The accompanying notes are an integral part of these financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On June 22, 2012, FAB Universal (FAB) formed Future Healthcare of America (FHA), a wholly owned subsidiary. On October 1, 2012, FHA operations were spun-off in a 1 for 1 dividend to the shareholders of record of FAB on September 5, 2012, the record date. On November 14, 2014, FHA organized Future Healthcare Services Corp. (FHS), and transferred all the shares of Interim to FHS. Interim Healthcare of Wyoming, Inc. (Interim), a Wyoming corporation, a wholly owned subsidiary of FHS, was organized on September 30, 1991. Interim operates primarily in the home healthcare and healthcare staffing services in Wyoming and Montana. On April 3, 2007, Interim purchased the operations of Professional Personnel, Inc., d.b.a., Professional Nursing Personnel Pool.
Consolidation
- The financial statements presented reflect the accounts of FHA, FHS and Interim. All inter-company transactions have been eliminated in consolidation.
Accounting Estimates
- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management made assumptions and estimates for determining reserve for accounts receivable, obsolete inventory and in determining the impairment of definite life intangible assets and goodwill. Actual results could differ from those estimated by management.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. At March 31, 2017, the Company had no cash balances in excess of federally insured limits.
Accounts Receivable
- Accounts receivable consist of trade receivables arising in the normal course of business. At March 31, 2017 and 2016, the Company has an allowance for doubtful accounts of $20,200, which reflects the Company's best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the three months ended March 31, 2017 and 2016, the Company adjusted the allowance for bad debt by $0.
Depreciation
- Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives.
Income /(Loss) Per Share
- The Company computes income (loss) per share in accordance with Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 260 Earnings Per Share, which requires the Company to present basic earnings per share and diluted earnings per share when the effect is dilutive (see Note 7).
Leases -
The Company accounts for leases in accordance with Financial FASB ASC Topic 840, (formerly Statement of Financial Accounting Standards SFAS No. 13 "Accounting for Leases"). Leases that meet one or more of the capital lease criteria of standard are recorded as a capital lease, all other leases are operating leases.
Income Taxes
- The Company accounts for income taxes in accordance with FASB ASC Topic 740 Accounting for Income Taxes. This topic requires an asset and liability approach for accounting for income taxes (see Note 8).
Advertising Costs
- Advertising costs are expensed as incurred and amounted to $11,170 and $9,923 for the periods ending March 31, 2017 and 2016, respectively.
6
FUTURE HEALTHCARE OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Fair Value of Financial Instruments
The Company accounts for fair value measurements for financial assets and financial liabilities in accordance with FASB ASC Topic 820. The authoritative guidance, which, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would either be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Unless otherwise disclosed, the fair value of the Companys financial instruments including cash, accounts receivable, prepaid expenses, and accounts payable and accrued expenses approximates their recorded values due to their short-term maturities.
Revenue Recognition
- Revenue is generated from various payers including Medicare, Medicaid, Insurance Companies, and various other entities and individuals. In accordance with FASB ASC Topic 605, Revenue is recognized when persuasive evidence of an arrangement exists, services have been provided, the price of services is fixed or determinable, and collection is reasonably assured. Payments received prior to services being provided are recorded as a liability (deferred revenue) until such services are performed. Revenue is recorded as net revenue where contractual adjustments and discounts are deducted from Gross Revenue to determine net revenue.
Derivative Financial Instruments
The Company is required to recognize all of its derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated, and is effective, as a hedge and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, or cash flow hedge. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item or are deferred and reported as a component of Accumulated Other Comprehensive Income in the Stockholders' Equity and subsequently recognized in Net income when the hedged item affects Net income. The change in fair value of the ineffective portion of a financial instrument is recognized in Net income immediately. The gain or loss related to financial instruments that are not designated as hedges are recognized immediately in Net income.
Recently Enacted Accounting Standards -
In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, the FASB agreed to delay the effective date by one year; accordingly, the new standard is effective for us beginning in the first quarter of 2018 and we expect to adopt it at that time. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method, nor have we determined the impact of the new standard on our consolidated financial statements.
7
FUTURE HEALTHCARE OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In February 2016, the FASB issued changes to the accounting for leases that primarily affect presentation and disclosure requirements. The new standard will require the recognition of a right to use asset and underlying lease liability for operating leases with an initial life in excess of one year. This standard is effective for us beginning in the first quarter of 2019. We have not yet determined the impact of the new standard on our consolidated financial statements.
Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Companys present or future financial statements.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has incurred losses, an accumulated deficit and has a short-term note payable in excess of anticipated cash. These factors raise substantial doubt about the ability of the Company to continue as a going concern. There is no assurance that the Company will be successful in achieving profitable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 - PROPERTY & EQUIPMENT
The following is a summary of property and equipment at:
|
|
|
|
|
|
| |
|
Life
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
2-10 yrs
|
$
|
36,384
|
$
|
36,384
|
|
|
|
|
36,384
|
|
36,384
|
|
|
Less: Accumulated depreciation
|
|
|
(36,384)
|
|
(36,384)
|
|
|
Property & equipment, net
|
|
$
|
-
|
$
|
-
|
|
Depreciation expense for the periods ended March 31, 2017 and 2016 was $0 and $16, respectively.
NOTE 4 VARIABLE RATE SENIOR SECURED CONVERTIBLE DEBENTURE
On September 9, 2013, the Company closed a Subscription Agreement by which one institutional investor purchased a) a Variable Rate Senior Secured Convertible Note payable having a total principal amount of $1,010,000, convertible into common shares of the Company at $0.25 per share and maturing March 9, 2015; b) Warrants to purchase a total of 3,030,000 shares of common stock, at $0.50 per share, exercisable for four years, and c) a greenshoe to purchase a total of 2,000,000 shares of common stock at $0.25 per share, exercisable for one year from the closing date. On September 9, 2014 the greenshoe expired unexercised. On March 9, 2015, the Note matured. As the note has not been paid nor extended, the outstanding principal, plus accrued but unpaid interest, liquidated damages and other amounts, became due and payable at the election of the holder. The holder has not made such an election.
The fair value of the beneficial conversion feature of the warrants and greenshoe totaled $952,254 and was recorded as a derivative liability. The Company recorded a discount on the note for beneficial conversion feature of the note. The $952,254 discount on the beneficial conversion feature was amortized as interest expense over the term of the note. As of March 31, 2017, the Company has amortized $952,254 of the discount, with no remaining unamortized discount being offset against the outstanding balance of the note in the accompanying balance sheet. As of March, 31, 2017, the Company had accrued interest payable on the debenture of $259,052.
8
FUTURE HEALTHCARE OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 NOTE PAYABLE
On January 20, 2017, the Company financed the premium for directors and officers insurance. The Company borrowed $22,216 at 6.00% interest, and the note will be repaid in 10 equal installments of $2,883. As of March 31, 2017, the balance of the note payable was $20,044.
NOTE 6 DERIVATIVE FINANCIAL INSTRUMENTS
The Company entered into a variable rate senior secured convertible debenture, wherein the Company agreed to register the underlying share, warrants and greenshoe. The fair value of the beneficial conversion feature of the warrants and greenshoe was estimated using the Black Scholes pricing model and totaled $952,254 upon issuance and was recorded as a derivative liability. As of March 9, 2015 and March 31, 2015, the fair value of the unregistered conversion feature of the Note Payable based on the following assumptions (Life 0, risk-free interest rate 0, volatility of 0, and stock price of $.15 and conversion price of $.25) was $0, resulting in the recording of a gain totaling $311,244. As of March 31, 2017, the fair value of the warrants based on the following assumptions (Life .44years, risk free interest rate 0.91%, volatility of 211.38%, stock price of $.08 and exercise price of $.50) was $32,821, and a gain totaling $20,667 was recorded for the three months ended March 31, 2017.
NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Fair Value Measurement and Disclosure Topic of FASB and ASC:
·
Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value;
·
Establishes a three-level hierarchy for fair value measurement based upon the transparency of inputs to the valuation as of the measurement date;
·
Expands disclosures about financial instruments measured at fair value.
Financial assets and financial liabilities record on the Balance sheet at fair value are categorized based on the reliability of inputs to the valuation techniques as follows:
Level 1: Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.
Level 2: Financial assets and financial liabilities whose values are based on the following:
Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in non-active markets or Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the assets or liability
Level 3: Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect our estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.
The following tables summarize Level 1, 2 and 3 financial assets and financial (liabilities) by their classification in the Consolidated Balance Sheet:
|
|
|
|
|
| |
As of March 31, 2017:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liability Conversion feature of warrants
|
|
-
|
|
-
|
|
(32,821)
|
9
FUTURE HEALTHCARE OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK
Common Stock
- The Company has authorized 200,000,000 shares of common stock, $0.001 par value. As of March 31, 2017, 11,265,631 shares were issued and outstanding.
NOTE 9 WARRANTS AND GREENSHOE
A summary of the status of the warrants granted is presented below for the three months ended:
|
|
|
|
|
|
| |
|
March 31, 2017
|
|
December 31, 2016
|
|
Shares
|
|
Weighted Average Exercise
Price
|
|
Shares
|
|
Weighted Average Exercise
Price
|
Outstanding at beginning of period
|
3,030,000
|
$
|
0.50
|
|
3,030,000
|
$
|
0.50
|
Granted
|
-
|
|
-
|
|
-
|
|
-
|
Exercised
|
-
|
|
-
|
|
-
|
|
-
|
Forfeited
|
-
|
|
-
|
|
-
|
|
-
|
Expired
|
-
|
|
-
|
|
-
|
|
-
|
Outstanding at end of period
|
3,030,000
|
$
|
0.50
|
|
3,030,000
|
$
|
0.50
|
On September 9, 2013, the Company closed a Subscription Agreement wherein the Company granted warrants to purchase a total of 3,030,000 shares of common stock, at $0.50 per share, exercisable for four years.
NOTE 10 - INCOME TAXES
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Accounting for Income Taxes which requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards.
Because of the uncertainty surrounding the realization of the loss carryforwards and significant changes in the ownership of the Company, a valuation allowance has been established equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards. The net deferred tax assets are approximately $1,300,000 as of March 31, 2017, with an offsetting valuation allowance of the same amount.
NOTE 11 LEASES
Operating Lease
- The Company leases office space in Casper, Wyoming for $4,892 a month through June 2018. The Company further leases space in Billings, Montana for $1,490 a month on a month to month basis.
The future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2017 are as follows:
| |
Twelve months ending March 31
|
Lease Payments
|
2018
|
58,704
|
2019
|
14,676
|
2020
|
-
|
2021
|
-
|
Thereafter
|
-
|
Total Minimum Lease Payments
|
$73,380
|
10
FUTURE HEALTHCARE OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 LEASES - Continued
Lease expense charged to operations was $19,146 and $19,146 for the three months ended March 31, 2017 and 2016, respectively.
NOTE 12 INCOME/ (LOSS) PER SHARE
The following data shows the amounts used in computing income (loss) per share and the weighted average number of shares of common stock outstanding for the periods presented for the periods ended:
|
|
|
| |
|
|
For the Three Months
|
|
|
March 31
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Income/(Loss) from continuing operations available to common stockholders (numerator)
|
$
|
(70,937)
|
$
|
16,944
|
Income/(Loss) available to common stockholders (numerator)
|
|
(70,937)
|
|
16,944
|
Weighted average number of common shares outstanding during the period used in loss per share (denominator)
|
|
11,265,631
|
|
11,265,631
|
At March 31, 2017 and 2016, the Company had 3,030,000 and 3,030,000, respectively, warrants to purchase common stock of the Company at $0.50 per share, and a convertible debenture payable wherein the holder could convert the note and underlying accrued interest into a minimum of 6,919,259 and 5,416,283, respectively shares of common stock which were not included in the loss per share computation because their effect would be anti-dilutive.
NOTE 13 - SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date and time of this report.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
.
Safe Harbor Statement
.
Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to gain a larger share of the home healthcare industry, our ability to continue to develop services acceptable to our industry, our ability to retain our business relationships, and our ability to raise capital and the growth of the home healthcare industry, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission: general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the home healthcare industry, the development of services that may be superior to the services offered by the Company, competition, changes in the quality or composition of the Company's services, our ability to develop new services, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Companys operations, services and prices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Business Highlights
Based in Casper, Wyoming, and Billings, Montana, FHAs subsidiary, Interim Healthcare of Wyoming, Inc., a Wyoming corporation (Interim), is an independent franchisee of Interim HealthCare that has been serving its community for 20 years and is providing a wide range of visiting nurse services to the elderly, wounded and sick. It is one of the 300 independent home health agencies that comprise the Interim HealthCare network. Our business consists of providing healthcare services for those in need. We record all revenue and expenses and provide all services under one umbrella. Below is a description of our Home Healthcare and Staffing operations.
As the census (number of patients utilizing facilities) in the hospitals fluctuates, we are taking the necessary steps to position ourselves for the ups and downs of the census for these facilities. Our home healthcare service continued to generate the majority of our revenue during the first quarter of 2017.
During the first quarter of 2017, FHA experienced a 6% decrease in revenue over the first quarter of 2016. This was driven by a decrease in our Billings, Montana staffing businesses, which was partially off-set by an increase in home healthcare business in Casper, Wyoming.
During the first quarter of 2017, we have seen a significant decrease in the utilization staffing services in Billings, Montana as facilities that use our services receive directives to remove and reduce the use of staffing services. As for our operations, we anticipate the trends seen in the first quarter of 2017 to continue into the second quarter of 2017. We anticipate a continued slowing of the use of our staffing services. We also anticipate a slowing of the utilization of our home healthcare business in Casper. As such, we will continue to evaluate opportunities to expand the realm of services we offer. Promotional activities and operations are being managed as the offices experience fluctuations in the day-to-day activities and as we embark on new business opportunities.
12
Our home healthcare business continues to be a substantial revenue generator for our Company as our country's population ages and new methods of patient data capture become critical components for delivering high quality, affordable healthcare services in a patient's home.
Home Healthcare
Through trained health care professionals, the Company provides home care services including senior care and pediatric nursing; physical, occupational and speech therapy. The Company offices deliver quality home care and treat each patient with genuine compassion, kindness and respect. The Company provides health care professionals at all skill levels, including registered nurses, therapists, LPN's and certified home health aides. FHA derives is revenue from multiple payer sources. These include Medicare, Medicaid, Insurance, Medicaid LTW, and Private Payers. Because our offices are located in areas that do not contain a large population base (less than 200,000 residents), we continually explore opportunities to increase our revenue with our current payer sources and expand through new sources of revenue. The healthcare team is utilized across all payer sources, including staffing services. Our customer base comes from referrals from hospitals, rehab facilities, nursing homes, assisted living facilities and previous patients.
In additional to our professional team, we employ a management team at each facility to handle the day to day operations of the office. This is completed by our Administrators in each location. We also have a Director of Nursing in each location. This person is responsible for the day to day oversight of the service providers and ensuring the certified professionals obtain the necessary training to maintain their certificates as well as the training necessary to be in compliance with all regulating organizations.
Staffing
Interim offices provide nurses, nurse aides and management services to hospitals, prisons, schools, corporations and other health care facilities. Interims success is based on our ability to recruit the best health care professionals and the responsiveness of our local managers to fill the needs of our clients in a timely manner. Additionally, we work with our clients should they decide they would like to hire our service professionals on a full time basis. Another key to our success is the personal relationship that our management and sales team build with each of our existing and new clients. As noted previously, in order to reduce turnover of our service team by providing as many hours as possible, similar to the hours of a full-time employee, we utilize the same service team members across all payer sources.
As each of our businesses is located in smaller based population areas of the country, the competition is significantly heightened and the relationships maintained with our clients become very critical to the continued success of our operations.
As we provide diversified services and accept payments from multiple payer sources, we are not heavily dependent on a few clients in order for our business to be successful.
Results of Operations
Three Months Ended March 31, 2017 and 2016
During the three months ended March 31, 2017, FHA recorded revenues of $995,428, a 6% decrease over revenues of $1,058,576 for the same period in 2016. The decrease for 2017 was driven by a decrease in the use of our staffing services in Billings, Montana, partially off-set by an increase in our home healthcare services in Casper, Wyoming.
For the quarter ended March 31, 2017, cost of services totaled $701,485, a 9% decrease as compared to $767,290 in the comparable period of 2016. This is a reflection of the costs associated with the decrease in revenue as well as a decrease in utilization rates because of new staff hiring and training. FHA posted a gross profit of $293,943 during the first quarter 2017, versus a gross profit of $291,286 for the first quarter of 2016, an increase of 1%.
13
FHA recorded total operating expenses of $360,153 during the first quarter of 2017, a 7% increase as compared to operating expenses of $337,434 in the same period of 2016. General and administrative expenses totaled $125,929 in the first quarter 2017 versus $99,611 in the first quarter 2016, an increase of 26%, due to an increase in legal fees and insurance costs. Consulting fees decreased from $50,243 to $47,299 when comparing the first quarter of 2016 versus 2017. Salaries, wages and related expenses decreased to $169,841 in the first quarter of 2017 from $171,283 in 2016, a decrease of 1%. This decrease was due to change in personnel in our Casper location in the first quarter. Selling expenses in the first quarter of 2017 were $17,084 versus $16,297 in the comparable quarter of 2016.
FHAs net loss was $70,937 for the first quarter of 2017. This represents an $87,881 decrease from our net income of $16,944 in the first quarter of 2016. A portion of this change was due the recording of $88,247 gain on the derivative instruments, in the first quarter of 2016, as compared to $20,667 in the 2017 period.
Liquidity and Capital Resources
.
Cash on hand was $136,732 at March 31, 2017, a decrease of $69,620 from the $206,352 on hand at December 31, 2016. Cash used in operations for the three months ended March 31, 2017, was $89,664, versus cash used in operation of $46,942 for the three months ended March 31, 2016. The increase is a result of the first quarter increase of accounts receivables and our results of operations in our Casper and Billings locations.