See the accompanying notes to these Unaudited Condensed
Consolidated Financial Statements
See the accompanying notes to these Unaudited Condensed
Consolidated Financial Statements
See the accompanying notes to these Unaudited Condensed
Consolidated Financial Statements
See the accompanying notes to these Unaudited Condensed
Consolidated Financial Statements
See the accompanying notes to these Unaudited Condensed
Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 1 - BUSINESS AND BUSINESS PRESENTATION
HealthLynked Corp. (the “Company”)
was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles of Incorporation
with the Secretary of State of Nevada setting the total number of authorized shares at 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, (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice
in Bonita Springs, FL that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without
pain medication or surgery, and (iv) Aesthetic Enhancements Unlimited (“AEU”), a patient service facility specializing in
minimally and non-invasive cosmetic services acquired by the Company in May 2022. The Digital Healthcare division develops and operates
an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients and doctors
to keep track of medical information via the Internet in a cloud-based system. The ACO/MSO Division is comprised of the operations of
Cura Health Management LLC (“CHM”) and its subsidiary ACO Health Partners LLC (“AHP”), which were acquired by
the Company on May 18, 2020. CHM and AHP operate an Accountable Care Organization (“ACO”) and Managed Service Organization
(“MSO”) that assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared
Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which
rewards providers for efficiency in patient care. The Medical Distribution Division is comprised of the operations of MedOffice Direct
LLC (“MOD”), a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout
the United States.
These unaudited condensed consolidated
financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are
necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance
with the accounting principles generally accepted in the United States of America (“GAAP”). These unaudited condensed
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes
thereto for the years ended December 31, 2021 and 2020, respectively, which are included in the Company’s Form 10-K, filed
with the United States Securities and Exchange Commission on June 30, 2022. The Company assumes that the users of the interim
financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period,
and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of
operations for the three and six months ended June 30, 2022 are not necessarily indicative of results for the entire year ending
December 31, 2022.
On a consolidated basis, the Company’s operations
are comprised of the parent company, HealthLynked Corp., and its seven subsidiaries: NWC, NCFM, BTG, CHM, AHP, MOD and AEU. All significant
intercompany transactions and balances have been eliminated upon consolidation. In addition, certain amounts in the prior periods’
consolidated financial statements have been reclassified to conform to the current period presentation.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies
applied in the presentation of the accompanying consolidated financial statements follows:
Basis of Presentation
The accompanying condensed consolidated financial
statements have been prepared in conformity with GAAP.
All amounts referred to in the notes to the consolidated
financial statements are in United States Dollars ($) unless stated otherwise.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Use of Estimates
The preparation of the condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and
the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Significant estimates include assumptions about fair valuation of acquired intangible assets, cash flow and fair value assumptions associated
with measurements of contingent acquisition consideration and impairment of intangible assets and goodwill, valuation of inventory, collection
of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets,
borrowing rate consideration for right-of-use (“ROU”) lease assets including related lease liability and useful life of fixed
assets.
Revenue Recognition
Patient service revenue
Patient service revenue is earned for GYN services
provided to patients at our NWC facility, functional medicine services provided to patients at our NCFM facility, and physical therapy
services provided to patients at our BTG facility. Patient service revenue is reported at the amount that reflects the consideration to
which the Company expects to be entitled in exchange for providing patient care. These amounts are due from patients and third-party payors
(including health insurers and government programs) and include variable consideration for retroactive revenue adjustments due to settlement
of audits, reviews, and investigations. Generally, the Company bills patients and third-party payors within days after the services are
performed and/or the patient is discharged from the facility. Revenue is recognized as performance obligations are satisfied.
Performance obligations are determined based on
the nature of the services provided by the Company. Revenue for performance obligations satisfied over time, which includes prepaid BTG
physical therapy bundles for which performance obligations are satisfied over time as visits are incurred, is recognized based on actual
charges incurred in relation to total expected charges. The Company believes that this method provides a faithful depiction of the transfer
of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Revenue for performance
obligations satisfied at a point in time, which includes all patient service revenue other than BTG physical therapy bundles, is recognized
when goods or services are provided at the time of the patient visit, and at which time the Company is not required to provide additional
goods or services to the patient.
The Company determines the transaction price based
on standard charges for goods and services provided, reduced by contractual adjustments provided to third-party payors, discounts provided
to uninsured patients in accordance with the Company’s policy, and/or implicit price concessions provided to uninsured patients.
Estimates of contractual adjustments and discounts require significant judgment and are based on the Company’s current contractual
agreements, its discount policies, and historical experience. The Company determines its estimate of implicit price concessions based
on its historical collection experience with this class of patients. There were no material changes during the years ended December 31,
2022 or 2021 to the judgments applied in determining the amount and timing of patient service revenue.
Agreements with third-party payors typically provide
for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:
| ● | Medicare:
Certain inpatient acute care services are paid at prospectively determined rates per
discharge based on clinical, diagnostic and other factors. Certain services are paid based
on cost-reimbursement methodologies subject to certain limits. Physician services are paid
based upon established fee schedules. Outpatient services are paid using prospectively determined
rates. |
| ● | Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates
per discharge, per occasion of service, or per covered member. |
| ● | Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations,
and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established
charges, and prospectively determined daily rates. |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Laws and regulations concerning government programs,
including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies,
various health care organizations have received requests for information and notices regarding alleged noncompliance with those laws and
regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with
such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action,
including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will
not challenge the Company’s compliance with these laws and regulations, and it is not possible to determine the impact, if any,
such claims or penalties would have upon the Company. In addition, the contracts the Company has with commercial payors also provide for
retroactive audit and review of claims.
Settlements with third-party payors for retroactive
adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the
estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with
the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that
it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known,
or as years are settled or are no longer subject to such audits, reviews, and investigations.
The Company also provides services to uninsured
patients, and offers those uninsured patients a discount, either by policy or law, from standard charges. The Company estimates the transaction
price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market
conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments,
discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments
to patient service revenue in the period of the change. Patient services provided by NCFM, BTG and AEU are provided on a cash basis and
not submitted through third party insurance providers. Contract liabilities related to prepaid BTG patient service revenue were $26,249
and $42,530 as of June 30, 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. Because of the timing of recognition of Medicare shared savings
revenue, no Medicare shared savings revenue was recognized in the three or six months ended June 30, 2022 or 2021.
Consulting and Event Revenue
Also pursuant to ASC 606, the Company recognizes
service revenue as services are provided, with any unearned but paid amounts recorded as a contract liability at each balance sheet date.
Contract liabilities related to consulting revenue were $-0- and $25,000 as of June 30, 2022 and December 31, 2021, respectively. Event
revenue, comprised of admission fees for summit events, is recognized when an event is held.
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 $11,387 and $5,308 as of June 30, 2022 and December 31, 2021, respectively. There were no contract assets as of June 30, 2022 or
December 31, 2021.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Sales are made inclusive of sales tax, where such
sales tax is applicable. Sales tax is applicable on sales made in the state of Florida, where the Company has physical nexus. The Company
has determined that it does not have economic nexus in any other states. The Company does not sell products outside of the United States.
The Company maintains a return policy that allows
customers to return a product within a specified period of time prior to and subsequent to the expiration date of the product. The Company
analyzes the need for a product return allowance at the end of each period based on eligible products. Product return allowance was $7,694
and $14,834 as of June 30, 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 $37,636 and $72,838 as of June 30, 2022 and December 31, 2021, respectively.
Provider shared savings expense
Provider shared savings expense represents the
ongoing operating expenses of the ACO and annual payments made to the ACO’s participating providers from shared savings revenue
payments received from CMS (the “Annual Provider Payment”). The pool of funds available for the Annual Provider Payment, as
well as the amounts paid to each individual participating provider from the pool, is determined by ACO management after an annual determination
of Medicare shared savings revenue is made by CMS. Expenses related to ongoing operation of the ACO may be deducted from the Medicare
shared savings revenue before determining the Annual Provider Payment. Such expenses are recognized in “Provider shared savings
expense” as incurred.
Expense related to the Annual Provider Payment
is recognized in the period in which the size of the Annual Provider Payment pool is determined, which typically corresponds to the period
in which the shared saving payment is received from CMS and shared savings revenue is recognized. This typically occurs in the second
half of the year following the completion of the program year. Because of the timing of recognition of Medicare shared savings revenue,
no expense related to Annual Provider Payment was recognized in the three or six months ended June 30, 2022 or 2021.
Cash and Cash Equivalents
For financial statement purposes, the Company
considers all highly liquid investments with original maturities of six months or less to be cash and cash equivalents. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2022 and December
31, 2021, the Company had $-0- 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 June 30, 2022 and December 31, 2021, the Company’s gross patient services accounts
receivable were $96,469 and $193,363, respectively, and net patient services accounts receivable were $46,305 and $86,287, respectively,
based upon net reporting of accounts receivable. As of June 30, 2022 and December 31, 2021, the Company’s allowance of doubtful
accounts was $-0- and $13,972, respectively.
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.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate. The
Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of
lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is
recognized on a straight-line basis over the lease term. See Note 8 for more complete details on balances as of the reporting periods
presented herein.
Inventory
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 and six months ended June 30, 2022 or 2021.
Concentrations of Credit Risk
The Company’s financial instruments that
are exposed to a concentration of credit risk are cash and accounts receivable. There are no patients/customers that represent 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 substantially 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.
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.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Convertible Notes
Convertible notes are regarded as compound instruments,
consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as
financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value
of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount
is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The
equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a
whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured.
After initial measurement, they are carried at amortized cost using the effective interest method. Convertible notes for which the maturity
date has been extended and that qualify for debt extinguishment treatment are recorded at fair value on the extinguishment date and then
revalued at the end of each reporting period, with the change recorded to the statement of operations under “Change in Fair Value
of Debt.”
Government Notes Payable
During 2020, the Company and certain of its subsidiaries
received loans under the Paycheck Protection Program (the “PPP”). The PPP loans, administered by the U.S. Small Business Administration
(the “SBA”), were issued under the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. Pursuant
to the terms of the PPP, principal amounts may be forgiven if loan proceeds are used for qualifying expenses as described in the CARES
Act, including costs such as payroll, benefits, employer payroll taxes, rent and utilities. The Company accounts for forgiveness of government
loans pursuant to FASB ASC 470, “Debt,” (“ASC 470”). Pursuant to ASC 470, loan forgiveness is recognized in earnings
as a gain on extinguishment of debt when the debt is legally released by the lender.
Fair Value of Assets and Liabilities
Fair value is the price that would be received
from the sale of an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market in an orderly
transaction between market participants. In determining fair value, the accounting standards have established a three-level hierarchy
that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting
entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs).
Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order
of priority of observability and objectivity of pricing inputs:
|
● |
Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities; |
|
● |
Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data; |
|
● |
Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability. |
The fair value measurement level for an asset
or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should
maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company utilizes a binomial lattice option
pricing model to estimate the fair value of options, warrants, beneficial conversion features and other Level 3 financial assets and liabilities.
The Company believes that the binomial lattice model results in the best estimate of fair value because it embodies all of the requisite
assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fairly value
these instruments and, unlike less sophisticated models like the Black-Scholes model, it also accommodates assumptions regarding investor
exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Stock-Based Compensation
The Company accounts for stock-based compensation
to employees and nonemployees under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under
this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period,
which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods
or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those
equity instruments. The Company uses a binomial lattice pricing model to estimate the fair value of options and warrants granted.
Income Taxes
The Company follows Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax
assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If
available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of
change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial
accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not
related to an asset or liability are classified as current or non-current depending on the periods in which the temporary
differences are expected to reverse and are considered immaterial. No income tax has been provided for the three and six months
ended June 30, 2022 and 2021, since the Company has sustained a loss for both periods. Due to the uncertainty of the utilization and
recoverability of the loss carry-forwards and other deferred tax assets, management has determined a full valuation allowance for
the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.
Recurring Fair Value Measurements
The carrying value of the Company’s financial
assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits,
money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable, accrued
liabilities, and derivative financial instruments approximated their fair value.
Deemed Dividend
The Company incurs a deemed dividend on Series
B Convertible Preferred Voting Stock (the “Series B Preferred”). As the intrinsic price per share of the Series B Preferred
was less than the deemed fair value of the Company’s common stock on the date of issuance of the Series B Preferred, the Series
B Preferred contains a beneficial conversion feature as described in FASB ASC 470-20, “Debt with Conversion and Other Options.”
The difference in the stated conversion price and estimated fair value of the common stock is accounted for as a beneficial conversion
feature and affects income or loss available to common stockholders for purposes of earnings per share available to common stockholders.
The Company incurs further deemed dividends on certain of its warrants containing a down round provision equal to the difference in fair
value of the warrants before and after the triggering of the down round adjustment.
Net Loss per Share
Basic net income (loss) per common share is computed
by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. During the three
and six months ended June 30, 2022 and 2021, the Company reported a net loss and excluded all outstanding stock options, warrants and
other dilutive securities from the calculation of diluted net loss per common share because inclusion of these securities would have been
anti-dilutive. As of June 30, 2022 and December 31, 2021, potentially dilutive securities were comprised of (i) 59,043,659 and 59,796,992
warrants outstanding, respectively, (ii) 3,949,250 and 3,456,250 stock options outstanding, respectively, (iii) 119,768 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.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Common stock awards
The Company grants common stock awards to non-employees
in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or
the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally
the date the performance of services is complete. The fair value of the awards is recognized on a straight-line basis as services are
rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded
on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been
made in cash. From time to time, the Company also issues stock awards settleable in a variable number of common shares. Such awards are
classified as liabilities until such time as the number of shares underlying the grant is determinable.
Warrants
In connection with certain
financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding
warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards.
The Company measures the fair value of the awards using the Black-Scholes pricing model as of the measurement date. The Company uses a
binomial lattice pricing model to estimate the fair value of compensation options and warrants. Warrants issued in conjunction with the
issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued.
All other warrants are recorded at fair value as expense over the requisite service period, or at the date of issuance, if there is not
a service period. Certain of the Company’s warrants include a so-called down round provision. The Company accounts for such provisions
pursuant to ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which calls
for the recognition of a deemed dividend in the amount of the incremental fair value of the warrant due to the down round when triggered.
Business Segments
The Company uses the “management approach”
to identify its reportable segments. The management approach designates the internal organization used by management for making operating
decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach,
the Company determined that it has four operating segments: Health Services (multi-specialty medical group including the NWC GYN practice,
the NCFM functional medicine practice, the BTG physical therapy practice, and the AEU cosmetic services practice), Digital Healthcare
(develops and markets the “HealthLynked Network,” an online personal medical information and record archive system), ACO/MSO
(comprised of the ACO/MSO business acquired with CHM in May 2020, which assists physician practices in providing coordinated and more
efficient care to patients via the MSSP), and Medical Distribution (comprised of the operations of MOD, a virtual distributor of discounted
medical supplies selling to both consumers and medical practices).
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-03, “Codification
Improvements to Financial Instruments”: The amendments in this update are to clarify, correct errors in, or make minor improvements
to a variety of ASC topics. The changes in ASU 2020-03 are not expected to have a significant effect on current accounting practices.
The ASU improves various financial instrument topics in the Codification to increase stakeholder awareness of the amendments and to expedite
the improvement process by making the Codification easier to understand and easier to apply by eliminating inconsistencies and providing
clarifications. The ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 with early application
permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.
In August 2020, the FASB
issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40) related to the measurement and disclosure requirements for convertible instruments
and contracts in an entity’s own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement
of convertible instruments and the settlement assessment for contracts in an entity’s own equity. This pronouncement is effective
for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021 and early adoption is permitted,
but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is
currently evaluating the impact that this standard will have on its consolidated financial statements.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In October 2021, the FASB issued guidance which
requires companies to apply Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract
liabilities from contracts with customers acquired in a business combination. Public entities must adopt the new guidance for fiscal years
beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company is currently
evaluating the impact and timing of adoption of this guidance.
Recently Adopted Pronouncements
In December 2019, the FASB issued ASU 2019-12
Simplifying the Accounting for Income Taxes, which eliminates the need for an organization to analyze whether the following apply
in a given period: (1) exception to the incremental approach for intra-period tax allocation; (2) exceptions to accounting for basis differences
when there are ownership changes in foreign investments; and (3) exceptions in interim period income tax accounting for year-to-date losses
that exceed anticipated losses. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within
those fiscal years. The Company adopted this standard in the year ended December 31, 2021. The adoption did not have a material effect
on the Company’s consolidated financial statements.
In May 2021, the Financial
Accounting Standards Board (“FASB”) issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments
(Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own
Equity (Subtopic 815-40). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of
freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.
The ASU provides guidance to clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified
written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related
earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. ASU 2021-04 is effective for
annual periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, including
adoption in an interim period. The Company is currently evaluating the impact that this standard will have on its consolidated financial
statements. The Company adopted this standard for the year ended December 31, 2022. The adoption did not have a material effect on the
Company’s consolidated financial statements.
No other new accounting
pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our consolidated
Financial Statements.
NOTE 3 – LIQUIDITY AND GOING CONCERN
ANALYSIS
Liquidity and Going Concern
During the second quarter of 2014, the FASB issued
ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether
there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under
this standard, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern
each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management
considered the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern
within 12 months after the Company’s financial statements were issued (August 15, 2022). Management considered the Company’s
current financial condition and liquidity sources, including current funds available, forecasted future cash flows and the Company’s
obligations due before August 15, 2023.
The Company is subject to a number of risks, including
uncertainty related to product development and generation of revenues and positive cash flow from its Digital Healthcare division and
a dependence on outside sources of capital. The attainment of profitable operations is dependent on future events, including obtaining
adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support
the Company’s cost structure.
The Company has experienced net losses and cash outflows from operating
activities since inception. As of June 30, 2022, the Company had cash balances of $251,118, a working capital deficit of $1,381,166 and
an accumulated deficit of $34,963,133. For the six months ended June 30, 2022, the Company had a net loss of $2,757,944, net cash used
by operating activities of $2,518,152, and $9,488 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.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 3 – LIQUIDITY AND GOING CONCERN
ANALYSIS (CONTINUED)
Management has evaluated the significance of the
conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding,
the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial
statements were issued.
On July 5, 2022, the Company entered into a Standby
Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”) (See Note 19 Subsequent Events below
for additional information). Pursuant to the SEPA, the Company shall have the right to sell to Yorkville up to 30,000,000 of its shares
of common stock, par value $0.0001 per share, at the Company’s request any time during the commitment period set forth in the SEPA.
The sale of common stock pursuant to the SEPA provides the Company with additional cash flow availability for operational purposes. Because
the purchase price per share to be paid by Yorkville for the shares of common stock sold by the Company to Yorkville pursuant to the SEPA,
if any, will fluctuate based on the market prices of the Company’s common stock during the applicable pricing period, the Company
cannot reliably predict the actual purchase price per share to be paid by Yorkville for those shares, or the actual gross proceeds to
be raised by the Company from those sales, if any.
On July 19, 2022, the Company issued to Yorkville
a promissory note with an initial principal amount equal to $550,000 (the “Promissory Note”) at a purchase price equal to
the principal amount of the Promissory Note less any original issue discounts and fees. The Promissory Note will mature on the six-month
anniversary of execution (See Note 19 Subsequent Events below for additional information).
Without raising additional capital, either via
Advances made pursuant to the SEPA or from other sources, there is substantial doubt about the Company’s ability to continue as
a going concern through August 15, 2023. The accompanying condensed consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. This basis of presentation contemplates the recovery of the Company’s assets and the
satisfaction of liabilities in the normal course of business.
COVID-19
A novel strain of coronavirus, COVID-19, that
was first identified in China in December 2019, has surfaced in several regions across the world and resulted in travel restrictions and
business slowdowns or shutdowns in affected areas. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic.
The outbreak of the pandemic is materially adversely affecting the Company’s employees, patients, communities and business operations,
as well as the U.S. economy and financial markets. The further spread of COVID-19, and the requirement to take action to limit the spread
of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions
and our business and financial condition, including our potential to conduct financings on terms acceptable to us, if at all. The extent
to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with
confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing
in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United
States and other countries to contain and treat the disease. In response to COVID-19, the Company implemented additional safety measures
in its patient services locations and its corporate headquarters.
NOTE 4 – ACQUISITION
On May 13, 2022, the Company acquired AEU, a patient
service facility specializing in minimally and non-invasive cosmetic services including fat reduction, body sculpting, wrinkle reduction,
hair removal, IV hydration, and feminine rejuvenation. The Company accounted for the transaction as an acquisition of a business pursuant
to ASC 805, “Business Combinations” (“ASC 805”). Following the acquisition, AEU was incorporated into the Company’s
Health Services segment.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 4 – ACQUISITION (CONTINUED)
Under the terms of acquisition, the Company paid
AEU equity holders consideration of (i) $125,000 cash (less $9,161 cash on hand at AEU as of the closing date), (ii) payment in cash of
direct financial obligation of AEU on, or in close proximity to, the date of the business combination, in the amount of $185,077, and
(iii) 792,394 shares of Company common stock at closing. The total consideration fair value represents a transaction value of $404,720.
The following table summarizes the fair value of consideration paid:
Cash consideration | |
$ | 125,000 | |
Payment of AEU debt obligations in cash | |
| 185,077 | |
Fair value of shares issued at closing | |
| 103,804 | |
Less cash received | |
| (9,161 | ) |
| |
| | |
Total Fair Value of Consideration Paid | |
$ | 404,720 | |
The fair value of the 792,394 common shares issued
as part of the acquisition consideration was determined using the average closing price of the Company’s common shares for the five
days preceding the acquisition date.
The following table summarizes the preliminary
estimated fair values of the identifiable assets acquired and liabilities assumed at the acquisition date:
Property, plant and equipment | |
$ | 152,759 | |
Right of use lease asset | |
| 80,264 | |
Accounts payable and accrued expenses | |
| (32,493 | ) |
Loans payable | |
| (41,037 | ) |
Amounts due to sellers | |
| (6,642 | ) |
Lease liability | |
| (80,264 | ) |
| |
| | |
Fair Value of Identifiable Assets Acquired and Liabilities Assumed | |
$ | 72,587 | |
Goodwill of $332,133 arising from the acquisition
consists of value associated with the legacy name. None of the goodwill recognized is expected to be deductible for income tax purposes.
The following table represents the pro forma consolidated
income statement as if AEU had been included in the consolidated results of the Company for the six months ended June 30, 2022 and 2021.
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Revenue | |
$ | 3,471,595 | | |
$ | 4,914,468 | |
Net loss | |
$ | (2,671,630 | ) | |
$ | (5,457,676 | ) |
These amounts have been calculated after applying
the Company’s accounting policies and adjusting the results of AEU to reflect the additional depreciation that would have been charged
assuming the fair value adjustments to property, plant and equipment had been applied on January 1, 2021.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 5 – PREPAID EXPENSES AND OTHER
Prepaid and other expenses as of June 30, 2022 and December 31, 2021
were as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Insurance prepayments | |
$ | 23,835 | | |
$ | 25,020 | |
Other expense prepayments | |
| 15,298 | | |
| 50,860 | |
Rent deposits | |
| 44,125 | | |
| 49,125 | |
Deferred equity compensation | |
| 108,125 | | |
| 151,250 | |
Total prepaid expenses and other | |
| 191,383 | | |
| 276,255 | |
Less: long term portion | |
| (116,750 | ) | |
| (138,625 | ) |
Prepaid expenses and other, current portion | |
$ | 74,633 | | |
$ | 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 was $9,062 and $-0-, respectively, in the three months ended June 30, 2022 and $18,125 and $-0-, respectively, in the six
months ended June 30, 2022 and 2021. At inception, the Company recorded a corresponding liability captioned “Liability-classified
equity instruments.”
NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment as of June 30, 2022 and December 31,
2021 were as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Medical equipment | |
$ | 493,854 | | |
$ | 484,126 | |
Furniture, office equipment and leasehold improvements | |
| 316,463 | | |
| 149,868 | |
| |
| | | |
| | |
Total property, plant and equipment | |
| 810,317 | | |
| 633,994 | |
Less: accumulated depreciation | |
| (338,448 | ) | |
| (283,512 | ) |
| |
| | | |
| | |
Property, plant and equipment, net | |
$ | 471,869 | | |
$ | 350,482 | |
Depreciation expense during the three months ended
June 30, 2022 and 2021 was $29,967 and $27,525, respectively. Depreciation expense during the six months ended June 30, 2022 and 2021
was $54,936 and $54,421, respectively.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 7 – INTANGIBLE ASSETS AND GOODWILL
Identifiable intangible assets as of June 30, 2022 and December 31,
2021 were as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
NCFM: Medical database | |
$ | 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 | |
| (1,231,283 | ) | |
| (873,417 | ) |
| |
| | | |
| | |
Intangible assets, net | |
$ | 4,522,255 | | |
$ | 4,880,121 | |
Goodwill as of June 30, 2022 and December 31, 2021 was as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
CHM | |
$ | 381,856 | | |
$ | 381,856 | |
MOD | |
| 766,249 | | |
| 766,249 | |
AEU | |
| 332,133 | | |
| — | |
| |
| | | |
| | |
Goodwill | |
$ | 1,480,238 | | |
$ | 1,148,105 | |
Goodwill and intangible assets arose from the
acquisitions of NCFM in April 2019, CHM in May 2020, MOD in October 2020, and AEU in May 2022. The NCFM medical database is assumed to
have an indefinite life and is not amortized and the website is being amortized on a straight-line basis over its estimated useful life
of 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 acquisitions of CHM, MOD, and AEU.
Amortization expense related to intangible assets
in the three months ended June 30, 2022 and 2021 was $178,945 and $178,944, respectively. Amortization expense in the six months ended
June 30, 2022 and 2021 was $357,866 and $363,706, respectively. No impairment charges were recognized related to goodwill and intangible
assets in the three and six months ended June 30, 2022 or 2021.
NOTE 8 – LEASES
The Company has separate operating leases for
office space related to its NWC, NCFM, BTG and AEU practices, two separate leases relating to its corporate headquarters, and a copier
lease that expire in July 2023, May 2025, March 2023, March 2026, November 2023, November 2023 and January 2027, respectively. As of June
30, 2022, the Company’s weighted-average remaining lease term relating to its operating leases was 2.3 years, with a weighted-average
discount rate of 12.10%.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 8 – LEASES (CONTINUED)
The table below summarizes the Company’s
lease-related assets and liabilities as of June 30, 2022 and December 31, 2021:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Lease assets | |
$ | 728,921 | | |
$ | 526,730 | |
| |
| | | |
| | |
Lease liabilities | |
| | | |
| | |
Lease liabilities (short term) | |
$ | 385,745 | | |
$ | 288,966 | |
Lease liabilities (long term) | |
| 345,236 | | |
| 239,225 | |
Total lease liabilities | |
$ | 730,981 | | |
$ | 528,191 | |
Lease expense was $105,514 and $76,855 in the
three months ended June 30, 2022 and 2021, respectively, and $206,908 and $142,366 in the six months ended June 30, 2022 and 2021, respectively.
Maturities of operating lease liabilities were
as follows as of June 30, 2022:
2022 (July to December) | |
$ | 238,231 | |
2023 | |
| 396,833 | |
2024 | |
| 126,116 | |
2025 | |
| 74,729 | |
2026 | |
| 18,148 | |
2027 | |
| 990 | |
Total lease payments | |
| 855,047 | |
Less interest | |
| (124,066 | ) |
Present value of lease liabilities | |
$ | 730,981 | |
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Amounts related to accounts payable and accrued
expenses as of June 30, 2022 and December 31, 2021 were as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Trade accounts payable | |
$ | 523,144 | | |
$ | 306,220 | |
Accrued payroll liabilities | |
| 128,899 | | |
| 172,500 | |
Accrued operating expenses | |
| 264,852 | | |
| 265,411 | |
Accrued interest | |
| 55,098 | | |
| 46,712 | |
Accrued settlement of litigation and other dispute | |
| — | | |
| — | |
| |
$ | 971,993 | | |
$ | 790,843 | |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 10 – CONTRACT LIABILITIES
Amounts related to contract liabilities as of
June 30, 2022 and December 31, 2021 were as follows:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Patient services paid but not provided | |
$ | 26,249 | | |
$ | 42,530 | |
Consulting services paid but not provided | |
| — | | |
| 25,000 | |
Unshipped products | |
| 11,387 | | |
| 5,308 | |
| |
$ | 37,636 | | |
$ | 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, for which payment is typically made prior to the goods or services being provided, upon completion of service or shipment
of product.
NOTE 11 – AMOUNTS DUE TO RELATED PARTY
AND RELATED PARTY TRANSACTIONS
Amounts due to related parties as of June 30,
2022 and December 31, 2021 were comprised of deferred compensation payable to the Company’s founder and CEO, Dr. Michael Dent, in
the amount of $300,600.
The Company paid consulting fees to Dr. Dent’s
spouse pursuant to a consulting agreement amounting to $39,038 and $44,808 in the three months ended June 30, 2022 and 2021, respectively,
and $61,346 and $78,269 in the six months ended June 30, 2022 and 2021, respectively.
NOTE 12 – GOVERNMENT AND OTHER 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. As a result of the forgiveness, the Company recognized a gain on extinguishment
of debt in the amount of $632,826 and interest income of $6,503 during the three and six months ended June 30, 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 June 30, 2022 and December 31, 2021 was $33,108 and $24,723, respectively. Interest expense on the loans was $4,166 and
$4,207 for the three months ended June 30, 2022 and 2021, respectively, and $8,385 and $8,368 for the six months ended June 30, 2022 and
2021, respectively.
In connection with the May 13, 2022 acquisition
of AEU, the Company acquired a bank note payable with a remaining principal balance of $9,689 and a note payable to AEU’s payment
service with a remaining principal balance of $31,348 as of the acquisition date and $9,177 and $31,348 as of June 30, 2022. The bank
note was paid in full during July 2022.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 13 – CONVERTIBLE NOTES PAYABLE
The Company had no convertible notes payable as of June 30, 2022 or
December 31, 2021.
On January 6, 2021, 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 six months ended June 30, 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 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 six months ended June 30, 2021, representing the excess of the fair value of the shares
and warrant issued at conversion over the carrying value of the host instrument and accrued interest.
Prior to conversion, the Remaining Notes were
carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change
in Fair Value of Debt.” The changes in fair value were $-0- in each of the three months ended June 30, 2022 and 2021 and were $-0-
and $19,246 during the six months ended June 30, 2022 and 2021, respectively.
Interest expense on convertible notes outstanding
were $-0- and $4,372 during the three and six months ended June 30, 2021, respectively. There was no interest on convertible notes during
the three and six months ended June 30, 2022.
NOTE 14 – SHAREHOLDERS’ EQUITY
Private Placements
On May 18, 2022, the Company sold 66,667 shares
of common stock for cash in a private placement transaction to an accredited investor. The Company received $10,000 in proceeds from the
sale. In connection with the stock sale, the Company also issued 33,334 five-year warrants to purchase shares of common stock at an exercise
price of $0.25 per share.
During the six months ended June 30, 2021, the
Company sold 12,161,943 shares of common stock in 52 separate private placement transactions. The Company received $3,748,725 in proceeds
from the sales. In connection with the stock sales, the Company also issued 6,081,527 five-year warrants to purchase shares of common
stock at exercise prices between $0.27 and $1.05 per share.
Prior Investment Agreement Draws
During the six months ended June 30, 2021, the
Company issued 3,006,098 common shares pursuant to draws made by the Company under the now-expired July 2016 $3 million investment agreement
and received an aggregate of $900,636 in net proceeds from the draws.
Shares issued to Consultants
During the six months ended June 30, 2022 and
2021, the Company issued 163,500 and 623,802 common shares, respectively, to consultants for services rendered. In connection with the
issuances, the Company recognized expenses totaling $32,105 and $131,828 in the six months ended June 30, 2022 and 2021, respectively.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY
(CONTINUED)
Common Stock Issuable
As of June 30, 2022 and December 31, 2021, the
Company was obligated to issue the following shares:
| |
June 30, 2022 | | |
December 31, 2020 | |
| |
Amount | | |
Shares | | |
Amount | | |
Shares | |
| |
| | | |
| | | |
| | | |
| | |
Shares issuable to consultants, employees and directors | |
$ | 345,042 | | |
| 1,207,472 | | |
$ | 282,347 | | |
| 719,366 | |
Stock Warrants
Transactions involving our stock warrants during
the six months ended June 30, 2022 and 2021 are summarized as follows:
| |
2022 | | |
2021 | |
| |
| | |
Weighted | | |
| | |
Weighted | |
| |
| | |
Average | | |
| | |
Average | |
| |
| | |
Exercise | | |
| | |
Exercise | |
| |
Number | | |
Price | | |
Number | | |
Price | |
Outstanding at beginning of the period | |
| 59,796,992 | | |
$ | 0.25 | | |
| 51,352,986 | | |
$ | 0.14 | |
Granted during the period | |
| 33,334 | | |
$ | 0.25 | | |
| 19,772,878 | | |
$ | 0.35 | |
Exercised during the period | |
| — | | |
$ | 0.00 | | |
| (13,046,742 | ) | |
$ | (0.05 | ) |
Expired during the period | |
| (786,667 | ) | |
$ | (0.44 | ) | |
| — | | |
$ | — | |
Outstanding at end of the period | |
| 59,043,659 | | |
$ | 0.25 | | |
| 58,079,122 | | |
$ | 0.23 | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at end of the period | |
| 59,043,659 | | |
$ | 0.25 | | |
| 58,079,122 | | |
$ | 0.23 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average remaining life | |
| 2.7 years | | |
| | | |
| 3.6 years | | |
| | |
The following table summarizes information about
the Company’s stock warrants outstanding as of June 30, 2022:
Warrants Outstanding | | |
Warrants Exercisable | |
| | |
| | |
Weighted- | |
| | |
| | |
| |
| | |
| | |
Average | |
Weighted- | | |
| | |
Weighted- | |
| | |
| | |
Remaining | |
Average | | |
| | |
Average | |
Exercise | | |
Number | | |
Contractual | |
Exercise | | |
Number | | |
Exercise | |
Prices | | |
Outstanding | | |
Life (years) | |
Price | | |
Exercisable | | |
Price | |
$ | 0.0001 to 0.09 | | |
| 14,789,573 | | |
2.5 | |
$ | 0.07 | | |
| 14,789,573 | | |
$ | 0.07 | |
$ | 0.10 to 0.24 | | |
| 9,474,380 | | |
2.3 | |
$ | 0.17 | | |
| 9,474,380 | | |
$ | 0.17 | |
$ | 0.25 to 0.49 | | |
| 31,319,782 | | |
2.8 | |
$ | 0.31 | | |
| 31,319,782 | | |
$ | 0.31 | |
$ | 0.50 to 1.05 | | |
| 3,459,924 | | |
4.1 | |
$ | 0.69 | | |
| 3,459,924 | | |
$ | 0.69 | |
$ | 0.05 to 1.00 | | |
| 59,043,659 | | |
2.7 | |
$ | 0.25 | | |
| 59,043,659 | | |
$ | 0.25 | |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY
(CONTINUED)
During the six months ended June 30, 2022 and
2021, the Company issued 33,334 and 19,772,878 warrants, respectively, the aggregate grant date fair value of which was $2,083 and $4,617,335,
respectively. The fair value of the warrants was calculated using the following range of assumptions:
| |
2022 | |
2021 |
Pricing model utilized | |
Binomial Lattice | |
Binomial Lattice |
Risk free rate range | |
2.94% | |
0.38% to 0.97% |
Expected life range (in years) | |
5.00 years | |
3.00 to 5.00 years |
Volatility range | |
74.50% | |
170.58% to 193.21% |
Dividend yield | |
0.00% | |
0.00% |
There were no warrants exercised during the six
months ended June 30, 2022. During the six months ended June 30, 2021, the Company received $277,500 upon the exercise of 2,475,000 warrants
with exercise prices between $0.10 and $0.252. Additionally, the Company issued 9,047,332 shares upon cashless exercise of 10,571,742
warrants 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.
Amounts recognized in the financial statements
with respect to the EIPs in the six months ended June 30, 2022 and 2021 were as follows:
| |
2022 | | |
2021 | |
Total cost of share-based payment plans during the period | |
$ | 244,847 | | |
$ | 461,224 | |
Amounts capitalized in deferred equity compensation during period | |
$ | — | | |
$ | — | |
Amounts charged against income for amounts previously capitalized | |
$ | 16,875 | | |
$ | — | |
Amounts charged against income, before income tax benefit | |
$ | 261,722 | | |
$ | 461,224 | |
Amount of related income tax benefit recognized in income | |
$ | — | | |
$ | — | |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY
(CONTINUED)
Stock Options
Stock options granted under the EIPs typically
vest over a period of three to four years or based on achievement of Company and individual performance goals. The following table summarizes
stock option activity as of and for the six months ended June 30, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted
| | |
| | |
Weighted
| |
| |
| | |
Average
| | |
| | |
Average
| |
| |
| | |
Exercise
| | |
| | |
Exercise
| |
Stock options | |
Number | | |
Price | | |
Number | | |
Price | |
Outstanding at beginning of period | |
| 3,456,250 | | |
$ | 0.23 | | |
| 3,111,750 | | |
$ | 0.20 | |
Granted during the period | |
| 925,000 | | |
$ | 0.16 | | |
| 80,000 | | |
$ | 0.75 | |
Exercised during the period | |
| (12,500 | ) | |
$ | (0.26 | ) | |
| (145,500 | ) | |
$ | (0.11 | ) |
Forfeited during the period | |
| (419,500 | ) | |
$ | (0.31 | ) | |
| (32,500 | ) | |
$ | (0.16 | ) |
Outstanding at end of period | |
| 3,949,250 | | |
$ | 0.20 | | |
| 3,013,750 | | |
$ | 0.22 | |
| |
| | | |
| | | |
| | | |
| | |
Options exercisable at period-end | |
| 2,655,500 | | |
$ | 0.20 | | |
| 2,173,750 | | |
$ | 0.19 | |
As of June 30, 2022, there was $166,575 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 six months ended June 30, 2022 and 2021 was $42,966 and $64,321, respectively. The aggregate intrinsic value of share options exercised
during the six months ended June 30, 2022 and 2021 was $388 and $76,670, respectively. The weighted-average grant-date fair value of option
grants made during the six months ended June 30, 2022 and 2021 was $0.09 per share and $0.62 per share, respectively. During the six months
ended June 30, 2022, the Company issued 1,394 shares upon cashless exercise of 12,500 option shares exercised using a cashless exercise
feature. During the six months ended June 30, 2021, the Company received $16,450 upon the exercise of 145,500 options with exercise prices
between $0.10 and $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. The Company’s
accounting policy is to estimate forfeitures in determining the amount of total compensation cost to record each period. The fair value
of options granted for the six months ended June 30, 2022 and 2021 was calculated using the following range of assumptions:
| |
2022 | |
2021 |
Pricing model utilized | |
Binomial Lattice | |
Binomial Lattice |
Risk free rate range | |
2.81% to 2.90% | |
1.47% to 1.68% |
Expected life range (in years) | |
10.00 years | |
10.00 years |
Volatility range | |
74.38% to 74.50% | |
170.44% to 192.25% |
Dividend yield | |
0.00% | |
0.00% |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 14 – SHAREHOLDERS’ EQUITY
(CONTINUED)
The following table summarizes the status and
activity of nonvested options issued pursuant to the EIPs as of and for the six months ended June 30, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted
| | |
| | |
Weighted
| |
| |
| | |
Average
| | |
| | |
Average
| |
| |
| | |
Grant Date
| | |
| | |
Grant Date
| |
Stock options | |
Shares | | |
Fair Value | | |
Shares | | |
Fair Value | |
Nonvested options at beginning of period | |
| 858,750 | | |
$ | 0.23 | | |
| 1,044,375 | | |
$ | 0.21 | |
Granted | |
| 925,000 | | |
$ | 0.09 | | |
| 80,000 | | |
$ | 0.62 | |
Vested | |
| (195,750 | ) | |
$ | (0.22 | ) | |
| (255,000 | ) | |
$ | (0.25 | ) |
Forfeited | |
| (294,250 | ) | |
$ | (0.26 | ) | |
| (29,375 | ) | |
$ | (0.12 | ) |
Nonvested options at end of period | |
| 1,293,750 | | |
$ | 0.12 | | |
| 840,000 | | |
$ | 0.24 | |
Stock Grants
Stock grant awards made under the EIPs typically
vest either immediately or over a period of up to four years. The following table summarizes stock grant activity as of and for the six
months ended June 30, 2022 and 2021:
| |
2022 | | |
2021 | |
| |
| | |
Weighted
| | |
| | |
Weighted
| |
| |
| | |
Average
| | |
| | |
Average
| |
| |
| | |
Grant Date
| | |
| | |
Grant Date
| |
Stock Grants | |
Shares | | |
Fair Value | | |
Shares | | |
Fair Value | |
Nonvested grants at beginning of period | |
| 302,050 | | |
$ | 0.27 | | |
| 200,000 | | |
$ | 0.17 | |
Granted | |
| 177,454 | | |
$ | 0.18 | | |
| 940,047 | | |
$ | 0.27 | |
Vested | |
| (254,782 | ) | |
$ | (0.25 | ) | |
| (925,047 | ) | |
$ | (0.27 | ) |
Forfeited | |
| (104,954 | ) | |
$ | (0.19 | ) | |
| (50,000 | ) | |
$ | (0.10 | ) |
Nonvested grants at end of period | |
| 119,768 | | |
$ | 0.25 | | |
| 165,000 | | |
$ | 0.22 | |
As of June 30, 2022, there was $12,938 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 2.0 years. The weighted-average grant-date fair value of share grants made during the six months ended June 30, 2022 and 2021
was $0.18 per share and $0.27 per share, respectively. The aggregate fair value of share grants that vested during the six months ended
June 30, 2022 and 2021 was $64,094 and $248,290, 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 six months ended June 30,
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 and six months ended June 30, 2022 was $9,063 and $18,125, respectively. There was no amortization related to deferred
stock compensation assets in the three or six months ended June 30, 2021. 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
JUNE 30, 2022
(UNAUDITED)
NOTE 15 – CONTINGENT ACQUISITION CONSIDERATION
Contingent acquisition consideration relates to
future earn-out payments potentially payable related to the Company’s acquisitions of Hughes Center for Functional Medicine (“HCFM”)
in 2019 and CHM and MOD in 2020. The terms of the earn-outs related to each acquisition require the Company to pay the former owners additional
acquisition consideration for the achievement of prescribed revenue and/or earnings targets for performance of the underlying business
for up to four years after the respective acquisition date. Contingent acquisition consideration for each entity is recorded at fair value
using a probability-weighted discounted cash flow projection. The fair value of the contingent acquisition consideration is remeasured
at the end of each reporting period and changes are included in the statement of operations under the caption “Change in fair value
of contingent acquisition consideration.”
Contingent acquisition consideration as of June 30, 2022 and December
31, 2021 was comprised of the following:
| |
June 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Fair value of HCFM contingent acquisition consideration | |
$ | — | | |
$ | 172,124 | |
Fair value of CHM contingent acquisition consideration | |
| 280,752 | | |
| 276,529 | |
Fair value of MOD contingent acquisition consideration | |
| 165,464 | | |
| 737,037 | |
Total contingent acquisition consideration | |
| 446,216 | | |
| 1,185,690 | |
Less: long term portion | |
| (237,780 | ) | |
| (782,224 | ) |
Contingent acquisition consideration, current portion | |
$ | 208,436 | | |
$ | 403,466 | |
During the three and six months ended June 30,
2022 and 2021, the Company recognized gains (losses) on the change in the fair value of contingent acquisition consideration as follows:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Change in fair value of HCFM contingent acquisition consideration | |
$ | (31,121 | ) | |
$ | (38,145 | ) | |
$ | (35,259 | ) | |
$ | (49,453 | ) |
Change in fair value of CHM contingent acquisition consideration | |
| (10,599 | ) | |
| 94,555 | | |
| (4,223 | ) | |
| 61,303 | |
Change in fair value of MOD contingent acquisition consideration | |
| 135,488 | | |
| 218,201 | | |
| 571,572 | | |
| (372,939 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
$ | 93,768 | | |
$ | 274,611 | | |
$ | 532,090 | | |
$ | (361,089 | ) |
Maturities of contingent acquisition consideration were as follows
as of June 30, 2022:
2022 (July to December) | |
$ | 108,751 | |
2023 | |
| 173,115 | |
2024 | |
| 164,350 | |
| |
$ | 446,216 | |
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 the seller $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. In May 2022, the Company paid the seller $207,384 in satisfaction of the year 3 earn out. The
Company has no further earn out obligations related to the NCFM acquisition.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 15 – CONTINGENT ACQUISITION CONSIDERATION
(CONTINUED)
Cura Health Management LLC Acquisition –
May 2020
On May 18, 2020, the Company acquired a 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 16 – COMMITMENTS AND CONTINGENCIES
Contracts Related to Medicare Shared Savings
Revenue
The Company acquired CHM and its subsidiary AHP
on May 18, 2020. CHM and AHP combine to operate an ACO under the terms of the MSSP as administered by the CMS. The MSSP is a program created
under the Affordable Care Act (the “ACA,” also known as “Obamacare”) designed to enhance the efficiency of healthcare
provided to patients covered by Medicare. The program allows for the creation of ACOs, which are organizations that agree to take responsibility
for the efficiency of healthcare services provided by a group of participating healthcare providers under Medicare. The ACO is held accountable
for the efficiency of the healthcare services of its participating providers as measured against benchmarks prescribed in the MSSP and
earns shared savings payments if such benchmarks are met.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 16 – COMMITMENTS AND CONTINGENCIES
(CONTINUED)
The Company, via AHP, is party to a Medicare Shared
Savings Program Accountable Care Organization Participation Agreement with the CMS that establishes AHP as an ACO. The agreement is effective
through December 31, 2024. The Company must comply with the terms and conditions of the agreement in order to maintain its status as an
ACO and generate shared savings revenue.
The Company, via CHM, is party to approximately
33 separate participant agreements with participating providers that are members of the Company’s ACO with expiration dates through
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 single supplier for the
fulfillment of approximately 96% 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 June
30, 2022:
2022 (July to December) | |
$ | 238,231 | |
2023 | |
| 396,833 | |
2024 | |
| 126,116 | |
2025 | |
| 74,729 | |
2026 | |
| 18,148 | |
2027 | |
| 990 | |
Total lease payments | |
| 855,047 | |
Less interest | |
| (124,066 | ) |
Present value of lease liabilities | |
$ | 730,981 | |
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. In addition to a base salary, the agreement provided Mr. O’Leary with certain performance-based cash
bonuses, stock grants, and stock option grants. The agreement expired on June 30, 2022.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 16 – 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 17 – SEGMENT REPORTING
The Company has four reportable segments: Health Services, Digital
Healthcare, ACO/MSO 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.
The Company evaluates performance and allocates
resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies.
Segment information for the three months ended
June 30, 2022 was as follows:
| |
Three Months Ended June 30, 2022 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO / MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 1,431,776 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,431,776 | |
Subscription, consulting and event revenue | |
| — | | |
| 1,638 | | |
| 84,658 | | |
| — | | |
| 86,296 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 130,459 | | |
| 130,459 | |
Total revenue | |
| 1,431,776 | | |
| 1,638 | | |
| 84,658 | | |
| 130,459 | | |
| 1,648,531 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 816,398 | | |
| — | | |
| — | | |
| — | | |
| 816,398 | |
Other practice operating expenses | |
| 639,119 | | |
| — | | |
| — | | |
| — | | |
| 639,119 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 237,149 | | |
| — | | |
| 237,149 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 170,543 | | |
| 170,543 | |
Selling, general and administrative expenses | |
| — | | |
| 1,209,235 | | |
| — | | |
| 46,276 | | |
| 1,255,511 | |
Depreciation and amortization | |
| 30,418 | | |
| 1,594 | | |
| — | | |
| 176,900 | | |
| 208,912 | |
Total Operating Expenses | |
| 1,485,935 | | |
| 1,210,829 | | |
| 237,149 | | |
| 393,719 | | |
| 3,327,632 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
(Loss) income from operations | |
$ | (54,159 | ) | |
$ | (1,209,191 | ) | |
$ | (152,491 | ) | |
$ | (263,260 | ) | |
$ | (1,679,101 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense (income) | |
$ | 2,793 | | |
$ | 1,695 | | |
$ | — | | |
$ | — | | |
$ | 4,488 | |
Change in fair value of contingent acquisition consideration | |
$ | — | | |
$ | (93,768 | ) | |
$ | — | | |
$ | — | | |
$ | (93,768 | ) |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the six months ended June
30, 2022 was as follows:
| |
Six Months Ended June 30, 2022 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO / MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 2,807,461 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 2,807,461 | |
Subscription, consulting and event revenue | |
| — | | |
| 8,262 | | |
| 162,252 | | |
| — | | |
| 170,514 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 277,428 | | |
| 277,428 | |
Total revenue | |
| 2,807,461 | | |
| 8,262 | | |
| 162,252 | | |
| 277,428 | | |
| 3,255,403 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 1,534,471 | | |
| — | | |
| — | | |
| — | | |
| 1,534,471 | |
Other practice operating expenses | |
| 1,201,770 | | |
| — | | |
| — | | |
| — | | |
| 1,201,770 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 464,878 | | |
| — | | |
| 464,878 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 331,354 | | |
| 331,354 | |
Selling, general and administrative expenses | |
| — | | |
| 2,474,111 | | |
| — | | |
| 116,540 | | |
| 2,590,651 | |
Depreciation and amortization | |
| 55,936 | | |
| 3,066 | | |
| — | | |
| 353,800 | | |
| 412,802 | |
Total Operating Expenses | |
| 2,792,177 | | |
| 2,477,177 | | |
| 464,878 | | |
| 801,694 | | |
| 6,535,926 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
$ | 15,284 | | |
$ | (2,468,915 | ) | |
$ | (302,626 | ) | |
$ | (524,266 | ) | |
$ | (3,280,523 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense (income) | |
$ | 5,605 | | |
$ | 3,906 | | |
$ | — | | |
$ | — | | |
$ | 9,511 | |
Change in fair value of contingent acquisition consideration | |
$ | — | | |
$ | (532,090 | ) | |
$ | — | | |
$ | — | | |
$ | (532,090 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| June
30, 2022 |
Identifiable assets | |
$ | 2,324,726 | | |
$ | 557,672 | | |
$ | 1,122,804 | | |
$ | 2,433,362 | | |
$ | 6,438,564 | |
Goodwill | |
$ | 332,133 | | |
$ | — | | |
$ | 381,856 | | |
$ | 766,249 | | |
$ | 1,480,238 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 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
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the three months ended
June 30, 2021 was as follows:
| |
Three Months Ended June 30, 2021 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO / MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 1,470,550 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,470,550 | |
Subscription, consulting and event revenue | |
| — | | |
| 972 | | |
| 70,892 | | |
| — | | |
| 71,864 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 168,206 | | |
| 168,206 | |
Total revenue | |
| 1,470,550 | | |
| 972 | | |
| 70,892 | | |
| 168,206 | | |
| 1,710,620 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 903,032 | | |
| — | | |
| — | | |
| — | | |
| 903,032 | |
Other practice operating expenses | |
| 511,004 | | |
| — | | |
| — | | |
| — | | |
| 511,004 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 197,463 | | |
| — | | |
| 197,463 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 159,998 | | |
| 159,998 | |
Selling, general and administrative expenses | |
| — | | |
| 1,073,712 | | |
| — | | |
| 73,766 | | |
| 1,147,478 | |
Depreciation and amortization | |
| 28,974 | | |
| 595 | | |
| — | | |
| 176,900 | | |
| 206,469 | |
Total Operating Expenses | |
| 1,443,010 | | |
| 1,074,307 | | |
| 197,463 | | |
| 410,664 | | |
| 3,125,444 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
$ | 27,540 | | |
$ | (1,073,335 | ) | |
$ | (126,571 | ) | |
$ | (242,458 | ) | |
$ | (1,414,824 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
$ | (1,758 | ) | |
$ | 344 | | |
$ | — | | |
$ | (209 | ) | |
$ | (1,623 | ) |
Gain on extinguishment of debt | |
$ | (502,959 | ) | |
$ | (118,110 | ) | |
$ | — | | |
$ | (11,757 | ) | |
$ | (632,826 | ) |
Change in fair value of contingent acquisition consideration | |
$ | — | | |
$ | (274,611 | ) | |
$ | — | | |
$ | — | | |
$ | (274,611 | ) |
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 17 – SEGMENT REPORTING (CONTINUED)
Segment information for the six months ended June
30, 2021 was as follows:
| |
Six Months Ended June 30, 2021 | |
| |
Health
Services | | |
Digital
Healthcare | | |
ACO / MSO | | |
Medical
Distribution | | |
Total | |
Revenue | |
| | |
| | |
| | |
| | |
| |
Patient service revenue, net | |
$ | 2,984,926 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 2,984,926 | |
Subscription, consulting and event revenue | |
| — | | |
| 12,085 | | |
| 147,434 | | |
| — | | |
| 159,519 | |
Product revenue | |
| — | | |
| — | | |
| — | | |
| 350,869 | | |
| 350,869 | |
Total revenue | |
| 2,984,926 | | |
| 12,085 | | |
| 147,434 | | |
| 350,869 | | |
| 3,495,314 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Expenses | |
| | | |
| | | |
| | | |
| | | |
| | |
Practice salaries and benefits | |
| 1,566,969 | | |
| — | | |
| — | | |
| — | | |
| 1,566,969 | |
Other practice operating expenses | |
| 1,241,788 | | |
| — | | |
| — | | |
| — | | |
| 1,241,788 | |
Medicare shared savings expenses | |
| — | | |
| — | | |
| 408,970 | | |
| — | | |
| 408,970 | |
Cost of product revenue | |
| — | | |
| — | | |
| — | | |
| 328,594 | | |
| 328,594 | |
Selling, general and administrative expenses | |
| — | | |
| 2,379,032 | | |
| — | | |
| 134,583 | | |
| 2,513,615 | |
Depreciation and amortization | |
| 57,297 | | |
| 1,190 | | |
| — | | |
| 359,640 | | |
| 418,127 | |
Total Operating Expenses | |
| 2,866,054 | | |
| 2,380,222 | | |
| 408,970 | | |
| 822,817 | | |
| 6,478,063 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Income (loss) from operations | |
$ | 118,872 | | |
$ | (2,368,137 | ) | |
$ | (261,536 | ) | |
$ | (471,948 | ) | |
$ | (2,982,749 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other Segment Information | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
$ | 2,439 | | |
$ | 6,626 | | |
$ | — | | |
$ | (100 | ) | |
$ | 8,965 | |
(Gain) loss on extinguishment of debt | |
$ | (502,959 | ) | |
$ | 5,471,884 | | |
$ | — | | |
$ | (11,757 | ) | |
$ | 4,957,168 | |
Change in fair value of debt | |
$ | — | | |
$ | 19,246 | | |
$ | — | | |
$ | — | | |
$ | 19,246 | |
Change in fair value of contingent acquisition consideration | |
$ | — | | |
$ | 361,089 | | |
$ | — | | |
$ | — | | |
$ | 361,089 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| June
30, 2021 |
Identifiable assets | |
$ | 2,163,058 | | |
$ | 2,843,315 | | |
$ | 1,101,230 | | |
$ | 3,077,259 | | |
$ | 9,184,862 | |
Goodwill | |
$ | — | | |
$ | — | | |
$ | 381,856 | | |
$ | 766,249 | | |
$ | 1,148,105 | |
The Digital Healthcare made intercompany sales
of $180 and $383 in the three months ended June 30, 2022 and 2021, respectively, and $460 and $563 in the six months ended June 30, 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 $8,717 and $-0- in the three months ended June 30, 2022 and 2021,
respectively, and $22,070 and $-0- in the six months ended June 30, 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 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the short-term
nature of such instruments. The Company measures certain financial instruments at fair value on a recurring basis, including certain convertible
notes payable and related party loans, which were extinguished and reissued and are therefore subject to fair value measurement, derivative
financial instruments arising from conversion features embedded in convertible promissory notes for which the conversion rate was not
fixed, and equity-class. All financial instruments carried at fair value fall within Level 3 of the fair value hierarchy as their value
is based on unobservable inputs. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring
basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant
judgments to be made.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 18 – FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
The following table summarizes the conclusions
reached regarding fair value measurements as of June 30, 2022 and December 31, 2021:
| |
As of June 30, 2022 | | |
As of December 31, 2021 | |
| |
Level
1 | | |
Level
2 | | |
Level 3 | | |
Total | | |
Level
1 | | |
Level
2 | | |
Level 3 | | |
Total | |
Liability-classified equity instruments | |
$ | --- | | |
$ | --- | | |
$ | 136,250 | | |
$ | 136,250 | | |
$ | — | | |
$ | — | | |
$ | 162,500 | | |
$ | 162,500 | |
Contingent acquisition consideration | |
| — | | |
| — | | |
| 446,216 | | |
| 446,216 | | |
| — | | |
| — | | |
| 1,185,690 | | |
| 1,185,690 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | — | | |
$ | — | | |
$ | 582,466 | | |
$ | 582,466 | | |
$ | — | | |
$ | — | | |
$ | 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 and six months ended June 30, 2022 and 2021 were as follows:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
| | |
| | |
| | |
| |
Convertible notes payable | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (19,246 | ) |
Contingent acquisition consideration | |
| 93,768 | | |
| 274,611 | | |
| 532,090 | | |
| (361,089 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 93,768 | | |
$ | 274,611 | | |
$ | 532,090 | | |
$ | (380,335 | ) |
NOTE 19 – SUBSEQUENT EVENTS
On July 5, 2022, the Company sold 3,181,818 shares
of common stock for cash in a private placement transaction to three separate accredited investors. The Company received $350,000 in proceeds
from the sale. In connection with the stock sale, the Company also issued 1,590,909 five-year warrants to purchase shares of common stock
at an exercise price of $0.22 per share
On July 5, 2022, the Company entered into the
SEPA with Yorkville, pursuant to which the Company shall have the right, but not the obligation, to sell to Yorkville up to 30,000,000
of its shares of common stock, par value $0.0001 per share, at the Company’s request any time during the commitment period commencing
on July 5, 2022 and terminating on the earliest of (i) the first day of the month following the 36-month anniversary of the SEPA and (ii)
the date on which Yorkville shall have made payment of any advances requested pursuant to the SEPA for shares of the Company’s common
stock equal to the commitment amount of 30,000,000 shares of common stock. Each SEPA Advance may be for a number of shares of common stock
with an aggregate value of up to greater of: (i) an amount equal to thirty percent (30%) of the aggregate daily volume traded of the Company’s
common stock for the three (3) trading days immediately preceding notice from the Company of an Advance, or (ii) 2,000,000 shares of common
stock. The shares would be purchased at 96.0% of the average of the daily volume weighted average price of the Company’s common
stock as reported by Bloomberg L.P. during regular trading hours during each of the three consecutive trading days commencing on the trading
day following the Company’s submission of an Advance notice to Yorkville and would be subject to certain limitations, including
that Yorkville could not purchase any shares that would result in it owning more than 4.99% of the Company’s outstanding common
stock at the time of an Advance.
On July 11, 2022, the Company filed a Form S-1 registration
statement registering up to 30,000,000 shares of common stock underlying the SEPA. The registration statement was declared effective on
July 19, 2022. As consideration for Yorkville’s commitment to purchase shares of common stock at our direction upon the terms and
subject to the conditions set forth in the SEPA, upon execution of the SEPA, we issued to Yorkville 895,255 shares of common stock pursuant
to the terms of the SEPA (the “commitment shares”), and (2) paid Yorkville’s structuring and due diligence fees of $10,000.
Between July 19, 2022 and August 15, 2022, the Company completed three advances under the SEPA, receiving $88,897 in proceeds for the
issuance of 683,100 shares of common stock.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2022
(UNAUDITED)
NOTE 19 – SUBSEQUENT EVENTS (CONTINUED)
On July 19, 2022, pursuant to a Note Purchase
Agreement between the Company and Yorkville, dated July 5, 2022, the Company issued to Yorkville the Promissory Note with an initial principal
amount equal to $550,000 at a purchase price equal to the principal amount of the Promissory Note less any original issue discounts and
fees. The Company received net proceeds of $522,500. The Promissory Note will mature on the six-month anniversary of execution. The Promissory
Note accrues interest at a rate of 0%, but was issued with 5% original issue discount, and will be repaid in five equal monthly installments
beginning on August 19, 2022. The Promissory Note may be repaid with the proceeds of an advance under the SEPA, or repaid in cash and,
if repaid in cash, together with a 2% premium.