HealthLynked Corp 10-Q for FY2022 Q2
HealthLynked Corp (HLYK)
About this 10-Q
HealthLynked Corp filed this 10-Q on August 15, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.65M
- down 3.6% from $1.71M a year earlier
- Net loss
- $1.59M
- compared with a net loss of $505.76K a year earlier
- Diluted EPS
- -$0.01
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from [ ] to [ ]
Commission file number:
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) |
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Securities registered pursuant to Section 12(b) of the Act: None.
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.
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, 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 ☐
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As of August 15, 2022, there were
TABLE OF CONTENTS
| PAGE NO. | ||
| PART I | FINANCIAL INFORMATION | 1 |
| Item 1 | Financial Statements (Unaudited) | 1 |
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 42 |
| Item 4 | Controls and Procedures | 42 |
| Part II | OTHER INFORMATION | 43 |
| Item 1 | Legal Proceedings | 43 |
| Item 1A | Risk Factors | 43 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 43 |
| Item 3 | Defaults upon Senior Securities | 43 |
| Item 4 | Mine Safety Disclosure | 43 |
| Item 5 | Other Information | 43 |
| Item 6 | Exhibits | 43 |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $- | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net of accumulated depreciation of $ | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Goodwill | ||||||||
| Right of use lease assets | ||||||||
| Deferred equity compensation and deposits | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Contract liabilities | ||||||||
| Lease liability, current portion | ||||||||
| Due to related party, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Liability-classified equity instruments, current portion | ||||||||
| Contingent acquisition consideration, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Government notes payable, long term portion | ||||||||
| Liability-classified equity instruments, long term portion | ||||||||
| Contingent acquisition consideration, long term portion | ||||||||
| Lease liability, long term portion | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity | ||||||||
| Common stock, par value $ | ||||||||
| Series B convertible preferred stock, par value $ | ||||||||
| Common stock issuable, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
1
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | ||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | ||||||||||||
| Subscription, consulting and event revenue | ||||||||||||||||
| Product revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating Expenses and Costs | ||||||||||||||||
| Practice salaries and benefits | ||||||||||||||||
| Other practice operating expenses | ||||||||||||||||
| Medicare shared savings expenses | ||||||||||||||||
| Cost of product revenue | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Operating Expenses and Costs | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ||||||||||||||
| Change in fair value of debt | ( | ) | ||||||||||||||
| Change in fair value of contingent acquisition consideration | ( | ) | ||||||||||||||
| Interest (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income (expenses) | ( | ) | ||||||||||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividend - amortization of beneficial conversion feature | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share to common shareholders, basic and diluted: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Fully diluted | ||||||||||||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
2
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
THREE AND SIX MONTHS ENDED JUNE 30, 2022
(UNAUDITED)
| Number of Shares | Common | Additional | Total Shareholders’ | |||||||||||||||||||||||||||||
| Common | Preferred | Common | Preferred | Stock | Paid-in | Accumulated | Equity | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Issuable | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| (#) | (#) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | ||||||||||||||||||||||||||||||||
| Shares and options issued to employees | ( | ) | ||||||||||||||||||||||||||||||
| Exercise of stock options | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Sales of common stock | ||||||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | — | — | ||||||||||||||||||||||||||||||
| Shares issued in acquisition of AEU | ||||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | ||||||||||||||||||||||||||||||||
| Shares and options issued to employees | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
3
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
THREE AND SIX MONTHS ENDED JUNE 30, 2021
(UNAUDITED)
| Number of Shares | Common | Additional | Total Shareholders’ | |||||||||||||||||||||||||||||
| Common | Preferred | Common | Preferred | Stock | Paid-in | Accumulated | Equity | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Issuable | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||
| (#) | (#) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||
| Balance at December 31, 2020 | ( | ) | ||||||||||||||||||||||||||||||
| Sales of common stock | ||||||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | — | — | ||||||||||||||||||||||||||||||
| Conversion of convertible notes payable to common stock | ||||||||||||||||||||||||||||||||
| Fair value of warrants issued in connection with conversion and retirement of convertible notes payable | — | — | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for professional services | — | — | ||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | ||||||||||||||||||||||||||||||||
| Shares and options issued pursuant to employee equity incentive plan | ( | ) | ||||||||||||||||||||||||||||||
| Exercise of stock warrants | ||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||
| Sales of common stock | ||||||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | — | — | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for professional services | — | — | ||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | ||||||||||||||||||||||||||||||||
| Shares and options issued pursuant to employee equity incentive plan | ( | ) | ||||||||||||||||||||||||||||||
| Exercise of stock warrants | ||||||||||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
4
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation, including amortization of deferred equity compensation | ||||||||
| Loss on extinguishment of debt | ||||||||
| Change in fair value of debt | ||||||||
| Change in fair value of contingent acquisition consideration | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and deposits | ( | ) | ||||||
| Right of use lease assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Acquisition, net of cash acquired | ( | ) | ||||||
| Payment of contingent acquisition consideration | ( | ) | ( | ) | ||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from exercise of options and warrants | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | $ | ||||||
| Cash paid during the period for income tax | $ | $ | ||||||
| Schedule of non-cash investing and financing activities: | ||||||||
| Fair value of shares issued as purchase price consideration | $ | $ | ||||||
| Common stock issuable issued during period | $ | $ | ||||||
| Fair value of liability-classified equity instruments cancelled (net of earned) | $ | $ | ||||||
| Recognition of operating lease: right of use asset and lease liability | $ | $ | ||||||
| Fair value of warrants issued for professional service | $ | $ | ||||||
| Incremental fair value of warrants modified to extend maturity date of convertible notes payable | $ | $ | ||||||
| Conversion of convertible note payable to common shares | $ | $ | ||||||
| Fair value of warrants issued in connection with conversion of convertible notes payable | $ | $ | ||||||
| Accrued liabilities relieved upon cashless exercise of warrants | $ | $ | ||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
5
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 1 - BUSINESS AND BUSINESS PRESENTATION
HealthLynked Corp. (the “Company”)
was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles of Incorporation
with the Secretary of State of Nevada setting the total number of authorized shares at
We currently operate in four distinct divisions: the Health Services Division, the Digital Healthcare Division, the ACO/MSO (Accountable Care Organization / Managed Service Organization) Division, and the Medical Distribution Division. The Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology) and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice engaged in improving the health of its patients through individualized and integrative health care, (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice in Bonita Springs, FL that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery, and (iv) Aesthetic Enhancements Unlimited (“AEU”), a patient service facility specializing in minimally and non-invasive cosmetic services acquired by the Company in May 2022. The Digital Healthcare division develops and operates an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients and doctors to keep track of medical information via the Internet in a cloud-based system. The ACO/MSO Division is comprised of the operations of Cura Health Management LLC (“CHM”) and its subsidiary ACO Health Partners LLC (“AHP”), which were acquired by the Company on May 18, 2020. CHM and AHP operate an Accountable Care Organization (“ACO”) and Managed Service Organization (“MSO”) that assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which rewards providers for efficiency in patient care. The Medical Distribution Division is comprised of the operations of MedOffice Direct LLC (“MOD”), a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout the United States.
These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2021 and 2020, respectively, which are included in the Company’s Form 10-K, filed with the United States Securities and Exchange Commission on June 30, 2022. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results for the entire year ending December 31, 2022.
On a consolidated basis, the Company’s operations are comprised of the parent company, HealthLynked Corp., and its seven subsidiaries: NWC, NCFM, BTG, CHM, AHP, MOD and AEU. All significant intercompany transactions and balances have been eliminated upon consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current period presentation.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the presentation of the accompanying consolidated financial statements follows:
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP.
All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
6
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Significant estimates include assumptions about fair valuation of acquired intangible assets, cash flow and fair value assumptions associated with measurements of contingent acquisition consideration and impairment of intangible assets and goodwill, valuation of inventory, collection of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, borrowing rate consideration for right-of-use (“ROU”) lease assets including related lease liability and useful life of fixed assets.
Revenue Recognition
Patient service revenue
Patient service revenue is earned for GYN services provided to patients at our NWC facility, functional medicine services provided to patients at our NCFM facility, and physical therapy services provided to patients at our BTG facility. Patient service revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient care. These amounts are due from patients and third-party payors (including health insurers and government programs) and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, the Company bills patients and third-party payors within days after the services are performed and/or the patient is discharged from the facility. Revenue is recognized as performance obligations are satisfied.
Performance obligations are determined based on the nature of the services provided by the Company. Revenue for performance obligations satisfied over time, which includes prepaid BTG physical therapy bundles for which performance obligations are satisfied over time as visits are incurred, is recognized based on actual charges incurred in relation to total expected charges. The Company believes that this method provides a faithful depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Revenue for performance obligations satisfied at a point in time, which includes all patient service revenue other than BTG physical therapy bundles, is recognized when goods or services are provided at the time of the patient visit, and at which time the Company is not required to provide additional goods or services to the patient.
The Company determines the transaction price based on standard charges for goods and services provided, reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients in accordance with the Company’s policy, and/or implicit price concessions provided to uninsured patients. Estimates of contractual adjustments and discounts require significant judgment and are based on the Company’s current contractual agreements, its discount policies, and historical experience. The Company determines its estimate of implicit price concessions based on its historical collection experience with this class of patients. There were no material changes during the years ended December 31, 2022 or 2021 to the judgments applied in determining the amount and timing of patient service revenue.
Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:
| ● | Medicare: Certain inpatient acute care services are paid at prospectively determined rates per discharge based on clinical, diagnostic and other factors. Certain services are paid based on cost-reimbursement methodologies subject to certain limits. Physician services are paid based upon established fee schedules. Outpatient services are paid using prospectively determined rates. |
| ● | Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates per discharge, per occasion of service, or per covered member. |
| ● | Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges, and prospectively determined daily rates. |
7
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various health care organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge the Company’s compliance with these laws and regulations, and it is not possible to determine the impact, if any, such claims or penalties would have upon the Company. In addition, the contracts the Company has with commercial payors also provide for retroactive audit and review of claims.
Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations.
The Company also provides services to uninsured
patients, and offers those uninsured patients a discount, either by policy or law, from standard charges. The Company estimates the transaction
price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market
conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments,
discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments
to patient service revenue in the period of the change. Patient services provided by NCFM, BTG and AEU are provided on a cash basis and
not submitted through third party insurance providers. Contract liabilities related to prepaid BTG patient service revenue were $
Medicare Shared Savings Revenue
The Company earns Medicare shared savings revenue based on performance of the population of patient lives for which it is accountable as an ACO against benchmarks established by the MSSP. Because the MSSP, which was formed in 2012, is relatively new and has limited historical experience, the Company cannot accurately predict the amount of shared savings that will be determined by CMS. Such amounts are determined annually when the Company is notified by CMS of the amount of shared savings earned. Accordingly, the Company recognizes Medicare shared savings revenue in the period in which the CMS notifies the Company of the exact amount of shared savings to be paid, which historically has occurred during the fiscal quarter ended September 30 for the program year ended December 31 of the previous year. Because of the timing of recognition of Medicare shared savings revenue, no Medicare shared savings revenue was recognized in the three or six months ended June 30, 2022 or 2021.
Consulting and Event Revenue
Also pursuant to ASC 606, the Company recognizes
service revenue as services are provided, with any unearned but paid amounts recorded as a contract liability at each balance sheet date.
Contract liabilities related to consulting revenue were $-
Product Revenue
Revenue is derived from the distribution of medical
products that are sourced from a third party. The Company recognizes revenue at a point in time when title transfers to customers and
the Company has no further obligation to provide services related to such products, which occurs when the product ships. The Company is
the principal in its revenue transactions and as a result revenue is recorded on a gross basis. The Company has determined that it controls
the ability to direct the use of the product provided prior to transfer to a customer, is primarily responsible for fulfilling the promise
to provide the product to its customer, has discretion in establishing prices, and ultimately controls the transfer of the product to
the customer. Shipping and handling costs billed to customers are recorded in revenue. Contract liabilities related to product revenue
were $
8
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales are made inclusive of sales tax, where such sales tax is applicable. Sales tax is applicable on sales made in the state of Florida, where the Company has physical nexus. The Company has determined that it does not have economic nexus in any other states. The Company does not sell products outside of the United States.
The Company maintains a return policy that allows
customers to return a product within a specified period of time prior to and subsequent to the expiration date of the product. The Company
analyzes the need for a product return allowance at the end of each period based on eligible products. Product return allowance was $
Contract Liabilities
Contract liabilities represent payments from customers
for consulting services, patient services and medical products that precede the Company’s service or product fulfillment performance
obligation. The Company’s contract liabilities balance was $
Provider shared savings expense
Provider shared savings expense represents the ongoing operating expenses of the ACO and annual payments made to the ACO’s participating providers from shared savings revenue payments received from CMS (the “Annual Provider Payment”). The pool of funds available for the Annual Provider Payment, as well as the amounts paid to each individual participating provider from the pool, is determined by ACO management after an annual determination of Medicare shared savings revenue is made by CMS. Expenses related to ongoing operation of the ACO may be deducted from the Medicare shared savings revenue before determining the Annual Provider Payment. Such expenses are recognized in “Provider shared savings expense” as incurred.
Expense related to the Annual Provider Payment is recognized in the period in which the size of the Annual Provider Payment pool is determined, which typically corresponds to the period in which the shared saving payment is received from CMS and shared savings revenue is recognized. This typically occurs in the second half of the year following the completion of the program year. Because of the timing of recognition of Medicare shared savings revenue, no expense related to Annual Provider Payment was recognized in the three or six months ended June 30, 2022 or 2021.
Cash and Cash Equivalents
For financial statement purposes, the Company
considers all highly liquid investments with original maturities of six months or less to be cash and cash equivalents. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Accounts Receivable
Trade receivables are carried at their estimated
collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts
receivable are periodically evaluated for collectability based on past collectability of the insurance companies, government agencies,
and customers’ accounts receivable during the related period which generally approximates
Leases
Upon transition under ASU 2016-02, the Company elected the suite of practical expedients as a package applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases. For new leases, the Company will determine if an arrangement is or contains a lease at inception. Leases are included as ROU assets within other assets and ROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the Company’s consolidated balance sheets.
9
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases do 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 lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. See Note 8 for more complete details on balances as of the reporting periods presented herein.
Inventory
Goodwill and Intangible Assets
Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value.
The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their estimated useful lives unless the estimated useful life is determined to be indefinite. Amortizable intangible assets are being amortized primarily over useful lives of five years. The straight-line method of amortization is used as it has been determined to approximate the use pattern of the assets. Impairment losses are recognized if the carrying amount of an intangible that is subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.
The Company also maintains intangible assets with indefinite lives, which are not amortized. These intangibles are tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of these assets is less than their carrying value. No impairment charges were recognized in the three and six months ended June 30, 2022 or 2021.
Concentrations of Credit Risk
The Company’s financial instruments that
are exposed to a concentration of credit risk are cash and accounts receivable. There are no patients/customers that represent
Property and Equipment
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 consolidated financial statement purposes, property
and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of
The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
10
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Convertible Notes
Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method. Convertible notes for which the maturity date has been extended and that qualify for debt extinguishment treatment are recorded at fair value on the extinguishment date and then revalued at the end of each reporting period, with the change recorded to the statement of operations under “Change in Fair Value of Debt.”
Government Notes Payable
During 2020, the Company and certain of its subsidiaries received loans under the Paycheck Protection Program (the “PPP”). The PPP loans, administered by the U.S. Small Business Administration (the “SBA”), were issued under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Pursuant to the terms of the PPP, principal amounts may be forgiven if loan proceeds are used for qualifying expenses as described in the CARES Act, including costs such as payroll, benefits, employer payroll taxes, rent and utilities. The Company accounts for forgiveness of government loans pursuant to FASB ASC 470, “Debt,” (“ASC 470”). Pursuant to ASC 470, loan forgiveness is recognized in earnings as a gain on extinguishment of debt when the debt is legally released by the lender.
Fair Value of Assets and Liabilities
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards have established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:
| ● | Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data; |
| ● | Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability. |
The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company utilizes a binomial lattice option pricing model to estimate the fair value of options, warrants, beneficial conversion features and other Level 3 financial assets and liabilities. The Company believes that the binomial lattice model results in the best estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fairly value these instruments and, unlike less sophisticated models like the Black-Scholes model, it also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments.
11
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based compensation to employees and nonemployees under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The Company uses a binomial lattice pricing model to estimate the fair value of options and warrants granted.
Income Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. No income tax has been provided for the three and six months ended June 30, 2022 and 2021, since the Company has sustained a loss for both periods. Due to the uncertainty of the utilization and recoverability of the loss carry-forwards and other deferred tax assets, management has determined a full valuation allowance for the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.
Recurring Fair Value Measurements
The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable, accrued liabilities, and derivative financial instruments approximated their fair value.
Deemed Dividend
The Company incurs a deemed dividend on Series B Convertible Preferred Voting Stock (the “Series B Preferred”). As the intrinsic price per share of the Series B Preferred was less than the deemed fair value of the Company’s common stock on the date of issuance of the Series B Preferred, the Series B Preferred contains a beneficial conversion feature as described in FASB ASC 470-20, “Debt with Conversion and Other Options.” The difference in the stated conversion price and estimated fair value of the common stock is accounted for as a beneficial conversion feature and affects income or loss available to common stockholders for purposes of earnings per share available to common stockholders. The Company incurs further deemed dividends on certain of its warrants containing a down round provision equal to the difference in fair value of the warrants before and after the triggering of the down round adjustment.
Net Loss per Share
Basic net income (loss) per common share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. During the three
and six months ended June 30, 2022 and 2021, the Company reported a net loss and excluded all outstanding stock options, warrants and
other dilutive securities from the calculation of diluted net loss per common share because inclusion of these securities would have been
anti-dilutive. As of June 30, 2022 and December 31, 2021, potentially dilutive securities were comprised of (i)
12
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Common stock awards
The Company grants common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally the date the performance of services is complete. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash. From time to time, the Company also issues stock awards settleable in a variable number of common shares. Such awards are classified as liabilities until such time as the number of shares underlying the grant is determinable.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes pricing model as of the measurement date. The Company uses a binomial lattice pricing model to estimate the fair value of compensation options and warrants. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period, or at the date of issuance, if there is not a service period. Certain of the Company’s warrants include a so-called down round provision. The Company accounts for such provisions pursuant to ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which calls for the recognition of a deemed dividend in the amount of the incremental fair value of the warrant due to the down round when triggered.
Business Segments
The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has four operating segments: Health Services (multi-specialty medical group including the NWC GYN practice, the NCFM functional medicine practice, the BTG physical therapy practice, and the AEU cosmetic services practice), Digital Healthcare (develops and markets the “HealthLynked Network,” an online personal medical information and record archive system), ACO/MSO (comprised of the ACO/MSO business acquired with CHM in May 2020, which assists physician practices in providing coordinated and more efficient care to patients via the MSSP), and Medical Distribution (comprised of the operations of MOD, a virtual distributor of discounted medical supplies selling to both consumers and medical practices).
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”: The amendments in this update are to clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2020-03 are not expected to have a significant effect on current accounting practices. The ASU improves various financial instrument topics in the Codification to increase stakeholder awareness of the amendments and to expedite the improvement process by making the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 with early application permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity’s own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021 and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.
13
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 2021, the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact and timing of adoption of this guidance.
Recently Adopted Pronouncements
In December 2019, the FASB issued ASU 2019-12 Simplifying the Accounting for Income Taxes, which eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intra-period tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this standard in the year ended December 31, 2021. The adoption did not have a material effect on the Company’s consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements. The Company adopted this standard for the year ended December 31, 2022. The adoption did not have a material effect on the Company’s consolidated financial statements.
No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our consolidated Financial Statements.
NOTE 3 – LIQUIDITY AND GOING CONCERN ANALYSIS
Liquidity and Going Concern
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (August 15, 2022). Management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s obligations due before August 15, 2023.
The Company is subject to a number of risks, including uncertainty related to product development and generation of revenues and positive cash flow from its Digital Healthcare division and a dependence on outside sources of capital. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.
The Company has experienced net losses and cash outflows from operating
activities since inception. As of June 30, 2022, the Company had cash balances of $
14
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 3 – LIQUIDITY AND GOING CONCERN ANALYSIS (CONTINUED)
Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements were issued.
On July 5, 2022, the Company entered into a Standby
Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”) (See Note 19 Subsequent Events below
for additional information). Pursuant to the SEPA, the Company shall have the right to sell to Yorkville up to
On July 19, 2022, the Company issued to Yorkville
a promissory note with an initial principal amount equal to $
Without raising additional capital, either via Advances made pursuant to the SEPA or from other sources, there is substantial doubt about the Company’s ability to continue as a going concern through August 15, 2023. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of presentation contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
COVID-19
A novel strain of coronavirus, COVID-19, that was first identified in China in December 2019, has surfaced in several regions across the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The further spread of COVID-19, and the requirement to take action to limit the spread of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions and our business and financial condition, including our potential to conduct financings on terms acceptable to us, if at all. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In response to COVID-19, the Company implemented additional safety measures in its patient services locations and its corporate headquarters.
NOTE 4 – ACQUISITION
On May 13, 2022, the Company acquired AEU, a patient service facility specializing in minimally and non-invasive cosmetic services including fat reduction, body sculpting, wrinkle reduction, hair removal, IV hydration, and feminine rejuvenation. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business Combinations” (“ASC 805”). Following the acquisition, AEU was incorporated into the Company’s Health Services segment.
15
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 4 – ACQUISITION (CONTINUED)
| Cash consideration | $ | |||
| Payment of AEU debt obligations in cash | ||||
| Fair value of shares issued at closing | ||||
| Less cash received | ( | ) | ||
| Total Fair Value of Consideration Paid | $ |
The fair value of the
The following table summarizes the preliminary estimated fair values of the identifiable assets acquired and liabilities assumed at the acquisition date:
| Property, plant and equipment | $ | |||
| Right of use lease asset | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Loans payable | ( | ) | ||
| Amounts due to sellers | ( | ) | ||
| Lease liability | ( | ) | ||
| Fair Value of Identifiable Assets Acquired and Liabilities Assumed | $ |
Goodwill of $
The following table represents the pro forma consolidated income statement as if AEU had been included in the consolidated results of the Company for the six months ended June 30, 2022 and 2021.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of AEU to reflect the additional depreciation that would have been charged assuming the fair value adjustments to property, plant and equipment had been applied on January 1, 2021.
16
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 5 – PREPAID EXPENSES AND OTHER
Prepaid and other expenses as of June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Insurance prepayments | $ | $ | ||||||
| Other expense prepayments | ||||||||
| Rent deposits | ||||||||
| Deferred equity compensation | ||||||||
| Total prepaid expenses and other | ||||||||
| Less: long term portion | ( | ) | ( | ) | ||||
| Prepaid expenses and other, current portion | $ | $ | ||||||
Deferred equity compensation reflects common stock
grants made in 2021 from the Company’s 2021 Equity Incentive Plan that vest over a four-year period and that are settleable for
a fixed dollar amount rather than a fixed number of shares. The original grant date fair value of the equity compensation was $
NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment as of June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Medical equipment | $ | $ | ||||||
| Furniture, office equipment and leasehold improvements | ||||||||
| Total property, plant and equipment | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense during the three months ended
June 30, 2022 and 2021 was $
17
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 7 – INTANGIBLE ASSETS AND GOODWILL
Identifiable intangible assets as of June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| NCFM: Medical database | $ | $ | ||||||
| NCFM: Website | ||||||||
| CHM: ACO physician contracts | ||||||||
| MOD: Website | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Goodwill as of June 30, 2022 and December 31, 2021 was as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| CHM | $ | $ | ||||||
| MOD | ||||||||
| AEU | — | |||||||
| Goodwill | $ | $ | ||||||
Goodwill and intangible assets arose from the
acquisitions of NCFM in April 2019, CHM in May 2020, MOD in October 2020, and AEU in May 2022. The NCFM medical database is assumed to
have an indefinite life and is not amortized and the website is being amortized on a straight-line basis over its estimated useful life
of
Goodwill represents the excess of consideration transferred over the fair value of the net identifiable assets acquired related to the acquisitions of CHM, MOD, and AEU.
Amortization expense related to intangible assets
in the three months ended June 30, 2022 and 2021 was $
NOTE 8 – LEASES
18
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 8 – LEASES (CONTINUED)
The table below summarizes the Company’s lease-related assets and liabilities as of June 30, 2022 and December 31, 2021:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Lease assets | $ | $ | ||||||
| Lease liabilities | ||||||||
| Lease liabilities (short term) | $ | $ | ||||||
| Lease liabilities (long term) | ||||||||
| Total lease liabilities | $ | $ | ||||||
Lease expense was $
Maturities of operating lease liabilities were as follows as of June 30, 2022:
| 2022 (July to December) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less interest | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Amounts related to accounts payable and accrued expenses as of June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Trade accounts payable | $ | $ | ||||||
| Accrued payroll liabilities | ||||||||
| Accrued operating expenses | ||||||||
| Accrued interest | ||||||||
| Accrued settlement of litigation and other dispute | ||||||||
| $ | $ | |||||||
19
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 10 – CONTRACT LIABILITIES
Amounts related to contract liabilities as of June 30, 2022 and December 31, 2021 were as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Patient services paid but not provided | $ | $ | ||||||
| Consulting services paid but not provided | ||||||||
| Unshipped products | ||||||||
| $ | $ | |||||||
Contract liabilities relate to contracted consulting services at CHM for which payment has been made but services have not yet been rendered as of the measurement date, physical therapy services purchased as a prepaid bundle for which services have not yet been provided, and MOD products that have been ordered and paid for by the customer, but which have not been shipped as of the measurement date. The Company typically satisfies its performance obligations related to such contracts, for which payment is typically made prior to the goods or services being provided, upon completion of service or shipment of product.
NOTE 11 – AMOUNTS DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS
Amounts due to related parties as of June 30,
2022 and December 31, 2021 were comprised of deferred compensation payable to the Company’s founder and CEO, Dr. Michael Dent, in
the amount of $
The Company paid consulting fees to Dr. Dent’s
spouse pursuant to a consulting agreement amounting to $
NOTE 12 – GOVERNMENT AND OTHER NOTES PAYABLE
During May and June 2020, the Company and certain
of its subsidiaries received an aggregate of $
During June, July and August 2020, the Company
and its subsidiaries received an aggregate of $
In connection with the October 19, 2020 acquisition
of MOD, the Company acquired a note payable to MOD’s primary product vendor with a remaining principal balance of $
Interest accrued on government and vendor notes
payable as of June 30, 2022 and December 31, 2021 was $
In connection with the May 13, 2022 acquisition
of AEU, the Company acquired a bank note payable with a remaining principal balance of $
20
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 13 – CONVERTIBLE NOTES PAYABLE
The Company had no convertible notes payable as of June 30, 2022 or December 31, 2021.
On January 6, 2021,
Prior to conversion, the Remaining Notes were
carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change
in Fair Value of Debt.” The changes in fair value were $-
Interest expense on convertible notes outstanding
were $-
NOTE 14 – SHAREHOLDERS’ EQUITY
Private Placements
On May 18, 2022, the Company sold
During the six months ended June 30, 2021, the
Company sold
Prior Investment Agreement Draws
During the six months ended June 30, 2021, the
Company issued
Shares issued to Consultants
During the six months ended June 30, 2022 and
2021, the Company issued
21
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
Common Stock Issuable
As of June 30, 2022 and December 31, 2021, the Company was obligated to issue the following shares:
| June 30, 2022 | December 31, 2020 | |||||||||||||||
| Amount | Shares | Amount | Shares | |||||||||||||
| Shares issuable to consultants, employees and directors | $ | $ | ||||||||||||||
Stock Warrants
Transactions involving our stock warrants during the six months ended June 30, 2022 and 2021 are summarized as follows:
| 2022 | 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Number | Price | Number | Price | |||||||||||||
| Outstanding at beginning of the period | $ | $ | ||||||||||||||
| Granted during the period | $ | $ | ||||||||||||||
| Exercised during the period | $ | ( | ) | $ | ( | ) | ||||||||||
| Expired during the period | ( | ) | $ | ( | ) | $ | ||||||||||
| Outstanding at end of the period | $ | $ | ||||||||||||||
| Exercisable at end of the period | $ | $ | ||||||||||||||
| Weighted average remaining life | ||||||||||||||||
The following table summarizes information about the Company’s stock warrants outstanding as of June 30, 2022:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
| Weighted- | ||||||||||||||||||||
| Average | Weighted- | Weighted- | ||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||
| Prices | Outstanding | Life (years) | Price | Exercisable | Price | |||||||||||||||
| $ | | $ | $ | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||
22
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
During the six months ended June 30, 2022 and
2021, the Company issued
| 2022 | 2021 | |||
| Pricing model utilized | ||||
| Risk free rate range | ||||
| Expected life range (in years) | ||||
| Volatility range | ||||
| Dividend yield |
There were no warrants exercised during the six
months ended June 30, 2022. During the six months ended June 30, 2021, the Company received $
Employee Equity Incentive Plans
On January 1, 2016, the Company adopted the 2016
Employee Equity Incentive Plan (the “2016 EIP”) for the purpose of having equity awards available to allow for equity participation
by its employees. The 2016 EIP allowed for the issuance of up to
On September 9, 2021, the Company adopted the
2021 Employee Equity Incentive Plan (the “2021 EIP” and, together with the 2016 EIP, the “EIPs”) for the purpose
of having equity awards available to allow for equity participation by its employees. The 2021 EIP allows for the issuance of up to
Amounts recognized in the financial statements with respect to the EIPs in the six months ended June 30, 2022 and 2021 were as follows:
| 2022 | 2021 | |||||||
| Total cost of share-based payment plans during the period | $ | $ | ||||||
| Amounts capitalized in deferred equity compensation during period | $ | $ | ||||||
| Amounts charged against income for amounts previously capitalized | $ | $ | ||||||
| Amounts charged against income, before income tax benefit | $ | $ | ||||||
| Amount of related income tax benefit recognized in income | $ | $ | ||||||
23
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
Stock Options
Stock options granted under the EIPs typically vest over a period of three to four years or based on achievement of Company and individual performance goals. The following table summarizes stock option activity as of and for the six months ended June 30, 2022 and 2021:
| 2022 | 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Stock options | Number | Price | Number | Price | ||||||||||||
| Outstanding at beginning of period | $ | $ | ||||||||||||||
| Granted during the period | $ | $ | ||||||||||||||
| Exercised during the period | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Forfeited during the period | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Outstanding at end of period | $ | $ | ||||||||||||||
| Options exercisable at period-end | $ | $ | ||||||||||||||
As of June 30, 2022, there was $
The total fair value of options vested during
the six months ended June 30, 2022 and 2021 was $
The fair value of each stock option award is estimated on the date of grant using a binomial lattice option-pricing model based on the assumptions noted in the following table. The Company’s accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each period. The fair value of options granted for the six months ended June 30, 2022 and 2021 was calculated using the following range of assumptions:
| 2022 | 2021 | |||
| Pricing model utilized | ||||
| Risk free rate range | ||||
| Expected life range (in years) | ||||
| Volatility range | ||||
| Dividend yield |
24
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
The following table summarizes the status and activity of nonvested options issued pursuant to the EIPs as of and for the six months ended June 30, 2022 and 2021:
| 2022 | 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Grant Date | Grant Date | |||||||||||||||
| Stock options | Shares | Fair Value | Shares | Fair Value | ||||||||||||
| Nonvested options at beginning of period | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Vested | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Forfeited | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Nonvested options at end of period | $ | $ | ||||||||||||||
Stock Grants
Stock grant awards made under the EIPs typically vest either immediately or over a period of up to four years. The following table summarizes stock grant activity as of and for the six months ended June 30, 2022 and 2021:
| 2022 | 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Grant Date | Grant Date | |||||||||||||||
| Stock Grants | Shares | Fair Value | Shares | Fair Value | ||||||||||||
| Nonvested grants at beginning of period | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Vested | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Forfeited | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Nonvested grants at end of period | $ | $ | ||||||||||||||
As of June 30, 2022, there was $
The fair value of each stock grant is calculated using the closing sale price of the Company’s common stock on the date of grant using. The Company’s accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each period.
Liability-Classified Equity Instruments
During 2021, the Company made certain stock grants from the 2021 EIP
that vest over a four-year period and that are settleable for a fixed dollar amount rather than a fixed number of shares. The original
grant date fair value of the equity compensation was $
25
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 15 – CONTINGENT ACQUISITION CONSIDERATION
Contingent acquisition consideration relates to future earn-out payments potentially payable related to the Company’s acquisitions of Hughes Center for Functional Medicine (“HCFM”) in 2019 and CHM and MOD in 2020. The terms of the earn-outs related to each acquisition require the Company to pay the former owners additional acquisition consideration for the achievement of prescribed revenue and/or earnings targets for performance of the underlying business for up to four years after the respective acquisition date. Contingent acquisition consideration for each entity is recorded at fair value using a probability-weighted discounted cash flow projection. The fair value of the contingent acquisition consideration is remeasured at the end of each reporting period and changes are included in the statement of operations under the caption “Change in fair value of contingent acquisition consideration.”
Contingent acquisition consideration as of June 30, 2022 and December 31, 2021 was comprised of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Fair value of HCFM contingent acquisition consideration | $ | $ | ||||||
| Fair value of CHM contingent acquisition consideration | ||||||||
| Fair value of MOD contingent acquisition consideration | ||||||||
| Total contingent acquisition consideration | ||||||||
| Less: long term portion | ( | ) | ( | ) | ||||
| Contingent acquisition consideration, current portion | $ | $ | ||||||
During the three and six months ended June 30, 2022 and 2021, the Company recognized gains (losses) on the change in the fair value of contingent acquisition consideration as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Change in fair value of HCFM contingent acquisition consideration | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Change in fair value of CHM contingent acquisition consideration | ( | ) | ( | ) | ||||||||||||
| Change in fair value of MOD contingent acquisition consideration | ( | ) | ||||||||||||||
| $ | $ | $ | $ | ( | ) | |||||||||||
Maturities of contingent acquisition consideration were as follows as of June 30, 2022:
| 2022 (July to December) | $ | |||
| 2023 | ||||
| 2024 | ||||
| $ |
Hughes Center for Functional Medicine Acquisition – April 2019
On April 12, 2019, the Company acquired a
26
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 15 – CONTINGENT ACQUISITION CONSIDERATION (CONTINUED)
Cura Health Management LLC Acquisition – May 2020
On May 18, 2020, the Company acquired a
The terms of the earn out require
During September 2021, the Company was notified
of the amount of Medicare shared savings and received payment for plan year 2020 in the amount of $
MedOffice Direct LLC Acquisition – October 2020
On October 19, 2020, the Company acquired a
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Contracts Related to Medicare Shared Savings Revenue
The Company acquired CHM and its subsidiary AHP on May 18, 2020. CHM and AHP combine to operate an ACO under the terms of the MSSP as administered by the CMS. The MSSP is a program created under the Affordable Care Act (the “ACA,” also known as “Obamacare”) designed to enhance the efficiency of healthcare provided to patients covered by Medicare. The program allows for the creation of ACOs, which are organizations that agree to take responsibility for the efficiency of healthcare services provided by a group of participating healthcare providers under Medicare. The ACO is held accountable for the efficiency of the healthcare services of its participating providers as measured against benchmarks prescribed in the MSSP and earns shared savings payments if such benchmarks are met.
27
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 16 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company, via AHP, is party to a Medicare Shared Savings Program Accountable Care Organization Participation Agreement with the CMS that establishes AHP as an ACO. The agreement is effective through December 31, 2024. The Company must comply with the terms and conditions of the agreement in order to maintain its status as an ACO and generate shared savings revenue.
The Company, via CHM, is party to approximately 33 separate participant agreements with participating providers that are members of the Company’s ACO with expiration dates through . These agreements include certain restrictions and requirements to which the participating providers must adhere in order to maintain participation in the ACO.
Supplier Concentration
The Company relies on a single supplier for the
fulfillment of approximately
Service contracts
The Company carries various service contracts on its office buildings & certain copier equipment for repairs, maintenance and inspections. All contracts are short term and can be cancelled.
Litigation
None.
Leases
Maturities of operating lease liabilities were as follows as of June 30, 2022:
| 2022 (July to December) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less interest | ( | ) | ||
| Present value of lease liabilities | $ |
Employment/Consulting Agreements
The Company has employment agreements with certain of its physicians, nurse practitioners and physical therapists in the Health Services division. The agreements generally call for a fixed salary at the beginning of the contract with a transaction to performance-based pay later in the contract.
On July 1, 2016, the Company entered into an employment agreement with Dr. Michael Dent, Chief Executive Officer and a member of the Board of Directors. Dr. Dent’s employment agreement continues until terminated by Dr. Dent or the Company. If Dr. Dent’s employment is terminated by the Company (unless such termination is “For Cause” as defined in his employment agreement), then upon signing a general waiver and release, Dr. Dent will be entitled to severance in an amount equal to 12 months of his then-current annual base salary, as well as the pro-rata portion of any bonus that would be due and payable to him. In the event that Dr. Dent terminates the employment agreement, he shall be entitled to any accrued but unpaid salary and other benefits up to and including the date of termination, and the pro-rata portion of any unvested time-based options up until the date of termination.
On July 1, 2018,
28
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 16 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
On May 18, 2020,
Litigation
From time to time, the Company 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 the Company’s business. The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
NOTE 17 – SEGMENT REPORTING
The Company has
The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
Segment information for the three months ended June 30, 2022 was as follows:
| Three Months Ended June 30, 2022 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Subscription, consulting and event revenue | ||||||||||||||||||||
| Product revenue | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||
| Practice salaries and benefits | ||||||||||||||||||||
| Other practice operating expenses | ||||||||||||||||||||
| Medicare shared savings expenses | ||||||||||||||||||||
| Cost of product revenue | ||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| (Loss) income from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Other Segment Information | ||||||||||||||||||||
| Interest expense (income) | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||
29
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the six months ended June 30, 2022 was as follows:
| Six Months Ended June 30, 2022 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Subscription, consulting and event revenue | ||||||||||||||||||||
| Product revenue | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||
| Practice salaries and benefits | ||||||||||||||||||||
| Other practice operating expenses | ||||||||||||||||||||
| Medicare shared savings expenses | ||||||||||||||||||||
| Cost of product revenue | ||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Other Segment Information | ||||||||||||||||||||
| Interest expense (income) | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||
| June 30, 2022 | ||||||||||||||||||||
| Identifiable assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Identifiable assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
30
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the three months ended June 30, 2021 was as follows:
| Three Months Ended June 30, 2021 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Subscription, consulting and event revenue | ||||||||||||||||||||
| Product revenue | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||
| Practice salaries and benefits | ||||||||||||||||||||
| Other practice operating expenses | ||||||||||||||||||||
| Medicare shared savings expenses | ||||||||||||||||||||
| Cost of product revenue | ||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Loss from operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Other Segment Information | ||||||||||||||||||||
| Interest expense | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Gain on extinguishment of debt | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| Change in fair value of contingent acquisition consideration | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||
31
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the six months ended June 30, 2021 was as follows:
| Six Months Ended June 30, 2021 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Subscription, consulting and event revenue | ||||||||||||||||||||
| Product revenue | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||
| Practice salaries and benefits | ||||||||||||||||||||
| Other practice operating expenses | ||||||||||||||||||||
| Medicare shared savings expenses | ||||||||||||||||||||
| Cost of product revenue | ||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Total Operating Expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Other Segment Information | ||||||||||||||||||||
| Interest expense | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| (Gain) loss on extinguishment of debt | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||
| Change in fair value of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | $ | $ | $ | |||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Identifiable assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
The Digital Healthcare made intercompany sales
of $
NOTE 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the short-term nature of such instruments. The Company measures certain financial instruments at fair value on a recurring basis, including certain convertible notes payable and related party loans, which were extinguished and reissued and are therefore subject to fair value measurement, derivative financial instruments arising from conversion features embedded in convertible promissory notes for which the conversion rate was not fixed, and equity-class. All financial instruments carried at fair value fall within Level 3 of the fair value hierarchy as their value is based on unobservable inputs. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made.
32
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the conclusions reached regarding fair value measurements as of June 30, 2022 and December 31, 2021:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Liability-classified equity instruments | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Contingent acquisition consideration | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The changes in Level 3 financial instruments that are measured at fair value on a recurring basis during the three and six months ended June 30, 2022 and 2021 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ( | ) | ||||||||||
| Contingent acquisition consideration | ( | ) | ||||||||||||||
| Total | $ | $ | $ | $ | ( | ) | ||||||||||
NOTE 19 – SUBSEQUENT EVENTS
On July 5, 2022, the Company sold
On July 5, 2022,
On July 11, 2022, the Company filed a Form S-1 registration
statement registering up to
33
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 19 – SUBSEQUENT EVENTS (CONTINUED)
On July 19, 2022, pursuant to a Note Purchase
Agreement between the Company and Yorkville, dated July 5, 2022, the Company issued to Yorkville the Promissory Note with an initial principal
amount equal to $
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report. 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 “Item 1A. Risk Factors” included in our most recent Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
HealthLynked Corp. (the “Company,” “we,” “our,” or “us”) was incorporated in the State of Nevada on August 4, 2014. We currently operate in four distinct divisions: the Health Services Division, the Digital Healthcare Division, the ACO/MSO (Accountable Care Organization / Managed Service Organization) Division, and the Medical Distribution Division. Our Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology) and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice engaged in improving the health of its patients through individualized and integrative health care, and (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice in Bonita Springs, FL that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery. Our Digital Healthcare division develops and operates an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients and doctors to keep track of medical information via the Internet in a cloud-based system. Our ACO/MSO Division is comprised of the operations of Cura Health Management LLC (“CHM”) and its subsidiary ACO Health Partners LLC (“AHP”), which were acquired by the Company on May 18, 2020. CHM and AHP operate an Accountable Care Organization (“ACO”) and Managed Service Organization (“MSO”) that assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which rewards providers for efficiency in patient care. Our Medical Distribution Division is comprised of the operations of MedOffice Direct LLC (“MOD”), a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout the United States we acquired on October 19, 2020.
Critical accounting policies and significant judgments and estimates
For a discussion of our critical accounting policies, see Note 2, “Significant Accounting Policies,” in the Notes to consolidated Financial Statements.
35
Results of Operations
Comparison of Three Months Ended June 30, 2022 and 2021
The following table summarizes the changes in our results of operations for the three months ended June 30, 2022 compared with the three months ended June 30, 2021:
| Three Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Patient service revenue, net | $ | 1,431,776 | $ | 1,470,550 | $ | (38,774 | ) | -3 | % | |||||||
| Subscription, consulting and event revenue | 86,296 | 71,864 | 14,432 | 20 | % | |||||||||||
| Product revenue | 130,459 | 168,206 | (37,747 | ) | -22 | % | ||||||||||
| Total revenue | 1,648,531 | 1,710,620 | (62,089 | ) | -4 | % | ||||||||||
| Operating Expenses and Costs | ||||||||||||||||
| Practice salaries and benefits | 816,398 | 903,032 | (86,634 | ) | -10 | % | ||||||||||
| Other practice operating expenses | 639,119 | 511,004 | 128,115 | 25 | % | |||||||||||
| Medicare shared savings expenses | 237,149 | 197,463 | 39,686 | 20 | % | |||||||||||
| Cost of product revenue | 170,543 | 159,998 | 10,545 | 7 | % | |||||||||||
| Selling, general and administrative expenses | 1,255,511 | 1,147,478 | 108,033 | 9 | % | |||||||||||
| Depreciation and amortization | 208,912 | 206,469 | 2,443 | 1 | % | |||||||||||
| Loss from operations | (1,679,101 | ) | (1,414,824 | ) | (264,277 | ) | 19 | % | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Gain on extinguishment of debt | — | 632,826 | (632,826 | ) | -100 | % | ||||||||||
| Change in fair value of contingent acquisition consideration | 93,768 | 274,611 | (180,843 | ) | -66 | % | ||||||||||
| Interest expense | (4,488 | ) | 1,623 | (6,111 | ) | -377 | % | |||||||||
| Total other income | 89,280 | 909,060 | (819,780 | ) | -90 | % | ||||||||||
| Net loss | $ | (1,589,821 | ) | $ | (505,764 | ) | $ | (1,084,057 | ) | 214 | % | |||||
Revenue
Patient service revenue in the three months ended June 30, 2022 decreased by $38,774, or 3% year-over-year, to $1,431,776, primarily as a result of decreased patient service revenue at our NWC practice of $200,442 due to the departure of a physician and a decrease at BTG of $17,529, offset by a year-over-year increase at our NCFM practice of $142,797 and the addition of AEU revenue following its acquisition.
Subscription, consulting and event revenue in the three months ended June 30, 2022 increased by $14,432, or 20% year-over-year, to $86,296. Consulting revenue of $84,657 was earned by the ACO/MSO Division in 2022, compared to $70,893 in the three months ended June 30, 2021. Subscription and event revenue of $1,638 and $972 in 2022 and 2021, respectively, was earned from Digital Healthcare division subscription revenues.
Product revenue was $130,459 in the three months ended June 30, 2022, compared to $168,206 in the three months ended June 30, 2021, a decrease of $37,747, or 22%. Product revenue was earned by the Medical Distribution Division, comprised of the operations of MOD.
Operating Expenses and Costs
Practice salaries and benefits decreased by $86,634, or 10%, to $816,398 in the three months ended June 30, 2022, primarily as a result of cost-cutting measures at our NWC facility, offset by increased staffing at our NCFM facility corresponding to an increase in patient visits and revenue in 2022.
Other practice operating costs increased by $128,115, or 25%, to $639,119 in the three months ended June 30, 2022, primarily corresponding to an increase in NCFM patient visits and revenue in 2022 as well as the addition of costs associated with AEU following acquisition.
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Medicare shared savings expenses increased by $39,686, or 20% to $237,149 in the three months ended June 30, 2022. Medicare shared savings expenses represent costs incurred to deliver Medicare shared savings revenue, including overhead and consulting fees related to advising participating physician practices, as well as the physicians’ portion of any shared savings received by the ACO.
Cost of product revenue was $170,543 in the three months ended June 30, 2022, an increase of $10,545, or 7%, compared to the same period of 2021. During the three months ended June 30, 2022, we made two sales with corresponding cost of product revenue of $89,395 for which we do not believe it is probable that we will collect from the customers. As a result, the cost of product revenue is recognized in the three months ended June 30, 2022 with no corresponding revenue recognized.
Selling, general and administrative costs increased by $108,033, or 9%, to $1,255,511 in the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to more personnel, overhead, promotional and development costs in our corporate function in connection with our continued investment in the HealthLynked Network, offset by lower cash-based consulting, legal and accounting fees in 2022 compared to 2021.
Depreciation and amortization increased in the three months ended June 30, 2022 by $2,443, or 1%, to $208,912 compared to the three months ended June 30, 2021. We did not add any new intangible assets subject to amortization during either period.
Loss from operations increased by $264,277, or 19%, to $1,679,101 in the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily as a result of increased selling, general and administrative costs and practice operating costs, as well as one-time product costs recognized with no corresponding revenue in second quarter 2022.
Other Income (Expenses)
Gain on extinguishment of debt in the three months ended June 30, 2021 was $632,826, resulting from the forgiveness of Paycheck Protection Program (the “PPP”) loans taken by us in 2020 that were forgiven by the U.S. Small Business Administration (the “SBA”) in May and June 2021. There were no gains or losses from the extinguishment of debt in 2022.
Gains from the change in fair value of contingent acquisition consideration decreased by $180,843, or 66%, to a gain of $93,768 in the three months ended June 30, 2022, compared to $274,611 in the three months ended June 30, 2021. Because contingent acquisition consideration related to our acquisition of MOD is payable in a fixed number of shares, changes in the fair value of the contingent acquisition consideration fluctuates with our share price. During each of the three months ended June 30, 2021, our share price decreased from the price at the end of the preceding quarter, resulting in a decrease in the fair value of the contingent acquisition consideration liability and a corresponding gain from the change in fair value of the liability.
Interest expense increased by $6,111, or 377%, to $4,488 for the three months ended June 30, 2022, compared to interest income of $1,623 in the three months ended June 30, 2021, as a result of the forgiveness of PPP loans in 2021. Remaining interest expense relates to long-term SBA loans.
Total other income decreased by $819,780, or 90%, to $89,280 in the three months ended June 30, 2022 compared to $909,060 in the three months ended June 30, 2021. The change was primarily a result of a $632,826 gain from the forgiveness of PPP loans in 2021, as well as higher gains on the change in fair value of contingent acquisition consideration in 2021.
Net loss increased by $1,084,057, or 214%, to $1,589,821 in the three months ended June 30, 2022, compared to net loss of $505,764 in the three months ended June 30, 2021, primarily as a result of (i) a $632,826 gain from the forgiveness of PPP loans in 2021, (ii) higher gains on the change in fair value of contingent acquisition consideration in 2021, (iii) increased selling, general and administrative costs and practice operating costs, and (iv) one-time product costs recognized with no corresponding revenue in second quarter 2022.
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Comparison of Six Months Ended June 30, 2022 and 2021
The following table summarizes the changes in our results of operations for the six months ended June 30, 2022 compared with the six months ended June 30, 2021:
| Six Months Ended June 30, | Change | |||||||||||||||
| 2022 | 2021 | $ | % | |||||||||||||
| Patient service revenue, net | $ | 2,807,461 | $ | 2,984,926 | $ | (177,465 | ) | -6 | % | |||||||
| Subscription, consulting and event revenue | 170,514 | 159,519 | 10,995 | 7 | % | |||||||||||
| Product revenue | 277,428 | 350,869 | (73,441 | ) | -21 | % | ||||||||||
| Total revenue | 3,255,403 | 3,495,314 | (239,911 | ) | -7 | % | ||||||||||
| Operating Expenses and Costs | ||||||||||||||||
| Practice salaries and benefits | 1,534,471 | 1,566,969 | (32,498 | ) | -2 | % | ||||||||||
| Other practice operating expenses | 1,201,770 | 1,241,788 | (40,018 | ) | -3 | % | ||||||||||
| Medicare shared savings expenses | 464,878 | 408,970 | 55,908 | 14 | % | |||||||||||
| Cost of product revenue | 331,354 | 328,594 | 2,760 | 1 | % | |||||||||||
| Selling, general and administrative expenses | 2,590,651 | 2,513,615 | 77,036 | 3 | % | |||||||||||
| Depreciation and amortization | 412,802 | 418,127 | (5,325 | ) | -1 | % | ||||||||||
| Loss from operations | (3,280,523 | ) | (2,982,749 | ) | (297,774 | ) | 10 | % | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Loss on extinguishment of debt | — | (4,957,168 | ) | 4,957,168 | -100 | % | ||||||||||
| Change in fair value of debt | — | (19,246 | ) | 19,246 | -100 | % | ||||||||||
| Change in fair value of contingent acquisition consideration | 532,090 | (361,089 | ) | 893,179 | -247 | % | ||||||||||
| Interest expense | (9,511 | ) | (8,965 | ) | (546 | ) | 6 | % | ||||||||
| Total other income (expenses) | 522,579 | (5,346,468 | ) | 5,869,047 | -110 | % | ||||||||||
| Net loss | $ | (2,757,944 | ) | $ | (8,329,217 | ) | $ | 5,571,273 | -67 | % | ||||||
Revenue
Patient service revenue in the six months ended June 30, 2022 decreased by $177,465, or 6% year-over-year, to $2,807,461, primarily as a result of decreased patient service revenue at our NWC practice of $399,647 due to the departure of a physician and a decrease at BTG of $15,205, offset by a year-over-year increase at our NCFM practice of $200,987 and the addition of AEU revenue following its acquisition.
Subscription, consulting and event revenue in the six months ended June 30, 2022 increased by $10,995, or 7% year-over-year to $170,514. Consulting revenue of $162,251 was earned by the ACO/MSO Division in 2022, compared to $147,434 in the three months ended June 30, 2021. Subscription and event revenue of $8,262 and $12,805 in 2022 and 2021, respectively, was earned from Digital Healthcare division subscription revenues.
Product revenue was $277,428 in the six months ended June 30, 2022, compared to $350,869 in the six months ended June 30, 2021, a decrease of $73,441, or 21%. Product revenue was earned by the Medical Distribution Division, comprised of the operations of MOD.
Operating Expenses and Costs
Practice salaries and benefits decreased by $32,498, or 2%, to $1,534,471 in the six months ended June 30, 2022 primarily as a result of cost-cutting measures at our NWC facility, offset by increased staffing at our NCFM facility corresponding to an increase in patient visits and revenue in 2022.
Other practice operating costs decreased by $40,018, or 3%, to $1,201,770 in the six months ended June 30, 2022, due to reduced overhead at our NWC and NCFM facilities on a year-to-date basis, offset by the addition of costs associated with AEU following its acquisition.
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Medicare shared savings expenses increased by $55,908, or 14% to $464,878 in the six months ended June 30, 2022.
Cost of product revenue was $331,354 in the six months ended June 30, 2022, an increase of $2,760, or 1%, compared to the same period of 2021. During the six months ended June 30, 2022, we made two sales with corresponding cost of product revenue of $89,395 for which we do not believe it is probable that we will collect from the customers. As a result, the cost of product revenue is recognized in the three months ended June 30, 2022 with no corresponding revenue recognized.
Selling, general and administrative costs increased by $77,036, or 3%, to $2,590,651 in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to more personnel, overhead, promotional and development costs in our corporate function in connection with our continued investment in the HealthLynked Network, offset by lower stock-based and cash-based consulting fees, and legal and accounting fees in 2022 compared to 2021.
Depreciation and amortization decreased in the six months ended June 30, 2022 by $5,325, or 1%, to $412,802 compared to the six months ended June 30, 2021, primarily as a result of certain fixed assets reaching the end of their depreciable lives. We did not add any new intangible assets subject to amortization during either period.
Loss from operations increased by $297,774, or 10%, to $3,280,523 in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily as a result of lower patient service and product revenue and an increase in selling, general and administrative and Medicare shared savings expense, offset by reductions in practice costs.
Other Income (Expenses)
Loss on extinguishment of debt in the six months ended June 30, 2021 was $4,957,168 resulting from (i) a loss on debt extinguishment of $5,463,592 representing the excess of the fair value of shares and a warrant issued at conversion of convertible notes over the carrying value of the host instruments and accrued interest, and (ii) a debt extinguishment gain of $632,826 related to the forgiveness of PPP loans in May and June 2021. There were no gains or losses from the extinguishment of debt in 2022.
Losses from the change in fair value of debt was $19,246 in the six months ended June 30, 2021. Such losses resulted from certain convertible notes and notes payable to related parties that, in previous periods, were extended and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period was recorded as “Change in fair value of debt.” After conversion of our remaining convertible notes outstanding in January 2021, we had no further debt carried at fair value, and therefore no change in fair value of debt in the six months ended June 30, 2022
Gain (loss) from the change in fair value of contingent acquisition consideration increased by $893,179, or 247%, to a gain of $532,090 in the six months ended June 30, 2022, compared to a loss of $361,089 in the six months ended June 30, 2021. Because contingent acquisition consideration related to our acquisition of MOD is payable in a fixed number of shares, changes in the fair value of the contingent acquisition consideration fluctuates with our share price. During the six months ended June 30, 2021, our share price increased substantially, resulting in an increase in the fair value of the contingent acquisition consideration liability and a corresponding loss from the change in fair value. During the six months ended June 30, 2022, our share price decreased substantially, resulting in a gain from the decrease in fair value of the liability.
Interest expense increased by $546, or 6%, to $9,511 for the six months ended June 30, 2022, compared to interest expense of $8,965 in the six months ended June 30, 2021, as a result of the repayment and conversion of convertible notes and notes payable to related parties during 2020 and forgiveness of PPP loans in 2021, leaving low-interest government loans as our only debt.
Total other income (expenses) increased by $5,869,047, or 110%, to income of $522,579 in the six months ended June 30, 2022 compared to expense of $5,346,468 in the six months ended June 30, 2021. The change was primarily a result of a $5,589,994 loss on extinguishment of debt associated with the retirement of our last remaining convertible notes payable in 2021, and a gain from the change in fair value of contingent acquisition recognized in the six months ended June 30, 2022, contrasted to a loss in the six months ended June 30, 2021, due principally to the fixed-share structure of the MOD contingent consideration.
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Net loss decreased by $5,571,273, or 67%, to $2,757,944 in the six months ended June 30, 2022, compared to net loss of $8,329,217 in the six months ended June 30, 2021, primarily as a result of (i) a loss on extinguishment of debt of $5,589,994 in 2021 associated with the retirement of our last remaining convertible notes payable, (ii) a $532,090 gain from the change in fair value of contingent acquisition recognized in 2022, as compared to a loss of $361,089 in 2021, due principally to the fair value impact of changes in our stock price on the fixed-share structure of the MOD contingent acquisition consideration, (iii) a decrease in patient services revenue at our NWC facility and a decrease in product revenue, and (iv) an increase in selling, general and administrative and Medicare shared savings expense, offset by (v) decreases in practice salaries and operating costs in our Health Services division.
Seasonal Nature of Operations
We acquired CHM in May 2020. CHM’s primary source of revenue is derived from payments earned under the Medicare shared savings program. Such amounts are determined annually when we are notified by CMS of the amount of shared savings earned. Accordingly, we recognize Medicare shared savings revenue in the period in which the CMS notifies us of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. Medicare shared savings revenue for the program year ended December 31, 2020, for which we received payment and recognized revenue in September 2021, was $2,419,312. Medicare shared savings revenue for the program year ended December 31, 2019, for which we received payment and recognized revenue in September 2020, was $767,744. Future recognition of Medicare shared savings revenue is expected to result in a material increase in our consolidated revenues in the third fiscal quarter of each year compared to the first, second and fourth fiscal quarters. Likewise, in the period in which we recognize Medicare shared savings revenue, we also determine the amount of shared savings expense to be paid to physicians participating in our ACO. This expense is also expected to be recognized in the third fiscal quarter of each year and is expected to materially increase our total operating expenses in the third fiscal quarter compared to other quarters of the fiscal year.
Liquidity and Capital Resources
Liquidity and Going Concern
During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods. In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern within 12 months after our financial statements were issued (August 15, 2022). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our obligations due before August 15, 2023.
We are subject to a number of risks, including uncertainty related to product development and generation of revenues and positive cash flow from our Digital Healthcare division and a dependence on outside sources of capital. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill our growth and operating activities and generating a level of revenues adequate to support our cost structure.
We have experienced net losses and cash outflows from operating activities since inception. As of June 30, 2022, we had cash balances of $251,118, a working capital deficit of $1,381,166 and an accumulated deficit of $34,963,133. For the six months ended June 30, 2022, we had a net loss of $2,757,944, net cash used by operating activities of $2,518,152, and no cash provided by financing activities. We expect to continue to incur net losses and have significant cash outflows for at least the next 12 months.
Management has evaluated the significance of the conditions described above in relation to our ability to meet our obligations and concluded that, without additional funding, we will not have sufficient funds to meet our obligations within one year from the date the condensed consolidated financial statements were issued.
On July 5, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”). Pursuant to the SEPA, we shall have the right to sell to Yorkville up to 30,000,000 of our shares of common stock, par value $0.0001 per share, at our request any time during the commitment period set forth in the SEPA. Because the purchase price per share to be paid by Yorkville for the shares of common stock sold us to Yorkville pursuant to the SEPA, if any, will fluctuate based on the market prices of our common stock during the applicable pricing period, we cannot reliably predict the actual purchase price per share to be paid by Yorkville for those shares, or the actual gross proceeds to be raised by us from those sales, if any.
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On July 11, 2022, we filed a Form S-1 registration statement registering up to 30,000,000 shares of common stock underlying the SEPA. The registration statement was declared effective on July 19, 2022. Between July 19, 2022 and August 15, 2022, we completed three advances under the SEPA, receiving $88,897 in proceeds for the issuance of 683,100 shares of common stock.
On July 19, 2022, pursuant to a Note Purchase Agreement between us and Yorkville, dated July 5, 2022, we issued to Yorkville a promissory note with an initial principal amount equal to $550,000 (the “Promissory Note”) at a purchase price equal to the principal amount of the Promissory Note less any original issue discounts and fees. We received net proceeds of $522,500. The Promissory Note will mature on the six-month anniversary of execution. The Promissory Note accrues interest at a rate of 0%, but was issued with 5% original issue discount, and will be repaid in five equal monthly installments beginning on August 19, 2022. The Promissory Note may be repaid with the proceeds of an advance under the SEPA, or repaid in cash and, if repaid in cash, together with a 2% premium.
Without raising additional capital, either via Advances made pursuant to the SEPA or from other sources, there is substantial doubt about our ability to continue as a going concern through August 15, 2023. The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of presentation contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business.
COVID-19
A novel strain of coronavirus, COVID-19, that was first identified in China in December 2019, has surfaced in several regions across the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The further spread of COVID-19, and the requirement to take action to limit the spread of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business and financial condition, including our potential to conduct financings on terms acceptable to us, if at all. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In response to COVID-19, we implemented additional safety measures in our patient services locations and our corporate headquarters.
Plan of operation and future funding requirements
Our plan of operations is to profitably operate our Health Services business and continue to invest in our Digital Healthcare business, including our cloud-based online personal medical information and record archiving system, the “HealthLynked Network.”
We are marketing the HealthLynked Network by targeting large health systems, hospitals and universities. In addition, we are marketing via direct-to-patient marketing, affiliated marketing campaigns, co-marketing with our Medical Distribution businesses subsidiary MOD, and expanded southeast regional sales efforts. Our initial sales strategy is utilizing Internet-based marketing to increase penetration to targeted geographical areas. These campaigns are focused on both physician providers and patient members. We also are leveraging MOD’s discounted medical supplies as an offering to our patient and physician members in both the HealthLynked Network and our ACO network. We also intend to utilize physician telesales through the use of telesales representatives whom we will hire as access to capital allows. If we fail to complete the development of, or successfully market, the HealthLynked Network, our ability to realize future increases in revenue and operating profits could be impacted, and our results of operations and financial position would be materially adversely affected.
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Historical Cash Flows
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (2,518,152 | ) | $ | (2,261,352 | ) | ||
| Investing Activities | (531,864 | ) | (203,399 | ) | ||||
| Financing activities | 9,488 | 4,892,202 | ||||||
| Net increase (decrease) in cash | $ | (3,040,528 | ) | $ | 2,427,451 | |||
Operating Activities – During the six months ended June 30, 2022, we used cash from operating activities of $2,518,152, as compared with $2,261,352 in the six months ended June 30, 2021. The increase in cash usage results primarily from increased selling, general and administrative costs increased related to our continued expansion and investment in developing and marketing the HealthLynked Network.
Investing Activities – During the six months ended June 30, 2022, we used $531,864 in investing activities, including $300,916 used to acquire AEU (net of cash acquired), $207,384 contingent acquisition consideration payment paid the sellers of NCFM related to the third and final year of earn-out, and $23,564 to acquire fixed assets. During the six months ended June 30, 2021, we used $203,399 in investing activities, including $196,000 contingent acquisition consideration payment paid the sellers of NCFM related to the second year of earn-out, plus $7,399 for the acquisition of computers and equipment.
Financing Activities – During the six months ended June 30, 2022, we received $10,000 from the sale of common stock and paid $512 against notes acquired in the AEU transaction. Cash generated in the six months ended June 30, 2021 was comprised mainly of $4,649,360 from the sale of common stock pursuant to private placements and puts under the now-expired July 2016 $3 million investment agreement and $293,951 proceeds from the exercise of options and warrants. We also made cash repayments against a vendor note in the amount of $51,109, retiring the note in full.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in Exchange Act reports 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 principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of June 30, 2022 based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
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.
We are not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Item 1A. Risk Factors
The Company is not required to provide the information required by this item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously disclosed in a Current Report on Form 8-K or in a Form 10-Q, or as set forth below, the Company has not sold securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”), during the period covered by this report:
On May 18, 2022, we sold 66,667 shares of common stock for cash in a private placement transaction to an accredited investor. We received $10,000 in proceeds from the sale. In connection with the stock sale, we also issued 33,334 five-year warrants to purchase shares of common stock at an exercise price of $0.25 per share.
The sales of the above securities were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 5.02 – Compensatory Arrangements of Certain Officers
On August 12, 2022, the Board of Directors of the Company approved an increase in the base salary of George O’Leary, the Company’s Chief Financial Officer, from $200,000 to $250,000 per year. The increase was effective immediately.
Item 6. Exhibits
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: August 15, 2022
| HEALTHLYNKED CORP. | |||
| By: | /s/ Michael Dent | ||
| Name: | Michael Dent | ||
| Title: |
Chief Executive Officer and Chairman (Principal Executive Officer) | ||
| By: | /s/ George O’Leary | ||
| Name: | George O’Leary | ||
| Title: |
Chief Financial Officer (Principal Financial Officer) | ||
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Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
| I, | Michael Dent, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 of the registrant, HealthLynked Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 15, 2022 | By: | /s/ Michael Dent |
| Name: | Michael Dent | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
| I, | George O’Leary, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 of the registrant, HealthLynked Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 15, 2022 | By: | /s/ George O’Leary |
| Name: | George O’Leary | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of 18 U.S.C. Section 1350), I, Michael Dent, Chief Executive Officer of HealthLynked Corp., a Nevada corporation (the “Company”), hereby certify, to my knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 15, 2022 | By: | /s/ Michael Dent |
| Name: | Michael Dent | |
| Title: | Chief Executive Officer (Principal Executive Officer) |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATIONS
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of 18 U.S.C. Section 1350), I, George O’Leary, Chief Financial Officer of HealthLynked Corp., a Nevada corporation (the “Company”), hereby certify, to my knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: August 15, 2022 | By: | /s/ George O’Leary |
| Name: | George O’Leary | |
| Title: | Chief Financial Officer (Principal Financial Officer) |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.