  

 

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)