HealthLynked Corp 10-Q for FY2021 Q3
HealthLynked Corp (HLYK)
About this 10-Q
HealthLynked Corp filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.04M
- up 98.3% from $2.04M a year earlier
- Net loss
- $368.02K
- compared with a net loss of $1.73M a year earlier
- Diluted EPS
- $0.00
- compared with -$0.01 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.) | |
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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 ☐ No
As of November 15, 2021, 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 | 43 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 52 |
| Item 4 | Controls and Procedures | 52 |
| PART II | OTHER INFORMATION | 53 |
| Item 1 | Legal Proceedings | 53 |
| Item 1A | Risk Factors | 53 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 53 |
| Item 3 | Defaults upon Senior Securities | 53 |
| Item 4 | Mine Safety Disclosure | 53 |
| Item 5 | Other Information | 53 |
| Item 6 | Exhibits | 54 |
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| 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 | ||||||||
| ROU lease assets 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 | ||||||||
| Government and vendor notes payable, current portion | ||||||||
| Convertible notes payable, net of original issue discount and debt discount of $- | ||||||||
| Contingent acquisition consideration, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Government and vendor notes payable, 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | ||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | ||||||||||||
| Medicare shared savings revenue | ||||||||||||||||
| 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) | ||||||||||||||||
| Loss on sales of marketable securities | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of debt | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization of original issue and debt discounts on notes payable and convertible notes | ( | ) | ( | ) | ||||||||||||
| Change in fair value of derivative financial instruments | ||||||||||||||||
| Change in fair value of contingent acquisition consideration | ( | ) | ||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Deemed dividend - amortization of beneficial conversion feature and down round adjustment to warrants | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share to common stockholders, 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)
NINE MONTHS ENDED SEPTEMBER 30, 2021
(UNAUDITED)
| Number of Shares | Common | Additional | Total | |||||||||||||||||||||||||||||
| Common | Preferred | Common | Preferred | Stock | Paid-in | Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Issuable | Capital | Deficit | Equity (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 | ( | ) | ||||||||||||||||||||||||||||||
| Sales of common stock | --- | |||||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | --- | --- | ||||||||||||||||||||||||||||||
| Contingent acquisition consideration issuable | --- | --- | ||||||||||||||||||||||||||||||
| 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 | --- | ( | ) | |||||||||||||||||||||||||||||
| Net loss | --- | --- | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
3
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 2020
(UNAUDITED)
| Number of Shares | Common | Additional | Total | |||||||||||||||||||||||||||||
| Common | Preferred | Common | Preferred | Stock | Paid-in | Accumulated | Shareholders’ | |||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Issuable | Capital | Deficit | Equity (Deficit) | |||||||||||||||||||||||||
| (#) | (#) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||
| Balance at December 31, 2019 | --- | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Sale of common stock | --- | ( | ) | |||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | --- | --- | ||||||||||||||||||||||||||||||
| Conversion of convertible notes payable to common stock | --- | |||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | --- | --- | ||||||||||||||||||||||||||||||
| Shares and options issued pursuant to employee equity incentive plan | --- | --- | ( | ) | --- | |||||||||||||||||||||||||||
| Net loss | --- | --- | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2020 | --- | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Acquisition of Cura Health Management LLC | --- | |||||||||||||||||||||||||||||||
| Sale of common stock | --- | |||||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | --- | --- | ||||||||||||||||||||||||||||||
| Conversion of convertible notes payable to common stock | --- | ( | ) | |||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | --- | |||||||||||||||||||||||||||||||
| Shares and options issued pursuant to employee equity incentive plan | --- | |||||||||||||||||||||||||||||||
| Net loss | --- | --- | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2020 | --- | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Contingent acquisition consideration issued | --- | |||||||||||||||||||||||||||||||
| Sales of common stock | --- | ( | ) | |||||||||||||||||||||||||||||
| Fair value of warrants allocated to proceeds of common stock | --- | --- | ||||||||||||||||||||||||||||||
| Sale of common and preferred stock in exchange for marketable securities | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes payable to common stock | --- | |||||||||||||||||||||||||||||||
| Gain on extinguishment of related party debt allocated to additional paid in capital | --- | --- | ||||||||||||||||||||||||||||||
| Consultant and director fees payable with common shares and warrants | --- | ( | ) | |||||||||||||||||||||||||||||
| Shares and options issued pursuant to employee equity incentive plan | --- | |||||||||||||||||||||||||||||||
| Net loss | --- | --- | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2020 | ( | ) | ||||||||||||||||||||||||||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
4
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| 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 prepaid fees | ||||||||
| Amortization of original issue discount and debt discount on convertible notes | ||||||||
| Loss on sales of marketable securities | ||||||||
| Change in fair value of derivative financial instruments | ( | ) | ||||||
| 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 | ( | ) | ||||||
| ROU lease assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Due to related party, current portion | ||||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| Acquisition, net of cash acquired | ( | ) | ||||||
| Payment of contingent acquisition consideration | ( | ) | ( | ) | ||||
| Acquisition of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from exercise of options and warrants | ||||||||
| Proceeds from issuance of convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Proceeds from related party loans | ||||||||
| Repayment of related party loans | ( | ) | ||||||
| Proceeds from government loans | ||||||||
| Repayment of vendor loans payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
(continued)
5
HEALTHLYNKED CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| 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: | ||||||||
| Forgiveness of government loans | $ | $ | ||||||
| Common stock issuable issued during period | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Contingent acquisition consideration payable in common stock | $ | $ | ||||||
| Initial derivative liability and fair value of beneficial conversion feature and original issue discount allocated to proceeds of variable convertible notes payable | $ | $ | ||||||
| Adoption of lease obligation and ROU asset | $ | $ | ||||||
| Fair value of shares issued as initial acquisition consideration | $ | $ | ||||||
| Fair value of shares issued as contingent acquisition consideration | $ | $ | ||||||
| Fair value of contingent acquisition consideration issued | $ | $ | ||||||
| Derivative liabilities written off with repayment of convertible notes payable | $ | $ | ||||||
| Derivative liabilities written off with conversion of convertible notes payable | $ | $ | ||||||
| Reduction in contingent acquisition consideration | $ | $ | ||||||
| Fair value of marketable securities received as consideration for sale of common and preferred shares | $ | $ | ||||||
| Gain on extinguishment of related party debt allocated to additional paid in capital | $ | $ | ||||||
See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements
6
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(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
As of September 30, 2021, the Company operated 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 acquired in April 2019 that is 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 opened in January 2020 that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery. 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 business acquired 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 acquired by the Company on October 19, 2020.
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, 2020 and 2019, respectively, which are included in the Company’s Form 10-K, filed with the United States Securities and Exchange Commission on March 31, 2021. 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 nine months ended September 30, 2021 are not necessarily indicative of results for the entire year ending December 31, 2021.
On a consolidated basis, the Company’s operations are comprised of the parent company, HealthLynked Corp., and its six subsidiaries: NWC, NCFM, BTG, CHM, AHP and MOD. 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 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.
7
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of the 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 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 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 is recognized when goods or services are provided and the Company does not believe it is 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. The Company determines its estimates of contractual adjustments and discounts based on 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.
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. |
8
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(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
and BTG 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. The Company was
notified of the amount of Medicare shared savings and received payment for plan year 2020 in September 2021 and for plan year 2019 in
September 2020. Accordingly, the Company recognized Medicare shared savings revenue of $
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 $-0- and $
9
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $
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 payments
made to the ACO’s participating providers. The pool of provider shared savings expense paid to all participating providers, as well
as the amounts paid to each individual participating provider from the pool, is determined by ACO management. Shared Savings expense is
recognized in the period in which the size of the 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. The Company received Medicare shared savings payments and recognized revenue of $
Cash and Cash Equivalents
For
financial statement purposes, the Company considers all highly liquid investments with original maturities of three 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
10
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. The Company adopted ASU 2016-02 in the first quarter of 2019. See Note 8 for more complete details on balances as of the reporting periods presented herein. The adoption had no material impact on cash provided by or used in operating, investing or financing activities on the Company’s consolidated statements of cash flows.
Inventory
Inventory consisting of supplements, is stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Outdated inventory is directly charged to cost of goods sold.
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 or nine months ended September 30, 2021 or 2020.
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
11
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Derivative Financial Instruments
The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at their fair value. The discount from the face value of convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments is amortized over the life of the instrument through periodic charges to income.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
12
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Prior to January 1, 2020, the Company utilized the closed-form Black-Scholes option pricing model to estimate the fair value of options, warrants, beneficial conversion features and other Level 3 financial assets and liabilities. Effective January 1, 2020, the Company changed to a binomial lattice option pricing model. The Company believes that the binomial lattice model results in a better 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 fair value these instruments and, unlike the Black-Scholes model, 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.
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. Effective January 1, 2020, the Company uses a binomial lattice pricing model to estimate the fair value of options and warrants granted. In prior periods, the Company used the Black-Scholes pricing model.
13
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 or nine months ended September 30, 2021 or 2020, 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 nine months ended September 30, 2021 and 2020, 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 September 30, 2021 and December 31, 2020, potentially dilutive
securities were comprised of (i)
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.
14
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Warrants
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 OB/GYN practice, the NCFM practice acquired in April 2019 and the BTG physical therapy practice launched in 2020), 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 acquired by the Company on October 19, 2020).
Recent Accounting 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 does not expect that this standard will have a material effect on its consolidated financial statements.
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.
15
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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
As of September 30, 2021, the Company had cash
balances of $
Management believes that the Company has sufficient cash on hand to fund the business for at least the next 12 months. The Company intends that the longer term (i.e., beyond twelve months) cost of completing additional intended acquisitions, implementing its development and sales efforts related to the HealthLynked Network and maintaining existing and expanding overhead and administrative costs will be financed from (i) cash on hand resulting from fund raising efforts in 2021, (ii) profits generated by NCFM, BTG and CHM (including expected Medicare Shared Savings revenue projected to be received annually in the third fiscal quarter of each year), and (iii) the use of further outside funding sources. No assurances can be given that the Company will be able to access additional outside capital in a timely fashion. If necessary funds are not available, the Company’s business and operations would be materially adversely affected and in such event, the Company would attempt to reduce costs and adjust its business plan.
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, 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.
16
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 4 – ACQUISITIONS
Hughes Center for Functional Medicine – April 2019
On April 12, 2019, the Company acquired a 100%
interest in Hughes Center for Functional Medicine (“HCFM”), a medical practice engaged in improving the health of its patients
through individualized and integrative health care. Following the acquisition, HCFM was rebranded as NCFM and was combined with NWC to
form the Company’s Health Services segment. Under the terms of acquisition, the Company paid HCFM shareholders $
The
total consideration fair value represents a transaction value of $
| Cash | $ | |||
| Common Stock ( | ||||
| Fair Value of Contingent Acquisition Consideration | ||||
| Less cash received | ( | ) | ||
| Fair Value of Total Consideration | $ |
The fair value of the 3,968,254 common shares issued as part of the acquisition consideration was determined using the intraday volume weighted average price of the Company’s common shares on the acquisition date. The terms of the earn out require the Company to pay the former owner of HCFM up to $100,000, $200,000 and $200,000 on the first, second and third anniversary, respectively, based on achievement by NCFM of revenue of at least $3,100,000 (50% weighting) and EBITDA of at least $550,000 (50% weighting) in the year preceding each anniversary date. In May 2020, the Company paid the seller $47,000 in satisfaction of the year 1 earn out. In May 2021, the Company paid the seller $196,000 in satisfaction of the year 2 earn out.
The
fair value of the contingent acquisition consideration related to the future earn-out payments is calculated using a probability-weighted
discounted cash flow projection and is remeasured at the end of each reporting period and changes are included in the statement of operations
under the caption “Change in fair value of contingent acquisition consideration.” During the three months ended September
30, 2021 and 2020, the Company recognized losses on the change in the fair value of contingent acquisition consideration of ($
The following table summarizes the estimated fair values of the assets acquired at the acquisition date. There were no liabilities assumed in the acquisition of HCFM.
| Hyperbaric Chambers | $ | |||
| Medical Equipment | ||||
| Computer Equipment/Software | ||||
| Office Furniture & Equipment | ||||
| Inventory | ||||
| Leasehold Improvements | ||||
| Website | ||||
| Patient Management Platform Database | ||||
| Fair Value of Identifiable Assets Acquired | $ |
17
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 4 – ACQUISITIONS (CONTINUED)
The
fair value of the website of $
Cura Health Management LLC – May 2020
On
May 18, 2020, the Company acquired a
Under the terms of acquisition, the Company paid CHM shareholders the following consideration: (i) $214,000 in cash paid at closing, (ii) 2,240,838 shares of the Company’s common stock issued at closing, (iii) up to $223,500 additional cash and $660,000 in additional shares of the Company’s common stock payable at the time CHM receives the final assessment of the calculation of MSSP savings for the 2019 program year, with this amount prorated based on a target MSSP payment (plus other ancillary revenue) of $1,725,000, and (iv) up to $437,500 based on the business achieving annual revenue of $2,250,000 and annual profit of $500,000 in each of the four years following closing.
The
total consideration fair value represents a transaction value of $
| Cash paid at closing | $ | |||
| Shares issued at closing ( | ||||
| Cash and shares contingent upon 2019 program year MSSP payment target | ||||
| Cash contingent upon four-year earn-out | ||||
| Less cash received | ( | ) | ||
| $ |
The fair value of the
18
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 4 – ACQUISITIONS (CONTINUED)
The fair value of the contingent acquisition
consideration related to both the Current Earnout and the Future Earnout were calculated 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.”
During the three months ended September 30, 2021 and 2020, the Company recognized gains (losses) on the change in the fair value of contingent
acquisition consideration of ($
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
| Accounts receivable | $ | |||
| Prepayments | ||||
| ACO physician contracts | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Fair Value of Identifiable Assets Acquired and Liabilities Assumed | $ |
The fair value of the ACO Physician Contracts
of $
MedOffice Direct LLC – October 2020
On October 19, 2020, the Company acquired a
Dr. Michael Dent, the Chief Executive Officer
and the Chairman of the Board of Directors of the Company, George O’Leary, the Chief Financial Officer and a director of the Company,
and Robert Gasparini, a director of the Company, were members of MOD and received consideration in connection with Company’s acquisition
of MOD as follows: (1) Dr. Dent received
19
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 4 – ACQUISITIONS (CONTINUED)
The total consideration fair value represents
a transaction value of $
| Shares issued at closing ( | $ | |||
| Payment of MOD debt obligations in cash | ||||
| Shares contingent upon four-year earn-out | ||||
| Less cash received | ( | ) | ||
| $ |
The fair value of the
The fair value of the contingent acquisition
consideration related to the MOD Earnout Shares was calculated 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.” During the three months ended
September 30, 2021 and 2020, the Company recognized gains (losses) on the change in the fair value of contingent acquisition consideration
related to the MOD Earnout Shares of $
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
| Website | $ | |||
| Goodwill | ||||
| Accounts payable and accruals | ( | ) | ||
| Notes payable | ( | ) | ||
| Deferred revenue | ( | ) | ||
| Fair Value of Identifiable Assets Acquired and Liabilities Assumed | $ |
The fair value of the website of $
20
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 4 – ACQUISITIONS (CONTINUED)
Pro Forma Financial Information
The following table represents the pro forma consolidated income statement as if HCFM, CHM and MOD had been included in the consolidated results of the Company for the entire nine-month period ending September 30, 2020. All acquired entities were included in the Company’s consolidated results of operations in the full three- and nine-month periods ended September 30, 2021.
| Revenue | $ | |||
| Net loss | $ | ( | ) |
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of HCFM, CHM and MOD to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2021 and 2020, respectively.
NOTE 5 – PREPAID EXPENSES AND OTHER
On March 22, 2017, the Company granted to the investor in the Investment
Agreement warrants to purchase
NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at September 30, 2021 and December 31, 2020 were as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| 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 September 30, 2021
and 2020 was $
21
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 7 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets at September 30, 2021 and December 31, 2020 were as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| NCFM: Medical database | $ | $ | ||||||
| NCFM: Website | ||||||||
| CHM: ACO physician contracts | ||||||||
| MOD: Website | ||||||||
| Total intangible assets | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Goodwill and intangible assets arose from the
acquisitions of NCFM in April 2019, CHM in May 2020, and MOD in October 2020. 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
Amortization expense in the three months ended
September 30, 2021 and 2020 was $
NOTE 8 – LEASES
The table below summarizes the Company’s lease-related assets and liabilities as of September 30, 2021 and December 31, 2020:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Lease assets | $ | $ | ||||||
| Lease liabilities | ||||||||
| Lease liabilities (short term) | $ | $ | ||||||
| Lease liabilities (long term) | ||||||||
| Total lease liabilities | $ | $ | ||||||
22
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 8 – LEASES (CONTINUED)
Lease expense in the three and nine months ended September 30, 2021 and 2020 was as follow:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating leases | $ | $ | $ | $ | ||||||||||||
| Financing leases | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
Maturities of operating lease liabilities were as follows as of September 30, 2021:
| 2021 (July to December) | $ | |||
| 2022 | ||||
| 2023 | ||||
| Total lease payments | ||||
| Less interest | ( | ) | ||
| Present value of lease liabilities | $ |
NOTE 9 – CONTRACT LIABILITIES
Amounts related to contract liabilities as of September 30, 2021 and December 31, 2020 were as follow:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Patient services paid but not provided | $ | $ | ||||||
| Consulting services paid but not provided | ||||||||
| Unshipped products | ||||||||
| $ | $ | |||||||
Contract liabilities relates 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 upon completion of service or shipment of product. Payment is typically made in the period prior to the services being provided.
NOTE 10 – AMOUNTS DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS
Amounts due to related parties as of September
30, 2021 and December 31, 2020 were comprised of deferred compensation in the amount of $
Retired Notes Payable to Dr. Dent
Our founder and CEO, Dr. Michael Dent, made loans
to the Company from time to time in the form of unsecured promissory notes payable (the “Dent Notes”). The Dent Notes were
repaid in full during September 2020 and had no balance as of September 30, 2021 or December 31, 2020. Prior to repayment, the Dent 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 $-
23
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 10 – AMOUNTS DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED)
Other Amounts Due to Dr. Dent
On January 7, 2020, the Company entered into
a Merchant Cash Advance Factoring Agreement with a trust controlled by Dr. Dent,
NOTE 11 – GOVERNMENT AND VENDOR NOTES PAYABLE
Government and vendor notes payable as of September 30, 2021 and December 31, 2020 were comprised of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| PPP loans | $ | $ | ||||||
| Disaster relief loans | ||||||||
| Vendor note | ||||||||
| Total government and vendor notes payable | ||||||||
| Less: long term portion | ( | ) | ( | ) | ||||
| Government and vendor notes payable, current portion | $ | $ | ||||||
During May and June 2020, the Company and certain
of its subsidiaries received an aggregate of $
In connection with the October 19, 2020 of MOD,
the Company acquired a note payable to MOD’s primary product vendor with a remaining principal balance of $
24
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable as of September 30, 2021 and December 31, 2020 were comprised of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| $550k Note - July 2016 | $ | $ | ||||||
| $50k Note - July 2016 | ||||||||
| $111k Note - May 2017 | ||||||||
| $357.5k Note - April 2019 | ||||||||
| Less: unamortized discount | ||||||||
| Convertible notes payable, net of original issue discount and debt discount | $ | $ | ||||||
Amortization of debt discount recognized on each convertible note outstanding during the three and nine months ended September 30, 2021 and 2020 are shown in the following table. There were no unamortized discounts as of September 30, 2021 or December 31, 2020 related to convertible notes payable.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $154k Note - June 2019 | $ | $ | $ | $ | ||||||||||||
| $67.9k Note - July 2019 | ||||||||||||||||
| $67.9k Note II - July 2019 | ||||||||||||||||
| $78k Note III - July 2019 | ||||||||||||||||
| $230k Note - July 2019 | ||||||||||||||||
| $108.9k Note - August 2019 | ||||||||||||||||
| $142.5k Note - October 2019 | ||||||||||||||||
| $103k Note V - October 2019 | ||||||||||||||||
| $108.9k Note II - October 2019 | ||||||||||||||||
| $128.5k Note - October 2019 | ||||||||||||||||
| $103k Note VI - November 2019 | ||||||||||||||||
| $78.8k Note II - December 2019 | ||||||||||||||||
| $131.3k Note - January 2020 | ||||||||||||||||
| $78k Note IV - January 2020 | ||||||||||||||||
| $157.5k Note - March 2020 | ||||||||||||||||
| $157.5k Note II - April 2020 | ||||||||||||||||
| $135k Note - April 2020 | ||||||||||||||||
| $83k Note II - April 2020 | ||||||||||||||||
| $128k Note - April 2020 | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
25
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Interest expense recognized on each convertible note outstanding during the three and nine months ended September 30, 2021 and 2020 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $550k Note - July 2016 | $ | $ | $ | $ | ||||||||||||
| $50k Note - July 2016 | ||||||||||||||||
| $111k Note - May 2017 | ||||||||||||||||
| $357.5k Note - April 2019 | ||||||||||||||||
| $154k Note - June 2019 | ||||||||||||||||
| $67.9k Note - July 2019 | ||||||||||||||||
| $67.9k Note II - July 2019 | ||||||||||||||||
| $78k Note III - July 2019 | ||||||||||||||||
| $230k Note - July 2019 | ||||||||||||||||
| $108.9k Note - August 2019 | ||||||||||||||||
| $142.5k Note - October 2019 | ||||||||||||||||
| $103k Note V - October 2019 | ||||||||||||||||
| $108.9k Note II - October 2019 | ||||||||||||||||
| $128.5k Note - October 2019 | ||||||||||||||||
| $103k Note VI - November 2019 | ||||||||||||||||
| $78.8k Note II - December 2019 | ||||||||||||||||
| $131.3k Note - January 2020 | ||||||||||||||||
| $78k Note IV - January 2020 | ||||||||||||||||
| $157.5k Note - March 2020 | ||||||||||||||||
| $157.5k Note II - April 2020 | ||||||||||||||||
| $135k Note - April 2020 | ||||||||||||||||
| $83k Note II - April 2020 | ||||||||||||||||
| $128k Note - April 2020 | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Certain of the Company’s convertible notes payable are also 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 during the three and nine months ended September 30, 2021 and 2020 and the fair value as of such instruments as of September 30, 2021 and December 31, 2020 were as follows:
| Change in Fair Value of Debt | Fair Value of Debt as of | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | December 31, | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| $550k Note - July 2016 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| $50k Note - July 2016 | ||||||||||||||||||||||||
| $111k Note - May 2017 | ||||||||||||||||||||||||
| $357.5k Note - April 2019 | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
26
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Extension and Conversion – January 2021
On January 6, 2021,
Convertible Note Payable ($550,000) – July 2016
On July 7, 2016, the Company entered into a
Convertible Note Payable ($50,000) – July 2016
On July 7, 2016, the Company entered into a
27
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible Note Payable ($111,000) – May 2017
On May 22, 2017, the Company entered into a
Convertible Note Payable ($357,500) – April 2019
On April 15, 2019, the Company issued a fixed
convertible note with a face value of $
Convertible Note Payable ($154,000) – June 2019
On June 3, 2019, the Company issued a $
Convertible Note Payable ($67,925) – July 2019
On July 11, 2019, the Company issued a $
Convertible Note Payable ($67,925) – July 2019
On July 11, 2019, the Company issued a second
$
Convertible Note Payable ($78,000) – July 2019
On July 16, 2019, the Company issued a $
28
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible Note Payable ($230,000) – July 2019
On July 18, 2019, the Company issued a convertible
note with a face value of $
Convertible Note Payable ($108,947) – August 2019
On August 26, 2019, the Company issued a convertible
note with a face value of $
Convertible Note Payable ($103,000) – October 2019
On October 1, 2019, the Company issued a $
Convertible Note Payable ($142,500) – October 2019
On October 1, 2019, the Company issued a $
Convertible Note Payable ($108,947) – October 2019
On October 30, 2019, the Company issued a convertible
note with a face value of $
Convertible Note Payable ($128,500) – October 2019
On October 30, 2019, the Company issued a $
Convertible Note Payable ($103,000) – November 2019
On November 4, 2019, the Company issued a $
29
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible Note Payable ($78,750) – December 2019
On December 2, 2019, the Company issued a $
Convertible Note Payable ($131,250) – January 2020
On January 13, 2020, the Company issued a $
Convertible Note Payable ($78,000) – January 2020
On January 16, 2020, the Company issued a $
Convertible Note Payable ($157,500) – March 2020
On March 10, 2020, the Company issued a $
Convertible Note Payable ($157,500) – April 2020
On April 2, 2020, the Company issued a $
Convertible Note Payable ($135,000) – April 2020
On April 6, 2020, the Company issued a $
Convertible Note Payable ($83,000) – April 2020
On April 6, 2020, the Company issued an $
30
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible Note Payable ($128,000) – April 2020
On April 30, 2020, the Company issued a $
NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are comprised of the fair value of embedded conversion features (“ECFs”) in convertible promissory notes for which the conversion rate is not fixed, but instead is adjusted based on a discount to the market price of the Company’s common stock. The fair market value of the ECF derivative liabilities was calculated at inception of each convertible promissory note for which the conversion rate is not fixed and allocated to the respective convertible notes, with any excess recorded as a charge to “Financing cost.” Derivative financial instruments are revalued at the end of each period, with the change in value recorded to “Change in fair value of on derivative financial instruments.”
Derivative financial instruments and changes thereto recorded in the three and nine months ended September 30, 2021 and 2020 include the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Inception of derivative financial instruments | --- | |||||||||||||||
| Change in fair value of derivative financial instruments | ( | ) | ( | ) | ||||||||||||
| Conversion or extinguishment of derivative financial instruments | ( | ) | ( | ) | ||||||||||||
| Balance, end of period | $ | $ | --- | $ | $ | --- | ||||||||||
Fair market value of the derivative financial instruments was measured using the following assumptions:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Pricing model utilized | ||||||||
| Risk free rate range | ||||||||
| Expected life range (in years) | ||||||||
| Volatility range | ||||||||
| Dividend yield | % | |||||||
In addition, specific assumptions regarding investor exercise behavior were used in the above periods, including probability assumptions related to estimated exercise behavior. The entire amount of derivative instrument liabilities is classified as current due to the fact that settlement of the derivative instruments could be required within twelve months of the balance sheet date.
During 2020, the Company retired all convertible notes for which the conversion rate was adjusted based on a discount to the market price of the Company’s common stock, which gave rise to ECF-related derivative financial instruments. Accordingly, the Company had no further derivative financial instruments outstanding as of September 30, 2021 or December 31, 2020.
31
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY
Registered Direct Offering – August 2021
On August 26, 2021, the Company entered into
a securities purchase agreement with a certain institutional investor (the “Purchaser”) pursuant to which the Company agreed
to sell in a registered direct offering (the “Registered Direct Offering”)
The Company received net proceeds from the sale of shares of common
stock, after deducting placement agent fees and other offering expenses payable by the Company, of $
Private Placements
During the nine months ended September 30, 2021,
the Company sold
During the nine months ended September 30, 2020,
the Company sold
Investment Agreement Draws
During nine months ended September 30, 2021 and
2020, the Company issued
Shares issued to Consultants
During the nine months ended September 30, 2021
and 2020, the Company issued
Common Stock Issuable
As of September 30, 2021 and December 31, 2020, the Company was obligated to issue the following shares:
| September 30, 2021 | December 31, 2020 | |||||||||||||||
| Amount | Shares | Amount | Shares | |||||||||||||
| Shares issuable to consultants, employees and directors | $ | $ | ||||||||||||||
32
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
Stock Warrants
Transactions involving our stock warrants during the nine months ended September 30, 2021 and 2020 are summarized as follows:
| 2021 | 2020 | |||||||||||||||
| 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 September 30, 2021:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||
| Weighted- | ||||||||||||||||||||||
| Average | Weighted- | Weighted- | ||||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||||
| Prices | Outstanding | Life (years) | Price | Exercisable | Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
During the nine months ended September 30, 2021
and 2020, the Company issued
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Pricing model utilized | ||||||||
| Risk free rate range | ||||||||
| Expected life range (in years) | ||||||||
| Volatility range | ||||||||
| Dividend yield | % | % | ||||||
In addition, specific assumptions regarding investor exercise behavior were used in the above periods, including probability assumptions related to estimated exercise behavior.
33
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
During the nine months ended September 30, 2021,
the Company received $
Employee Equity Incentive Plan
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 allows for the issuance of up to
On September 9, 2021, the Company adopted the
2021 Employee Equity Incentive Plan (the “2021 EIP”) 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
The following table summarizes the status of shares issued and outstanding under the 2016 EIP outstanding as of and for the nine months ended September 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Outstanding at beginning of the period | ||||||||
| Granted during the period | ||||||||
| Forfeited during the period | ( | ) | ( | ) | ||||
| Outstanding at end of the period | ||||||||
| Shares vested at period-end | ||||||||
| Weighted average grant date fair value of shares granted during the period | $ | $ | ||||||
| Aggregate grant date fair value of shares granted during the period | $ | $ | ||||||
| Shares available for grant pursuant at period-end | ||||||||
Total stock-based compensation recognized for
employee grants was $
A summary of the status of nonvested shares issued pursuant to the 2016 EIP as of and for the nine months ended September 30, 2021 and 2020 is presented below:
| 2021 | 2020 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Grant Date | Grant Date | |||||||||||||||
| Shares | Fair Value | Shares | Fair Value | |||||||||||||
| Nonvested at beginning of period | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Vested | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Forfeited | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Nonvested at end of period | $ | $ | ||||||||||||||
34
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY (CONTINUED)
During the nine months ended September 30, 2021
and 2020, the Company issued
Employee Stock Options
The following table summarizes the status of options outstanding as of and for the nine months ended September 30, 2021 and 2020:
| 2021 | 2020 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Number | Price | Number | Price | |||||||||||||
| Outstanding at beginning of the period | $ | $ | ||||||||||||||
| Granted during the period | $ | $ | ||||||||||||||
| Exercised during the period | ( | ) | $ | ( | ) | $ | ||||||||||
| Forfeited during the period | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Outstanding at end of the period | $ | $ | ||||||||||||||
The following table summarizes information about the Company’s stock options outstanding as of September 30, 2021:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Weighted- | ||||||||||||||||||||||
| Average | Weighted- | Weighted- | ||||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||||
| Exercise | Number | Contractual | Exercise | Number | Exercise | |||||||||||||||||
| Prices | Outstanding | Life (years) | Price | Exercisable | Price | |||||||||||||||||
| $ | --- to | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
Total stock-based compensation recognized related
to option grants was $
A summary of the status of nonvested options issued pursuant to the EIP as of and for the nine months ended September 30, 2021 and 2020 is presented below:
| 2021 | 2020 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Grant Date | Grant Date | |||||||||||||||
| Shares | Fair Value | Shares | Fair Value | |||||||||||||
| Nonvested at beginning of period | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Vested | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Forfeited | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | ||||||
| Nonvested at end of period | $ | $ | ||||||||||||||
35
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 15 – CONTINGENT ACQUISITION CONSIDERATION
Contingent acquisition consideration as of September 30, 2021 and December 31, 2020 was comprised of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Fair value of HCFM contingent acquisition consideration | $ | $ | ||||||
| Fair value of CHM contingent acquisition consideration | ||||||||
| Fair value of MOD contingent acquisition consideration | ||||||||
| $ | $ | |||||||
Contingent acquisition consideration relates
to future earn-out payments potentially payable related to the Company’s acquisitions of HCFM, CHM and MOD. 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.”
Gain (loss) from the change in fair value of contingent acquisition consideration was $
Maturities of contingent acquisition consideration were as follows as of September 30, 2021:
| 2021 (October to December) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| $ |
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.
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 33 separate participant agreements with participating providers that are members of the Company’s ACO with expiration dates between 2020 and 2024. 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 sole supplier for the
fulfillment of all of its product sales made through MOD, which was acquired by the Company in October 2020.
36
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 16 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 September 30, 2021:
| 2021 (October to December) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 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, 2016, the Company entered into an
agreement with Mr. George O’Leary, the Company’s Chief Financial Officer and a member of the Board of Directors, extending
his prior agreement with the Company. If Mr. O’Leary’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, Mr. O’Leary
will be entitled to receive his base salary and the Company shall maintain his employee benefits for a period of twelve (12) months beginning
on the date of termination. In the event that Mr. O’Leary terminates the agreement, he shall be entitled to any accrued by unpaid
salary and other benefits up to and including the date of termination.
On May 18, 2020, the Company entered into separate 4-year consulting services agreements with each of the two principals of the ACO/MSO business acquired in May 2020 that call for each person to earn fixed annual consulting fees and a share of Medicare shared savings revenue, consulting revenue and overall profits generated by the underlying business.
37
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING
The Company has four reportable segments: Health Services, Digital Healthcare, ACO/MCO and Medical Distribution. 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 acquired in April 2019 that is 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. The Company’s Digital Healthcare segment develops and plans to operate an online personal medical information and record archive system, the “HealthLynked Network,” which will enable 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 business acquired with CHM, which assists physician practices in providing coordinated and more efficient care to patients via the MSSP as administered by 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 acquired by the Company on October 19, 2020.
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 September 30, 2021 was as follows:
| Three Months Ended September 30, 2021 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Medicare shared savings revenue | ||||||||||||||||||||
| 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 | $ | $ | ( | ) | $ | $ | $ | ( | ) | |||||||||||
38
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the nine months ended September 30, 2021 was as follows:
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||
| Health Services |
Digital Healthcare |
ACO / MSO | Medical Distribution |
Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Medicare shared savings revenue | ||||||||||||||||||||
| 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) | $ | $ | $ | $ | ( |
) | $ | |||||||||||||
| Loss (gain) on extinguishment of debt | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||
| Change in fair value of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | $ | $ | $ | |||||||||||||||
| September 30, 2021 | ||||||||||||||||||||
| Identifiable assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
39
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the three months ended September 30, 2020 was as follows:
| Three Months Ended September 30, 2020 | ||||||||||||||||||||
| Health Services |
Digital Healthcare |
ACO / MSO | Medical Distribution |
Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Medicare shared savings revenue | ||||||||||||||||||||
| Consulting 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Loss on sales of marketable securities | $ | $ | $ | $ | $ | |||||||||||||||
| Loss on extinguishment of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Amortization of original issue and debt discounts on convertible notes | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of derivative financial instruments | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||
40
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the nine months ended September 30, 2020 was as follows:
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||
| Health Services | Digital Healthcare | ACO / MSO | Medical Distribution | Total | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Patient service revenue, net | $ | $ | $ | $ | $ | |||||||||||||||
| Medicare shared savings revenue | ||||||||||||||||||||
| Consulting 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Loss on sales of marketable securities | $ | $ | $ | $ | $ | |||||||||||||||
| Loss on extinguishment of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Amortization of original issue and debt discounts on convertible notes | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of debt | $ | $ | $ | $ | $ | |||||||||||||||
| Change in fair value of derivative financial instruments | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||
| Change in fair value of contingent acquisition consideration | $ | $ | ( |
) | $ | $ | $ | ( |
) | |||||||||||
| September 30, 2020 | ||||||||||||||||||||
| Identifiable assets | $ | $ | $ | $ | $ | |||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
The Digital Healthcare segment recognized revenue
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, as well as derivative financial instruments arising from conversion features embedded in convertible promissory notes for which the conversion rate is not fixed. 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.
41
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the conclusions reached regarding fair value measurements as of September 30, 2021 and December 31, 2020:
| As of September 30, 2021 | ||||||||||||||||
| Total | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Contingent acquisition consideration | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| As of December 31, 2020 | ||||||||||||||||
| Total | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| Convertible notes payable | $ | $ | $ | $ | ||||||||||||
| 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 nine months ended September 30, 2021 and 2020 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Convertible notes payable | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Notes payable to related party | ( | ) | ( | ) | ||||||||||||
| Derivative financial instruments | ||||||||||||||||
| Contingent acquisition consideration | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
NOTE 19 – SUBSEQUENT EVENTS
None.
42
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 acquired in April 2019 that is 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 opened in January 2020 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 business acquired 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.
Recent Developments
During August 2021, we sold in a registered direct offering 3,703,704 common shares and 1,851,852 five-year warrants with an exercise price of $0.65 to an institutional investor at an offering price of $0.54 per share, resulting in gross proceeds of $2,000,000. Net proceeds after offering costs and expenses were $1,719,921.
During the nine months ended September 30, 2021, we sold 13,161,943 shares of common stock in 53 separate private placement transactions. We received $4,328,725 in proceeds from the sales. In connection with these stock sales, we also issued 6,581,527 five-year warrants to purchase shares of common stock at exercise prices between $0.27 and $1.05 per share. During the same period, we also issued 3,006,098 shares pursuant to draws under the Investment Agreement for additional gross proceeds of $900,636.
See “Liquidity and Capital Resources-Significant Liquidity Events-Investment Agreement” below for further details on the financing transactions.
Critical accounting policies and significant judgments and estimates
See Note 2, “Significant Accounting Policies,” in the Notes to consolidated Financial Statements.
43
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2020
The following table summarizes the changes in our results of operations for the three months ended September 30, 2021 compared with the three months ended September 30, 2020:
| Three Months Ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| Patient service revenue, net | $ | 1,394,356 | $ | 1,054,806 | $ | 339,550 | 32 | % | ||||||||
| Medicare shared savings revenue | 2,419,312 | 767,744 | 1,651,568 | 215 | % | |||||||||||
| Consulting and event revenue | 69,595 | 217,605 | (148,010 | ) | 68 | % | ||||||||||
| Product revenue | 161,456 | --- | 161,456 | * | ||||||||||||
| Total revenue | 4,044,719 | 2,040,155 | 2,004,564 | 98 | % | |||||||||||
| Operating Expenses and Costs | ||||||||||||||||
| Practice salaries and benefits | 739,024 | 590,690 | 148,334 | 25 | % | |||||||||||
| Other practice operating expenses | 549,086 | 548,667 | 419 | 0 | % | |||||||||||
| Medicare shared savings expenses | 1,748,585 | 759,848 | 988,737 | 130 | % | |||||||||||
| Cost of product revenue | 145,432 | --- | 145,532 | * | ||||||||||||
| Selling, general and administrative expenses | 1,147,591 | 958,874 | 188,717 | 20 | % | |||||||||||
| Depreciation and amortization | 205,311 | 25,151 | 180,160 | 716 | % | |||||||||||
| Loss from operations | (490,310 | ) | (843,075 | ) | 352,765 | 42 | % | |||||||||
| Other Income (Expenses) | ||||||||||||||||
| Loss on sales of marketable securities | --- | (281,606 | ) | 281,606 | 100 | % | ||||||||||
| Loss on extinguishment of debt | --- | (450,999 | ) | 450,999 | 100 | % | ||||||||||
| Change in fair value of debt | --- | (79,062 | ) | 79,062 | 100 | % | ||||||||||
| Amortization of original issue and debt discounts on notes payable and convertible notes | --- | (65,816 | ) | 65,816 | 100 | % | ||||||||||
| Change in fair value of derivative financial instruments | --- | 12,802 | (12,802 | ) | 100 | % | ||||||||||
| Change in fair value of contingent acquisition consideration | 126,411 | 45,996 | 80,415 | 175 | % | |||||||||||
| Interest expense | (4,118 | ) | (72,535 | ) | 68,417 | 94 | % | |||||||||
| Total other income (expenses) | 122,293 | (891,220 | ) | 1,013,513 | 114 | % | ||||||||||
| Net loss | $ | (368,017 | ) | $ | (1,734,295 | ) | $ | 1,366,278 | 79 | % | ||||||
* - Denotes new line item on statement of operations for which there was no corresponding activity in the same period of 2020.
Revenue
Patient service revenue in the three months ended September 30, 2021 increased by $339,550, or 32% year-over-year, to $1,394,365, primarily as a result of increased patient service revenue at our NCFM practice of $230,331, increases at our NWC practice of $85,975, and increases at our BTG practice of $23,065.
Medicare shared savings revenue in the three months ended September 30, 2021 increased by $1,651,568, or 215%, year-over-year to $2,419,312 as a result of the higher $2,419,312 MSSP payment received in September 2021 compared to a payment of $767,744 received in September 2020.
Consulting and event revenue in the three months ended September 30, 2021 decreased by $148,010, or 68% year-over-year, to $69,595 as a result of decreased consulting revenue in our ACO/MSO Division.
44
Product revenue was $161,456 in the three months ended September 30, 2021. Product revenue was earned by the Medical Distribution Division comprised of the operations acquired with MOD in October 2020, so there was no corresponding revenue in the three months ended September 30, 2020.
Operating Expenses and Costs
Practice salaries and benefits increased by $148,334, or 25%, to $739,024 in the three months ended September 30, 2021 primarily as a result of increased staffing at each of our service facilities relative to 2020 to meet an increase in patient visits in 2021 relative to 2020.
Other practice operating costs increased by $419, or less than 1%, to $549,086 due primarily to higher costs at NCFM corresponding to the increase in revenue.
Medicare shared savings expenses increased by $988,737, or 130%, to $1,748,585 as a result of the higher $2,419,312 MSSP payment received in September 2021 compared to a payment of $767,744 received in September 2020, resulting in higher payments to participating providers. 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’ contractual portion of any shared savings received by the ACO.
Cost of product revenue was $145,432 in the three months ended September 30, 2021. Cost of product revenue relates to the cost of medical products sold by the Medical Distribution Division, which is comprised of the operations acquired with MOD in October 2020, so there was no corresponding cost in the three months ended September 30, 2020.
Selling, general and administrative costs increased by $188,717, or 20%, to $1,147,591 in the three months ended September 30, 2021 compared to the same period of 2020, primarily due to more personnel in our corporate function in connection with our continued expansion, as well as increased legal, accounting and consulting fees, stock-based consulting fees, and development and promotional costs associated with building and marketing the HealthLynked Network and its related applications.
Depreciation and amortization increased the three months ended September 30, 2021 by $180,160, or 716%, to $205,311 compared to the same period in 2020, primarily as a result of amortization of finite-lived intangible assets acquired in the MOD acquisition.
Loss from operations decreased by $352,765, or 42%, to $490,310 in the three months ended September 30, 2021 compared to the same period in 2020, primarily as a result of a year-over-year increase in Medicare shared savings revenue of $1,651,568, offset by higher selling, general and administrative costs and higher amortization expense related to acquired intangible assets.
Other Income (Expenses)
Loss on sales of marketable securities was $281,606, or 100%, in the three months ended September 30, 2020. Such losses arose in the three months ended September 30, 2020 from sales of marketable securities in the August 2020 Equity Transaction at prices below the acquisition price. There were no such losses in the three months ended September 30, 2021.
Loss on extinguishment of debt of $450,999 in the three months ended September 30, 2020 arose when the fair value of consideration paid to retire previously outstanding convertible note exceeded the carrying value of the instruments retired, including any related derivative financial instruments, such as embedded conversion features. No such debt was retired, and therefore there were no corresponding charges, in the three months ended September 30, 2021.
Loss from the change in fair value of debt of $79,062 in the three months ended September 30, 2020 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 and revalued at each period end. 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 three months ended September 30, 2021.
Amortization of original issue and debt discounts was $65,816 in the three months ended September 30, 2020. With the retirement in 2020 of all floating rate convertible notes that with discounts subject to amortization, there were no corresponding charges in the three months ended September 30, 2021.
Gain from the change in fair value of derivative financial instruments was $12,802 in the three months ended September 30, 2020. We retired all derivative financial instruments in 2020 with the repayment of all adjustable-rate convertible notes payable that had associated embedded conversion feature derivatives, so there were no corresponding charges in the three months ended September 30, 2021.
45
Gains from the change in fair value of contingent acquisition consideration increased by $80,415, or 175%, to $126,411 in the three months ended September 30, 2021. Fair value of contingent acquisition consideration relates to future acquisition consideration that may be payable if certain prescribed performance milestones are met by businesses acquired by us, including NCFM (acquired in April 2019), CHM (acquired in May 2020), and MOD (acquired in October 2020). The fair value of contingent acquisition consideration is remeasured at each reporting period using a probability-weighted discounted cash flow model. The increase in gains in 2021 was due primarily to a $218,201 decrease in fair value of contingent acquisition consideration related to our acquisition of MOD, which is payable in a fixed number of shares upon achievement of annual revenue milestones of the underlying business between 2021 and 2024.
Interest expense decreased by $68,417, or 94%, to $4,118 in the three months ended September 30, 2021 when compared to the same period in 2020, as a result of the repayment and conversion of convertible notes and notes payable to related parties during 2020, combined with low-interest government loans added to our balance sheet, resulting in substantially lower debt balances in 2021.
Total other income (expenses) increased by $1,013,513, or 114%, in the three months ended September 30, 2021 to income of $122,293 compared to expense in the same period in 2020 of $891,220, primarily as a result of other expenses incurred in 2020 – including loss on sales of marketable securities, loss on extinguishment of debt, loss on change in fair value of debt, amortization of original issue and debt discounts on notes payable and convertible notes, and change in fair value of derivative financial instruments – related to convertible debt and other instruments no longer held by us, resulting in no corresponding charges in the three months ended September 30, 2021.
Net loss decreased by $1,366,278, or 79%, to $368,017 in the three months ended September 30, 2021 when compared to the same period in 2020, primarily as a result of (i) debt-related charges incurred in 2020 corresponding to debt that has since been retired, (ii) a 100% increase in our revenue streams year-over year, including an increase of $1,651,568 in our annual MSSP revenue receipt, (iii) losses on sales of marketable securities incurred in 2020 with corresponding losses in 2021, and (iv) increased gains on the reduction in fair value of contingent acquisition consideration payable related to three of our acquisitions. The lower loss was offset by increases in Medicare shared savings expenses corresponding to the increase in MSSP revenue and selling, general and administrative expenses.
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Comparison of Nine months Ended September 30, 2021 and 2020
The following table summarizes the changes in our results of operations for the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020:
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| Patient service revenue, net | $ | 4,379,282 | $ | 3,502,836 | $ | 876,446 | 25 | % | ||||||||
| Medicare shared savings revenue | 2,419,312 | 767,744 | 1,651,568 | 215 | % | |||||||||||
| Consulting and event revenue | 229,114 | 268,025 | (38,911 | ) | 15 | % | ||||||||||
| Product revenue | 512,325 | --- | 512,235 | * | ||||||||||||
| Total revenue | 7,540,033 | 4,538,605 | 3,001,428 | 66 | % | |||||||||||
| Operating Expenses and Costs | ||||||||||||||||
| Practice salaries and benefits | 2,305,993 | 1,910,897 | 395,096 | 21 | % | |||||||||||
| Other practice operating expenses | 1,790,874 | 1,633,380 | 157,494 | 10 | % | |||||||||||
| Medicare shared savings expenses | 2,157,555 | 824,084 | 1,333,471 | 162 | % | |||||||||||
| Cost of product revenue | 474,026 | --- | 474,026 | * | ||||||||||||
| Selling, general and administrative expenses | 3,661,206 | 2,116,159 | 1,545,047 | 73 | % | |||||||||||
| Depreciation and amortization | 623,438 | 74,811 | 548,627 | 733 | % | |||||||||||
| Loss from operations | (3,473,059 | ) | (2,020,726 | ) | (1,452,333 | ) | 72 | % | ||||||||
| Other Income (Expenses) | ||||||||||||||||
| Loss on sales of marketable securities | --- | (281,606 | ) | 281,606 | 100 | % | ||||||||||
| Loss on extinguishment of debt | (4,957,168 | ) | (1,347,371 | ) | (3,609,797 | ) | 268 | % | ||||||||
| Change in fair value of debt | (19,246 | ) | (198,764 | ) | 179,518 | 90 | % | |||||||||
| Amortization of original issue and debt discounts on notes payable and convertible notes | --- | (530,930 | ) | 530,930 | 100 | % | ||||||||||
| Change in fair value of derivative financial instruments | --- | 739,485 | (739,485 | ) | 100 | % | ||||||||||
| Change in fair value of contingent acquisition consideration | (234,678 | ) | 687 | (235,365 | ) | 34260 | % | |||||||||
| Interest expense | (13,083 | ) | (193,134 | ) | 180,051 | 93 | % | |||||||||
| Total other expenses | (5,224,175 | ) | (1,811,633 | ) | (3,412,542 | ) | 188 | % | ||||||||
| Net loss | $ | (8,697,234 | ) | $ | (3,832,359 | ) | $ | (4,864,875 | ) | 127 | % | |||||
* - Denotes new line item on statement of operations for which there was no corresponding activity in the same period of 2020.
Revenue
Patient service revenue in the nine months ended September 30, 2021 increased by $876,446, or 25% year-over-year, to $4,379,282 primarily as a result of increased patient service revenue at our NCFM practice of $661,277, increases at our NWC practice of $200,832, and increases at our BTG practice of $14,158.
Medicare shared savings revenue in the nine months ended September 30, 2021 increased by $1,651,568, or 215%, to $2,419,312 year-over-year as a result of the higher $2,419,312 MSSP payment received in September 2021 compared to a payment of $767,744 received in September 2020.
Consulting and event revenue in the nine months ended September 30, 2021 decreased by $38,911, or 15% year-over-year to $229,114. Consulting revenue of $217,209 was earned by the ACO/MSO Division in 2021, compared to $268,025 in the corresponding period of 2020. Event revenue of $11,905 was earned in connection with the HealthLynked Future of Healthcare Summit held in March 2021.
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Product revenue was $512,325 in the nine months ended September 30, 2021. Product revenue was earned by the Medical Distribution Division comprised of the operations acquired with MOD in October 2020, so there was no corresponding revenue in the nine months ended September 30, 2020.
Operating Expenses and Costs
Practice salaries and benefits increased by $395,096, or 21%, to $2,305,993 in the nine months ended September 30, 2021 primarily as a result of increased staffing at each of our service facilities relative to 2020 to meet an increase in patient visits in 2021 relative to 2020.
Other practice operating costs increased by $157,494, or 10%, to 1,790,874 in the nine months ended September 30, 2021 corresponding to increased revenue at NCFM and NWC practices.
Medicare shared savings expenses increased by $1,331,471, or 162% to $2,157,555 as a result of the higher $2,419,312 MSSP payment received in September 2021 compared to a payment of $767,744 received in September 2020, resulting in higher payments to participating providers. 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’ contractual portion of any shared savings received by the ACO.
Cost of product revenue was $474,026 in the nine months ended September 30, 2021. Cost of product revenue relates to the cost of medical products sold by the newly formed Medical Distribution Division, which is comprised of the operations acquired with MOD in October 2020, so there was no corresponding cost in the nine months ended September 30, 2020.
Selling, general and administrative costs increased by $1,545,047, or 73%, to $3,661,206 in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily due to increased stock-based consulting fees, cash-based legal, accounting and consulting fees, more personnel in our corporate function in connection with our continued expansion, and higher advertising, promotional and development costs associated with developing and marketing the HealthLynked Network and related applications.
Depreciation and amortization increased the nine months ended September 30, 2021 by $548,627, or 733%, to $623,438 compared to the same period in 2020, primarily as a result of amortization of finite-lived intangible assets acquired in the MOD acquisition.
Loss from operations increased by $1,452,333, or 72%, to $3,473,059 in the nine months ended September 30, 2021 compared to the same period in 2020, primarily as a result of increased selling, general and administrative costs related to our expansion as well as amortization of intangibles from MOD, offset by increases in each of our revenue streams.
Other Income (Expenses)
Loss on sales of marketable securities was $281,606, or 100%, in the nine months ended September 30, 2020. Such losses arose in the three months ended September 30, 2020 from sales of marketable securities in the August 2020 Equity Transaction at prices below the acquisition price. There were no such losses in the three months ended September 30, 2021.
Loss on extinguishment of debt in the nine months ended September 30, 2021 increased by $3,609,797, or 268%, to $4,957,168 as compared to the same period in 2020, primarily as a result of a January 2021 transaction pursuant to which the holder of convertible notes with a face value of $1,038,500 and $317,096 of accrued interest agreed to convert the notes pursuant to the original note terms and agreed to a leak-out provision on the received shares in exchange for a five-year warrant to purchase 13,538,494 shares of common stock at an exercise price of $0.30 per share. In connection with the conversion, we recognized a loss on debt extinguishment of $5,463,492 in the nine months ended September 30, 2021, representing the excess of the fair value of the shares and warrant issued at conversion over the carrying value of the host instrument and accrued interest. This loss was offset by a debt extinguishment gain of $632,826 related to the forgiveness of PPP loans in May and June 2021. Losses on extinguishment of debt in the nine months ended September 30, 2020 resulted from an excess of fair value of consideration paid to retire a convertible notes over the carrying value of the instrument and related derivatives being retired.
Losses from the change in fair value of debt decreased by $179,518, or 90%, to $19,246 for the nine months ended September 30, 2021 when compared to the same period in 2020. Such gains and losses result 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 is 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.
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Amortization of original issue and debt discounts was $530,930 for the nine months ended September 30, 2020. With the retirement in 2020 of all floating rate convertible notes that with discounts subject to amortization, there were no corresponding charges in the nine months ended September 30, 2021.
Gains from the change in fair value of derivative financial instruments was $739,485 for the nine months ended September 30, 2020. We retired all derivative financial instruments in 2020 with the repayment of all adjustable-rate convertible notes payable that had associated embedded conversion feature derivatives, so there were no corresponding gains or charges in the nine months ended September 30, 2021.
(Loss) gain from the change in fair value of contingent acquisition consideration increased by $235,365, or 34,260%, to a loss of $234,678 in the nine months ended September 30, 2021 when compared to the same period in 2020. The increase in the loss in 2021 was due primarily to the increase in fair value of contingent acquisition consideration related to our acquisition of MOD, which is payable in a fixed number of shares upon achievement of annual revenue milestones of the underlying business between 2021 and 2024. Due in large part to an increase in our stock price since December 31, 2020, the fair value of the liability increased substantially.
Interest expense decreased by $180,051, or 93%, to $13,083 for the nine months ended September 30, 2021 when compared to the same period in 2020, as a result of the repayment and conversion of convertible notes and notes payable to related parties during 2020, combined with low-interest government loans added to our balance sheet, resulting in substantially lower debt balances in 2021.
Total other expenses increased by $3,412,542, or 188%, to $5,224,175 in the nine months ended September 30, 2021 when compared to the same period in 2020 primarily as a result of a (i) $5,589,994 loss on extinguishment of debt associated with the retirement of our last remaining convertible notes payable in 2021, (ii) an increase in losses from the change in fair value of contingent acquisition due principally to the fixed-share structure of the MOD contingent consideration, and (iii) a gain in change in fair value of derivative financial instruments in 2020 with no corresponding income or charge in 2021.
Net loss increased by $4,864,875, or 127%, to $8,697,234 in the nine months ended September 30, 2021 when compared to the same period in 2020 primarily as a result of (i) a loss on extinguishment of debt associated with the retirement of our last remaining convertible notes payable in 2021, (ii) increased selling, general and administrative costs related to our expansion, an increase in losses from the change in fair value of contingent acquisition due to the fixed-share structure of the MOD contingent consideration, and (iii) a gain in change in fair value of derivative financial instruments in 2020 with no corresponding income or charge in 2021. The increased losses were offset by a 67% overall increase in our revenue year-over-year, a gain on debt extinguishment related to the forgiveness of PPP Loans in 2021, and the retirement of convertible debt that eliminated debt discount amortization charges incurred in prior periods.
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 notification and payment in September 2021, was $2,419,312. Medicare shared savings revenue for the program year ended December 31, 2019, for which we received notification and payment 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
As of September 30, 2021, we had cash balances of $5,448,791, working capital of $3,070,164 and accumulated deficit $30,482,144. For the nine months ended September 30, 2021, we had a net loss of $8,697,234 and net cash used by operating activities of $1,627,184. Net cash used in investing activities was $334,581. Net cash provided by financing activities was $7,248,372, including $6,949,281 received from sales of common stock in private placements, registered direct transactions and puts pursuant to the July 2016 $3 million investment agreement (the “Investment Agreement”), and $350,200 in proceeds from the exercise of stock options and warrants. During January 2021, the holder of $1,038,500 fixed rate convertible debt converted the entire face value of $1,038,500, plus $317,096 of accrued interest on such notes, into 13,538,494 shares of common stock pursuant to the original conversion terms of the underlying notes. Following the conversion, the Company had no further convertible debt outstanding. During May 2021, PPP loans in the amount of $632,826 plus $6,503 accrued interest were forgiven. During August 2021, we sold 3,703,704 common shares and 1,851,852 five-year warrants with an exercise price of $0.65 to an institutional investor at an offering price of $0.54 per share, resulting in gross proceeds of $2,000,000.
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We believe that we have sufficient cash on hand to fund the business for at least the next 12 months. We intend that the longer term (i.e., beyond twelve months) cost of completing additional intended acquisitions, implementing our development and sales efforts related to the HealthLynked Network and maintaining existing and expanding overhead and administrative costs will be financed from (i) cash on hand resulting from fund raising efforts in 2021, (ii) profits generated by NCFM, BTG and CHM (including expected Medicare Shared Savings revenue projected to be received annually in the third fiscal quarter of each year), and (iii) the use of further outside funding sources. No assurances can be given that we will be able to access additional outside capital in a timely fashion. If necessary funds are not available, our business and operations would be materially adversely affected and in such event, we would attempt to reduce costs and adjust our business plan.
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, the Company implemented additional safety measures in its patient services locations and its corporate headquarters.
Significant Liquidity Events
Historically, we have funded our operations principally through a combination of convertible promissory notes, private placements of our common stock, promissory notes and related party debt, as described below.
Registered Direct Offering – August 2021
On August 26, 2021, we entered into a securities purchase agreement with a certain institutional investor (the “Purchaser”) pursuant to which we agreed to sell in a registered direct offering (the “Registered Direct Offering”) 3,703,704 shares of our common stock to the Purchaser at an offering price of $0.54 per share. In a concurrent private placement, we also sold to the Purchaser unregistered warrants (the “Warrants”) to purchase up to an aggregate of 1,851,852 shares of our common stock, representing 50% of the shares of common stock that were purchased in the Registered Direct Offering. The Warrants are exercisable at an exercise price of $0.65 per share, are exercisable immediately upon issuance and have a term of exercise equal to five years from the date of issuance. We also issued compensation warrants to our placement agent to purchase up to 269,269 shares of common stock, equal to 8.0% of the aggregate number of shares of common stock placed in the Registered Direct Offering. The placement agent warrants have a term of five (5) years from the commencement of sales under the Registered Direct Offering and an exercise price of $0.675 per share of common stock (equal to 125% of the offering price per share of common stock in the Registered Direct Offering).
We received net proceeds from the in the Registered Direct Offering, after deducting placement agent fees and other offering expenses payable by us, of $1,719,921. The transactions closed on August 31, 2021.
2021 Equity Transactions
During the nine months ended September 30, 2021, we sold 13,161,943 shares of common stock in 53 separate private placement transactions. We received $4,328,725 in proceeds from the sales. In connection with these stock sales, we also issued 6,581,527 five-year warrants to purchase shares of common stock at exercise prices between $0.27 and $1.05 per share.
Investment Agreement
In July 2016, we entered into an Investment Agreement (the “Investment Agreement”) with Iconic Holdings, LLC (the “Investor”), pursuant to which the Investor agreed to purchase up to $3,000,000 of our common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the Investor by us pursuant to a specified formula that limits the number of shares able to be put to the Investor to the number equal to the average trading volume of our common shares for the ten consecutive trading days prior to the put notice being issued. In May 2020, the Investment Agreement, which was scheduled to expire on May 15, 2020, was extended until the earlier of May 15, 2022 or until the registration statement covering the agreement is no longer in effect. During the nine months ended September 30, 2021 and 2020, we issued 3,006,098 and 4,975,491 shares of common stock pursuant to draws under the Investment Agreement, respectively, for gross proceeds of $900,636 and $426,299, respectively.
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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 intend to market the HealthLynked Network via telesales targeting physicians’ offices, direct to patient marketing, affiliated marketing campaigns, co-marketing with our Medical Distribution businesses retailer MOD, and expanded southeast regional sales efforts. We intend that our initial primary sales strategy will be physician telesales through the use of telesales representatives whom we will hire as access to capital allows. In combination with our telesales, we intend to also utilize Internet based marketing to increase penetration to targeted geographical areas. These campaigns will be focused on both physician providers and patient members. We also intend to leverage MOD’s discounted medical supplies as an offering to our patient and physician members in both the HealthLynked Network and our ACO network and plans. 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.
A summarized timeline of our strategic acquisition transactions and the related funding sources is as follows:
| ● | In July 2018 we raised approximately $1.8 million in a private placement for the purpose of technology enhancement, sales and marketing initiatives and to fund a portion of the first phase of our planned acquisition strategy. |
| ● | In 2019, we began implementation of our plan to acquire health service businesses and offer physician owners cash, stock, and deferred compensation. |
| ● | On April 15, 2019, we acquired HCFM for $750,000 in cash, $750,000 in shares of our common stock and $500,000 in a three-year performance-based payout. |
| ● | On May 18, 2020, we acquired CHM for $214,000 in cash, $201,675 in shares of our common stock, up to $223,000 cash and $660,000 in shares of our common stock based on a target MSSP payment of $1,725,000 in the current year, and up to $437,500 in a four-year performance-based payout. |
| ● | On August 20, 2020, we completed the August 2020 Equity Transaction with Trusts controlled by our CEO, Dr. Michael Dent, pursuant to which the Trusts contributed an aggregate of 76,026 NEO Shares with a fair value of $3,066,889 to us, in exchange for an aggregate of 2,750,000 shares of our newly designated Series B Preferred Stock and an aggregate of 24,522,727 shares of our common stock. |
| ● | On October 19, 2020, we acquired MOD, a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout the United States, in exchange for (i) 19,045,563 restricted shares of our common stock valued at $2,704,470, (ii) the issuance of an aggregate of up to 10,004,749 restricted shares of the buyer’s common stock valued at up to $2,602,330 over a four year period based on MOD achieving certain revenue targets, and (iii) the partial satisfaction of certain outstanding debt obligations of MOD in the amount of $703,200 in cash by us. |
| ● | During the second half of 2020, we retired floating rate convertible debt with a face value of $1,012,750 through conversions and repayments and repaid related party notes with a face value of $646,000 in an effort to improve our balance sheet. |
| ● | During January 2021, the holder of $1,038,500 fixed rate convertible debt converted the full face value of $1,038,500, plus $317,096 of accrued interest on such notes, into 13,538,494 shares of common stock pursuant to the original conversion terms of the underlying notes. Following the conversion, we had no further convertible debt outstanding. |
| ● | During August 2021, we sold in the Registered Direct Offering 3,703,704 shares of common stock and 1,851,852 five-year warrants with an exercise price of $0.65 to an institutional investor at an offering price of $0.54 per share, resulting in gross proceeds of $2,000,00 and net proceeds after offering costs and expenses of $1,719,921. |
| ● | During the nine months ended September 30, 2021, we sold 13,161,943 shares of common stock in 53 separate private placement transactions. We received $4,328,725 in proceeds from the sales. In connection with these stock sales, we also issued 6,581,527 five-year warrants to purchase shares of common stock at exercise prices between $0.27 and $1.05 per share. We also issued 3,006,098 shares pursuant to draws under the Investment Agreement for additional gross proceeds of $900,636. |
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Currently, we are focusing on acquiring additional profitable ACOs with a concentration on physician-based ACOs in Florida, the Southeast, Texas, New Jersey and Arizona. ACOs’ objectives are to reduce patients’ healthcare costs while improving their health. Our initial targets are physician-based Florida Medicare ACOs. Profitable ACOs have shared savings, which are payments made by the Medicare governing body CMS to ACOs whose Medicare patients have aggregate total savings over the regional threshold for all Medicare patients in the territory and that meet CMS’ quality standards. Given HealthLynked’s goal to improve healthcare and reduce healthcare costs for all patients, we anticipate that the ACO acquisition model can help us expand both physician and patient utilization of the HealthLynked Network while continuing to add incremental revenue and profit from to our health services and ACO segments. We plan to raise additional capital to fund our ongoing acquisition strategy.
Historical Cash Flows
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $(1,627,184) | $(1,094,495) | ||||||
| Investing Activities | (334,581 | ) | 2,425,870 | |||||
| Financing activities | 7,248,372 | 271,308 | ||||||
| Net increase (decrease) in cash | $ | 5,286,607 | $ | 1,602,683 | ||||
Operating Activities – During the nine months ended September 30, 2021, we used cash from operating activities of $1,627,184, as compared with $1,094,495 in the same period of 2020. The increase in cash usage results primarily from increased selling, general and administrative costs increased related to our continued expansion, offset by increases in our revenue streams in 2021 compared to 2020.
Investing Activities – During the nine months ended September 30, 2021, we used $334,581 in investing activities, including $196,000 contingent acquisition consideration payment paid the sellers of NCFM and $126,106 contingent acquisition consideration payment paid the sellers of Cura, plus $12,475 for the acquisition of computers and equipment. During the same period of 2020, we generated $2,425,870 from investing activities, including $2,740,806 received from the sale of marketable securities received in an August 2020 financing transaction, offset by $164,005 used to acquire CHM (net of $49,995 cash received), $137,390 paid against contingent acquisition consideration related to the acquisitions of NCFM and CHM and $13,541 for the acquisition of computers and equipment.
Financing Activities – During the nine months ended September 30, 2021 and 2020, we realized $7,248,372 and $271,308, respectively, in financing activities. Cash realized in 2021 was comprised mainly of $5,229,360 from the sale of common stock pursuant to private placements and puts under the Investment Agreement, $1,719,921 net proceeds from the Registered Direct Offering, and $350,200 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. Cash realized in 2020 was comprised mainly of $1,099,300 from the proceeds of the sale of shares of common stock to investors and pursuant to the Investment Agreement, $1,045,669 net proceeds from government loans, $827,500 from the issuance of convertible notes, $149,000 from related party loans and. We also repaid $1,882,405 of convertible loans and $967,756 of related party loans.
Off Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable Securities and Exchange Commission rules.
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 September 30, 2020 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 September 30, 2021.
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 September 30, 2021 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 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.
During the three months ended September 30, 2021, we sold 1,000,000 shares of common stock for cash in a private placement transaction to an accredited investor. We received $580,000 in proceeds from the sales. In connection with this stock sale, we also issued 500,000 five-year warrants to the accredited investor to purchase shares of common stock at an exercise price of $0.75 per share.
During the three months ended September 30, 2021, we issued 208,750 shares of common stock to two separate consultants as compensation for services provided.
During the three months ended September 30, 2021, we issued 1,840,278 shares of common stock to three separate warrant holders upon exercise of outstanding warrants for aggregate proceeds of $181,250.
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 and/or Regulation D promulgated thereunder, 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 purposes only and not with a view to or for sale in connection with any distribution thereof, and appropriate restrictive 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
None.
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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: November 15, 2021
| 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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