UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to ___________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
|
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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 the 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
☐
As of November 10, 2023, there were shares of the registrant’s Class A common stock, par value $0.001 issued and outstanding (including 8,333,340 shares of Class A common stock issuable upon conversion of 833,334 shares of Class B common stock).
| -2- |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our projected financial position and estimated cash burn rate; | |
| ● | our estimates regarding expenses, future revenues and capital requirements; | |
| ● | our ability to continue as a going concern; | |
| ● | our need to raise substantial additional capital to fund our operations; | |
| ● | our ability to compete in the healthcare industry; | |
| ● | the timing, cost and success or failure of new product and service introductions, development and product upgrade releases; | |
| ● | competitive pressures including offerings and pricing; | |
| ● | our ability to establish and maintain strategic relationships; | |
| ● | undetected errors or similar problems in our software products; | |
| ● | compliance with existing laws, regulations and industry initiatives and future changes in laws or regulations in the healthcare industry; | |
| ● | the possibility of services-related liabilities; | |
| ● | our ability to obtain, maintain and protect our intellectual property rights and the potential for us to incur substantial costs from lawsuits to enforce or protect our intellectual property rights; | |
| ● | our reliance on third-party content providers; | |
| ● | the success of competing products or services that are or become available; | |
| ● | our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel; and | |
| ● | the successful development of our sales and marketing capabilities. |
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.
| -3- |
ITEM 1. FINANCIAL STATEMENTS
SYRA HEALTH CORP.
CONDENSED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Deferred offering costs | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable, related parties | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Current portion of operating lease liability, related party | ||||||||
| Revolving line of credit | ||||||||
| Advances from related party | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, related party | ||||||||
| Convertible notes payable | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $ par value, shares authorized, shares designated, issued and outstanding | ||||||||
| Class A common stock, $ par value, shares authorized, and | ||||||||
| shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Convertible class B common stock, $ par value, shares authorized, shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to condensed financial statements.
| F-1 |
SYRA HEALTH CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenues: | ||||||||||||||||
| Healthcare staffing services | $ | $ | $ | $ | ||||||||||||
| Medical communication services | ||||||||||||||||
| Digital health services | ||||||||||||||||
| Net revenues | ||||||||||||||||
| Cost of services | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Salaries and benefits | ||||||||||||||||
| Professional services | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
See accompanying notes to condensed financial statements.
| F-2 |
SYRA HEALTH CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Class A | Convertible Class B | Additional | Total | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock | Paid-in | Subscriptions | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Class A common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Class A | Convertible Class B | Additional | Total | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock | Paid-in | Subscriptions | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Class A common stock sold for cash, shares | - | - | ||||||||||||||||||||||||||||||||||||||
| Class A common stock awarded for services, shares | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Class A common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Class A | Convertible Class B | Additional | Total | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock | Paid-in | Subscriptions | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Equity (Deficit) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||||
| Cancellation of Class A common stock | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||
| Class A common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Class A | Convertible Class B | Additional | Total | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock | Paid-in | Subscriptions | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Equity(Deficit) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Class A common stock sold for cash, shares | - | - | ||||||||||||||||||||||||||||||||||||||
| Class A common stock issued for services, shares | - | - | ||||||||||||||||||||||||||||||||||||||
| Class A common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
See accompanying notes to condensed financial statements.
| F-3 |
SYRA HEALTH CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Non-cash lease expense | ||||||||
| Bad debts expense | ||||||||
| Depreciation | ||||||||
| Amortization of debt discounts | ||||||||
| Common stock issued for services | ||||||||
| Stock-based compensation, stock options | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accounts payable, related parties | ( | ) | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on deferred offering costs | ( | ) | ( | ) | ||||
| Proceeds received on sale of Class A common stock | ||||||||
| Proceeds received from line of credit | ||||||||
| Repayments on line of credit | ( | ) | ( | ) | ||||
| Advances received from related party | ||||||||
| Repayments on advances from related party | ( | ) | ( | ) | ||||
| Proceeds received from convertible notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | ||||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Initial recognition of right-of-use asset and lease liability | $ | $ | ||||||
See accompanying notes to condensed financial statements.
| F-4 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
Syra Health Corp. (“Syra” or the “Company”) was incorporated in the state of Indiana on November 20, 2020 to provide workforce staffing solutions, health education and healthcare research consulting services to mental health hospitals and organizations, including government agencies, integrated health networks, managed care entities and pharmaceutical manufacturers. On March 11, 2022, the Company redomiciled to Delaware. The Company’s corporate office is located in Carmel, Indiana.
On
various dates from January through April 2023, the Company entered into subscription agreements with accredited investors pursuant to
which it issued convertible promissory notes in the aggregate principal amount of $
On
October 3, 2023 (the “Closing Date”), the Company completed its initial public offering (the “IPO”) of an aggregate
of units (“Units”) at a public offering price of $ per Unit, with each Unit consisting of (a) one share of
the Company’s Class A common stock and (b) one warrant (each, a “Warrant” and collectively, the “Warrants”)
to purchase one share of Class A common stock at an exercise price equal to $
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).
The unaudited condensed financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the condensed financial statements have been included. Such adjustments are of a normal, recurring nature. The condensed financial statements, and the accompanying notes, are prepared in accordance with U.S. GAAP and do not contain certain information included in the Company’s audited financial statements for the fiscal year ended December 31, 2022. The interim condensed financial statements should be read in conjunction with the audited financial statements, as included Company’s final prospectus filed with the SEC pursuant to Rule 424(b)(4) on October 3, 2023 (Final Prospectus). Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
Reverse Stock Split
On
August 28, 2023, the Company effectuated a
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
| F-5 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Concentrations of Credit Risk
The
Company maintains cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. Accounts are guaranteed
by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| - | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| - | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| - | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying value of the Company’s financial assets and liabilities, such as cash, accounts receivable and accounts payable are estimated by management to approximate fair value primarily due to the short-term nature of the instruments. The Company’s advances from related party approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at September 30, 2023 and December 31, 2022.
Cash and Cash Equivalents
Cash
equivalents include money market accounts which have maturities of three months or less when acquired. For the purpose of the statements
of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.
Cash equivalents are stated at cost plus accrued interest, which approximates market value. There were
Accounts Receivable
Accounts
receivable is carried at their estimated collectible amounts. Accounts receivable is periodically evaluated for collectability based
on past credit history with customers and their current financial condition. The Company had an allowance of $
Deferred Offering Costs
Deferred
offering costs related to the Company’s initial public offering (“IPO”) consist principally of professional fees, legal
and accounting, and other costs such as printing, and registration costs incurred in connection with the planned IPO of the Company and
the sale of its Class A common stock. During the nine months ended September 30, 2023, the Company incurred $
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. The cost of office equipment is depreciated using the straight-line method based on a -year life expectancy.
Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which extend the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation are eliminated and any resulting gain or loss is reflected in operations.
Impairment of Long-Lived Assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
| F-6 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Leases
The Company accounts for its leases under ASC 842 - Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date, adjusted by the deferred rent liabilities at the adoption date. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires annual and interim reporting for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and expenses, and about which separate financial information is regularly evaluated by the chief operating decision maker in deciding how to allocate resources. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
The Company accounts for revenues when both parties to the contract have approved the contract, the rights and obligations of the parties are identified, payment terms are identified, and collectability of consideration is probable. Payment terms vary by client and the services offered.
The
Company has three main forms of revenue – healthcare staffing, medical communication and digital health revenue. The Company primarily
provides healthcare staffing services to state mental health agencies, and its medical communication revenue is primarily comprised of
contracted data analysis and medical writing services to state agencies and universities. Digital health services involve the development
of artificial intelligent projects to be deployed and managed for clients. Healthcare staffing revenues are accounted for as a single
performance obligation satisfied over time because the customer simultaneously receives and consumes the benefits of the Company’s
performance on an hourly or daily basis. The contracts stipulate bi-weekly or monthly billing, and the Company has elected the “as
invoiced” practical expedient to recognize revenue based on the hours incurred at the contractual rate as the Company has the right
to payment in an amount that corresponds directly with the value of performance completed to date. The medical communication and digital
health revenue contracts also contain certain additional performance obligations that contain single performance obligations that are
satisfied when services are rendered. The Company may also be subject to penalties for violations of certain ethical standards and non-performance
measures within these state contracts. The Company recognizes revenue net of estimated penalties. Revenue during the nine months ended
September 30, 2023 and 2022 was comprised of $
| F-7 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Cost of Services
The cost of services includes wages and related payroll taxes, employee benefits and certain other employee-related costs of the Company’s contract service employees, while the employees work on contract assignments.
Significant Concentrations
The
majority of accounts receivable and revenue contracts are between the Company and different divisions within the Indiana Family and Social
Services Administration (“FSSA”). Most contracts require monthly payments as the projects progress. The Company generally
does not require collateral or advance payments. For the nine months ended September 30, 2023 and 2022, FSSA accounted for approximately
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (“ASC 718”). All transactions in which the consideration provided in exchange for the purchase of goods or services consists of the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Basic earnings per share (“EPS”) are computed by dividing net income (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Weighted average shares for basic EPS are calculated based on weighted average Class B shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include stock options, warrants, conversion of Class B shares and restricted stock. The number of potential common shares outstanding relating to stock options, warrants, conversion of Class B shares and restricted stock is computed using the treasury stock method. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Income Taxes
The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) ASC 740 Income Taxes (“ASC 740”), which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not, that such asset will not be recovered through future operations.
| F-8 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Uncertain Tax Positions
In accordance with ASC 740, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities may periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities. The Company recognizes interest and penalties related to uncertain tax positions, if any, as an income tax expense.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recent Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date.
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 2 – Related Party Transactions
Advances Received from Related Party
On
various dates from July 11, 2023 through September 30, 2023, Sahasra Technologies Corp., doing business as STLogics, which is an entity
beneficially owned by the principal owners and management team of Syra, made short term, non-interest bearing advances due upon demand
to the Company, of which an aggregate $
Office Lease
As
disclosed in Note 8, the Company leases its current corporate headquarters under a -year lease from STVentures, LLC (“STVentures”),
an entity beneficially owned by the principal owners and the management team of Syra and their affiliates.
The lease commenced on July 1, 2021 and, as amended on May 1, 2022, provides for a base monthly rent of $
Information Technology (“IT”) Services
The
Company incurred a total of $
Recruitment and Human Resource Services
The
Company paid a total of $
| F-9 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
During the nine months ended September 30, 2023, the Company used the two-class method to compute net loss per common share because it had issued securities, other than a single class of common stock, that contractually entitled the holders to participate in dividends and earnings. These participating securities included the Company’s Class A common stock, which was authorized pursuant to the Company’s amendment to its Certificate of Incorporation on May 2, 2022, and convertible Class B common stock which are entitled to share equally, on a per share basis, in all assets of the Company of whatever kind available for distribution to the holders of common stock. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.
Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.
Diluted net income per common share is computed under the two-class method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, warrants, conversion of Class B shares and restricted stock. When net income is recognized, the Company analyzes the potential dilutive effect of any outstanding dilutive securities under the “if-converted” method and treasury-stock method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period or date of issuance, if later. The Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during the period. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Note 4 – Other Current Assets
Other current assets included the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ERTC tax credit receivable (1) | $ | $ | ||||||
| EDGE tax credit receivable (2) | ||||||||
| Federal and state income tax receivable | ||||||||
| Prepaid insurance | ||||||||
| Prepaid rent | ||||||||
| Prepaid licensing and office fees | ||||||||
| Retainers paid on professional services | ||||||||
| Total other current assets | $ | $ | ||||||
| (1) |
| (2) |
| F-10 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5 – Property and Equipment
Property and equipment at September 30, 2023 and December 31, 2022, consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Office equipment | $ | $ | ||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
of property and equipment was $
Note 6 – Accrued Expenses
Accrued expenses at September 30, 2023 and December 31, 2022, consisted of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accrued payroll and taxes | $ | $ | ||||||
| Accrued retirement contributions | ||||||||
| Accrued franchise taxes | ||||||||
| Accrued interest | ||||||||
| Total accrued expenses | $ | $ | ||||||
The
Company provides postretirement benefits pursuant to IRS code section 401(k) for employees meeting specified criteria. The Company matches
Note 7 – Deferred Revenues
The
Company recognized $
| F-11 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 8 – Lease
The
Company leases its current corporate headquarters under a -year lease from STVentures, a related party. The lease, as amended on
May 1, 2022 to expand its office space from
The components of lease expense were as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease cost: | ||||||||
| Amortization of ROU asset | $ | $ | ||||||
| Interest on lease liability | ||||||||
| Total operating lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating lease: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Current portion of operating lease liability, related party | $ | |||||||
| Noncurrent operating lease liability, related party | ||||||||
| Total operating lease liability | $ | $ | ||||||
| Weighted average remaining lease term: | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating lease | % | % | ||||||
Supplemental cash flow and other information related to operating leases was as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
Future minimum annual lease payments required under the operating lease and the present value of the net minimum lease payments are as follows at September 30, 2023:
| For the Year | Minimum Lease | |||
| Ended December 31: | Commitments | |||
| 2023 (for the three months remaining) | $ | |||
| 2024 | ||||
| Amount representing interest | $ | ( | ) | |
| Present value of net future minimum lease payments | ||||
| Less current portion | ( | ) | ||
| Operating lease liability, related party, long term | $ | |||
| F-12 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 9 – Line of Credit
On
February 7, 2022, the Company entered into a business loan agreement (as amended, the “loan agreement”) with Citizens State
Bank of New Castle pursuant to which it originally received a revolving line of credit of up to $
Note 10 – Convertible Notes Payable
On
various dates from January through April 7, 2023, the Company entered into subscription agreements with accredited investors pursuant
to which it issued convertible promissory notes in the aggregate principal amount of $
The Company recognized interest expense for the nine months ended September 30, 2023 and 2022, as follows:
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Interest on line of credit | $ | 24,304 | $ | 6,489 | ||||
| Finance fee on line of credit extension | 2,750 | - | ||||||
| Amortization of underwriting fee on line of credit | - | 10,115 | ||||||
| Interest on convertible notes | 17,221 | - | ||||||
| Interest on credit card debt | 174 | 37 | ||||||
| Total interest expense | $ | 44,449 | $ | 16,641 | ||||
| F-13 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 11 – Commitments and Contingencies
On
July 18, 2022, the Company entered into an agreement, as amended, with the representative of the underwriters with respect to the IPO
providing for the payment of up to $
Note 12 – Changes in Stockholders’ Equity (Deficit)
Class A Common Stock
The Company has authorized shares of $ par value Class A common stock, and shares were issued and outstanding as of September 30, 2023.
Cancellation of Class A Common Stock
On May 10, 2023, a stockholder voluntarily surrendered shares of Class A common stock, which were subsequently cancelled.
Convertible Class B Common Stock
The Company has authorized shares of $ par value convertible Class B common stock, and had shares issued and outstanding as of September 30, 2023, as retrospectively applied, pursuant to the Company’s subsequent recapitalization in 2022 and effective as of May 3, 2022, whereby the founders exchanged their Founders Shares for shares of convertible Class B common stock.
Amendment to Certificate of Incorporation
On May 2, 2022, the Company filed an Amended and Restated Certificate of Incorporation that was subsequently amended on October 6, 2022 and May 30, 2023 to authorize the following:
| ● | shares of Class A common stock with a par value of $ per share; | |
| ● | shares of convertible Class B common stock with a par value of $ per share; and | |
| ● | shares of “blank check” preferred stock with a par value of $ per share. |
Liquidation rights: In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, the holders of Class A common stock and the holders of convertible Class B common stock shall be entitled to share equally, on a per share basis, in all assets of the Company of whatever kind available for distribution to the holders of common stock.
Voting:
The holders of the Class A common stock and the holders of the convertible Class B common stock shall at all times vote together as one
class on all matters, including the election of directors, submitted to a vote or for the consent of the stockholders of the Company.
Conversion:
The voting powers, conversion features, if any, designations, preferences, limitations, restrictions and other rights of each series of preferred stock shall be prescribed by resolution of the Board of Directors at the time a specific series of preferred stock is designated. None of the preferred shares have been designated or issued to date.
| F-14 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Omnibus Equity Incentive Plan
On
April 11, 2022, the Company’s board of directors adopted, and the Company’s stockholders approved, the Syra Health Corp.
2022 Omnibus Equity Incentive Plan, as amended on April 19, 2023 (as amended, the “2022 Plan”). No more than
Cancellation of Common Stock Options
On
April 11, 2023, options to purchase
Note 14 – Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the nine months ended September 30, 2023 and the year ended December 31, 2022, the Company incurred a net operating loss and, accordingly,
Based on the available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at September 30, 2023 and December 31, 2022.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
| F-15 |
SYRA HEALTH CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 15 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.
Repayment of Revolving Line of Credit
A
total of $
Repayment of Advances Received from Related Party
On
October 4, 2023 and November 3, 2023, the Company repaid advances received from Sahasra Technologies Corp., doing business as STLogics,
which is an entity beneficially owned by the principal owners and management team of Syra, of $
Debt Conversions
On
October 3, 2023, a total of $
Initial Public Offering
On
October 3, 2023 (the “Closing Date”), the Company completed its initial public offering (the “IPO”) of an aggregate
of units (“Units”) at a public offering price of $ per Unit, with each Unit consisting of
Options Granted
On November 8, 2023, the Company granted options to
purchase an aggregate shares of the Company’s common stock under the 2022 Plan, having an exercise price of $
On November 8, 2023, the Company granted options to purchase an aggregate shares of the Company’s common stock under the 2022 Plan, having an exercise price of $ per share, exercisable over a -year term, to a total of three consultants. The options vest quarterly over one year from the date of grant.
On October 9, 2023, the Company granted options to purchase an aggregate shares of the Company’s common stock under the 2022 Plan, having an exercise price of $ per share, exercisable over a -year term, to a total of five newly appointed board members. The options vest in four (4) equal annual installments with the first installment vesting on the date of grant.
On October 3, 2023, the Company granted fully vested options to purchase shares of the Company’s common stock, having an exercise price of $per share, exercisable over a-year term, to Kingswood Capital Partners, LLC, pursuant to the Company’ IPO.
| F-16 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q, as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Throughout this Quarterly Report on Form 10-Q, references to “we,” “our,” “us,” the “Company,” or “Syra,” refer to Syra Health Corp.
Overview
We are a healthcare services company promoting preventative health, holistic wellness, health education, and equitable healthcare for all patient demographics. We leverage deep scientific and healthcare expertise to create strategic frameworks and develop patient-centric solutions for the betterment of patient lives and health outcome linked to developing a healthier population. We are developing comprehensive end-to-end solutions in health education services, population health management, behavioral and mental health, healthcare workforce and digital health.
Recent Developments
On October 3, 2023 (the “Closing Date”), we completed our initial public offering (the “IPO”) of an aggregate of 1,615,000 units (“Units”) at a public offering price of $4.125 per Unit, with each Unit consisting of (a) one share of our Class A common stock and (b) one warrant (each, a “Warrant” and collectively, the “Warrants”) to purchase one share of Class A common stock at an exercise price equal to $6.50 per share, exercisable until the fifth anniversary of the issuance date, pursuant to that certain underwriting agreement dated as of September 28, 2023 (the “Underwriting Agreement”) by and between us and Kingswood, a division of Kingswood Capital Partners, LLC, as representative of the several underwriters named in the Underwriting Agreement (the “Representative”). We received gross proceeds of approximately $6.7 million from the sale of the Units before deducting underwriting discounts, commissions and offering expenses. In addition, pursuant to the Underwriting Agreement, we granted the Representative a 45-day option to purchase up to 242,250 Units at the initial public offering price, less the underwriting discount, to cover over-allotments, if any (the “Over-Allotment Option”). On the Closing Date, we issued an additional 242,500 Warrants to the underwriters pursuant to the partial exercise by the underwriters of the Over-Allotment Option, generating gross proceeds of $2,422.
We recently secured a five-year $4.75 million contract with the District of Columbia’s Department of Behavioral Health (DBH), to support DBH's mental health initiatives, including its Supported Employment Program and Comprehensive Psychiatric Emergency Program.
Based on the recent successes of our healthcare staffing services, we received a two-year contract extension, worth up to $636,000, with the Indiana Division of Mental Health and Addiction and Family and Social Services Administration to chair and manage the State of Indiana’s Epidemiological Outcomes Workgroup. We also entered into an agreement with Maricopa County Department of Public Health in Arizona to train over 100 public health staff in the county.
True to our goal of helping address some of healthcare’s largest challenges, including behavioral and mental health, we recently launched Syrenity, a mental health product that proactively identifies the negative factors impacting mental health and integrates telehealth for mental health prevention and treatment. For Syrenity, we entered into a strategic agreement with E&I Cooperative Services (E&I), where our sales and marketing teams work together to promote Syrenity to all of E&I’s 6,000 plus college and university members nationwide.
We also launched CarePlus, an electronic medical record (EMR) system designed specifically for small to mid-sized healthcare organizations. CarePlus is an easy-to-use, secure, and scalable platform that allows for streamlining clinical workflows and solves one of healthcare provider’s largest challenges by seamlessly integrating labs, radiology, and telehealth.
| -4- |
Results of Operations for the Three Months Ended September 30, 2023 and 2022
The following table summarizes selected items from the statements of operations for the three months ended September 30, 2023 and 2022.
| For the Three Months | ||||||||||||
| Ended | ||||||||||||
| September 30, | September 30, | Increase / | ||||||||||
| 2023 | 2022 | (Decrease) | ||||||||||
| Net revenues | $ | 1,581,344 | $ | 1,513,979 | $ | 67,365 | ||||||
| Cost of services | 1,026,803 | 1,100,170 | (73,367 | ) | ||||||||
| Gross profit | 554,541 | 413,809 | 140,732 | |||||||||
| Operating expenses: | ||||||||||||
| Salaries and benefits | 592,241 | 451,771 | 140,470 | |||||||||
| Professional fees | 58,875 | 154,457 | (95,582 | ) | ||||||||
| Selling, general and administrative expenses | 234,084 | 150,492 | 83,592 | |||||||||
| Depreciation | ||||||||||||