FCHS 10-Q
First Choice Healthcare Solutions, Inc. (FCHS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 13, 2024, there were shares outstanding of the registrant’s Common Stock, par value $.
| 2 |
FIRST CHOICE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in dollars, unaudited)
| As of | As of | |||||||
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Deposits | ||||||||
| Other Current Assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | |||||||
| Operating lease liabilities, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities: | ||||||||
| PPP loan payable | ||||||||
| Operating lease liabilities, non-current portion | ||||||||
| Convertible notes | ||||||||
| Total liabilities | $ | $ | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A Convertible Preferred stock; $ par value, shares authorized, and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value, shares authorized and shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, common shares, at cost | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
FIRST CHOICE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in dollars, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Revenue, net of discounts | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Cost of sales | ||||||||||||||||
| Gross (deficit) profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses | ||||||||||||||||
| Compensation expense | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Gain (loss) on sale of equipment | ( | ) | ( | ) | ||||||||||||
| Miscellaneous income (expense) | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income taxes expense (benefit) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted income (loss) per common share | ||||||||||||||||
| Net loss per common share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2024
(unaudited, in dollars)
| Additional | ||||||||||||||||||||||||||||
| Common stock | Preferred stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Dividends payable on Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Dividends payable on Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Dividends payable on Preferred Stock | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in dollars)
| For the Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Loss on disposition of assets | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of debt discount | ( | ) | ||||||
| Preferred dividends - accrued | ||||||||
| Provision for bad debts | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Other current assets | ( | ) | ||||||
| (Increase) decrease in leased assets | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| (Increase) decrease in lease liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | $ | $ | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of fixed assets | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | $ | ( | ) | $ | ||||
| Cash flows from financing activities: | ||||||||
| Payments on notes payable | ( | ) | ||||||
| Proceeds from issuance of convertible notes | ||||||||
| Proceeds from sale of preferred stock | ||||||||
| Net cash provided by (used in) financing activities | $ | $ | ||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Note Payable addition from OID | $ | $ | ||||||
| Warrants issued for debt discount | ||||||||
| Common shares issued for convertible notes - inducement | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(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 nurse practitioner driven primary care clinics providing services including family primary care, anti-aging, dermatology, weight loss, hormone replacement therapy, functional and genetic testing, nutritional counseling, as well as behavioral health.
The
unaudited condensed consolidated financial statements of First Choice Healthcare Solutions, Inc., a
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, 2024 and for the three and nine months ended September 30, 2024 and 2023. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 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, 2023, and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on May 13, 2024.
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
The Company recognizes revenue in accordance with Accounting Standards Codification No. 606, “Revenue from Contracts with Customers”, when: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Patient Service Revenue
Our revenues relate to (i) net patient fees received from various third-party payers and patients themselves under contracts in which our performance obligations are to provide services to the patients and (ii) and patient fees, co-pays, and deductibles paid by patients themselves.
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 provide for payments based upon predetermined rates for services or discounted fee-for-service rates. Gross revenues are recorded at our standard rates upon completion of the performance obligations to the patients, and an estimate of the discounts applicable to third-party payers is recorded as contra revenue in the same period, based on the contractual arrangements with those third-party payers. 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.
The payment terms with third party payers typically involve processing time allowances resulting in payment within 30 to 60 days from the date of service. The payment terms with patients provides for services fees, co-pays, and deductibles to be due at the time of service.
| 7 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(unaudited)
Concentrations of credit risk
The Company’s financial instruments are exposed to a concentration of customer risk and accounts receivable risk. Occasionally, the Company’s cash and cash equivalents in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.
Accounts receivables
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 contractual allowances.
Patient receivables are accounts receivables from services provided to patients who have third-party coverage. The Company analyzes contractually due amounts and provides a provision for bad debts, if necessary. The Company records a provision for bad debts in the period of service on the basis of past experience or when indications are the patients are unable or unwilling to pay the portion of their bill for which they are responsible. The difference between the standard rates (or the discounted rates if negotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted, is charged off against the allowance for doubtful accounts.
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss attributable to First Choice Healthcare Solutions, Inc. common shareholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average common shares, basic | ||||||||
| Weighted-average common shares, diluted | ||||||||
| Basic: | $ | ( | ) | $ | ( | ) | ||
| Diluted: | $ | ( | ) | $ | ( | ) | ||
| 8 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
The computation excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.
Basic net loss per share is computed on the basis of the weighted average number of common shares outstanding during each year. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company uses the “if-converted” method for calculating the earnings per share impact of outstanding convertible debentures, whereby the securities are assumed converted and an earnings per incremental share is computed. Options, warrants and their equivalents are included in EPS calculations through the treasury stock method. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. In addition, there were no vested restricted stock for periods presented. Potentially dilutive securities excluded from the basic and diluted net income per share are as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Convertible debt | ||||||||
| Warrants to purchase common stock | ||||||||
| Incentive shares payable issued with convertible notes | ||||||||
| Restricted stock awards | ||||||||
| Options to purchase common stock | ||||||||
| Total | ||||||||
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the consolidated statements of operations, as if such amounts were paid in cash. Upon exercise of a common stock equivalent, the Company issues new shares of common stock out of its authorized shares.
Long-lived assets
The Company follows a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Property
and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed
from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial
statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful
lives of
The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
| 9 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
Leases
In February 2016, the FASB issued ASC 842, Leases, (“ASC 842”) to increase transparency and comparability among organizations by requiring the recognition of right-of-use (ROU) assets and lease liabilities on the balance sheet for leases previously classified as operating leases. The Company adopted ASC 842 effective January 1, 2022.
In accordance with ASC 842, the Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates corresponding to the reasonably certain lease term. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.
Finance leases lease assets and liabilities are recognized at the lease commencement date at the present value of the future lease payments not yet paid using the Company’s incremental borrowing rate, Assets acquired under finance lease are included in property and equipment, while finance lease obligations are included in other current liabilities and other long- term liabilities on the consolidated balance sheets.
Income taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The Company follows a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of September 30, 2024 and 2023. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.
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.
Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
| 10 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.
The carrying value of the Company’s cash, accounts receivable, accounts payable, short-term borrowings (including lines of credit and notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
As of September 30, 2024, and 2023, the Company did not have any items that would be classified as level 1, 2 or 3 disclosures.
Reclassifications
Certain reclassifications have been made to prior year data to conform to the current year’s presentation. These reclassifications had no impact on reported income or losses.
Recent accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.
NOTE 3— NOTES PAYABLE AND CAPITAL LEASES
Non-Convertible Notes Payable
During
the years ended December 31, 2022, and December 31, 2021, the Company issued eighteen non-convertible notes payable to individuals for
a total face value of $
PPP Loans
In
2020, the Company and its two subsidiaries received Paycheck Protection Plan (“PPP”) loans under the Cares Act totaling $
| 11 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
Non-convertible notes payable including accrued interest as of September 30, 2024 and December 31, 2023 are comprised of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Notes Payable | $ | $ | ||||||
| Note Payable - Equipment | ||||||||
| PPP Loans Payable | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
Fees
and discounts are deferred and amortized over the life of the related note payable. For non-convertible notes payable, during the three
and nine months ended September 30, 2024 and 2023, the Company recognized a total of $
Convertible Notes Payable
10% OID Senior Secured Convertible Notes
At
September 30, 2024 and December 31, 2023, the balance of 10% notes was $
35% OID Super Priority Senior Secured Convertible Notes
At
September 30, 2024 and December 31, 2023, the balance of 35% notes was $
20% OID Convertible Notes Payable
| 12 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
During
the nine months ended September 30, 2024, the Company issued 20% Notes with a face value of $
The
original issuance discount, relative fair value of the warrants and incentive shares are being amortized to interest expense through
maturity. During the three and nine months ended September 30, 2024 and 2023, the Company recognized $
Convertible notes payable are comprised of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| 10% OID Senior Convertible Notes Payable, past due, interest at | $ | $ | ||||||
| 35% OID Super Priority Senior Convertible Notes Payable, due in | ||||||||
| 20% OID Senior Convertible Notes Payable, past due, interest at | ||||||||
| Total | ||||||||
| Less: unamortized discounts | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term portion | $ | $ | ||||||
NOTE 4— LEASES
Operating Leases
As
a result of the adoption of ASC 842 on January 1, 2021, the Company recognized a lease liability which represents the present value of
the remaining operating lease payments discounted using our incremental borrowing rate of
Operating
leases consist of an office and a clinic location and have remaining terms of approximately
| 13 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
On
August 1, 2024, the Company entered into a lease of a clinic facility
On
September 1, 2024, the Company entered into a lease of a clinic facility
Maturities of the above lease liabilities are as follows as of September 30, 2024:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total Lease Payments | ||||
| Less Interest | ( | ) | ||
| Total Lease Liabilities | $ | |||
| Less: Current Portion | ( | ) | ||
| Long-Term Liabilities | $ |
Sale/Leaseback
On
March 31, 2016,
During October 2021, the Company, through the eighteenth judicial circuit court in Brevard County, Florda, received an order approving joint stipulation for alternative resolution to the Company’s real estate lease in Melbourne, Florida. The order terminated the Company’s use of floors three and four of the building immediately, while terminating its right to possession and use of floors one, two and five at December 31, 2021. The order also terminated the existing lease payment schedule, replacing it with the following:
| ● | Payment
of $ | |
| ● | The following rent installment payments: |
| I. | $ | |
| II. | $ | |
| III. | $ | |
| IV. | $ | |
| V. | $ | |
| VI. | $ | |
| VII. | $ |
Upon
receipt of the order, the Company recorded a liability and lease settlement expense for the amount of the order, or $
NOTE 5 — CAPITAL STOCK
Series A Preferred Convertible Stock
The Company is authorized to issue shares, $ par value Series A preferred stock.
Each
share of the Series A preferred stock is convertible into shares of common stock in the Company. The Series A 10% Convertible
Preferred Stock shall have a
| 14 |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
During the nine months ended September 30, 2024 and September 30, 2023, the Company did not issue any shares of Series A preferred stock.
As of September 30, 2024 and 2023, the total Series A preferred shares outstanding were and shares, respectively.
Proposed Series C Preferred Convertible Stock
Common stock
During the nine months ended September 30, 2024 and September 30, 2023, the Company did not issue any shares of its common stock.
In connection with the issuance of the 20% OID Convertible Notes in 2023, the Company was to issue incentive shares of unrestricted common stock. In connection with the issuance of the 20% OID Convertible Notes in 2024, the Company was to issue incentive shares of common stock. As of September 30, 2024, none of the incentive shares were issued and were recorded as a Common Share Payable current liability.
NOTE 6 — STOCK OPTIONS, WARRANTS AND RESTRICTED STOCK UNITS
Options
The Company does not have an Incentive Stock Plan in place.
Restricted Stock Units (“RSU”)
Transactions involving restricted stock units issued are summarized as follows:
| Restricted share units as of December 31, 2023 | ||||
| Granted | ||||
| Forfeited | ||||
| Unvested restricted shares as of September 30, 2024 |
During the nine months ended September 30, 2024, the Company granted performance-based, restricted stock units.
As of September 30, 2024, stock-based compensation related to restricted stock awards of $ remains unamortized.
Warrants
The
Company issued warrants in 2024 and 2023 in connection with debt issuances. Warrants to purchase shares of the Company’s common
stock warrants have a term, are fully vested upon issuance, exercisable upon the completion of a qualified financing typically
at a cash exercise price equal to % of the per share price of Company’s common stock sold to third-party investors in that
qualified financing. The Company issued and warrants for the nine months ended September 30, 2024 and September 30, 2023
respectively in connection with debt issuances. In the nine months ended September 30, 2024 and September 30, 2023, the issued warrants
had an estimated fair value of $
Transactions involving stock warrants issued are summarized as follows:
| Number of | ||||
| Shares | ||||
| Outstanding at December 31, 2023: | ||||
| Issued | ||||
| Exercised | ||||
| Forfeited | ||||
| Expired | ||||
| Outstanding at September 30, 2024: | ||||
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FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
NOTE 7 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis of accounting which contemplates continuity
of operations, realization of assets, liabilities, and commitments in the normal course of business. The accompanying consolidated financial
statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has
a working capital deficit of $
During
the three and nine months ended September 30, 2024, the Company experienced net operating losses of approximately $
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 have to curtail its business development initiatives and take additional measures to reduce costs in order to conserve its cash, thus raising substantial doubt about its ability to continue as a going concern more than one year from the date of issuance of the September 30, 2024 financial statements included in this filing.
NOTE 8 – SUBSEQUENT EVENTS
The Company evaluated its September 30, 2024, financial statements for subsequent events and transactions through November 6, 2024, the date the financial statements were available to be issued for possible disclosure and recognition in the financial statements.
On September 9, 2024, the Company filed an S-1/A with the Securities and Exchange Commission.
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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; 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. 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.
Results of Operations
Overview
For the nine months ended September 30, 2024, and September 30, 2023, we reported a net loss of $3,884,911 and $7,703,815, respectively, a decrease of $3,818,904 or 50%. The decrease the net loss was attributable to a reduction in operating expenses and non-operating expenses for the nine months ending September 30, 2024 as compared to September 30, 2023, The decrease in operating expenses resulted from a decrease in selling, general and administrative expenses. The decrease in non-operating expenses was the result of decreases in interest expenses, including suspending of accruing interest on debt that was subject to the Series C Preferred Stock exchanges, and reduction in the amortization of original issue discount and deferred financing costs.
The following table sets forth, for the periods indicated, our results of operations expressed as dollars and percentages of total revenues:
FIRST CHOICE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in dollars)
| 9 Months Ended September 30, 2024 | % of Revenue | 9 Months Ended September 30, 2023 | % of Revenue | |||||||||||||
| Revenue | ||||||||||||||||
| Revenue, net of discounts | $ | (19,801 | ) | 100 | % | $ | (13,450 | ) | 100 | % | ||||||
| Cost of sales | — | 0 | % | — | 0 | % | ||||||||||
| Gross (deficit) profit | (19,801 | ) | (13,450 | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Compensation expense | 330,815 | -1671 | % | 529,064 | -3934 | % | ||||||||||
| Selling, general and administrative expenses | 1,049,193 | -5299 | % | 1,856,290 | -13801 | % | ||||||||||
| Depreciation expense | 25,965 | -131 | % | 33,499 | -249 | % | ||||||||||
| Total operating expenses | 1,405,973 | -7101 | % | 2,418,853 | -17984 | % | ||||||||||
| Operating loss | (1,425,774 | ) | 7201 | % | (2,432,303 | ) | 18084 | % | ||||||||
| Other income (expenses) | ||||||||||||||||
| Loss on sale of assets | 5,250 | -27 | % | (82,051 | ) | 610 | % | |||||||||
| Miscellaneous income (expense) | — | 0 | % | — | 0 | % | ||||||||||
| Interest expense, net | (2,464,387 | ) | 12446 | % | (5,189,461 | ) | 38583 | % | ||||||||
| Total other income (expenses), net | (2,459,137 | ) | 12419 | % | (5,271,512 | ) | 39193 | % | ||||||||
| Loss from operations before income taxes | (3,884,911 | ) | 19620 | % | (7,703,815 | ) | 57277 | % | ||||||||
| Income taxes expense (benefit) | — | 0 | % | — | 0 | % | ||||||||||
| Net loss | (3,884,911 | ) | 19620 | % | (7,703,815 | ) | 57277 | % | ||||||||
| Preferred stock dividends | (69,624 | ) | (67,523 | ) | ||||||||||||
| Net loss attributable to common shareholders | $ | (3,954,535 | ) | $ | (7,771,338 | ) | ||||||||||
| Basic and diluted income (loss) per common share | ||||||||||||||||
| Net loss per common share | $ | (0.12 | ) | $ | (0.24 | ) | ||||||||||
| Weighted average number of common shares outstanding, basic and diluted | 32,958,288 | 32,958,288 | ||||||||||||||
Nine Months Ended September 30, 2024, as Compared to Nine Months Ended September 30, 2023
The following is a discussion of the results of operations for the nine ended September 30, 2024, compared to the nine months ended September 30, 2023.
Revenues
Total revenue was ($19,801) for the nine months ended September 30, 2024, decreasing 47% from ($12,450) in the prior year. Net patient service revenue accounted for all of total revenue. The decrease in patient service revenue was the result of the reduction of service offerings and an increase in bad debt reserves.
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Operating Expenses
Operating expenses include the following:
| Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 | |||||||
| Salaries and benefits | $ | 330,815 | $ | 529,064 | ||||
| Other operating expenses | — | — | ||||||
| General and administrative | 1,049,193 | 1,856,290 | ||||||
| Depreciation and amortization | 25,965 | 33,499 | ||||||
| Total operating expenses | $ | 1,405,973 | $ | 2,418,853 | ||||
The major components of operating expenses include 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 decreased by 37% to $330,815 for the nine months ended September 30, 2024, compared to for the nine months ended September 30, 2023. The decrease was primarily due to the company’s strategic pivot initiative which includes a reduction in highly compensated physicians and contract staff for the interim period.
General and administrative expenses decreased by $807,097 or 43% to $1,049,193 for the nine months ended September 30, 2024 as compared to $1,856,290 for the nine months ended September 30, 2023. The decrease in spending is primarily related to lower facility, legal, and professional costs.
Depreciation and amortization decreased by $7,534 or 22% to $ for the nine months ended September 30, 2024, compared to $25,965 for the nine months ended September 30, 2023. The decrease is primarily due to the retirement or sale of physical therapy equipment.
Net Loss from Operations
Net loss from operations for the nine months ended September 30, 2024 totaled $1,425,774, which compared to a loss from operations of $2,432,303 for the prior year, a decrease of $1,006,529 or 41%. The reduction is a result of the operating expenses discussed above, partially offset by an increase in net revenue.
Interest Income (expense)
Interest expense decreased by $2,725,074 or 53% to $2,464,387 for the nine months ended September 30, 2024, which compared to interest expense of $5,189,461 for the nine months ended September 30, 2023. The decrease is primarily due to lower original issue discounts amortized to interest expense and suspending interest expense on debt that is committed to the Series C Preferred Stock exchange agreements.
Net Loss attributable to FCHS Shareholders
As a result of all the above, we reported net loss attributable to common shareholders of $3,954,535 for the nine months ended September 30, 2024 as compared to net loss attributable to common shareholders of $7,771,338 reported for the same period in the prior year, a reduction of $3,816,803 or 49%.
Liquidity and Capital Resources
As of September 30, 2024, we had cash of $1,505 and accounts receivables, net totaling $49,201. This compared to cash of $1,468 and accounts receivable, net of $92,747 as of September 30, 2023.
The Company believes that the current cash balance as of September 30, 2024, along with continued execution of its business development plan, will provide the opportunity for the Company to further improve its working capital.
However, in order to execute the Company’s business development plan, which there can be no assurance we will achieve, the Company will 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. See Note 7 Going Concern.
Net cash provided by our operating activities for the nine months ended September 30, 2024 totaled $685,385, which compared to net cash used in our operations for the nine months ended September 30, 2023 of $5,077,958. The increase of $5,763,343 in cash provided for the nine months ended September 30, 2024 was due primarily to decreases in accounts payable, short term debt, accrued liabilities, partially offset by an increase in other current assets associated with lease deposits on new leased clinic facilities.
Net cash flows used in investing activities was ($1,638,987) for the nine months ended September 30, 2024, compared to net cash provided of by investing activities $142,903 for the nine months ended September 30, 2023. The decrease in the net cash provided from investing activities in the nine months ended September 30, 2024 was primarily the result of an increase of right to use assets associated with new leased clinic facilities.
| 18 |
Net cash provided in financing activities was $942,500 for nine months ended September 30, 2024, compared to net cash provided in financing activities of $4,929,304 for the nine months ended September 30, 2023. The cash flows provided in our financing activities were the result of:
Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Proceeds from sale of common stock | $ | — | $ | — | ||||
| Proceeds from sale of preferred stock | — | 45,000 | ||||||
| Proceeds from note payable | 942,500 | 5,058,068 | ||||||
| Proceeds from line of credit | — | — | ||||||
| Purchase of treasury stock | — | — | ||||||
| Payments on notes payable | — | (173,764 | ) | |||||
| Net cash provided by financing activities | $ | 942,500 | $ | 4,929,304 | ||||
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, 2024, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 19 |
PART II
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting from the negligence of our care providers. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition, and results of operations.
Estimates of reasonably possible additional losses, both for each individual matter and in the aggregate, are not material to our consolidated financial position, results of operations or cash flows.
We are currently not a party to any pending legal proceedings, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business.
Item 1A. Risk Factors
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| EX-101.INS | INLINE XBRL INSTANCE DOCUMENT | |
| EX-101.SCH | INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT | |
| EX-101.CAL | INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| EX-101.DEF | INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| EX-101.LAB | INLINE XBRL TAXONOMY EXTENSION LABELS LINKBASE | |
| EX-101.PRE | INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
| 20 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| FIRST CHOICE HEALTHCARE SOLUTIONS, INC. | ||
| Dated: November 13, 2024 | By: | /s/ Lance Friedman |
| Lance Friedman | ||
| Chief Executive Officer (Principal Executive Officer) | ||
| Dated: November 13, 2024 | By: | /s/ Ernest J. Scheideman Jr. |
| Ernest J. Scheideman Jr. | ||
Interim Chief Financial Officer (Principal Financial Officer) | ||
| 21 |