UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2024
Commission File Number: 000-53012
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | | 90-0687379 |
(State or other jurisdiction of incorporation) | | (IRS Employer Identification No.) |
95 Bulldog Blvd, Suite 202, Melbourne, Florida 32901
(Address of principal executive offices)
(321) 725-0090
(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. Yes ☒ No ☐
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. Yes ☒ No ☐
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 | ☐ |
| Non-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 August 1, 2024, there were 32,958,288 shares outstanding of the registrant’s Common Stock, par value $0.001.
FIRST CHOICE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in dollars, unaudited)
| | | As of | | | As of | |
| | | June 30, 2024 | | | December 31, 2023 | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,516 | | | $ | 12,607 | |
| Accounts receivable, net | | | 81,974 | | | | 92,444 | |
| Deposits | | | 466,552 | | | | — | |
| Other Current Assets | | | 2,385 | | | | 206,631 | |
| Total current assets | | | 552,427 | | | | 311,682 | |
| Property, plant and equipment, net | | | 244,879 | | | | 262,243 | |
| Operating lease right-of-use assets | | | 2,279,245 | | | | 2,437,358 | |
| Deferred tax asset | | | 111,949 | | | | 111,949 | |
| Total assets | | $ | 3,188,500 | | | $ | 3,123,232 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | | 9,132,809 | | | $ | 8,410,879 | |
| Operating lease liabilities, current portion | | | 297,501 | | | | 299,244 | |
| Notes payable, current portion | | | 21,821,446 | | | | 19,217,018 | |
| Total current liabilities | | | 31,251,756 | | | | 27,927,141 | |
| | | | | | | | | |
| Long term liabilities: | | | | | | | | |
| PPP loan payable | | | 1,283,624 | | | | 1,283,624 | |
| Operating lease liabilities, non-current portion | | | 2,297,291 | | | | 2,442,519 | |
| Convertible notes | | | — | | | | — | |
| Total liabilities | | $ | 34,832,671 | | | $ | 31,653,284 | |
| | | | | | | | | |
| Stockholders’ equity (deficit): | | | | | | | | |
| Series A Convertible Preferred stock; $0.01 par value, 40,000 shares authorized, 147 and 147 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | | | 1 | | | | 1 | |
| Common stock, $0.001 par value, 100,000,000 shares authorized 32,958,288 and 32,958,288 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | | | 32,958 | | | | 32,958 | |
| Additional paid-in capital | | | 35,323,578 | | | | 35,369,995 | |
| Treasury stock, 74,453 common shares, at cost | | | — | | | | — | |
| Accumulated deficit | | | (67,000,708 | ) | | | (63,933,006 | ) |
| Total stockholders’ equity (deficit) | | | (31,644,171 | ) | | | (28,530,052 | ) |
| Total liabilities and stockholders’ equity (deficit) | | $ | 3,188,500 | | | $ | 3,123,232 | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRST CHOICE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in dollars, unaudited)
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | | | | | | | | | | | |
| Revenue | | | | | | | | | | | | | | | | |
| Revenue, net of discounts | | $ | 3,303 | | | $ | 58,832 | | | $ | 10,154 | | | $ | (26,006 | ) |
| Cost of sales | | | — | | | | — | | | | — | | | | — | |
| Gross (deficit) profit | | | 3,303 | | | | 58,832 | | | | 10,154 | | | | (26,006 | ) |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Compensation expense | | | 111,661 | | | | 171,213 | | | | 219,155 | | | | 357,269 | |
| Selling, general and administrative expenses | | | 370,637 | | | | 695,482 | | | | 766,820 | | | | 1,501,514 | |
| Total operating expenses | | | 482,298 | | | | 866,695 | | | | 985,975 | | | | 1,858,783 | |
| Operating loss | | | (478,995 | ) | | | (807,863 | ) | | | (975,821 | ) | | | (1,884,789 | ) |
| Other income (expenses) | | | | | | | | | | | | | | | | |
| Gain (loss) on sale of equipment | | | 1,550 | | | | 24,816 | | | | 4,150 | | | | 18,691 | |
| Miscellaneous income (expense) | | | — | | | | — | | | | — | | | | — | |
| Interest expense, net | | | (1,384,916 | ) | | | (1,871,910 | ) | | | (2,096,033 | ) | | | (2,809,910 | ) |
| Total other income (expenses), net | | | (1,383,366 | ) | | | (1,847,094 | ) | | | (2,091,883 | ) | | | (2,791,219 | ) |
| Income taxes expense (benefit) | | | — | | | | — | | | | — | | | | — | |
| Net loss | | | (1,862,361 | ) | | | (2,654,958 | ) | | | (3,067,704 | ) | | | (4,676,009 | ) |
| Preferred stock dividends | | | (23,206 | ) | | | (22,721 | ) | | | (46,415 | ) | | | (44,315 | ) |
| Net loss attributable to common shareholders | | $ | (1,885,567 | ) | | $ | (2,677,679 | ) | | $ | (3,114,119 | ) | | $ | (4,720,324 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted income (loss) per common share | | | | | | | | | | | | | | | | |
| Net loss per common share | | $ | (0.06 | ) | | $ | (0.08 | ) | | $ | (0.09 | ) | | $ | (0.14 | ) |
| Weighted average number of common shares outstanding, basic and diluted | | | 32,958,288 | | | | 32,958,288 | | | | 32,958,288 | | | | 32,958,288 | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2024
(in dollars)
(Unaudited)
| | | Shares | | | Amount | | | Shares | | | Amount | | | Additional | | | Deficit | | | Total | |
| | | | | | | | | Additional | | | | | | | |
| | | Common stock | | | Preferred stock | | | Paid in | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Deficit | | | Total | |
| Balance, December 31, 2023 | | | 32,958,288 | | | $ | 32,958 | | | | 147 | | | $ | 1.00 | | | $ | 35,369,995 | | | $ | (63,933,006 | ) | | $ | (28,530,052 | ) |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Warrants issued for debt discount | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Proceeds from issuance of Preferred stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Dividends payable on Preferred Stock | | | — | | | | — | | | | — | | | | — | | | | (23,209.00 | ) | | | — | | | | (23,209 | ) |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,205,343 | ) | | | (1,205,343 | ) |
| Balance, March 31, 2024 | | | 32,958,288 | | | $ | 32,958 | | | | 141 | | | $ | 1 | | | $ | 35,346,786 | | | $ | (65,138,349 | ) | | $ | (29,758,604 | ) |
| Balance | | | 32,958,288 | | | $ | 32,958 | | | | 141 | | | $ | 1 | | | $ | 35,346,786 | | | $ | (65,138,349 | ) | | $ | (29,758,604 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock based compensation | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Warrants issued for debt discount | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Proceeds from issuance of Preferred stock | | | — | | | | — | | | | — | | | | — | | | | (23,206.0 | ) | | | — | | | | (23,206 | ) |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,862,361 | ) | | | (1,862,361 | ) |
| Balance, June 30, 2024 | | | 32,958,288 | | | $ | 32,958 | | | | 147 | | | $ | 1 | | | $ | 35,323,580 | | | $ | (67,000,710 | ) | | $ | (31,644,171 | ) |
| Balance | | | 32,958,288 | | | $ | 32,958 | | | | 147 | | | $ | 1 | | | $ | 35,323,580 | | | $ | (67,000,710 | ) | | $ | (31,644,171 | ) |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in dollars)
(Unaudited)
| | | 2024 | | | 2023 | |
| | | For the Six Months Ended June 30, | |
| | | 2024 | | | 2023 | |
| Cash flows from operating activities: | | | | | | | | |
| Net loss | | $ | (3,067,704 | ) | | $ | (4,676,009 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | |
| Depreciation | | | 17,364 | | | | 27,442 | |
| Loss on disposition of assets | | | - | | | | 99,876 | |
| Amortization of debt discount | | | 162,626 | | | | 1,346,861 | |
| Amortization of debt discount | | | - | | | | (89,991 | ) |
| Preferred dividends - accrued | | | 46,416 | | | | 44,316 | |
| Provision for bad debts | | | 1,506 | | | | 35,103 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 8,964 | | | | 1,159,875 | |
| Other current assets | | | (262,306 | ) | | | 28,436 | |
| (Increase) decrease in leased assets | | | 158,112 | | | | 1,847,383 | |
| Accounts payable and accrued liabilities | | | 2,448,401 | | | | (377,006 | ) |
| (Increase) decrease in lease liabilities | | | (146,970 | ) | | | (1,619,770 | ) |
| Net cash provided by (used in) operating activities | | $ | (633,591 | ) | | $ | (2,173,484 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Proceeds from sale of fixed assets | | | - | | | | 33,000 | |
| Purchase of property and equipment | | | - | | | | (3,794 | ) |
| Net cash (used in) provided by investing activities | | $ | - | | | $ | 29,206 | |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Payments on notes payable | | | - | | | | (173,764 | ) |
| Proceeds from issuance of convertible notes | | | 622,500 | | | | 2,272,481 | |
| Proceeds from sale of preferred stock | | | - | | | | 45,000 | |
| Net cash provided by (used in) financing activities | | $ | 622,500 | | | $ | 2,143,717 | |
| | | | | | | | | |
| Net change in cash | | | (11,091 | ) | | | (561 | ) |
| Cash, beginning of period | | | 12,607 | | | | 7,219 | |
| Cash, end of period | | $ | 1,516 | | | $ | 6,658 | |
| | | | | | | | | |
| 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 | | $ | 155,625 | | | $ | 258,462 | |
| Warrants issued for debt discount | | | - | | | | 1,672 | |
| Common shares issued for convertible notes - inducement | | $ | 8,406 | | | $ | 900 | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 Delaware corporation, since February 13, 2012, include the accounts of the Company and its direct and indirect wholly owned subsidiaries: FCID Medical, Inc. (“FCID Medical”) is the subsidiary under which we own and operate First Choice Medical Group of Brevard, LLC, (“FCMG”), our original medical services practice.
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 June 30, 2024 and for the three and six months ended June 30, 2024 and 2023. The results of operations for the six months ended June 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.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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.
Net loss per share
Basic net loss per common share is based upon the weighted-average number of common shares outstanding. Diluted net income per common share is based on the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding and computed as follows:
SCHEDULE OF BASIC NET LOSS PER COMMON SHARE
| | | 2024 | | | 2023 | |
| | | Six months ended June 30, | |
| | | 2024 | | | 2023 | |
| Numerator: | | | | | | |
| Net loss attributable to First Choice Healthcare Solutions, Inc. common shareholders | | $ | (3,114,119 | ) | | $ | (4,720,324 | ) |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted-average common shares, basic | | | 32,958,288 | | | | 32,958,288 | |
| Weighted-average common shares, diluted | | | 32,958,288 | | | | 32,958,288 | |
| | | | | | | | | |
| Basic: | | $ | (0.09 | ) | | $ | (0.14 | ) |
| Diluted: | | $ | (0.09 | ) | | $ | (0.14 | ) |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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:
SCHEDULE OF ANTI-DILUTIVE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
| | | June 30, 2024 | | | December 31, 2023 | |
| Convertible debt | | | 2,811,426,942 | | | | 2,810,648,817 | |
| Warrants to purchase common stock | | | 12,894,477 | | | | 11,774,164 | |
| Incentive shares payable issued with convertible notes | | | 4,464,625 | | | | 1,568,250 | |
| Restricted stock awards | | | 1,357,308 | | | | 1,357,308 | |
| Options to purchase common stock | | | — | | | | — | |
| Total | | | 2,830,143,352 | | | | 2,825,348,539 | |
Stock-based compensation
The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the 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 5 to 15 years.
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.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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. |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 $2,076,158. The notes were due within 60 days from the dates of issuance, were interest free, had original issuance discounts totaling $408,000 and were unsecured. During the years ended December 31, 2023, 2022, and 2021, the Company repaid or refinanced principal of $156,000, $310,000, and $817,521, respectively. The balance of the non-convertible notes payable as of June 30, 2024 and June 30, 2023 was $792,637 and $792,637, respectively.
PPP Loans
In 2020, the Company and its two subsidiaries received Paycheck Protection Plan (“PPP”) loans under the Cares Act totaling $1,386,580. The PPP loans were expected to be forgiven by the U.S. Small Business Association (“SBA”) and as such, were not made eligible for any distributions under the amended joint Plan of Reorganization which was approved on February 23, 2021 (the “Plan”). The Plan further required the Company to file proper forgiveness applications with the SBA no later than February 19, 2021. The Company successfully filed for and received forgiveness confirmation for one of the PPP loans for $103,618 plus interest. The remaining two PPP loans forgiveness applications were never properly completed and filed by former management. As of January 17, 2023, the SBA’s website shows those two remaining PPP loans reflected as “Charged Off”. As a result of this recent discovery, the Company has reinitiated forgiveness applications with the SBA and expects those loans to be forgiven in full during 2024. As of June 30, 2024 and December 31, 2023, the Company had a total of PPP loans payable of $1,283,624 and $1,283,624 including accrued interest, respectively.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(Unaudited)
Non-convertible notes payable including accrued interest as of June 30, 2024 and December 31, 2023 are comprised of the following:
SCHEDULE OF NON CONVERTIBLE NOTES PAYABLE
| | | June 30, 2024 | | | December 31, 2023 | |
| Notes Payable | | $ | 3,073,751 | | | $ | 2,861,425 | |
| Note Payable - Equipment | | | - | | | | - | |
| PPP Loans Payable | | | 1,338,062 | | | | 1,331,318 | |
| Less current portion | | | (3,073,751 | ) | | | (2,861,425 | ) |
| Long term portion | | $ | 1,338,062 | | | $ | 1,331,318 | |
Fees and discounts are deferred and amortized over the life of the related note payable. For non-convertible notes payable, during the three and six months ended June 30, 2024 and 2023, the Company recognized a total of $0 and $0 and $0 and $0, respectively, from the amortization of original issuance debt discounts. The outstanding balance of debt discount at June 30, 2024 and December 31, 2023 was $0 and $0, respectively.
Convertible Notes Payable
10% OID Senior Secured Convertible Notes
The Company entered into Security Purchase Agreements with lenders for the sale of 10% original issue discount senior secured promissory notes (“10% Notes”) and warrants to purchase shares of the Company’s common stock equal to 50% of the face value. The 10% Notes accrue interest at 10% per annum payable quarterly, are convertible into shares of the Company’s common stock at the option of the holder at any time at a fixed ceiling price of $0.75 per share. The 10% Notes have full ratchet and anti-dilution provisions, a principal adjustment provision upon default, providing for a principal increase to 110% at maturity if unpaid, 120% at six months if unpaid and 130% at 12 months if unpaid. The 10% Notes were due March 31, 2022 and to date, all default provisions have been waived. The amounts due under the 10% Secured Convertible Notes are secured by assets of the Company pursuant to a security agreement.
At June 30, 2024 and December 31, 2023, the balance of 10% notes was $5,808,000 and $5,808,000, and accrued interest was $2,174,253 and $1,652,965, respectively. During the three and six months ended June 30, 2024 and June 30, 2023, the Company recognized $260,644 and $521,288 and $185,334 and $360,382 in interest, respectively.
35% OID Super Priority Senior Secured Convertible Notes
During the years ended December 31, 2023 and 2022, the Company entered into Security Purchase Agreements with lenders for the sale of 35% original issue discount senior secured promissory notes (“35% Notes”), warrants to purchase shares of the Company’s common and shares of the Company’s common stock as incentives. The 35% Notes have a 35% original issuance discount being amortized to interest expense through maturity, are non-interest bearing, are due at the earlier of six months from the date of issue or upon the occurrence of a liquidity event and are prepayable by the Company at any time at a premium of 120% of the outstanding balance. Upon an occurrence of default, the holder shall have the right to convert the 35% Note and outstanding interest at the lower of a discount to market or subsequent financings. The amounts due under the 35% Notes are secured by assets of the Company pursuant to a security agreement.
At June 30, 2024 and December 31, 2023, the balance of 35% notes was $5,600,462 and $5,600,462, respectively. The original issuance discount, deferred financing costs and the relative fair value of the warrants and incentive shares are being amortized to interest expense through maturity. During the three and six months ended June 30, 2024 and 2023, the Company recognized $0 and $0 and $108,379 and $94,241 in interest expense from the amortization of original issuance discounts, $0 and $0 and $3,548 and $1,976 in interest expense from the amortization of debt discounts from warrants and $0 and $0 and $1,819 and $913 in amortization of incentive shares, respectively.
20% OID Senior Secured Convertible Notes Payable
During 2023, the Company entered into Security Purchase Agreements with lenders for the sale of 20% original issue discount senior secured promissory notes (“20% Notes”), warrants to purchase shares of the Company’s common stock with a five-year term, exercisable at any time at the option of the holder at a cash exercise price equal to 93.75% of the per share price of Company’s common stock sold to third-party investors in a qualified financing and incentive shares of the Company’s common stock. The 20% Notes accrue interest at 10% per annum, principal and interest are due at the earlier of six months from the date of issue or upon the occurrence of a liquidity event.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(Unaudited)
The holder shall have the right to convert the 20% Notes and outstanding interest on a qualified financing at a price equal to 85% of the offering price, or a 15% discount to the volume weighted average price of the Company’s common stock for the five days preceding the dates of conversions, subject to a maximum price of $1.00. The amounts due under the 20% Notes are secured by assets of the Company pursuant to a security agreement.
During the six months ended June 30, 2024, the Company issued 20% Notes with a face value of $778,125 and original issuance discounts of $155,625 for cash of $622,500. The holders received warrants to purchase 1,120,313 shares of the Company’s common stock and 2,240,625 incentive shares of the Company’s common stock. At June 30, 2024 and December 31, 2023, the balance of 20% notes was $1,246,375 and $468,250, original issuance discounts were $85,000 and $77,999, and accrued interest totaled $41,606 and $1,727 respectively.
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 six months ended June 30, 2024 and 2023, the Company recognized $57,812 and $162,626 and $0 and $0 in interest expense from the amortization of original issuance discounts of the 20% Notes and $559 and $7,846 and $0 and $0 in amortization of incentive shares, respectively.
Convertible notes payable are comprised of the following:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| | | June 30, 2024 | | | December 31, 2023 | |
| 10% OID Senior Convertible Notes Payable, past due, interest at 10%, secured by assets, convertible at $0.75 per share | | $ | 5,808,000 | | | $ | 5,808,000 | |
| 10% OID Senior Convertible Notes Payable, past due, interest at 10%, secured by assets, convertible at $0.75 per share | | $ | 5,808,000 | | | $ | 5,808,000 | |
| 35% OID Super Priority Senior Convertible Notes Payable, due in 2 years from date of issuance, interest at 35%, secured by assets, convertible upon qualifying financing | | | 5,600,462 | | | | 5,600,462 | |
| 20% OID Senior Convertible Notes Payable, past due, interest at 10%, secured by assets, convertible at max $1.00 per share | | | 1,246,375 | | | | 468,250 | |
| Total | | | 12,654,837 | | | | 11,876,712 | |
| Less: unamortized discounts | | | (77,999 | ) | | | (85,000 | ) |
| Total | | $ | 12,576,838 | | | $ | 11,791,712 | |
| Less current portion | | | (12,576,838 | ) | | | (11,791,712 | ) |
| 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 5.0%, and a right-of-use asset.
Operating leases consist of an office and a clinic location and have remaining terms of approximately 7 and 1 years, respectively, and both include options to extend the leases for additional periods. Generally, the lease term is the minimum of the noncancelable period of the lease or the lease term inclusive of reasonably certain renewal periods. If the estimate of our reasonably certain lease term was changed, our depreciation and rent expense could differ materially.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(Unaudited)
Maturities of the above lease liabilities are as follows as of June 30, 2024:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| | | | | |
| 2024 | | $ | 172,867 | |
| 2025 | | | 596,223 | |
| 2026 | | | 368,340 | |
| 2027 | | | 377,442 | |
| Thereafter | | | 1,379,415 | |
| Total Lease Payments | | | 2,894,287 | |
| Less Interest | | | (299,495 | ) |
| Total Lease Liabilities | | $ | 2,594,792 | |
| Less: Current Portion | | | (297,501 | ) |
| Long-Term Liabilities | | $ | 2,297,291 | |
Sale/Leaseback
On March 31, 2016, the Company entered into a lease of Marina Towers under a sale/leaseback transaction, via a 10-year absolute triple-net master lease agreement, to expire in 2026. The Company has two successive options to renew the lease for five-year periods on the same terms and conditions and did not have any residual interest or the option to repurchase the facility at the end of the lease term.
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 $50,000 on October 12, 2021 |
| | | |
| | ● | The following rent installment payments: |
SCHEDULE OF RENT INSTALLMENT PAYMENTS
| I. | | $200,000 by October 19, 2021 |
| II. | | $250,000 by November 15, 2021 |
| III. | | $306,166 by December 15, 2021 |
| IV. | | $275,000 by January 7, 2022 |
| V. | | $31,166 by January 15, 2022 |
| VI. | | $300,000 by February 8, 2022 |
| VII. | | $31,166 by February 15, 2022 |
Upon receipt of the order, the Company recorded a liability and lease settlement expense for the amount of the order, or $1,443,498. As of June 30, 2024, the Company has paid approximately $200,000 of this obligation and has an open accounts payable liability remaining of approximately $1,200,000. The Company is working to reach a settlement with the landlord.
NOTE 5 — CAPITAL STOCK
Series A Preferred Convertible Stock
The Company is authorized to issue 40,000 shares, $0.01 par value Series A preferred stock.
Each share of the Series A preferred stock is convertible into 10,000 shares of common stock in the Company. The Series A 10% Convertible Preferred Stock shall have a 10% dividend rate and have preference in liquidation so that holders of Series A 10% Convertible Preferred Stock are paid in full prior to any payments to holders of common stock of the Corporation. The Series A 10% Convertible Preferred Stock shall be automatically converted into shares of common stock of the Corporation on the effective date of the Corporation’s S-1 filing with the Securities Exchange Commission.
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(Unaudited)
During the six months ended June 30, 2024 and June 30, 2023, the Company did not issue any shares of Series A preferred stock.
As of June 30, 2024 and 2023, the total Series A preferred shares outstanding were 147 and 147 shares, respectively.
Common stock
During the six months ended June 30, 2024 and June 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 468,250 incentive shares of unrestricted common stock. In connection with the issuance of the 20% OID Convertible Notes in 2024, the Company was to issue 2,240,625 incentive shares of common stock. As of June 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:
SCHEDULE OF RESTRICTED STOCK UNITS ISSUES
| Restricted share units as of December 31, 2023 | | | 1,357,308 | |
| Granted | | | — | |
| Forfeited | | | — | |
| Unvested restricted shares as of June 30, 2024 | | | 1,357,308 | |
During the six months ended June 30, 2024, the Company granted 0 performance-based, restricted stock units.
As of June 30, 2024, stock-based compensation related to restricted stock awards of $0 remains unamortized.
Warrants
The Company issued warrants in 2024 and 2023 to employees, consultants, and in connection with debt issuances. Warrants to purchase shares of the Company’s common stock warrants have a five-year term, are fully vested upon issuance, exercisable upon the completion of a qualified financing typically at a cash exercise price equal to 93.75% of the per share price of Company’s common stock sold to third-party investors in that qualified financing. The Company issued 1,120,313 and 294,231 warrants for the six months ended June 30, 2024 and June 30, 2023 respectively in connection with debt issuances. In the six months ended June 30, 2024 and June 30, 2023, the issued warrants had an estimated fair value of $0 and $1,672, on the date of issuance, respectively.
Transactions involving stock warrants issued are summarized as follows:
SCHEDULE OF STOCK WARRANT ISSUED
| | | Number of | |
| | | Shares | |
| Outstanding at December 31, 2023: | | | 11,774,164 | |
| Issued | | | 1,120,313 | |
| Exercised | | | — | |
| Forfeited | | | — | |
| Expired | | | — | |
| Outstanding at June 30, 2024: | | | 12,984,477 | |
FIRST CHOICE HEALTHCARE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 $30,699,329 as of June 30, 2024 and has generated recurring net losses since its emergence from bankruptcy in April 2022.
During the three and six months ended June 30, 2024, the Company experienced net operating losses of approximately $1,862,361 and $3,067,704, respectively, and corresponding cash outflows from operations of $554,645 and $633,591, respectively. As of June 30, 2024, the Company had an accumulated deficit of $67,000,708. This performance reflected challenges in operating and restructuring the company as a result of the previous issues that confronted the Company in the healthcare market, such as growing referral bases and negotiating favorable contract rates with third party payors for services rendered, as well as the negative impact of the former CEO indictment in November 2018 and the bankruptcy from June 2020. As a result of the former CEO’s actions the Company has been subject to litigation as well as incurring damage to its relationships with its employees and referral sources. The Company’s ability to continue as a going concern is dependent upon the success of its continuing efforts to acquire profitable companies, grow its revenue base, reduce operating costs, especially as related to provider services, and access additional sources of capital, and/or sell assets. The Company believes that it will be successful in repairing its relationships with employees and referral sources, generating growth and improved profitability resulting in improved cash flows from operations.
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 June 30, 2024 financial statements included in this filing.
NOTE 8 – SUBSEQUENT EVENTS
Proposed Series C Preferred Convertible Stock. In July 2024, contingent to a qualified financing occurring no later than six months from the exchange agreement date, the Company proposed the exchange of (i) all outstanding 10% Senior Secured Convertible Notes including accrued interest, (ii) all outstanding 35% Senior Secured Convertible Notes including accrued interest, (iii) all outstanding Promissory Notes including accrued interest, (iv) all outstanding Series A Preferred Convertible Stock including accrued dividends payable, and (v) certain open trade payables, for shares of a newly proposed Series C preferred stock with an exchange value of $1,000 per share. The proposed exchange value of (i), (ii), (iii), and (iv) above included a 35% premium to the book value of those instruments. The proposed exchange also included the exchange of all warrants to purchase common stock and incentive shares payable, each previously issued in conjunction with (i), (ii), (iii), and (iv) above for new warrants at a quantity calculated at 50% of the original face value of each of the notes and a holder’s initial investment in the Series A Preferred Convertible Stock. The proposed exchange agreements all stated that the proposed exchange would be null and void if the Company did not close a qualified financing within six months from the exchange agreement date.
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 six months ended June 30, 2024, and June 30, 2023, we reported a net loss of $3,067,704 and $4,676,009, respectively, a decrease of $1,608,305 or 34%. The decrease in the net loss was attributable to a reduction in operating expenses and non-operating expenses for the six months ending June 30, 2024 as compared to June 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 increases in interest expenses, including 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)
| | | 6 Months Ended June 30, 2024 | | | % of Revenue | | | 6 Months Ended June 30, 2023 | | | % of Revenue | |
| | | | | | | | | | | | | |
| Revenue | | | | | | | | | | | | | | | | |
| Revenue, net of discounts | | $ | 10,154 | | | | 100 | % | | $ | (26,006 | ) | | | 100 | % |
| Cost of sales | | | — | | | | 0 | % | | | — | | | | 0 | % |
| Gross (deficit) profit | | | 10,154 | | | | | | | | (26,006 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Compensation expense | | | 219,155 | | | | 2158 | % | | | 357,269 | | | | -1374 | % |
| Selling, general and administrative expenses | | | 749,456 | | | | 7381 | % | | | 1,476,696 | | | | -5678 | % |
| Depreciation expense | | | 17,364 | | | | 171 | % | | | 24,818 | | | | -95 | % |
| Total operating expenses | | | 985,975 | | | | 9710 | % | | | 1,858,783 | | | | -7148 | % |
| Operating loss | | | (975,821 | ) | | | -9610 | % | | | (1,884,789 | ) | | | 7248 | % |
| Other income (expenses) | | | | | | | | | | | | | | | | |
| Loss on sale of assets | | | 4,150 | | | | 41 | % | | | 18,691 | | | | -72 | % |
| Miscellaneous income (expense) | | | — | | | | 0 | % | | | 0 | | | | 0 | % |
| Interest expense, net | | | (2,096,033 | ) | | | -20642 | % | | | (2,809,910 | ) | | | 10805 | % |
| Total other income (expenses), net | | | (2,091,883 | ) | | | -20602 | % | | | (2,791,219 | ) | | | 10733 | % |
| Loss from operations before income taxes | | | (3,067,704 | ) | | | -30212 | % | | | (4,676,009 | ) | | | 17980 | % |
| Income taxes expense (benefit) | | | — | | | | 0 | % | | | — | | | | 0 | % |
| Net loss | | | (3,067,704 | ) | | | -30212 | % | | | (4,676,009 | ) | | | 17980 | % |
| | | | | | | | | | | | | | | | | |
| Preferred stock dividends | | | (46,415 | ) | | | | | | | (53,912 | ) | | | | |
| Net loss attributable to common shareholders | | $ | (3,114,119 | ) | | | | | | $ | (4,729,921 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| Basic and diluted income (loss) per common share | | | | | | | | | | | | | | | | |
| Net loss per common share | | $ | (0.09 | ) | | | | | | $ | (0.14 | ) | | | | |
| Weighted average number of common shares outstanding, basic and diluted | | | 32,958,288 | | | | | | | | 32,958,288 | | | | | |
Six Months Ended June 30, 2024, as Compared to Six Months Ended June 30, 2023
The following is a discussion of the results of operations for the six ended June 30, 2024, compared to the six months ended June 30, 2023.
Revenues
Total revenue was $10,154 for the six months ended June 30, 2024, increasing 239% from ($26,006) in the prior year. Net patient service revenue accounted for all of total revenue. The 239% increase in patient service revenue was the result of the reduction of service offerings with the exception of physical therapy and fewer patient visits.
Operating Expenses
Operating expenses include the following:
| | | Six Months
Ended
June 30, 2024 | | | Six Months
Ended
June 30, 2023 | |
| Salaries and benefits | | $ | 219,155 | | | $ | 357,269 | |
| Other operating expenses | | | — | | | | — | |
| General and administrative | | | 749,456 | | | | 1,476,696 | |
| Depreciation and amortization | | | 17,364 | | | | 24,818 | |
| Total operating expenses | | $ | 985,975 | | | $ | 24,818 | |
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 39% to $219,155 for the six months ended June 30, 2024, compared to for the six months ended June 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 $727,240 or 49% to $749,456 for the six months ended June 30, 2024 as compared to $1,476,696 for the six months ended June 30, 2023. The decrease in spending is primarily related to lower legal and professional costs.
Depreciation and amortization decreased by $7,454 or 30% to $ for the six months ended June 30, 2024, compared to $24,818 for the six months ended June 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 six months ended June 30, 2024 totaled $975,821, which compared to a loss from operations of $1,884,789 for the prior year, a decrease of $908,968 or 48%. 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 $713,877 or 25% to $2,096,033 for the six months ended June 30, 2024, which compared to interest expense of $2,809,910 for the six months ended June 30, 2023. The decrease is primarily due to lower original issue discounts amortized to interest expense.
Net Loss attributable to FCHS Shareholders
As a result of all the above, we reported net loss attributable to common shareholders of $3,067,704 for the six months ended June 30, 2024 as compared to net loss attributable to common shareholders of $4,676,009 reported for the same period in the prior year, a reduction of 1,608,305 or 34%.
Liquidity and Capital Resources
As of June 30, 2024, we had cash of $1,516 and accounts receivables, net totaling $81,974. This compared to cash of $6,658 and accounts receivable, net of $121,023 as of June 30, 2023.
The Company believes that the current cash balance as of June 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 used in our operating activities for the six months ended June 30, 2024 totaled $555,260, which compared to net cash used in our operations for the six months ended June 30, 2023 of $2,048,494. The decrease of $1,493,234 in cash used for the six months ended June 30, 2024 was due primarily to an increase in accounts payable, partially offset by a decrease in accounts receivable.
Net cash flows used in investing activities was $0 for the six months ended June 30, 2024, compared to net cash provided of by investing activities $29,206 for the six months ended June 30, 2023. The decrease in the net cash provided from investing activities in the six months ended June 30, 2024 was primarily the result of less proceeds from the sale of assets.
Net cash provided in financing activities was $544,172 for six months ended June 30, 2024, compared to net cash provided in financing activities of $2,143,717 for the six months ended June 30, 2023. The cash flows provided in our financing activities were the result of:
| | | Six Months Ended | | | Six Months Ended | |
| | | June 30, 2024 | | | June 30, 2023 | |
| Proceeds from sale of common stock | | $ | — | | | $ | — | |
| Proceeds from sale of preferred stock | | | — | | | | 45,000 | |
| Proceeds from note payable | | | 547,500 | | | | 1,984,165 | |
| Proceeds from line of credit | | | — | | | | — | |
| Purchase of treasury stock | | | — | | | | — | |
| Payments on notes payable | | | — | | | | (173,764 | ) |
| Net cash provided by financing activities | | $ | 547,500 | | | $ | 2,143,717 | |
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 June 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 March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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 proceeding, 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.
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: August 14, 2024 | By: | /s/ Lance Friedman |
| | | Lance Friedman |
| | | Chief Executive Officer (Principal Executive Officer) |
| | | |
| Dated: August 14, 2024 | By: | /s/ Ernest J. Scheideman Jr. |
| | | Ernest J. Scheideman Jr. |
| | | Interim Chief Financial Officer (Principal Financial Officer) |
