NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
1 - BUSINESS AND BUSINESS PRESENTATION
HealthLynked
Corp. (the “Company”) was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed
Amended and Restated Articles of Incorporation with the Secretary of State of Nevada setting the total number of authorized shares at
250,000,000 shares, which included up to 230,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred
stock. On February 5, 2018, the Company filed an Amendment to its Amended and Restated Articles of Incorporation with the Secretary of
State of Nevada to increase the number of authorized shares of common stock to 500,000,000 shares.
We
currently operate in four distinct divisions: the Health Services Division, the Digital Healthcare Division, the ACO/MSO (Accountable
Care Organization / Managed Service Organization) Division, and the Medical Distribution Division. The Health Services division is comprised
of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics
and Gynecology) and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice
engaged in improving the health of its patients through individualized and integrative health care, 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 Digital Healthcare division develops and operates
an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients and
doctors to keep track of medical information via the Internet in a cloud-based system. The ACO/MSO Division is comprised of the operations
of Cura Health Management LLC (“CHM”) and its subsidiary ACO Health Partners LLC (“AHP”), which were acquired
by the Company on May 18, 2020. CHM and AHP operate an Accountable Care Organization (“ACO”) and Managed Service Organization
(“MSO”) that assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared
Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which
rewards providers for efficiency in patient care. The Medical Distribution Division is comprised of the operations of MedOffice Direct
LLC (“MOD”), a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout
the United States 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, 2021 and 2020, respectively, which are included in the Company’s Form 10-K,
filed with the United States Securities and Exchange Commission on March 31, 2022. The Company assumes that the users of the interim
financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and
that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations
for the three months ended March 31, 2022 are not necessarily indicative of results for the entire year ending December 31, 2022.
On
a consolidated basis, the Company’s operations are comprised of the parent company, HealthLynked Corp., and its 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 condensed consolidated financial statements have been prepared in conformity with GAAP.
All
amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use
of Estimates
The
preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates. Significant estimates include assumptions about fair valuation of
acquired intangible assets, cash flow and fair value assumptions associated with measurements of contingent acquisition
consideration and impairment of intangible assets and goodwill, valuation of inventory, collection of accounts receivable, the
valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, borrowing rate
consideration for right-of-use (“ROU”) lease assets including related lease liability and useful life of fixed
assets.
Revenue
Recognition
Patient
service revenue
Patient
service revenue is 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. |
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Laws
and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As
a result of investigations by governmental agencies, various health care organizations have received requests for information and notices
regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into
significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation
as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be
no assurance that regulatory authorities will not challenge the Company’s compliance with these laws and regulations, and it is
not possible to determine the impact, if any, such claims or penalties would have upon the Company. In addition, the contracts the Company
has with commercial payors also provide for retroactive audit and review of claims.
Settlements
with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and
are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based
on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity,
including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will
not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted
in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations.
The
Company also provides services to uninsured patients, and offers those uninsured patients a discount, either by policy or law, from standard
charges. The Company estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based
on historical experience and current market conditions. The initial estimate of the transaction price is determined by reducing the standard
charge by any contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction
price are generally recorded as adjustments to patient service revenue in the period of the change. Patient services provided by NCFM
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 $22,461 and $42,530 as of March 31, 2022 and December 31, 2021, respectively.
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. Based on the ACO
operating agreements, the Company bears all costs of the ACO operations until revenue is recognized. At that point, the Company shares
in up to 100% of the revenue to recover its costs incurred. Because of the timing of recognition of Medicare shared savings revenue,
no Medicare shared savings revenue was recognized in the three months ended March 31, 2022 and 2021.
Consulting
and Event Revenue
Also
pursuant to ASC 606, the Company recognizes service revenue as services are provided, with any unearned but paid amounts recorded as
a contract liability at each balance sheet date. Contract liabilities related to consulting revenue were $-0- and $25,000 as of March
31, 2022 and December 31, 2021, respectively. Event revenue, comprised of admission fees for summit events, is recognized when an event
is held.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(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 $10,887 and $5,308 as of March 31, 2022 and December 31, 2021, respectively. There
were no contract assets as of March 31, 2022 or December 31, 2021.
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 $9,526 and $14,834 and as of March 31, 2022 and December 31, 2021, respectively.
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 $33,348 and $72,838 as of
March 31, 2022 and December 31, 2021, 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. Because of the timing of recognition of Medicare
shared savings revenue, there was no Medicare shared savings revenue or related provider shared savings expense recognized in the three
months ended March 31, 2022 and 2021.
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 $250,000. As of March 31, 2022 and December 31, 2021, the Company had $1,666,580 and $2,957,040 in excess of the FDIC insured limit,
respectively.
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
48% of total billings. Trade accounts receivable are recorded at this net amount. As of March 31, 2022 and December 31, 2021, the Company’s
gross patient services accounts receivable were $174,493 and $193,363, respectively, and net patient services accounts receivable were
$76,890 and $86,287, respectively, based upon net reporting of accounts receivable. As of March 31, 2022 and December 31, 2021, the Company’s
allowance of doubtful accounts was $13,972 and $13,972, respectively.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(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 7 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 months ended March 31, 2022 and 2021.
Concentrations
of Credit Risk
The
Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. There are
no patients/customers that represent 10% or more of the Company’s revenue or accounts receivable. Generally, the Company’s
cash and cash equivalents are in checking accounts. The Company relies on a sole supplier for the fulfillment of all of its product sales
made through MOD.
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 5 to 7 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(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.
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.
HEALTHLYNKED
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NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
Company utilizes a binomial lattice option pricing model to estimate the fair value of options, warrants, beneficial conversion features
and other Level 3 financial assets and liabilities. The Company believes that the binomial lattice model results in the best estimate
of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility,
and risk-free interest-rate) necessary to fairly value these instruments and, unlike less sophisticated models like the Black-Scholes
model, it also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would
likely consider in negotiating the transfer of such an instruments.
Stock-Based
Compensation
The
Company accounts for stock-based compensation to employees and nonemployees under ASC 718 “Compensation – Stock Compensation”
using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an
entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments
or that may be settled by the issuance of those equity instruments. The Company uses a binomial lattice pricing model to estimate the
fair value of options and warrants granted.
Income
Taxes
The
Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision
for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income
tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period.
If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized,
a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities
to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.
No income tax has been provided for the three months ended March 31, 2022 and 2021, since the Company has sustained a loss for both periods.
Due to the uncertainty of the utilization and recoverability of the loss carry-forwards and other deferred tax assets, management has
determined a full valuation allowance for the deferred tax assets, since it is more likely than not that the deferred tax assets will
not be realizable.
Recurring
Fair Value Measurements
The
carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The
carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable,
short-term borrowings, accounts payable, accrued liabilities, and derivative financial instruments approximated their fair value.
Deemed
Dividend
The
Company incurs a deemed dividend on Series B Convertible Preferred Voting Stock (the “Series B Preferred”). As the intrinsic
price per share of the Series B Preferred was less than the deemed fair value of the Company’s common stock on the date of issuance
of the Series B Preferred, the Series B Preferred contains a beneficial conversion feature as described in FASB ASC 470-20, “Debt
with Conversion and Other Options.” The difference in the stated conversion price and estimated fair value of the common stock
is accounted for as a beneficial conversion feature and affects income or loss available to common stockholders for purposes of earnings
per share available to common stockholders. The Company incurs further deemed dividends on certain of its warrants containing a down
round provision equal to the difference in fair value of the warrants before and after the triggering of the down round adjustment.
HEALTHLYNKED
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TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 months ended March 31, 2022 and 2021, the Company reported a net loss and excluded all
outstanding stock options, warrants and other dilutive securities from the calculation of diluted net loss per common share because inclusion
of these securities would have been anti-dilutive. As of March 31, 2022 and December 31, 2021, potentially dilutive securities were comprised
of (i) 59,366,992 and 59,796,992 warrants outstanding, respectively, (ii) 3,306,250 and 3,456,250 stock options outstanding, respectively,
(iii) 232,036 and 302,050 unissued shares subject to future vesting requirements granted pursuant to the Company’s Employee Incentive
Plan, and (iv) up to 13,750,000 and 13,750,000 shares of common stock issuable upon conversion of Series B Preferred.
Common
stock awards
The
Company grants common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards
using the fair value of the services provided or the fair value of the awards granted, whichever is more reliably measurable. The fair
value measurement date of these awards is generally the date the performance of services is complete. The fair value of the awards is
recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement
of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged
to the same account as if such settlements had been made in cash. From time to time, the Company also issues stock awards settleable
in a variable number of common shares. Such awards are classified as liabilities until such time as the number of shares underlying the
grant is determinable.
Warrants
In
connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its
common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are
classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes pricing model as of the measurement
date. The Company uses a binomial lattice pricing model to estimate the fair value of compensation options and warrants. Warrants issued
in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of
the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period, or at the date of
issuance, if there is not a service period. Certain of the Company’s warrants include a so-called down round provision. The Company
accounts for such provisions pursuant to ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives
and Hedging, which calls for the recognition of a deemed dividend in the amount of the incremental fair value of the warrant due
to the down round when triggered, warrants granted in connection with ongoing arrangements are more fully described in Note 13, Shareholders’
Equity.
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).
HEALTHLYNKED
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NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently
Issued Accounting Pronouncements
In
March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”: The amendments in this update
are to clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2020-03 are not expected
to have a significant effect on current accounting practices. The ASU improves various financial instrument topics in the Codification
to increase stakeholder awareness of the amendments and to expedite the improvement process by making the Codification easier to understand
and easier to apply by eliminating inconsistencies and providing clarifications. The ASU is effective for smaller reporting companies
for fiscal years beginning after December 15, 2022 with early application permitted. The Company is currently evaluating the impact the
adoption of this guidance may have on its consolidated financial statements.
In
August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40) related to the measurement and disclosure requirements for convertible instruments
and contracts in an entity’s own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement
of convertible instruments and the settlement assessment for contracts in an entity’s own equity. This pronouncement is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021 and early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company
is currently evaluating the impact that this standard will have on its consolidated financial statements.
In
October 2021, the FASB issued guidance which requires companies to apply Topic 606, Revenue from Contracts with Customers, to
recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. Public
entities must adopt the new guidance for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years,
with early adoption permitted. The Company is currently evaluating the impact and timing of adoption of this guidance.
Recently
Adopted Pronouncements
In
December 2019, the FASB issued ASU 2019-12 Simplifying the Accounting for Income Taxes, which eliminates the need for an organization
to analyze whether the following apply in a given period: (1) exception to the incremental approach for intra-period tax allocation;
(2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim
period income tax accounting for year-to-date losses that exceed anticipated losses. ASU No. 2019-12 is effective for fiscal years beginning
after December 15, 2020, and interim periods within those fiscal years. The Company adopted this standard in the year ended December
31, 2021. The adoption did not have a material effect on the Company’s consolidated financial statements.
In
May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications
and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding
equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and,
if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04
is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption
is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this standard will have on
its consolidated financial statements. The Company adopted this standard for the year ended December 31, 2022. The adoption did not have
a material effect on the Company’s consolidated financial statements.
No
other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact
on our consolidated Financial Statements.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
3 – LIQUIDITY AND GOING CONCERN ANALYSIS
Liquidity
and Going Concern
During
the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on
management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going
concern and about related footnote disclosures. Under this standard, the Company is required to evaluate whether there is substantial
doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s
ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about the
Company’s ability to continue as a going concern within 12 months after the Company’s financial statements were issued (May
16, 2022). Management considered the Company’s current financial condition and liquidity sources, including current funds available,
forecasted future cash flows and the Company’s obligations due before May 16, 2023.
The
Company is subject to a number of risks, including uncertainty related to product development and generation of revenues and positive
cash flow from its Digital Healthcare division and a dependence on outside sources of capital. The attainment of profitable operations
is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities
and generating a level of revenues adequate to support the Company’s cost structure.
The
Company has experienced net losses and cash outflows from operating activities since inception. As of March 31, 2022, the Company had
cash balances of $1,926,714, working capital of $503,527 and an accumulated deficit of $33,373,312. For the three months ended March
31, 2022, the Company had a net loss of $1,168,123, net cash used by operating activities of $1,342,918, and no cash provided by financing
activities. The Company expects to continue to incur net losses and have significant cash outflows for at least the next 12 months.
Management
has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and
concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the
date the condensed consolidated financial statements were issued.
On
April 20, 2021, the Company filed a shelf registration statement on form S-3 that was declared effective by the Securities and Exchange
Commission on April 26, 2021 (the “Shelf Registration”). The Shelf Registration registered for resale up to $50,000,000 of
the Company’s common stock. During August 2021, the Company 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 pursuant to the Shelf Registration, generating
gross proceeds of $2,000,000. The Company may still make sales of common stock up to an additional $48,000,000 under the Shelf Registration.
Management intends to alleviate the conditions described above by raising additional capital from the Shelf Registration. However, there
is no assurance that management’s plans will be successful. The Company’s ability to obtain additional financing in the debt
and equity capital markets is subject to several factors, including market and economic conditions, the Company’s performance and
investor sentiment with respect to the Company and its industry.
Without
raising additional capital, either via the Shelf Registration or from other sources, there is substantial doubt about the Company’s
ability to continue as a going concern through May 16, 2023. The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. This basis of presentation contemplates the recovery of the Company’s
assets and the satisfaction of liabilities in the normal course of business.
COVID-19
A
novel strain of coronavirus, COVID-19, that was first identified in China in December 2019, has surfaced in several regions across the
world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. In March 2020, the World Health Organization
declared the outbreak of COVID-19 a pandemic. The outbreak of the pandemic is materially adversely affecting the Company’s employees,
patients, communities and business operations, as well as the U.S. economy and financial markets. The further spread of COVID-19, and
the requirement to take action to limit the spread of the illness, may impact our ability to carry out our business as usual and may
materially adversely impact global economic conditions, 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.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
4 – PREPAID EXPENSES AND OTHER
Prepaid and
other expenses as of March 31, 2022 and December 31, 2021 were as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Insurance prepayments | |
$ | 17,733 | | |
$ | 25,020 | |
Other expense prepayments | |
| 31,837 | | |
| 50,860 | |
Rent deposits | |
| 49,125 | | |
| 49,125 | |
Deferred equity compensation | |
| 117,188 | | |
| 151,250 | |
Total prepaid expenses and other | |
| 215,883 | | |
| 276,255 | |
Less: long term portion | |
| (130,188 | ) | |
| (138,625 | ) |
Prepaid expenses and other, current portion | |
$ | 85,695 | | |
$ | 137,630 | |
Deferred
equity compensation reflects common stock grants made in 2021 from the Company’s 2021 Equity Incentive Plan that vest over a four-year
period and that are settleable for a fixed dollar amount rather than a fixed number of shares. The original grant date fair value of
the equity compensation was $165,000. Amortization in the three months ended March 31, 2022 and 2021 was $9,063 and $-0-, respectively.
At inception, the Company recorded a corresponding liability captioned “Liability-classified equity instruments.”
NOTE
5 – PROPERTY, PLANT, AND EQUIPMENT
Property,
plant and equipment as of March 31, 2022 and December 31, 2021 were as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Medical equipment | |
$ | 493,854 | | |
$ | 484,126 | |
Furniture, office equipment and leasehold improvements | |
| 162,154 | | |
| 149,868 | |
| |
| | | |
| | |
Total property, plant and equipment | |
| 656,008 | | |
| 633,994 | |
Less: accumulated depreciation | |
| (308,480 | ) | |
| (283,512 | ) |
| |
| | | |
| | |
Property, plant and equipment, net | |
$ | 347,528 | | |
$ | 350,482 | |
Depreciation
expense during the three months ended March 31, 2022 and 2021 was $24,969 and $26,896, respectively.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
6 – INTANGIBLE ASSETS AND GOODWILL
Intangible
assets as of March 31, 2022 and December 31, 2021 were as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
NCFM: Medical database | |
$ | 1,101,538 | | |
$ | 1,101,538 | |
NCFM: Website | |
| 41,000 | | |
| 41,000 | |
CHM: ACO physician contracts | |
| 1,073,000 | | |
| 1,073,000 | |
MOD: Website | |
| 3,538,000 | | |
| 3,538,000 | |
| |
| | | |
| | |
Total intangible assets | |
| 5,753,538 | | |
| 5,753,538 | |
Less: accumulated amortization | |
| (1,052,338 | ) | |
| (873,417 | ) |
| |
| | | |
| | |
Intangible assets, net | |
$ | 4,701,200 | | |
$ | 4,880,121 | |
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 five years. The CHM ACO physician contracts are assumed to have an indefinite life and are not amortized. The MOD website
is being amortized on a straight-line basis over its estimated useful life of five years.
Goodwill
represents the excess of consideration transferred over the fair value of the net identifiable assets acquired related to the acquisition
of CHM and MOD and amounts to $1,148,105 as of March 31, 2022 and December 31, 2021.
Amortization
expense in the three months ended March 31, 2022 and 2021 was $178,921 and $184,762, respectively. No impairment charges were recognized
related to goodwill and intangible assets in the three months ended March 31, 2022 and 2021.
NOTE
7 – LEASES
The
Company has separate operating leases for office space related to its NWC, NCFM and BTG practices, two separate leases relating to its
corporate headquarters, and a copier lease that expire in July 2023, May 2022, March 2023, November 2023, November 2023 and January 2027,
respectively. As of March 31, 2022, the Company’s weighted-average remaining lease term relating to its operating leases was 1.9
years, with a weighted-average discount rate of 18.39%.
The
table below summarizes the Company’s lease-related assets and liabilities as of March 31, 2022 and December 31, 2021:
| |
March
31, | | |
December 31, | |
| |
2022 | | |
2021 | |
Lease
assets | |
$ | 499,144 | | |
$ | 526,730 | |
| |
| | | |
| | |
Lease liabilities | |
| | | |
| | |
Lease
liabilities (short term) | |
$ | 294,442 | | |
$ | 288,966 | |
Lease
liabilities (long term) | |
| 204,762 | | |
| 239,225 | |
Total
lease liabilities | |
$ | 499,204 | | |
$ | 528,191 | |
Lease
expense was $101,394 and $65,511 in the three months ended March 31, 2022 and 2021, respectively.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
7 – LEASES (CONTINUED)
Maturities
of operating lease liabilities were as follows as of March 31, 2022:
2022 (April to December) | |
$ | 284,905 | |
2023 | |
| 285,721 | |
2024 | |
| 11,877 | |
2025 | |
| 11,877 | |
2026 | |
| 11,877 | |
2027 | |
| 990 | |
Total lease payments | |
| 607,247 | |
Less interest | |
| (108,043 | ) |
Present value of lease liabilities | |
$ | 499,204 | |
NOTE 8
– ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Amounts
related to accounts payable and accrued expenses as of March 31, 2022 and December 31, 2021 were as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Trade accounts payable | |
$ | 356,832 | | |
$ | 306,220 | |
Accrued payroll liabilities | |
| 66,282 | | |
| 172,500 | |
Accrued operating expenses | |
| 286,345 | | |
| 265,411 | |
Accrued interest | |
| 50,931 | | |
| 46,712 | |
| |
$ | 760,390 | | |
$ | 790,843 | |
NOTE 9
– CONTRACT LIABILITIES
Amounts
related to contract liabilities as of March 31, 2022 and December 31, 2021 were as follows:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Patient services paid but not provided | |
$ | 22,461 | | |
$ | 42,530 | |
Consulting services paid but not provided | |
| — | | |
| 25,000 | |
Unshipped products | |
| 10,887 | | |
| 5,308 | |
| |
$ | 33,348 | | |
$ | 72,838 | |
Contract
liabilities relate to contracted consulting services at CHM for which payment has been made but services have not yet been rendered as
of the measurement date, physical therapy services purchased as a prepaid bundle for which services have not yet been provided, and MOD
products that have been ordered and paid for by the customer, but which have not been shipped as of the measurement date. The Company
typically satisfies its performance obligations related to such contracts 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 March 31, 2022 and December 31, 2021 were comprised of deferred compensation payable to the Company’s
founder and CEO, Dr. Michael Dent, in the amount of $300,600.
During
the three months ended March 31, 2022 and 2021, the Company paid Dr. Dent’s spouse $22,308 and $33,462, respectively, in consulting
fees pursuant to a consulting agreement.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
11 – GOVERNMENT AND VENDOR NOTES PAYABLE
During
May and June 2020, the Company and certain of its subsidiaries received an aggregate of $621,069 in loans under the PPP. The Company
also acquired a PPP loan in the MOD acquisition with an inception date of April 3, 2020 and a face value of $11,757. The PPP loans, administered
by SBA, were issued under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. The loans bore interest
at 1% per annum and were scheduled to mature in May and June 2022. Principal and interest payments were deferred for the first nine months
of the loans. 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 entirety of the
PPP loans outstanding, comprised of $632,826 principal and $6,503 accrued interest, was forgiven in May 2021.
During
June, July and August 2020, the Company and its subsidiaries received an aggregate of $450,000 in Disaster Relief Loans from the SBA.
The loans bear interest at 3.75% per annum and mature 30 years from issuance. Mandatory principal and interest payments were originally
scheduled to begin 12 months from the inception date of each loan and were subsequently extended by the SBA until 30 months from the
inception date. Installment payments are now scheduled to begin in December 2022.
In
connection with the October 19, 2020 acquisition of MOD, the Company acquired a note payable to MOD’s primary product vendor with
a remaining principal balance of $79,002 as of the acquisition date and $51,109 as of December 31, 2020. The vendor note was paid in
full during the first quarter of 2021.
Interest
accrued on government and vendor notes payable as of March 31, 2022 and December 31, 2021 was $28,942 and $24,723, respectively. Interest
expense on the loans was $4,219 and $7,605 for the three months ended March 31, 2022 and 2021, respectively.
NOTE
12 – CONVERTIBLE NOTES PAYABLE
The Company
had no convertible notes payable as of March 31, 2022 or December 31, 2021.
On
January 6, 2021, the holder of the Company’s four remaining fixed rate convertible promissory notes with a face value of $1,038,500
– comprised of a $550,000 6% fixed convertible secured promissory note dated July 7, 2016 (the “$550k Note”), a $50,000
10% fixed convertible commitment fee promissory note dated July 7, 2016 (the “$50k Note”), $81,000 of principal remaining
on a $111,000 10% fixed convertible secured promissory note dated May 22, 2017 (the “$111k Note”), and a $357,500 10% fixed
convertible note dated April 15, 2019 (the “$357.5k Note” and together with the $550k Note, the $50k Note and the $111k Note,
the “Remaining Notes”) – agreed to extend the maturity date on the Remaining Notes to January 14, 2021. In exchange
for the extension, the Company agreed to extend the expiration date of 3,508,333 existing warrants held by the holder (the “Extended
Warrants”) from dates between July 2021 and March 2022 until March 2023. Because the fair value of consideration issued was greater
than 10% of the present value of the remaining cash flows under the modified Remaining Notes, the transaction was treated as a debt extinguishment
and reissuance of new debt instruments pursuant to the guidance of ASC 470-50. A loss on debt extinguishment was recorded in the amount
of $126,502 in the year ended December 31, 2021, equal to the incremental fair value of the Extended Warrants before and after the modification.
On
January 14, 2021, the Company and the holder of the Remaining Notes entered into a series of agreements pursuant to which (i) the holder
agreed to convert the full face value of $1,038,500 and $317,096 of accrued interest on the Remaining Notes into 13,538,494 shares of
common stock pursuant to the original conversion terms of the underlying notes, (ii) the holder agreed to a 180-day leak out provision,
whereby, from and after January 14, 2021, it may not sell in shares of the Company’s common stock in excess of 5% of the Company’s
daily trading volume for the first 90 days and 10% of the Company’s daily volume for the next 90 days, subject to certain exceptions,
(iii) the holder agreed to release all security interests and share reserves related to the Remaining Notes, and (iv) the Company issued
to the holder a new 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, the Company recognized a loss on debt extinguishment of $5,463,492 in the three months ended March 31, 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.
Prior
to conversion, the Remaining Notes were carried at fair value and revalued at each period end, with changes to fair value recorded to
the statement of operations under “Change in Fair Value of Debt.” The changes in fair value during the three months ended
March 31, 2022 and 2021 were $-0- and $19,246, respectively.
Interest
expense on convertible notes outstanding during the three months ended March 31, 2022 and 2021 was $-0- and $4,372, respectively.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
13 – SHAREHOLDERS’ EQUITY
Private
Placements
During
the three months ended March 31, 2021, the Company sold 11,787,766 shares of common stock in 46 separate private placement transactions.
The Company received $3,488,725 in proceeds from the sales. In connection with the stock sales, the Company also issued 5,893,889 five-year
warrants to purchase shares of common stock at exercise prices between $0.27 and $1.05 per share.
Investment
Agreement Draws
During
the three months ended March 31, 2021, the Company issued 3,006,098 common shares pursuant to draws made by the Company under the Investment
Agreement and received an aggregate of $900,636 in net proceeds from the draws.
Shares
issued to Consultants
During
the three months ended March 31, 2022 and 2021, the Company issued 5,250 and 475,000 common shares, respectively, to consultants for
services rendered. In connection with the issuances, the Company recognized expenses totaling $8,044 and $122,829 in the three months
ended March 31, 2022 and 2021, respectively.
Common
Stock Issuable
As
of March 31, 2022 and December 31, 2021, the Company was obligated to issue the following shares:
| |
March 31, 2022 | | |
December 31, 2020 | |
| |
Amount | | |
Shares | | |
Amount | | |
Shares | |
| |
| | |
| | |
| | |
| |
Shares issuable to consultants, employees and directors | |
$ | 318,040 | | |
| 938,191 | | |
| 282,347 | | |
| 719,366 | |
Stock
Warrants
Transactions
involving our stock warrants during the three months ended March 31, 2022 and 2021 are summarized as follows:
| |
2022 | | |
2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
| | |
Average | | |
| | |
Average | |
| |
| | |
Exercise | | |
| | |
Exercise | |
| |
Number | | |
Price | | |
Number | | |
Price | |
Outstanding at beginning of the period | |
| 59,796,992 | | |
$ | 0.25 | | |
| 51,352,986 | | |
$ | 0.14 | |
Granted during the period | |
| — | | |
$ | 0.00 | | |
| 19,585,790 | | |
$ | 0.34 | |
Exercised during the period | |
| — | | |
$ | 0.00 | | |
| (11,196,742 | ) | |
$ | (0.06 | ) |
Expired during the period | |
| (430,000 | ) | |
$ | (0.44 | ) | |
| — | | |
$ | — | |
Outstanding at end of the period | |
| 59,366,992 | | |
$ | 0.25 | | |
| 59,742,034 | | |
$ | 0.22 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at end of the period | |
| 59,366,992 | | |
$ | 0.25 | | |
| 59,742,034 | | |
$ | 0.22 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted
average remaining life | |
| 3.0 years | | |
| 3.7 years | |
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
13 – SHAREHOLDERS’ EQUITY (CONTINUED)
The
following table summarizes information about the Company’s stock warrants outstanding as of March 31, 2022:
Warrants Outstanding | | |
| Warrants Exercisable | |
|
| |
| | | |
Weighted- | |
| | | |
| | | |
| | |
|
| |
| | | |
Average | |
| Weighted- | | |
| | | |
| Weighted- | |
|
| |
| | | |
Remaining | |
| Average | | |
| | | |
| Average | |
|
Exercise | |
| Number | | |
Contractual | |
| Exercise | | |
| Number | | |
| Exercise | |
|
Prices | |
| Outstanding | | |
Life (years) | |
| Price | | |
| Exercisable | | |
| Price | |
$ |
0.0001 to 0.09 | |
| 14,789,573 | | |
2.8 | |
$ | 0.07 | | |
| 14,789,573 | | |
$ | 0.07 | |
$ |
0.10 to 0.24 | |
| 9,474,380 | | |
2.5 | |
$ | 0.17 | | |
| 9,474,380 | | |
$ | 0.17 | |
$ |
0.25 to 0.49 | |
| 31,486,448 | | |
3.1 | |
$ | 0.31 | | |
| 31,486,448 | | |
$ | 0.31 | |
$ |
0.50 to 1.05 | |
| 3,616,591 | | |
4.1 | |
$ | 0.69 | | |
| 3,616,591 | | |
$ | 0.69 | |
$ |
0.05 to 1.00 | |
| 59,366,992 | | |
3.0 | |
$ | 0.25 | | |
| 59,366,992 | | |
$ | 0.25 | |
During
the three months ended March 31, 2022 and 2021, the Company issued -0- and 19,585,790 warrants, respectively, the aggregate grant date
fair value of which was $-0- and $4,496,555, respectively. The fair value of the warrants was calculated using the following range of
assumptions:
|
|
2022 |
|
2021 |
Pricing
model utilized |
|
No
warrants issued |
|
Binomial Lattice |
Risk
free rate range |
|
No
warrants issued |
|
0.38% to 0.86% |
Expected
life range (in years) |
|
No
warrants issued |
|
3.00 to 5.00 years |
Volatility
range |
|
No
warrants issued |
|
170.58% to 193.21% |
Dividend
yield |
|
No
warrants issued |
|
0.00% |
There
were no warrants exercised during the three months ended March 31, 2022. During the three months ended March 31, 2021, the Company received
$62,500 upon the exercise of 625,000 warrants with an exercise price of $0.10. Additionally, the Company issued 9,047,332 shares upon
cashless exercise of 10,571,742 warrant shares exercised using a cashless exercise feature in settlement of litigation and other disputes
in amounts totaling $614,221 that had been accrued in 2020.
Employee
Equity Incentive Plans
On
January 1, 2016, the Company adopted the 2016 Employee Equity Incentive Plan (the “2016 EIP”) for the purpose of having equity
awards available to allow for equity participation by its employees. The 2016 EIP allowed for the issuance of up to 15,503,680 shares
of the Company’s common stock to employees, which may be issued in the form of stock options, stock appreciation rights, or common
shares. The 2016 EIP is governed by the Company’s board, or a committee that may be appointed by the board in the future. The 2016
EIP expired during 2021 but allows for the prospective issuance of shares of common stock subject to vesting of awards made prior to
expiration of the 2016 EIP.
On
September 9, 2021, the Company adopted the 2021 Employee Equity Incentive Plan (the “2021 EIP” and, together with the 2016
EIP, the “EIPs”) for the purpose of having equity awards available to allow for equity participation by its employees. The
2021 EIP allows for the issuance of up to 20,000,000 shares of the Company’s common stock to employees, which may be issued in
the form of stock options, stock appreciation rights, or common shares. The 2021 EIP is governed by the Company’s board, or a committee
that may be appointed by the board in the future.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
13 – SHAREHOLDERS’ EQUITY (CONTINUED)
Amounts
recognized in the financial statements with respect to the EIPs in the three months ended March 31, 2022 and 2021 were as follows:
| |
2022 | | |
2021 | |
Total cost of share-based payment
plans during the period | |
$ | 100,422 | | |
$ | 307,160 | |
Amounts capitalized in deferred equity compensation
during period | |
$ | — | | |
$ | — | |
Amounts charged against income for amounts
previously capitalized | |
$ | 8,438 | | |
$ | — | |
Amounts charged against income, before income
tax benefit | |
$ | 108,860 | | |
$ | 307,160 | |
Amount of related income tax benefit recognized
in income | |
$ | — | | |
$ | — | |
Stock
Options
Stock
options granted under the EIPs typically vest over a period of three to four years or based on achievement of Company and individual
performance goals. The following table summarizes stock option activity as of and for the three months ended March 31, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
| | |
Average | | |
| | |
Average | |
| |
| | |
Exercise | | |
| | |
Exercise | |
Stock
options | |
Number | | |
Price | | |
Number | | |
Price | |
Outstanding at beginning of period | |
| 3,456,250 | | |
$ | 0.23 | | |
| 3,111,750 | | |
$ | 0.20 | |
Granted during the period | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Exercised during the period | |
| (12,500 | ) | |
$ | (0.26 | ) | |
| (12,500 | ) | |
$ | (0.25 | ) |
Forfeited during the
period | |
| (137,500 | ) | |
$ | (0.35 | ) | |
| (32,500 | ) | |
$ | (0.16 | ) |
Outstanding at end of period | |
| 3,306,250 | | |
$ | 0.22 | | |
| 3,066,750 | | |
$ | 0.20 | |
| |
| | | |
| | | |
| | | |
| | |
Options exercisable at
period-end | |
| 2,535,000 | | |
$ | 0.20 | | |
| 2,276,750 | | |
$ | 0.17 | |
As
of March 31, 2022, there was $108,313 of total unrecognized compensation cost related to options granted under the EIPs. That cost is
expected to be recognized over a weighted-average period of 2.4 years.
The
total fair value of options vested during the three months ended March 31, 2022 and 2021 was $2,627 and $46,746, respectively. The aggregate
intrinsic value of share options exercised during the three months ended March 31, 2022 and 2021 was $388 and $9,725, respectively. During
the three months ended March 31, 2022, the Company issued 1,394 shares upon cashless exercise of 12,500 option shares exercised using
a cashless exercise feature. During the three months ended March 31, 2021, the Company received $3,150 upon the exercise of 12,500 options
with an exercise price of $0.252.
The
fair value of each stock option award is estimated on the date of grant using a binomial lattice option-pricing model based on the assumptions
noted in the following table. No options were granted during the three months ended March 31, 2022 and 2021. The Company’s accounting
policy is to estimate forfeitures in determining the amount of total compensation cost to record each period.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
13 – SHAREHOLDERS’ EQUITY (CONTINUED)
The
following table summarizes the status and activity of nonvested options issued pursuant to the EIPs as of and for the three months ended
March 31, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
| | |
Average | | |
| | |
Average | |
| |
| | |
Grant Date | | |
| | |
Grant Date | |
Stock
options | |
Shares | | |
Fair
Value | | |
Shares | | |
Fair
Value | |
Nonvested options at beginning
of period | |
| 858,750 | | |
$ | 0.23 | | |
| 1,044,375 | | |
$ | 0.21 | |
Granted | |
| — | | |
$ | — | | |
| — | | |
$ | — | |
Vested | |
| (12,500 | ) | |
$ | (0.21 | ) | |
| (225,000 | ) | |
$ | (0.21 | ) |
Forfeited | |
| (75,000 | ) | |
$ | (0.32 | ) | |
| (29,375 | ) | |
$ | (0.12 | ) |
Nonvested options at end
of period | |
| 771,250 | | |
$ | 0.22 | | |
| 790,000 | | |
$ | 0.22 | |
Stock
Grants
Stock
grant awards made under the EIPs typically vest either immediately or over a period of up to four years. The following table summarizes
stock grant activity as of and for the three months ended March 31, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
| | |
Average | | |
| | |
Average | |
| |
| | |
Grant Date | | |
| | |
Grant Date | |
Stock
Grants | |
Shares | | |
Fair
Value | | |
Shares | | |
Fair
Value | |
Nonvested grants at beginning of
period | |
| 302,050 | | |
$ | 0.07 | | |
| 200,000 | | |
$ | 0.17 | |
Granted | |
| 157,454 | | |
$ | 0.19 | | |
| 87,500 | | |
$ | 0.11 | |
Vested | |
| (122,514 | ) | |
$ | (0.12 | ) | |
| (87,500 | ) | |
$ | (0.12 | ) |
Forfeited | |
| (104,954 | ) | |
$ | (0.19 | ) | |
| — | | |
$ | — | |
Nonvested grants at end
of period | |
| 232,036 | | |
$ | 0.07 | | |
| 200,000 | | |
$ | 0.17 | |
As
of December 31, 2021, there was $33,618 of total unrecognized compensation cost related to stock grants made under the EIPs. That cost
is expected to be recognized over a weighted-average period of 0.2 years. The weighted-average grant-date fair value of share grants
made during the three months ended March 31, 2022 and 2021 was $0.19 per share and $0.11 per share, respectively. The aggregate fair
value of share grants that vested during the three months ended March 31, 2022 and 2021 was $15,138 and $10,810, respectively.
The
fair value of each stock grant is calculated using the closing sale price of the Company’s common stock on the date of grant using.
The Company’s accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each
period.
Liability-Classified
Equity Instruments
During
2021, the Company made certain stock grants from the 2021 EIP that vest over a four-year period and that are settleable for a fixed dollar
amount rather than a fixed number of shares. The original grant date fair value of the equity compensation was $165,000. The Company
recognized an asset captioned “Deferred equity compensation” and an offsetting liability captioned as a “Liability-classified
equity instrument.” During the three months ended March 31, 2022, the Company replaced certain variable share contracts with a
new fixed share compensation structure. As a result, the Company de-recognized $25,000 of deferred stock compensation and liability-classified
equity instruments. Amortization of the remaining deferred stock compensation assets in the three months ended March 31, 2022 and 2021
was $9,063 and $-0-, respectively. The liability will be converted to equity when shares are issued pursuant to prescribed vesting events.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
14 – CONTINGENT ACQUISITION CONSIDERATION
Contingent
acquisition consideration relates to future earn-out payments potentially payable related to the Company’s acquisitions of Hughes
Center for Functional Medicine (“HCFM”) in 2019 and CHM and MOD in 2020. The terms of the earn-outs related to each acquisition
require the Company to pay the former owners additional acquisition consideration for the achievement of prescribed revenue and/or earnings
targets for performance of the underlying business for up to four years after the respective acquisition date. Contingent acquisition
consideration for each entity is recorded at fair value using a probability-weighted discounted cash flow projection. The fair value
of the contingent acquisition consideration is remeasured at the end of each reporting period and changes are included in the statement
of operations under the caption “Change in fair value of contingent acquisition consideration.”
Contingent
acquisition consideration as of March 31, 2022 and December 31, 2021 was comprised of the following:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Fair value of HCFM contingent acquisition
consideration | |
$ | 176,263 | | |
$ | 172,124 | |
Fair value of CHM contingent acquisition consideration | |
| 270,152 | | |
| 276,529 | |
Fair value of MOD contingent
acquisition consideration | |
| 300,953 | | |
| 737,037 | |
Total contingent acquisition consideration | |
| 747,368 | | |
| 1,185,690 | |
Less: long term portion | |
| (429,611 | ) | |
| (782,224 | ) |
Contingent acquisition
consideration, current portion | |
$ | 317,757 | | |
$ | 403,466 | |
During
the three months ended March 31, 2022 and 2021, the Company recognized gains (losses) on the change in the fair value of contingent acquisition
consideration as follows:
| |
Three
Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Change in fair value of HCFM contingent
acquisition consideration | |
$ | (4,139 | ) | |
$ | (11,308 | ) |
Change in fair value of CHM contingent acquisition
consideration | |
| 6,376 | | |
| (33,252 | ) |
Change in fair value
of MOD contingent acquisition consideration | |
| 436,085 | | |
| (591,140 | ) |
| |
| | | |
| | |
| |
$ | 438,322 | | |
$ | (635,700 | ) |
Maturities
of contingent acquisition consideration were as follows as of March 31, 2022:
2022 (April to December) | |
$ | 317,756 | |
2023 | |
| 218,227 | |
2024 | |
| 211,385 | |
| |
$ | 747,368 | |
Hughes
Center for Functional Medicine Acquisition – April 2019
On
April 12, 2019, the Company acquired a 100% interest in 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 $500,000 in cash, issued
3,968,254 shares of the Company’s common stock and agreed to an earn-out provision of $500,000 that may be earned based on the
performance of NCFM in the years ended on the first, second and third anniversary dates of the acquisition closing. The total consideration
fair value represented a transaction fair value of $1,764,672. 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.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
14 – CONTINGENT ACQUISITION CONSIDERATION (CONTINUED)
Cura
Health Management LLC Acquisition – May 2020
On
May 18, 2020, the Company acquired a 100% interest in CHM and its wholly owned subsidiary AHP. CHM and AHP assist physician practices
in providing coordinated and more efficient care to patients via the MSSP. The Company accounted for the transaction as an acquisition
of a business pursuant to ASC 805. Following the acquisition, the business of CHM comprised the Company’s ACO/MSO Division. 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
terms of the earn out require the Company to pay the former owners of CHM (i) up to $223,500 additional cash and to $660,000 of additional
shares of Company common stock when CHM receives the final assessment of the calculation of 2019 plan year MSSP revenue (the “Current
Earnout”), and (ii) 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 “Future Earnout”). During September 2020, pursuant to a Second
Amendment to the Agreement and Plan of Merger (the “Second Amendment”) and in satisfaction of the Current Earnout, the Company
paid $90,389 cash, issued 1,835,625 shares of the Company’s common stock and agreed that the balance of the Current Earnout that
was not earned in 2020, being $124,043 cash and $366,300 in shares of Company common stock, would be deferred until the first future
earnout year in which MSSP revenue exceeds $1.725 million and revenue from other services exceeds $605,000 (the “Residual Earnout”).
During September 2021, the Company was notified of the amount of Medicare shared savings and received payment for plan year 2020 in the
amount of $2,419,312. Because the shared saving payment exceeded $1.725 million, the sellers were paid $124,043 cash and issued 806,828
shares of Company common stock with a value of $366,300 pursuant to the Residual Earnout. Following the payments, the Company had no
further obligations under the Residual Earnout. The Company also determined that the sellers did not earn any of the $62,500 year-one
Future Earnout related to the performance period May 19, 2020 to May 18, 2021.
MedOffice
Direct LLC Acquisition – October 2020
On
October 19, 2020, the Company acquired a 100% interest in MOD, a virtual distributor of discounted medical supplies selling to both consumers
and medical practices throughout the United States. With over 13,000 name brand medical products in over 150 different categories, MOD
leverages pricing discounts with a small unit-of-measure direct-to-consumer shipping model to make ordering medical supplies more convenient
and cost effective for its users. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805. Following
the acquisition, the business of MOD comprised the Company’s Medical Distribution Division. Under the terms of acquisition, the
Company paid the following consideration: (i) 19,045,563 shares of Company common stock issued at closing, (ii) partial satisfaction
of certain outstanding debt obligations of MOD in the amount of $703,200 in cash paid by the Company, and (iii) up to 10,004,749 restricted
shares of the Company’s common stock over a four-year period based on MOD achieving revenue targets in calendar years 2021 through
2024 of $1,500,000, $1,875,000, $2,344,000, and $2,930,000, respectively.
NOTE
15 – 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.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
15 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 through 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.
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 March 31, 2022:
2022 | |
$ | 284,905 | |
2023 | |
| 285,721 | |
2024 | |
| 11,877 | |
2025 | |
| 11,877 | |
2026 | |
| 11,877 | |
2027 | |
| 990 | |
Total lease payments | |
| 607,247 | |
Less interest | |
| (108,043 | ) |
Present value of lease
liabilities | |
$ | 499,204 | |
Employment/Consulting
Agreements
The
Company has employment agreements with certain of its physicians, nurse practitioners and physical therapists in the Health Services
division. The agreements generally call for a fixed salary at the beginning of the contract with a transaction to performance-based pay
later in the contract.
On
July 1, 2016, the Company entered into an employment agreement with Dr. Michael Dent, Chief Executive Officer and a member of the Board
of Directors. Dr. Dent’s employment agreement continues until terminated by Dr. Dent or the Company. If Dr. Dent’s employment
is terminated by the Company (unless such termination is “For Cause” as defined in his employment agreement), then upon signing
a general waiver and release, Dr. Dent will be entitled to severance in an amount equal to 12 months of his then-current annual base
salary, as well as the pro-rata portion of any bonus that would be due and payable to him. In the event that Dr. Dent terminates the
employment agreement, he shall be entitled to any accrued but unpaid salary and other benefits up to and including the date of termination,
and the pro-rata portion of any unvested time-based options up until the date of termination.
On
July 1, 2018, 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. 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 for a period of six months beginning on the date of termination. The agreement expires on June 30, 2022. In
addition to a base salary, the agreement provided Mr. O’Leary with certain performance-based cash bonuses, stock grants, and stock
option grants.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE
15 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
Litigation
From time to time, the Company may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business.
The Company is not aware of any such legal proceedings that will have, individually or in the aggregate, a material adverse effect on
its business, financial condition or operating results.
NOTE 16
– 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.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE 16
– SEGMENT REPORTING (CONTINUED)
Segment
information for the three months ended March 31, 2022 was as follows:
| |
Three
Months Ended March 31, 2022 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO
/ MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 1,375,685 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,375,685 | |
Medicare shared savings revenue | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Subscription, consulting and event revenue | |
| — | | |
| 6,624 | | |
| 77,594 | | |
| — | | |
| 84,218 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 146,969 | | |
| 146,969 | |
Total revenue | |
| 1,375,685 | | |
| 6,624 | | |
| 77,594 | | |
| 146,969 | | |
| 1,606,872 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 718,073 | | |
| — | | |
| — | | |
| — | | |
| 718,073 | |
Other practice operating expenses | |
| 562,651 | | |
| — | | |
| — | | |
| — | | |
| 562,651 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 227,729 | | |
| — | | |
| 227,729 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 160,811 | | |
| 160,811 | |
Selling, general and administrative expenses | |
| — | | |
| 1,264,876 | | |
| — | | |
| 70,264 | | |
| 1,335,140 | |
Depreciation and amortization | |
| 25,518 | | |
| 1,472 | | |
| — | | |
| 176,900 | | |
| 203,890 | |
Total Operating Expenses | |
| 1,306,242 | | |
| 1,266,348 | | |
| 227,729 | | |
| 407,975 | | |
| 3,208,294 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
$ | 69,443 | | |
$ | (1,259,724 | ) | |
$ | (150,135 | ) | |
$ | (261,006 | ) | |
$ | (1,601,422 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense (income) | |
$ | 2,812 | | |
$ | 2,211 | | |
$ | — | | |
$ | — | | |
$ | 5,023 | |
Change in fair value of contingent acquisition
consideration | |
$ | — | | |
$ | (438,322 | ) | |
$ | — | | |
$ | — | | |
$ | (438,322 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| March 31, 2022 | |
Identifiable assets | |
$ | 2,056,661 | | |
$ | 2,208,771 | | |
$ | 1,115,871 | | |
$ | 2,542,446 | | |
$ | 7,923,749 | |
Goodwill | |
$ | — | | |
$ | — | | |
$ | 381,856 | | |
$ | 766,249 | | |
$ | 1,148,105 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| December 31, 2021 | |
Identifiable assets | |
$ | 2,152,533 | | |
$ | 3,450,332 | | |
$ | 1,167,965 | | |
$ | 2,775,621 | | |
$ | 9,546,451 | |
Goodwill | |
$ | — | | |
$ | — | | |
$ | 381,856 | | |
$ | 766,249 | | |
$ | 1,148,105 | |
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE 16
– SEGMENT REPORTING (CONTINUED)
Segment
information for the three months ended March 31, 2021 was as follows:
| |
Three
Months Ended March 31, 2021 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO
/ MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 1,514,376 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,514,376 | |
Consulting and event revenue | |
| — | | |
| 11,113 | | |
| 76,542 | | |
| — | | |
| 87,655 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 182,663 | | |
| 182,663 | |
Total revenue | |
| 1,514,376 | | |
| 11,113 | | |
| 76,542 | | |
| 182,663 | | |
| 1,784,694 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 663,937 | | |
| — | | |
| — | | |
| — | | |
| 663,937 | |
Other practice operating expenses | |
| 730,784 | | |
| — | | |
| — | | |
| — | | |
| 730,784 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 211,507 | | |
| — | | |
| 211,507 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 168,596 | | |
| 168,596 | |
Selling, general and administrative expenses | |
| — | | |
| 1,305,320 | | |
| — | | |
| 60,817 | | |
| 1,366,137 | |
Depreciation and amortization | |
| 28,323 | | |
| 595 | | |
| 0 | | |
| 182,740 | | |
| 211,658 | |
Total Operating Expenses | |
| 1,423,044 | | |
| 1,305,915 | | |
| 211,507 | | |
| 412,153 | | |
| 3,352,619 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
$ | 91,332 | | |
$ | (1,294,802 | ) | |
$ | (134,965 | ) | |
$ | (229,490 | ) | |
$ | (1,567,925 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
$ | 4,197 | | |
$ | 6,282 | | |
$ | — | | |
$ | 109 | | |
$ | 10,588 | |
Loss on extinguishment of debt | |
$ | — | | |
$ | 5,589,994 | | |
$ | — | | |
$ | — | | |
$ | 5,589,994 | |
Change in fair value of debt | |
$ | — | | |
$ | 19,246 | | |
$ | — | | |
$ | — | | |
$ | 19,246 | |
Change in fair value of contingent acquisition
consideration | |
$ | — | | |
$ | 635,700 | | |
$ | — | | |
$ | — | | |
$ | 635,700 | |
| |
| |
| |
| March 31, 2021 |
Identifiable assets | |
$ | 2,411,744 | | |
$ | 3,043,929 | | |
$ | 1,128,491 | | |
$ | 3,287,628 | | |
$ | 9,871,792 | |
Goodwill | |
$ | — | | |
$ | — | | |
$ | 381,856 | | |
$ | 766,249 | | |
$ | 1,148,105 | |
The
Digital Healthcare made intercompany sales of $280 and $180 in the three months ended March 31, 2022 and 2021, respectively, related
to subscription revenue billed to and paid for by the Company’s physicians for access to the HealthLynked Network. The Medical
Distribution segment made intercompany sales of $13,533 and $-0- in the three months ended March 31, 2022 and 2021, respectively, related
to medical products sold to practices in the Company’s Health Services segment. Intercompany revenue and the related costs are
eliminated on consolidation.
NOTE 17
– FAIR VALUE OF FINANCIAL INSTRUMENTS
The
carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate
their respective fair values due to the short-term nature of such instruments. The Company measures certain financial instruments at
fair value on a recurring basis, including certain convertible notes payable and related party loans, which were extinguished and reissued
and are therefore subject to fair value measurement, derivative financial instruments arising from conversion features embedded in convertible
promissory notes for which the conversion rate was not fixed, and equity-class. All financial instruments carried at fair value fall
within Level 3 of the fair value hierarchy as their value is based on unobservable inputs. The Company evaluates its financial assets
and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them
for each reporting period. This determination requires significant judgments to be made.
HEALTHLYNKED
CORP.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2022
(UNAUDITED)
NOTE 17
– FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The
following table summarizes the conclusions reached regarding fair value measurements as of March 31, 2022 and December 31, 2021:
| |
As
of March 31, 2022 | | |
As
of December 31, 2021 | |
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | | |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Liability-classified
equity instruments | |
$ | — | | |
$ | — | | |
$ | 136,875 | | |
$ | 136,875 | | |
$ | — | | |
$ | — | | |
$ | 162,500 | | |
$ | 162,500 | |
Contingent
acquisition consideration | |
| — | | |
| — | | |
| 747,368 | | |
| 747,368 | | |
| — | | |
| — | | |
| 1,185,690 | | |
| 1,185,690 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | — | | |
$ | — | | |
$ | 884,243 | | |
$ | 884,243 | | |
$ | — | | |
$ | — | | |
$ | 1,348,190 | | |
$ | 1,348,190 | |
The
changes in Level 3 financial instruments that are measured at fair value on a recurring basis during the three months ended March 31,
2022 and 2021 were as follows:
| |
Three
Months Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Convertible notes payable | |
$ | — | | |
$ | (19,246 | ) |
Contingent acquisition
consideration | |
| 438,322 | | |
| (635,700 | ) |
| |
| | | |
| | |
Total | |
$ | 438,322 | | |
$ | (654,946 | ) |
NOTE 18 – SUBSEQUENT EVENTS
On May 13, 2022, the Company entered into an
agreement to acquire Aesthetic Enhancements Unlimited (“AEU”), a patient service facility specializing in minimally and
non-invasive cosmetic services including fat reduction, body sculpting, wrinkle reduction, hair removal, IV hydration, and feminine
rejuvenation. The purchase price includes $325,000 cash, 792,394 shares of Company common stock, and the assumption of up to $75,000
in liabilities. AEU will be incorporated into the Company’s Health Services segment. Closing is expected to be completed the week of May 16, 2022.