HealthLynked Corp 8-K/A, filed Aug 3, 2020
HealthLynked Corp (HLYK)
About this 8-K/A
HealthLynked Corp filed this 8-K/A on August 3, 2020, reporting on events of May 18, 2020.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): May 18, 2020
HealthLynked
Corp.
(Exact Name of Registrant as Specified in its Charter)
| Nevada | 47-1634127 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |
| 1726 Medical Blvd., Suite 101, Naples, Florida | 34110 | |
| (Address of Principal Executive Offices) | (ZIP Code) |
(239) 513-1992
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). ☒
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. ☐
EXPLANATORY NOTE
This Current Report on Form 8-K/A (this “Amendment No. 1”) is being filed to amend and supplement “Item 9.01 – Financial Statements and Exhibits,” included in the initial report on Form 8-K filed by HealthLynked Corp. (the “Corporation”) on May 20, 2020 (the “Initial Filing”), to include the required audited and unaudited consolidated financial statements of Cura Health Management LLC and ACO Health Partners, LLC (collectively, the “Acquired Subsidiaries”), pursuant to Rule 3-05(b) of Regulation S-X, and the unaudited pro forma consolidated financial statements for the consolidated Corporation and Acquired Subsidiaries pursuant to Article 11 of Regulation S-X. The required audited and unaudited consolidated financial statements and unaudited pro forma consolidated financial statements are filed as exhibits to this report under Item 9.01.
The information previously reported on the Initial Filing is incorporated by reference into this Amendment No. 1. The other items to the Initial Filing further remain unchanged and are not amended hereby.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired. The audited consolidated financial statements of the Acquired Subsidiaries for the years ended December 31, 2019 and 2018, and the unaudited condensed consolidated financial statements for the three months ended March 31, 2020 and 2019, including the notes to such financial statements and the report of independent auditors thereon, are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and incorporated into this Item 9.01(a) by reference.
(b) Pro Forma Financial Information. The pro forma financial information required by this item is filed as Exhibit 99.2 to this Form 8-K/A.
(d) Exhibits.
1
SIGNATURE
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 hereunto duly authorized.
| HEALTHLYNKED CORP. | |
| Dated: August 3, 2020 | /s/ George O’Leary |
| George O’Leary | |
| Chief Financial Officer |
2
Exhibit 99.1
CURA HEALTH MANAGEMENT LLC
Audited Consolidated Financial Statements
For the Years Ended December 31, 2019 and 2018
INDEPENDENT AUDITOR’S REPORT
To those charged with governance
of
CURA HEALTH MANAGEMENT LLC
We have audited the accompanying consolidated financial statements of Cura Health Management LLC (the “Company), a Florida LLC, which comprise of the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of income and members’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the consolidated statements of income and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ RBSM LLP
New York, NY
August 3, 2020
1
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 551,225 | $ | 1,961 | ||||
| Accounts receivable, net | 50,346 | — | ||||||
| Prepaid expenses | 63,200 | — | ||||||
| Total Current Assets | 664,771 | 1,961 | ||||||
| Other Assets: | ||||||||
| Due from affiliates | 1,056 | 20,084 | ||||||
| Total Assets | $ | 665,827 | $ | 22,045 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 765 | $ | 3,848 | ||||
| Deferred revenue | 50,334 | — | ||||||
| Due to affiliates | 1,771 | 8,742 | ||||||
| Total Current Liabilities | 52,870 | 12,590 | ||||||
| Total Liabilities | 52,870 | 12,590 | ||||||
| Members’ Equity: | ||||||||
| Members’ equity | 612,957 | 9,455 | ||||||
| Total Members’ Equity | 612,957 | 9,455 | ||||||
| Total Liabilities and Members’ Equity | $ | 665,827 | $ | 22,045 | ||||
See accompanying independent auditors report and notes to consolidated financial statements
2
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONSOLIDATED STATEMENTS OF INCOME AND MEMBERS’ EQUITY
Years Ended December 31, 2019 and 2018
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenue: | ||||||||
| Shared savings revenue | $ | 1,920,318 | $ | 2,356,843 | ||||
| Service revenue | 95,000 | 53,000 | ||||||
| Revenue from related parties | 3,250 | 57,000 | ||||||
| Total Revenue | 2,018,568 | 2,466,843 | ||||||
| Operating Expenses: | ||||||||
| Provider shared savings expense | 780,982 | 1,312,880 | ||||||
| Consulting fees paid to members | — | 1,000,283 | ||||||
| Selling, general and administrative | 257,184 | 141,602 | ||||||
| Total operating expenses | 1,038,166 | 2,454,765 | ||||||
| Net Income | $ | 980,402 | $ | 12,078 | ||||
| Members’ Equity at Beginning of Period | $ | 9,455 | $ | (2,623 | ) | |||
| Net Income | 980,402 | 12,078 | ||||||
| Member Contributions | 3,100 | — | ||||||
| Member Distributions | (380,000 | ) | — | |||||
| Members’ Equity at End of Period | $ | 612,957 | $ | 9,455 | ||||
See accompanying independent auditors report and notes to consolidated financial statements
3
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2019 and 2018
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 980,402 | $ | 12,078 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (50,346 | ) | — | |||||
| Prepaid expenses | (63,200 | ) | — | |||||
| Due from affiliates | 19,028 | (20,084 | ) | |||||
| Accounts payable | (3,083 | ) | 1,225 | |||||
| Deferred revenue | 50,334 | — | ||||||
| Due to affiliates | (6,971 | ) | 8,742 | |||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 926,164 | 1,961 | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Contributions from members | 3,100 | — | ||||||
| Distributions to members | (380,000 | ) | — | |||||
| NET CASH USED IN FINANCING ACTIVITIES | (376,900 | ) | — | |||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 549,264 | 1,961 | ||||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,961 | — | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 551,225 | $ | 1,961 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | — | $ | — | ||||
See accompanying independent auditors report and notes to consolidated financial statements
4
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 1. DESCRIPTION OF COMPANY
Description of Business
Cura Health Management LLC (“CHM”) and its wholly owned subsidiary ACO Health Partners LLC (“AHP” and together with CHM, the “Company”) combine to operate an accountable care organization (“ACO”) as defined in by the Medicare Shared Savings Program (the “MSSP”) as administered by the Center for Medicare and Medicaid Services (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 also provides contracted consulting services to healthcare providers and other ACOs.
AHP acquisition in 2018
On March 28, 2018, CHM’s predecessor, Cura Management Group, Inc. (“CMG”), acquired AHP and its primary asset, the ACO contract, from third party Orange Health Solutions, Inc. (“OHS”) for consideration of $1 plus CMG to remit payment of immediately available funds to OHS in the amount equal to 25% of such 2017 MSSP Payments (the “OHS MSSP Payment Share”). On October 1, 2019, CMG transferred ownership of AHP to its newly formed holding company, CHM. No change in ownership occurred in the transfer. Before and after the transfer, CMG and CHM were each controlled by the two principals of the underlying business, Marsha Boggess and Nicole Bradberry (the “Principals”), who each owned 50% both entities. This transfer was treated as a transfer between entities under common control.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Prior to October 1, 2019, the equity of AHP was owned by CMG, a corporation equally owned by the Principals. On October 1, 2019, the equity of AHP was transferred to CHM, a limited liability company (“LLC”) also equally owned by the Principals, for consideration of $1. On December 8, 2019, CMG was dissolved. The transfer of AHP from CMG to CHM was treated as a common control transaction with no change in the substance of the reporting entity. Accordingly, the financial statements of CHM presented herein for the years ended December 31, 2019 and 2018 are retroactively restated as though the transfer had occurred as of January 1 of each year presented. The legal capital has been retroactively restated to reflect the capital of the new parent company, CHM. The dissolution of CMG was not considered a discontinued operation because the corporate restructuring did not meet the requirements of a strategic shift of the underlying business.
5
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, except where otherwise noted. All significant intercompany transactions and balances have been eliminated upon consolidation.
Revenue Recognition
Shared Savings Revenue
Revenue recognition from contracts is governed by ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company is notified by the CMS of the amount of MSSP shared savings earned, if any, in the second half of the year following the completion of the program year. Accordingly, pursuant to the guidance in ASC 606, the Company recognizes MSSP shared savings in the period that notification of the amount of shared savings for the prior program year is received from the CMS. The Company also concluded that it acts as a principal in the delivery of shared savings revenue and, accordingly, recognizes such revenue in the gross amount of consideration received. The Company received $1,920,318 and $2,356,843 in shared savings payments related to the 2018 and 2017 performance years, respectively, which were recognized as shared savings revenue in the accompanying consolidated statements of income and members’ equity for the years ended December 31, 2019 and 2018, respectively.
Service Revenue
Also pursuant to ASC 606, the Company recognizes service revenue as services are provided, with any unearned but paid amounts recorded as deferred revenue liability at each balance sheet date.
Deferred Revenue
The Company’s deferred revenue liability balance was $50,334 and $-0- as of December 31, 2019 and 2018, respectively.
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.
Internal Use Software
The Company accounts for costs incurred to develop or purchase computer software for internal use in accordance with FASB ASC 350-40 “Internal-Use Software” or ASC 350-50 “Website Costs.” As required by ASC 350-40, costs incurred to maintain existing product offerings are expensed as incurred.
6
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company presents its statement of cash flows using the indirect method. For purposes of the statement of cash flows, cash includes cash in checking accounts.
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 customers’ accounts receivable during the related period. The Company concluded that no reserve for uncollectible accounts was required as of December 31, 2019 or 2018.
Advertising and Promotion
The Company expenses all advertising costs as they are incurred. Total advertising expenses were $19,864 and $3,239 for the years ended December 31, 2019 and 2018, respectively.
Income Taxes
Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the partnership’s income and expenses. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The Company concluded that no provision for income tax is required in the partnership’s financial statements.
The Company files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. In general, the statute of limitations of the Company’s U.S. federal tax returns remains open three years after a tax return is filed. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe that there are any uncertain tax positions that require recognition of a tax liability.
7
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
On May 18, 2020, the Company entered into a definitive agreement to be acquired by HealthLynked Corp. (OTCQB:HLYK)(“HealthLynked”) and the acquisition was completed (See Note 7. EVALUATION OF SUBSEQUENT EVENTS). Effective with the acquisition on May 18, 2020 the CHM partnership was dissolved.
Note 3. CONCENTRATION OF CREDIT RISK
Dependence on the ACA
During the years ended December 31, 2019 and 2018, shared savings revenue represented 95% and 96%, respectively, of the Company’s total revenue. The continued realization of such revenue depends on certain government programs and is subject to political and macroeconomic trends. The ACA was signed into law in March 2010 and legislated broad-based changes to the U.S. health care system which have a material impact on the Company’s business. There is considerable discussion within the new Presidential administration and Congress about repealing and replacing the ACA. At this time, it is uncertain whether, when, and what changes will be made to the ACA, and what impact such changes could have on the Company’s business. However, any changes to the ACA, including through any repeal and replacement to the ACA, could have a material adverse effect on our business, financial position and results of operations.
Under the MSSP, CMS has historically made payments to ACOs for a measurement year in the second half of the following year, which may negatively impact the Company’s cash flows. In order to receive revenues from CMS under the MSSP, the ACO must meet certain minimum savings rates (i.e. save the federal government money) and meet certain quality measures. More specifically, an ACO’s medical expenses for its assigned beneficiaries during a relevant measurement year must be below the benchmark established by CMS for such ACO. Notwithstanding the Company’s efforts, the Company’s ACO may be unable to meet the required savings rates or may not satisfy the quality measures, which may result in the Company receiving no revenues and losing our investment in or from the acquisition and operation of CHM and AHP.
Cash Balances
The Company maintains cash balances in one checking account at a single financial institution. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to a combined total of $250,000; at times, the cash in this institution may exceed FDIC insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant credit risk on these cash balances.
8
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 4. TRANSACTIONS WITH RELATED PARTIES
During the years ended December 31, 2019 and 2018, certain expenses incurred by the Company, including personnel expenses and some overhead expenses, were paid to legal entities controlled by the Principals. The amount of such expenses totaled $158,170 and $99,230 in the years ended December 31, 2019 and 2018, respectively. Additionally, during the years ended December 31, 2019 and 2018, the Company paid consulting fees to the Company’s members in the amount of $-0- and $975,000, respectively.
Note 5. MEMBERS’ EQUITY
During the years ended December 31, 2019 and 2018, the Company was owned 50% by each of the Principals. On October 1, 2019, the predecessor parent company CMG transferred ownership of AHP to its newly formed holding company, CHM. Members’ equity has been retroactively restated to reflect the capital of CHM for all periods presented. Changes in members equity during the years ended December 31, 2019 and 2018 were as follows:
| Year Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Members’ Equity at Beginning of Period | $ | 9,455 | $ | (2,623 | ) | |||
| Net Income | 980,402 | 12,078 | ||||||
| Member Contributions | 3,100 | — | ||||||
| Member Distributions | (380,000 | ) | — | |||||
| Members’ Equity at End of Period | $ | 612,957 | $ | 9,455 | ||||
Note 6. COMMITMENTS AND CONTINGENCIES
ACO Agreement with CMS
The Company, via its subsidiary 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.
ACO Agreement with Participants
The Company 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.
9
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 and 2018
Note 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes, employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course of business. The Company operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s financial position or results of operations. The Company’s policy is to expense legal fees and expenses incurred in connection with the legal proceedings in the period in which the expense is incurred. The Company is not aware of any such legal proceedings that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
Note 7. EVALUATION OF SUBSEQUENT EVENTS
The Company has evaluated subsequent events through August 3, 2020, which is the date the financial statements were available to be issued.
On May 18, 2020, the Company entered into a month to month agreement on its building lease with the Chief Executive Officer of Cura Health Management LLC. Under the terms of the verbal agreement, monthly rental payments will be $2,800.
On May 18, 2020, the Company entered into a definitive agreement to be acquired by HealthLynked and the acquisition was completed. Under the terms of acquisition, HealthLynked paid the Company’s members the following consideration: (i) $214,000 in cash paid at closing, (ii) 2,240,838 shares of HealthLynked common stock issued at closing, (iii) up to $223,500 additional cash and $660,000 in additional shares of HealthLynked common 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.
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Exhibit 99.2
CURA HEALTH MANAGEMENT LLC
Unaudited Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 176,190 | $ | 551,225 | ||||
| Accounts receivable | 52,874 | 50,346 | ||||||
| Prepaid expenses | 28,199 | 63,200 | ||||||
| Total Current Assets | 257,263 | 664,771 | ||||||
| Other Assets: | ||||||||
| Due from affiliates | 53 | 1,056 | ||||||
| Total Assets | $ | 257,316 | $ | 665,827 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 5,147 | $ | 765 | ||||
| Deferred revenue | 50,420 | 50,334 | ||||||
| Due to affiliates | 11,265 | 1,771 | ||||||
| Total Current Liabilities | 66,832 | 52,870 | ||||||
| Total Liabilities | 66,832 | 52,870 | ||||||
| Members’ Equity: | ||||||||
| Members’ equity | 190,484 | 612,957 | ||||||
| Total Members’ Equity | 190,484 | 612,957 | ||||||
| Total Liabilities and Members’ Equity | $ | 257,316 | $ | 665,827 | ||||
See accompanying notes to unaudited condensed consolidated financial statements
1
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND MEMBERS’ EQUITY
Three Months Ended March 31, 2020 and 2019
(Unaudited)
| Three Months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue: | ||||||||
| Shared savings revenue | $ | — | $ | — | ||||
| Service revenue | 151,259 | 20,000 | ||||||
| Total Revenue | 151,259 | 20,000 | ||||||
| Operating Expenses: | ||||||||
| Provider shared savings expense | — | — | ||||||
| Selling, general and administrative | 173,732 | 54,560 | ||||||
| Total operating expenses | 173,732 | 54,560 | ||||||
| Net Loss | $ | (22,473 | ) | $ | (34,560 | ) | ||
| Members’ Equity at Beginning of Period | $ | 612,957 | $ | 9,455 | ||||
| Net Loss | (22,473 | ) | (34,560 | ) | ||||
| Member Distributions | (400,000 | ) | — | |||||
| Members’ Equity at End of Period | $ | 190,484 | $ | (25,105 | ) | |||
See accompanying notes to unaudited condensed consolidated financial statements
2
CURA HEALTH MANAGEMENT LLC
(a Partnership)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2020 and 2019
(Unaudited)
| Three Months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | (22,473 | ) | $ | (34,560 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (2,528 | ) | (20,000 | ) | ||||
| Prepaid expenses | 35,001 | (13,875 | ) | |||||
| Due from affiliates | 1,003 | 19,619 | ||||||
| Accounts payable | 4,382 | 32,837 | ||||||
| Deferred revenue | 86 | 29,240 | ||||||
| Due to affiliates | 9,494 | (8,742 | ) | |||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 24,965 | 4,519 | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Distributions to shareholder | (400,000 | ) | — | |||||
| NET CASH USED IN FINANCING ACTIVITIES | (400,000 | ) | — | |||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (375,035 | ) | 4,519 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 551,225 | 1,961 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 176,190 | $ | 6,480 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | — | $ | — | ||||
See accompanying notes to unaudited condensed consolidated financial statements
3
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 1. DESCRIPTION OF COMPANY
Description of Business
Cura Health Management LLC (“CHM”) and its wholly owned subsidiary ACO Health Partners LLC (“AHP” and together with CHM, the “Company”) combine to operate an accountable care organization (“ACO”) as defined in by the Medicare Shared Savings Program (the “MSSP”) as administered by the Center for Medicare and Medicaid Services (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 also provides contracted consulting services to healthcare providers and other ACOs.
AHP acquisition in 2018
On March 28, 2018, CHM’s predecessor, Cura Management Group, Inc. (“CMG”), acquired AHP and its primary asset, the ACO contract, from third party Orange Health Solutions, Inc. (“OHS”) for consideration of $1 plus CMG to remit payment of immediately available funds to OHS in the amount equal to 25% of such 2017 MSSP Payments (the “OHS MSSP Payment Share”). On October 1, 2019, CMG transferred ownership of AHP to its newly formed holding company, CHM. No change in ownership occurred in the transfer. Before and after the transfer, CMG and CHM were each controlled by the two principals of the underlying business, Marsha Boggess and Nicole Bradberry (the “Principals”), who each owned 50% both entities. This transfer was treated as a transfer between entities under common control.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Prior to October 1, 2019, the equity of AHP was owned by CMG, a corporation equally owned by the Principals. On October 1, 2019, the equity of AHP was transferred to CHM, a limited liability company (“LLC”) also equally owned by the Principals, for consideration of $1. On December 8, 2019, CMG was dissolved. The transfer of AHP from CMG to CHM was treated as a common control transaction with no change in the substance of the reporting entity. Accordingly, the financial statements of CHM presented herein for the years ended December 31, 2019 and 2018 are retroactively restated as though the transfer had occurred as of January 1 of each year presented. The legal capital has been retroactively restated to reflect the capital of the new parent company, CHM. The dissolution of CMG was not considered a discontinued operation because the corporate restructuring did not meet the requirements of a strategic shift of the underlying business.
4
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America, except where otherwise noted. All significant intercompany transactions and balances have been eliminated upon consolidation. 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, 2019 and 2018, respectively. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results for the entire year ending December 31, 2020.
Revenue Recognition
Shared Savings Revenue
Revenue recognition from contracts is governed by ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). The Company is notified by the CMS of the amount of MSSP shared savings earned, if any, in the second half of the year following the completion of the program year. Accordingly, pursuant to the guidance in ASC 606, the Company recognizes MSSP shared savings in the period that notification of the amount of shared savings for the prior program year is received from the CMS. The Company also concluded that it acts as a principal in the delivery of shared savings revenue and, accordingly, recognizes such revenue in the gross amount of consideration received. No shared savings revenue received for the three months ended March 31, 2020 and 2019.
Service Revenue
Also pursuant to ASC 606, the Company recognizes service revenue as services are provided, with any unearned but paid amounts recorded as deferred revenue liability at each balance sheet date.
Deferred Revenue
The Company’s deferred revenue liability balance was $50,420 and $50,334 as of March 31, 2020 and December 31, 2019, respectively.
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.
5
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Internal Use Software
The Company accounts for costs incurred to develop or purchase computer software for internal use in accordance with FASB ASC 350-40 “Internal-Use Software” or ASC 350-50 “Website Costs.” As required by ASC 350-40, costs incurred to maintain existing product offerings are expensed as incurred.
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company presents its statement of cash flows using the indirect method. For purposes of the statement of cash flows, cash includes cash in checking accounts.
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 customers’ accounts receivable during the related period. The Company concluded that no reserve for uncollectible accounts was required as of March 31, 2020 or December 31, 2019.
Advertising and Promotion
The Company expenses all advertising costs as they are incurred. Total advertising expenses were $40,525 and $80 for the three months ended March 31, 2020 and 2019, respectively.
Income Taxes
Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the partnership’s income and expenses. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The Company concluded that no provision for income tax is required in the partnership’s financial statements.
6
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. In general, the statute of limitations of the Company’s U.S. federal tax returns remains open three years after a tax return is filed. The statutes of limitations on the Company’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe that there are any uncertain tax positions that require recognition of a tax liability
On May 18, 2020, the Company entered into a definitive agreement to be acquired by HealthLynked Corp. (OTCQB:HLYK)(“HealthLynked”) and the acquisition was completed (See Note 7. EVALUATION OF SUBSEQUENT EVENTS). Effective with the acquisition on May 18, 2020 the CHM partnership was dissolved.
Note 3. CONCENTRATION OF CREDIT RISK
Dependence on the ACA
Historically, shared savings revenue has represented 95% and 96%, respectively, of the Company’s total revenue on a full fiscal year basis. No shared savings revenue or related provider shared savings expense was recognized in the three months ended March 31, 2020 or 2019 because such revenue and expense is recognized when the CMS notifies the Company of the amount of shared shavings for the prior program year, which typically occurs in the third or fourth quarter of the following calendar year. The continued realization of shared savings revenue depends on certain government programs and is subject to political and macroeconomic trends. The ACA was signed into law in March 2010 and legislated broad-based changes to the U.S. health care system which have a material impact on the Company’s business. There is considerable discussion within the new Presidential administration and Congress about repealing and replacing the ACA. At this time, it is uncertain whether, when, and what changes will be made to the ACA, and what impact such changes could have on the Company’s business. However, any changes to the ACA, including through any repeal and replacement to the ACA, could have a material adverse effect on our business, financial position and results of operations.
Under the MSSP, CMS has historically made payments to ACOs for a measurement year in the second half of the following year, which may negatively impact the Company’s cash flows. In order to receive revenues from CMS under the MSSP, the ACO must meet certain minimum savings rates (i.e. save the federal government money) and meet certain quality measures. More specifically, an ACO’s medical expenses for its assigned beneficiaries during a relevant measurement year must be below the benchmark established by CMS for such ACO. Notwithstanding the Company’s efforts, the Company’s ACO may be unable to meet the required savings rates or may not satisfy the quality measures, which may result in the Company receiving no revenues and losing our investment in or from the acquisition and operation of CHM and AHP.
7
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 3. CONCENTRATION OF CREDIT RISK (CONTINUED)
Cash Balances
The Company maintains cash balances in one checking account at a single financial institution. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to a combined total of $250,000; at times, the cash in this institution may exceed FDIC insured limits. The Company has not experienced any loss in such accounts. The Company believes it is not exposed to any significant credit risk on these cash balances.
Note 4. TRANSACTIONS WITH RELATED PARTIES
During the three months ended March 31, 2020 and 2019, certain expenses incurred by the Company, including personnel expenses and some overhead expenses, were paid to legal entities controlled by the Principals. The amount of such expenses totaled $95,129 and $40,847 in the three months ended March 31, 2020 and 2019, respectively.
Note 5. MEMBERS’ EQUITY
The Company was owned 50% by each of the Principals. On October 1, 2019, the predecessor parent company CMG transferred ownership of AHP to its newly formed holding company, CHM. Members’ equity has been retroactively restated to reflect the capital of CHM for all periods presented. Changes in members’ equity during the three months ended March 31, 2020 and 2019 were as follows:
| Three Months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Members’ Equity at Beginning of Period | $ | 612,957 | $ | 9,455 | ||||
| Net Loss | (22,473 | ) | (34,560 | ) | ||||
| Member Distributions | (400,000 | ) | — | |||||
| Members’ Equity at End of Period | $ | 190,484 | $ | (25,105 | ) | |||
Note 6. COMMITMENTS AND CONTINGENCIES
ACO Agreement with CMS
The Company, via its subsidiary 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.
8
CURA HEALTH MANAGEMENT LLC
(a Partnership)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020 and 2019
(Unaudited)
Note 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ACO Agreement with Participants
The Company is party to 33 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.
Litigation
From time to time, the Company may be involved in a variety of claims, lawsuits, investigations and proceedings related to contractual disputes, employment matters, regulatory and compliance matters, intellectual property rights and other litigation arising in the ordinary course of business. The Company operates in a highly regulated industry which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s financial position or results of operations. The Company’s policy is to expense legal fees and expenses incurred in connection with the legal proceedings in the period in which the expense is incurred. The Company is not aware of any such legal proceedings that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
Note 7. EVALUATION OF SUBSEQUENT EVENTS
The Company has evaluated subsequent events through August 3, 2020, which is the date the financial statements were available to be issued.
On May 18, 2020, the Company entered into a month to month agreement on its building lease with the Chief Executive Officer of Cura Health Management LLC. Under the terms of the verbal agreement, monthly rental payments will be $2,800.
On May 18, 2020, the Company entered into a definitive agreement to be acquired by HealthLynked and the acquisition was completed. Under the terms of acquisition, HealthLynked paid the Company’s members the following consideration: (i) $214,000 in cash paid at closing, (ii) 2,240,838 shares of HealthLynked common stock issued at closing, (iii) up to $223,500 additional cash and $660,000 in additional shares of HealthLynked common 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.
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Exhibit 99.3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The following unaudited pro forma consolidated balance sheet and statements of income are presented to give effect to the acquisition of Cura Health Management LLC (“CHM”) by HealthLynked Corp (“HealthLynked”). The pro forma information was prepared based on the historical financial statements and related notes of HealthLynked and CHM, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The pro forma adjustments are based upon available information and assumptions that HealthLynked believes are reasonable. The allocation of the purchase price of the CHM acquisition reflected in these unaudited pro forma consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The pro forma adjustments are therefore preliminary and have been prepared to illustrate the estimated effect of the acquisition.
The unaudited pro forma consolidated balance sheet has been prepared to reflect the transaction as if the transaction had occurred on March 31, 2020. The unaudited pro forma consolidated statements of operations combine the results of HealthLynked and CHM for the three months ended March 31, 2020, as if the transaction had occurred on January 1, 2020 and for the fiscal year ended December 31, 2019, as if the transaction had occurred on January 1, 2019.
The unaudited pro forma consolidated financial statements were prepared using the acquisition method of accounting with HealthLynked treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by HealthLynked to complete the acquisition was allocated to the assets acquired and liabilities assumed from CHM based upon their estimated fair values on the closing date of the acquisition. HealthLynked has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from CHM and the related allocations of purchase price, nor has HealthLynked identified all adjustments necessary to conform CHM’s accounting policies to HealthLynked’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed from CHM will be based on the actual net tangible and intangible assets and liabilities of CHM that existed as of the closing date. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may not reflect any final purchase price adjustments made. HealthLynked estimated the fair value of CHM’s assets and liabilities based on discussions with CHM’s management, due diligence and preliminary work performed by third-party valuation specialists. As the final valuations are being performed, increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments, which may result in material differences from the information presented herein.
1
HealthLynked Corp.
Unaudited Pro Forma Consolidated Balance Sheets
As of March 31, 2020
| Pro Forma | Pro Forma | |||||||||||||||
| HealthLynked | CHM | Adjustments | Consolidated | |||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash | $ | 204,266 | $ | 176,190 | $ | (89,000 | )(1) | $ | 291,456 | |||||||
| Accounts receivable, net | 74,161 | 52,874 | 127,035 | |||||||||||||
| Inventory | 89,601 | 89,601 | ||||||||||||||
| Prepaid expenses | 56,766 | 28,199 | 84,965 | |||||||||||||
| Deferred offering costs | 6,401 | 6,401 | ||||||||||||||
| Total Current Assets | 431,195 | 257,263 | (89,000 | ) | 599,458 | |||||||||||
| Property, plant and equipment, net | 491,047 | 491,047 | ||||||||||||||
| Intangible assets, net | 1,134,585 | 1,282,976 | (2) | 2,417,561 | ||||||||||||
| ROU lease assets, deposits and other long term assets | 255,662 | 53 | 255,715 | |||||||||||||
| Total Assets | $ | 2,312,489 | $ | 257,316 | $ | 1,193,976 | $ | 3,763,781 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||||||
| Current Liabilities | ||||||||||||||||
| Accounts payable and accrued expenses | $ | 786,095 | $ | 5,147 | $ | $ | 791,242 | |||||||||
| Deferred revenue | 50,420 | 50,420 | ||||||||||||||
| Lease liability, current portion | 145,869 | 145,869 | ||||||||||||||
| Due to related party, current portion | 509,563 | 11,265 | 520,828 | |||||||||||||
| Notes payable to related party, current portion | 817,037 | 817,037 | ||||||||||||||
| Convertible notes payable, net of original issue discount | 1,651,917 | 88,982 | (3) | 1,740,899 | ||||||||||||
| Notes payable | --- | |||||||||||||||
| Contingent acquisition consideration | 50,263 | 1,057,785 | (4) | 1,108,048 | ||||||||||||
| Derivative financial instruments | 219,938 | 36,018 | (5) | 255,956 | ||||||||||||
| Total Current Liabilities | 4,180,682 | 66,832 | 1,182,785 | 5,430,299 | ||||||||||||
| Long-Term Liabilities | ||||||||||||||||
| Contingent acquisition consideration, long term portion | 256,031 | 256,031 | ||||||||||||||
| Lease liability, long term portion | 103,225 | 103,225 | ||||||||||||||
| Total Liabilities | 4,539,938 | 66,832 | 1,182,785 | 5,789,555 | ||||||||||||
| Shareholders’ Deficit | ||||||||||||||||
| Common stock | 11,889 | 224 | (6) | 12,113 | ||||||||||||
| Common stock issuable | 205,241 | 205,241 | ||||||||||||||
| Additional paid-in capital | 14,165,291 | 201,451 | (7) | 14,366,742 | ||||||||||||
| Members’ equity | --- | 190,484 | (190,484 | )(8) | --- | |||||||||||
| Retained earnings (accumulated deficit) | (16,609,870 | ) | (16,609,870 | ) | ||||||||||||
| Total Shareholders’ Deficit | (2,227,449 | ) | 190,484 | 11,191 | (2,025,774 | ) | ||||||||||
| Total Liabilities and Shareholders’ Deficit | $ | 2,312,489 | $ | 257,316 | $ | 1,193,976 | $ | 3,763,781 | ||||||||
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HealthLynked Corp.
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 2020
| Pro Forma | Pro Forma | |||||||||||||||
| HealthLynked | CHM | Adjustments | Consolidated | |||||||||||||
| Revenue | ||||||||||||||||
| Patient service revenue, net | $ | 1,336,940 | $ | $ | $ | 1,336,940 | ||||||||||
| Medicare shared savings revenue | --- | |||||||||||||||
| Service revenue | 151,259 | 151,259 | ||||||||||||||
| Total revenue | 1,336,940 | 151,259 | 1,488,199 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Practice salaries and benefits | 765,121 | 765,121 | ||||||||||||||
| Other practice operating expenses | 563,691 | 563,691 | ||||||||||||||
| General and administrative | 510,976 | 173,732 | 684,708 | |||||||||||||
| Depreciation and amortization | 24,786 | (1) | 24,786 | |||||||||||||
| Total Operating Expenses | 1,864,574 | 173,732 | 2,038,306 | |||||||||||||
| Loss from operations | (527,634 | ) | (22,473 | ) | (550,107 | ) | ||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Loss on extinguishment of debt | (467,937 | ) | (467,937 | ) | ||||||||||||
| Change in fair value of debt | 35,965 | 35,965 | ||||||||||||||
| Amortization of original issue and debt discounts on notes payable and convertible notes | (292,163 | ) | (11,680 | )(2) | (303,843 | ) | ||||||||||
| Change in fair value of derivative financial instrument | 733,734 | 733,734 | ||||||||||||||
| Interest expense | (62,181 | ) | (3,191 | )(2) | (65,372 | ) | ||||||||||
| Total other expenses | (52,582 | ) | (14,871 | ) | (67,453 | ) | ||||||||||
| Net loss before provision for income taxes | (580,216 | ) | (22,473 | ) | (14,871 | ) | (617,560 | ) | ||||||||
| Provision for income taxes | --- | --- | ||||||||||||||
| Net loss | $ | (580,216 | ) | $ | (22,473 | ) | $ | (14,871 | ) | $ | (617,560 | ) | ||||
| Net loss per share, basic and diluted: | ||||||||||||||||
| Basic | $ | (0.005 | ) | $ | (0.005 | ) | ||||||||||
| Fully diluted | $ | (0.005 | ) | $ | (0.005 | ) | ||||||||||
| Weighted average number of common shares: | ||||||||||||||||
| Basic | 114,601,960 | 2,240,838 | (3) | 116,842,798 | ||||||||||||
| Fully diluted | 114,601,960 | 2,240,838 | (3) | 116,842,798 | ||||||||||||
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HealthLynked Corp.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2019
| Pro Forma | Pro Forma | |||||||||||||||
| HealthLynked | CHM | Adjustments | Consolidated | |||||||||||||
| Revenue | ||||||||||||||||
| Patient service revenue, net | $ | 4,018,818 | $ | $ | $ | 4,018,818 | ||||||||||
| Medicare shared savings revenue | 1,920,318 | 1,920,318 | ||||||||||||||
| Service revenue | 95,000 | 95,000 | ||||||||||||||
| Revenue from related parties | 3,250 | 3,250 | ||||||||||||||
| Total revenue | 4,018,818 | 2,018,568 | 6,037,386 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| Practice salaries and benefits | 2,393,954 | 2,393,954 | ||||||||||||||
| Other practice operating expenses | 1,845,070 | 1,845,070 | ||||||||||||||
| Provider shared savings expense | 780,982 | 780,982 | ||||||||||||||
| General and administrative | 2,915,419 | 257,184 | 3,172,603 | |||||||||||||
| Depreciation and amortization | 73,385 | (1) | 73,385 | |||||||||||||
| Total Operating Expenses | 7,227,828 | 1,038,166 | 8,265,994 | |||||||||||||
| Income (loss) from operations | (3,209,010 | ) | 980,402 | (2,228,608 | ) | |||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Loss on extinguishment of debt | (1,229,777 | ) | (1,229,777 | ) | ||||||||||||
| Change in fair value of debt | (121,508 | ) | (121,508 | ) | ||||||||||||
| Financing cost | (135,528 | ) | (135,528 | ) | ||||||||||||
| Amortization of original issue and debt discounts on notes payable and convertible notes | (1,260,513 | ) | (39,018 | )(2) | (1,299,531 | ) | ||||||||||
| Change in fair value of derivative financial instrument | 671,822 | 671,822 | ||||||||||||||
| Interest expense | (244,085 | ) | (3,191 | )(2) | (247,276 | ) | ||||||||||
| Total other expenses | (2,319,589 | ) | (42,209 | ) | (2,361,798 | ) | ||||||||||
| Net loss before provision for income taxes | (5,528,599 | ) | 980,402 | (42,209 | ) | (4,590,406 | ) | |||||||||
| Provision for income taxes | --- | ---- | ||||||||||||||
| Net income (loss) | $ | (5,528,599 | ) | $ | 980,402 | $ | (42,209 | ) | $ | (4,590,406 | ) | |||||
| Net loss per share, basic and diluted: | ||||||||||||||||
| Basic | $ | (0.056 | ) | $ | (0.045 | ) | ||||||||||
| Fully diluted | $ | (0.056 | ) | $ | (0.045 | ) | ||||||||||
| Weighted average number of common shares: | ||||||||||||||||
| Basic | 99,059,677 | 2,240,838 | (3) | 101,300,515 | ||||||||||||
| Fully diluted | 99,059,677 | 2,240,838 | (3) | 101,300,515 | ||||||||||||
4
HealthLynked Corp.
Notes to Unaudited Pro Forma Consolidated Financial Information
Note 1 – Purchase Price Consideration
On May 18, 2020, the Company acquired a 100% interest in CHM and its wholly owned subsidiary AHP. 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 HealthLynked common stock issued at closing, (iii) up to $223,500 additional cash and $660,000 in additional shares of HealthLynked common 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 fair value of the 2,240,838 common shares issued at closing was determined using the intraday average high and low trading price of the Company’s common shares on the acquisition date. The terms of the earn out require the Company to pay the former owners of CHM up to $62,500, $125,000, $125,000 and $125,000 on the first, second, third and fourth anniversary, respectively, based on achievement by the underlying business of revenue of at least $2,250,000 (50% weighting) and profit of at least $500,000 (50% weighting) in the year preceding each anniversary date. The fair value of the contingent acquisition consideration related to both the four-year earn-out and the current year MSSP savings amount were calculated using a probability-weighted discounted cash flow projection.
The table below represents the total fair value of the purchase price consideration:
| Cash paid at closing | $ | 214,000 | ||
| Shares issued at closing | 201,675 | |||
| Cash and shares contingent upon 2019 program year MSSP payment target | 778,192 | |||
| Cash contingent upon four-year earn-out | 279,593 | |||
| $ | 1,473,460 |
Note 2 – Pro Forma Adjustments
Following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma consolidated financial statements.
Adjustments to the pro forma consolidated balance sheet
| (1) | The pro forma adjustments to cash reflect the cash paid for the acquisition as follows: |
| Cash portion of purchase consideration | $ | (214,000 | ) | |
| Proceeds from convertible note payable used to finance portion of acquisition | 125,000 | |||
| Total | $ | (89,000 | ) |
| (2) | The pro forma adjustments to goodwill and other intangible assets reflect the following: |
| Cash portion of purchase consideration | $ | 214,000 | ||
| Stock consideration | 201,675 | |||
| Contingent purchase consideration | 1,057,785 | |||
| Eliminate equity of CHM | (190,484 | ) | ||
| Total | $ | 1,282,976 |
The aggregate value of the consideration paid by HealthLynked to complete the acquisition was allocated to the assets acquired and liabilities assumed from CHM based upon their estimated fair values on the closing date of the acquisition. HealthLynked has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from CHM and the related allocations of purchase price. Accordingly, such excess is presented as “Goodwill and other intangible assets” on the accompanying unaudited pro forma consolidated balance sheets.
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| (3) | The pro forma adjustment to convertible notes payable reflects the issue date fair value of a convertible note that financed in part the cash portion of the acquisition price paid at closing (the “Note”), comprised of $128,000 face value net of a $3,000 cash discount and a $36,018 discounts for the fair value of a beneficial conversion features. |
| (4) | The pro forma adjustments to contingent acquisition consideration reflects the fair value of future purchase price consideration that can be earned by the selling shareholders based on achievement of specified milestones in the underlying CHM business as follows: (i) up to $223,500 additional cash payable at the time CHM receives the final assessment of the calculation of Medicare Shared Savings Plan (“MSSP”) savings for the current year (estimated to be by September 2020), with this amount prorated based on a target MSSP payment (plus other ancillary revenue) of $1,725,000; (ii) up to $660,000 additional shares of HealthLynked common stock prorated against a target MSSP payment of $1,725,000; (iii) earn-out payments up to a total of $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, with $62,500 available in year one following the closing and $125,000 available in years 2-4, weighted each year 50% on revenue goal and 50% on profit goal. |
| (5) | The pro forma adjustment to derivative financial instrument is to record the beneficial conversion feature of the Note as if it had had been issued as of the balance sheet date. The convertible note contained an embedded conversion feature (“ECF”) that qualified for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The inception date fair value of the ECF was $36,018. |
| (6) | The pro forma adjustment to common stock reflects the $0.0001 par value of the 2,240,838 shares issued at closing. |
| (7) | The pro forma adjustment to additional paid-in capital reflects the following: |
| Number of shares | 2,240,838 | |||
| Average of high and low trading prices on closing date (May 18, 2020) | $ | 0.090 | ||
| Fair value of shares | $ | 201,675 | ||
| Less: portion of stock consideration allocated to common stock | $ | (224 | ) | |
| Portion of stock consideration allocated to additional paid-in capital | $ | 201,451 |
| (8) | The pro forma adjustments to retained earnings is to eliminate the retained earnings of CHM. |
Adjustments to the pro forma consolidated statement of operations
| (1) | No pro forma adjustment is recorded to reflect the amortization of purchased intangibles, comprised of ACO Physician Contracts and Goodwill, because HealthLynked these intangible assets to have an indefinite life. |
| (2) | Pro forma adjustments reflect pro forma amortization of original issue and debt discounts and accrued interest on the Note for the periods presented. |
| (3) | The pro forma adjustments to weighted average common shares reflects 2,240,838 shares issued as consideration at closing of the acquisition of CHM as if the acquisition had occurred at the beginning of the period presented |
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