HealthLynked Corp: Form 10-Q for the period ended Sep 30, 2022

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Item 1A. Risk Factors” included in our most recent Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

General

HealthLynked Corp. (the “Company,” “we,” “our,” or “us”) was incorporated in the State of Nevada on August 4, 2014. We currently operate in three distinct divisions: the Health Services Division, the Digital Healthcare Division, and the Medical Distribution Division. Our Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology) and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice engaged in improving the health of its patients through individualized and integrative health care, (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. Our Digital Healthcare division develops and operates an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients and doctors to keep track of medical information via the Internet in a cloud-based system. Our Medical Distribution Division is comprised of the operations of MedOffice Direct LLC (“MOD”), a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout the United States we acquired on October 19, 2020.

Recent Development – ACO/MSO Division

On October 21, 2022, our Board of Directors approved a plan to sell our ACO/MSO (Accountable Care Organization / Managed Service Organization) Division, comprised of the operations of Cura Health Management (“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. We expect to use the cash proceeds generated from a sale to supplement its operating cash requirements and pursue additional acquisitions. We expect to complete a sale by the first quarter of 2023.

We received an initial determination during third quarter 2022 from the CMS that our ACO missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022, by just 0.03% on total ACO expenditures of approximately $112 million. During September 2022, we requested and received a reconsideration appeal (the “MSSP Appeal”) with the CMS on the basis that certain of our included expenditures were directly related to long-haul Covid-19 and should therefore be excluded from consideration in calculation of our shared savings. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize Medicare shared savings revenue and related provider shared savings expense when we receive official notification from CMS of any amounts to be paid to us, we will only recognize revenue and expense related to plan year 2021 shared savings if and when we are notified that the MSSP Appeal is successful. If the MSSP Appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue or provider shared saving expense in 2022.

Critical accounting policies and significant judgments and estimates

For a discussion of our critical accounting policies, see Note 2, “Significant Accounting Policies,” in the Notes to consolidated Financial Statements.

Results of Operations

Comparison of Three Months Ended September 30, 2022 and 2021

The following table summarizes the changes in our results of operations for the three months ended September 30, 2022 compared with the three months ended September 30, 2021:

* - Denotes line item on statement of operations for which there was no corresponding activity in the same period of prior year.

Revenue

Patient service revenue in the three months ended September 30, 2022 decreased by $132,103, or 9% year-over-year, to $1,262,253, primarily as a result of decreased patient service revenue at our NWC and BTG practices due primarily to closures at both offices in September 2022 from Hurricane Ian, offset by a year-over-year increase at our NCFM practice of $46,327 and the addition of AEU revenue following its acquisition in second quarter 2022.

Medicare shared savings revenue in the three months ended September 30, 2022 decreased by $2,419,312, or 100%, year-over-year, to $-0- as a result of an initial determination during third quarter 2022 from the CMS that our ACO narrowly missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022. During September 2022, we filed the MSSP Appeal with the CMS to review the calculation of our shared savings. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize Medicare shared savings revenue when we receive official notification from CMS of any amounts to be paid to us, we will only recognize revenue related to plan year 2021 shared savings if and when we are notified that the MSSP Appeal is successful. If the MSSP Appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue in 2022.

Subscription, consulting and event revenue in the three months ended September 30, 2022 increased by $20,382, or 29% year-over-year, to $89,977. Consulting revenue of $88,806 was earned by the ACO/MSO Division in 2022, compared to $69,595 in the three months ended September 30, 2021. Subscription and event revenue of $1,171 and $-0- in 2022 and 2021, respectively, was earned from Digital Healthcare division subscription revenues.

Product revenue was $95,449 in the three months ended September 30, 2022, compared to $161,456 in the three months ended September 30, 2021, a decrease of $66,007, or 41%. Product revenue was earned by the Medical Distribution Division, comprised of the operations of MOD.

Operating Expenses and Costs

Practice salaries and benefits increased by $71,034, or 10%, to $810,058 in the three months ended September 30, 2022, primarily as a result of the addition of AEU salaries and benefits for a full quarter in 2022 with no corresponding cost in 2021.

Other practice operating costs increased by $146,214, or 27%, to $695,300 in the three months ended September 30, 2022, primarily as a result of the addition of AEU operating costs for a full quarter in 2022 with no corresponding cost in 2021.

Medicare shared savings expenses in the three months ended September 30, 2022 decreased by $1,411,052, or 81%, year-over-year, to $337,533 as a result of an initial determination during third quarter 2022 from the CMS that our ACO narrowly missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022. Because there was no shared savings awarded in the initial notification, the portion of shared savings shared with our participating providers was $-0- in 2022. During September 2022, we filed the MSSP Appeal with the CMS. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize provider shared savings expense when we receive official notification from CMS of any amounts to be paid to us, we will only recognize such expense related to plan year 2021 shared savings if and when we are notified that the reconsideration appeal is successful. If the reconsideration appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue or provider shared saving expense in 2022.

Cost of product revenue was $87,775 in the three months ended September 30, 2022, a decrease of $57,657, or 40%, compared to the same period of 2021, corresponding to the decline in product sales for the quarter compared to the same period in the prior year.

Selling, general and administrative costs decreased by $59,458, or 5%, to $1,088,133 in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lower stock-based consulting fees, travel costs and advertising costs incurred in 2022 compared to 2021.

Depreciation and amortization increased in the three months ended September 30, 2022 by $4,193, or 2%, to $209,504 compared to the three months ended September 30, 2021 as a result of the addition of new depreciable medical equipment from the AEU acquisition. We did not add any new intangible assets subject to amortization during either period.

Loss from operations increased by $1,290,314, or 263%, to $1,780,624 in the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily as a result of receiving no Medicare shared savings revenue (net of provider shared savings expense) in 2022, which is under appeal as described above, decreased patient service revenue at our NWC and BTG practices due primarily to closures at both offices in September 2022 from Hurricane Ian, and decrease in product revenue.

Other Income (Expenses)

Financing cost in the three months ended September 30, 2021 was $110,000, resulting from cash and stock-based fees paid in connection with the July 2022 Standby Equity Purchase Agreement (“SEPA”). There were no financing costs in the third quarter of 2021.

Amortization of original issue and debt discounts on notes payable and convertible notes in the three months ended September 30, 2021 was $21,020, resulting from amortization of original issue discounts on our July 2022 $550,000 promissory note and on a note payable assumed in our acquisition of AEU.

Gains from the change in fair value of contingent acquisition consideration increased by $7,072, or 6%, to $133,483 in the three months ended September 30, 2022, compared to $126,411 in the three months ended September 30, 2021. Because contingent acquisition consideration related to our acquisition of MOD is payable in a fixed number of shares, changes in the fair value of the contingent acquisition consideration fluctuates with our share price. During each of the three months ended September 30, 2022 and 2021, our share price decreased from the price at the end of the preceding quarter, resulting in a decrease in the fair value of the contingent acquisition consideration liability and a corresponding gain from the change in fair value of the liability.

Interest expense increased by $1,522, or 37%, to $5,640 for the three months ended September 30, 2022 as a result of the forgiveness of PPP loans in 2021. Interest expense relates primarily to long-term SBA loans.

Total other income (expenses) decreased by $125,470, or 103%, to expense of ($3,177) in the three months ended September 30, 2022 compared to income of $122,293 in the three months ended September 30, 2021. The change was primarily a result of financing costs and amortization of debt discounts associated with the July 2022 SEPA and $550,000 promissory note, respectively.

Net loss increased by $1,415,784, or 385%, to $1,783,801 in the three months ended September 30, 2022, compared to net loss of $368,017 in the three months ended September 30, 2021, primarily as a result of (i) the initial determination by CMS of no Medicare shared savings revenue (net of provider shared savings expense) in 2022, which is under appeal as described above, (ii) higher practice operating costs, (iii) lower patient service revenue resulting from office closures associated with Hurricane Ian in September 2022, and (iv) financing costs associated with the July 2022 SEPA.

Comparison of Nine Months Ended September 30, 2022 and 2021

The following table summarizes the changes in our results of operations for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021:

* - Denotes line item on statement of operations for which there was no corresponding activity in the same period of prior year.

* - Denotes change of less than 1%.

Revenue

Patient service revenue in the nine months ended September 30, 2022 decreased by $309,568, or 7% year-over-year, to $4,069,714, primarily as a result of decreased patient service revenue at our NWC practice of $632,275 due to the departure of a physician and a decrease at BTG of $48,051, offset by a year-over-year increase at our NCFM practice of $247,314 and the addition of AEU revenue following its acquisition.

Medicare shared savings revenue in the nine months ended September 30, 2022 decreased by $2,419,312, or 100%, year-over-year, to $-0- as a result of an initial determination during third quarter 2022 from the CMS that our ACO narrowly missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022. During September 2022, we filed the MSSP Appeal with the CMS to review the calculation of our shared savings. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize Medicare shared savings revenue when we receive official notification from CMS of any amounts to be paid to us, we will only recognize revenue related to plan year 2021 shared savings if and when we are notified that the MSSP Appeal is successful. If the MSSP Appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue in 2022.

Subscription, consulting and event revenue in the nine months ended September 30, 2022 increased by $31,377, or 14% year-over-year to $260,491. Consulting revenue of $251,058 was earned by the ACO/MSO Division in 2022, compared to $217,209 in the three months ended June 30, 2021. Subscription and event revenue of $9,433 and $11,905 in 2022 and 2021, respectively, was earned from Digital Healthcare division subscription and event revenues.

Product revenue was $372,877 in the nine months ended September 30, 2022, compared to $512,235 in the nine months ended September 30, 2021, a decrease of $139,448, or 27%. Product revenue was earned by the Medical Distribution Division, comprised of the operations of MOD.

Operating Expenses and Costs

Practice salaries and benefits increased by $38,536, or 2%, to $2,344,529 in the nine months ended September 30, 2022 primarily as a result of the addition of AEU salaries and benefits starting in May 2022 with no corresponding cost in 2021.

Other practice operating costs increased by $106,196, or 6%, to $1,897,070 in the nine months ended September 30, 2022, primarily as a result of the addition of AEU operating costs starting in May 2022 with no corresponding cost in 2021.

Medicare shared savings expenses in the nine months ended September 30, 2022 decreased by $1,355,144, or 63%, year-over-year, to $802,411 as a result of an initial determination during third quarter 2022 from the CMS that our ACO narrowly missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022. Because there was no shared savings awarded in the initial notification, the portion of shared savings shared with our participating providers was $-0- in 2022. During September 2022, we filed the MSSP Appeal with the CMS. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize provider shared savings expense when we receive official notification from CMS of any amounts to be paid to us, we will only recognize such expense related to plan year 2021 shared savings if and when we are notified that the reconsideration appeal is successful. If the reconsideration appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue or provider shared saving expense in 2022.

Cost of product revenue was $419,129 in the nine months ended September 30, 2022, a decrease of $54,897, or 12%, compared to the same period of 2021, corresponding to the decline in product sales for the period compared to the same period in the prior year. During the nine months ended September 30, 2022, we also made two sales with corresponding cost of product revenue of $89,395 for which we do not believe it is probable that we will collect from the customers. As a result, the cost of product revenue is recognized in the three months ended September 30, 2022 with no corresponding revenue recognized.

Selling, general and administrative costs increased by $17,578, or less than 1%, to $3,678,784 in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to more personnel, overhead, promotional and development costs in our corporate function in connection with our continued investment in the HealthLynked Network, offset by lower stock-based and cash-based consulting fees, and legal and accounting fees in 2022 compared to 2021.

Depreciation and amortization decreased in the nine months ended September 30, 2022 by $1,132, or less than 1%, to $622,306 compared to the nine months ended September 30, 2021, primarily as a result of certain fixed assets reaching the end of their depreciable lives in 2021, offset by the addition of new depreciable medical equipment from the AEU acquisition. We did not add any new intangible assets subject to amortization during either period.

Loss from operations increased by $1,588,088, or 46%, to $5,061,147 in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily as a result of receiving no Medicare shared savings revenue (net of provider shared savings expense) in 2022, which is under appeal as described above, lower patient service and product revenue and an increase in practice operating costs.

Other Income (Expenses)

Loss on extinguishment of debt in the nine months ended September 30, 2021 was $4,957,168 resulting from (i) a loss on debt extinguishment of $5,589,994 representing the excess of the fair value of shares and a warrant issued at conversion of convertible notes over the carrying value of the host instruments and accrued interest, and (ii) a debt extinguishment gain of $632,826 related to the forgiveness of PPP loans in May and June 2021. There were no gains or losses from the extinguishment of debt in 2022.

Losses from the change in fair value of debt was $19,246 in the nine months ended September 30, 2021. Such losses resulted from certain convertible notes and notes payable to related parties that, in previous periods, were extended and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period was recorded as “Change in fair value of debt.” After conversion of our remaining convertible notes outstanding in January 2021, we had no further debt carried at fair value, and therefore no change in fair value of debt in the nine months ended September 30, 2022

Financing cost in the nine months ended September 30, 2021 was $110,000, resulting from cash and stock-based fees paid in connection with the July 2022 SEPA. There were no financing costs in the third quarter of 2021.

Amortization of original issue and debt discounts on notes payable and convertible notes in the nine months ended September 30, 2021 was $21,020, resulting from amortization of original issue discounts on our July 2022 $550,000 promissory note and on a note payable assumed in our acquisition of AEU.

Gain (loss) from the change in fair value of contingent acquisition consideration increased by $900,251, or 384%, to a gain of $665,573 in the nine months ended September 30, 2022, compared to a loss of $234,678 in the nine months ended September 30, 2021. Because contingent acquisition consideration related to our acquisition of MOD is payable in a fixed number of shares, changes in the fair value of the contingent acquisition consideration fluctuates with our share price. During the nine months ended September 30, 2021, our share price increased substantially, resulting in an increase in the fair value of the contingent acquisition consideration liability and a corresponding loss from the change in fair value. During the nine months ended September 30, 2022, our share price decreased substantially, resulting in a gain from the decrease in fair value of the liability.

Interest expense increased by $2,068, or 16%, to $15,151 for the nine months ended September 30, 2022, compared to interest expense of $13,083 in the nine months ended September 30, 2021. Interest expense relates primarily to long-term SBA loans.

Total other income (expenses) increased by $5,743,577, or 110%, to income of $519,402 in the nine months ended September 30, 2022 compared to expense of $5,224,175 in the nine months ended September 30, 2021. The change was primarily a result of a $5,589,994 loss on extinguishment of debt associated with the retirement of our last remaining convertible notes payable in 2021, and a gain from the change in fair value of contingent acquisition recognized in the nine months ended September 30, 2022, contrasted to a loss in the nine months ended September 30, 2021, due principally to the fixed-share structure of the MOD contingent consideration.

Net loss decreased by $4,155,489, or 48%, to $4,541,745 in the nine months ended September 30, 2022, compared to net loss of $8,697,234 in the nine months ended September 30, 2021, primarily as a result of (i) the initial determination by CMS of no Medicare shared savings revenue (net of provider shared savings expense) in 2022, which is under appeal as described above, (ii) an increase in the gain from the change in fair value of contingent acquisition recognized in 2022 compared to 2021, due principally to the fair value impact of changes in our stock price on the fixed-share structure of the MOD contingent acquisition consideration, (iii) a decrease in patient services revenue at our NWC facility and a decrease in product revenue, and (iv) an increase in practice salaries and operating costs in our Health Services division.

Seasonal Nature of Operations

We acquired CHM in May 2020. CHM’s primary source of revenue is derived from payments earned under the Medicare shared savings program. Such amounts are determined annually when we are notified by CMS of the amount of shared savings earned. Accordingly, we recognize Medicare shared savings revenue in the period in which the CMS notifies us of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. Medicare shared savings revenue for the program year ended December 31, 2020, for which we received payment and recognized revenue in September 2021, was $2,419,312. Medicare shared savings revenue for the program year ended December 31, 2019, for which we received payment and recognized revenue in September 2020, was $767,744. Future recognition of Medicare shared savings revenue is expected to result in a material increase in our consolidated revenues in the third fiscal quarter of each year compared to the first, second and fourth fiscal quarters. Likewise, in the period in which we recognize Medicare shared savings revenue, we also determine the amount of shared savings expense to be paid to physicians participating in our ACO. This expense is also expected to be recognized in the third fiscal quarter of each year and is expected to materially increase our total operating expenses in the third fiscal quarter compared to other quarters of the fiscal year

As described above, we received an initial determination during third quarter 2022 from the CMS that our ACO missed its plan year 2021 benchmark expenditures, for which we would have received payment in September 2022, by just 0.03% on total ACO expenditures of approximately $112 million. During September 2022, we filed the MSSP Appeal with the CMS on the basis that certain of our included expenditures were directly related to long-haul Covid-19 and should therefore be excluded from consideration in calculation of our shared savings. We are awaiting the outcome of the MSSP Appeal, which we expect during the fourth quarter of 2022. Because we recognize Medicare shared savings revenue and related provider shared savings expense when we receive official notification from CMS of any amounts to be paid to us, we will only recognize revenue and expense related to plan year 2021 shared savings if and when we are notified that the MSSP Appeal is successful. If the MSSP Appeal is unsuccessful, we will not receive any Medicare shared savings payments related to plan year 2021 and therefore will not recognize any Medicare shared savings revenue or provider shared saving expense in 2022.

Liquidity and Capital Resources

Liquidity and Going Concern

During the second quarter of 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This update provided U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. Under this standard, we are required to evaluate whether there is substantial doubt about our ability to continue as a going concern each reporting period, including interim periods. In evaluating our ability to continue as a going concern, management considered the conditions and events that could raise substantial doubt about our ability to continue as a going concern within 12 months after our financial statements were issued (November 14, 2022). Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our obligations due before November 14, 2023.

We are subject to a number of risks, including uncertainty related to product development and generation of revenues and positive cash flow from our Digital Healthcare division and a dependence on outside sources of capital. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill our growth and operating activities and generating a level of revenues adequate to support our cost structure.

We have experienced net losses and cash outflows from operating activities since inception. As of September 30, 2022, we had cash balances of $158,160, a working capital deficit of $1,989,943 and an accumulated deficit of $36,746,934. For the nine months ended September 30, 2022, we had a net loss of $4,541,745, net cash used by operating activities of $3,762,644, and cash provided by financing activities of $1,173,908. We expect to continue to incur net losses and have significant cash outflows for at least the next 12 months.

Management has evaluated the significance of the conditions described above in relation to our ability to meet our obligations and concluded that, without additional funding, we will not have sufficient funds to meet our obligations within one year from the date the condensed consolidated financial statements were issued.

On July 5, 2022, we entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd. (“Yorkville”). Pursuant to the SEPA, we shall have the right to sell to Yorkville up to 30,000,000 of our shares of common stock, par value $0.0001 per share, at our request any time during the commitment period set forth in the SEPA. Because the purchase price per share to be paid by Yorkville for the shares of common stock sold us to Yorkville pursuant to the SEPA, if any, will fluctuate based on the market prices of our common stock during the applicable pricing period, we cannot reliably predict the actual purchase price per share to be paid by Yorkville for those shares, or the actual gross proceeds to be raised by us from those sales, if any. During the three and nine months ended September 30, 2022, we made 11 advances under the SEPA, receiving $297,405 in proceeds for the issuance of 2,708,100 shares of common stock, of which $125,618 was applied to the balance of the Promissory Note.

On July 19, 2022, pursuant to a Note Purchase Agreement between us and Yorkville, dated July 5, 2022, we issued to Yorkville a promissory note with an initial principal amount equal to $550,000 (the “Promissory Note”) at a purchase price equal to the principal amount of the Promissory Note less any original issue discounts and fees. We received net proceeds of $522,500. The Promissory Note will mature on the six-month anniversary of execution. The Promissory Note accrues interest at a rate of 0%, but was issued with 5% original issue discount, and will be repaid in five equal monthly installments beginning on August 19, 2022. The Promissory Note may be repaid with the proceeds of an advance under the SEPA, or repaid in cash and, if repaid in cash, together with a 2% premium. During the third quarter of 2022, we made repayments totaling $149,595 against the Promissory Note, including $125,618 applied from proceeds of sales of common stock under the SEPA.

On October 21, 2022, our Board of Directors approved a plan to sell the ACO/MSO Division, comprised of the operations of CHM and its subsidiary AHP, which we acquired on May 18, 2020. CHM and AHP operate an ACO that 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. We expect to use the cash proceeds generated from a sale to supplement our operating cash requirements and pursue additional acquisitions. We expect to complete a sale by the first quarter of 2023.

Without raising additional capital, either via additional Advances made pursuant to the SEPA, from the sale of debt or equity, from the sale of the ACO/MSO Division, or from other sources, there is substantial doubt about our ability to continue as a going concern through November 14, 2023. The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of presentation contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business.

Plan of operation and future funding requirements

Our plan of operations is to profitably operate our Health Services business and continue to invest in our Digital Healthcare business, including our cloud-based online personal medical information and record archiving system, the “HealthLynked Network.”

We are marketing the HealthLynked Network by targeting large health systems, hospitals and universities. In addition, we are marketing via direct-to-patient marketing, affiliated marketing campaigns, co-marketing with our Medical Distribution businesses subsidiary MOD, and expanded southeast regional sales efforts. Our initial sales strategy is utilizing Internet-based marketing to increase penetration to targeted geographical areas. These campaigns are focused on both physician providers and patient members. We also are leveraging MOD’s discounted medical supplies as an offering to our patient and physician members in the HealthLynked Network. We also intend to utilize physician telesales through the use of telesales representatives whom we will hire as access to capital allows. If we fail to complete the development of, or successfully market, the HealthLynked Network, our ability to realize future increases in revenue and operating profits could be impacted, and our results of operations and financial position would be materially adversely affected.

Historical Cash Flows

Operating Activities – During the nine months ended September 30, 2022, we used cash from operating activities of $3,762,644, as compared with $1,627,184 in the nine months ended September 30, 2021. The increase in cash usage results primarily from year-over-year decreases in Medicare shared savings revenue (net of provider shared savings expense) for which we are awaiting the outcome of an appeal, patient service and product revenue, as well as increased selling, increased general and administrative costs related to our continued expansion and investment in developing and marketing the HealthLynked Network.

Investing Activities – During the nine months ended September 30, 2022, we used $544,750 in investing activities, including $313,802 used to acquire AEU (net of cash acquired), $207,384 contingent acquisition consideration payment paid to the sellers of NCFM related to the third and final year of earn-out, and $23,564 to acquire fixed assets. During the nine months ended September 30, 2021, we used $334,581 in investing activities, including $196,000 contingent acquisition consideration payment paid the sellers of NCFM and $126,106 contingent acquisition consideration payment paid the sellers of Cura, plus $12,475 for the acquisition of computers and equipment.

Financing Activities – During the nine months ended September 30, 2022, we received $706,787 from the sale of common stock (net of $125,618 received from sales of common stock under the SEPA that were applied to the balance of the Note Payable), $522,500 from the issuance of notes payable and paid $55,379 against notes payable balances (net of $125,618 received from sales of common stock under the SEPA that were applied to the balance of the Note Payable). During the nine months ended September 30, 2022 and 2021, we realized $7,248,372 and $271,308, respectively, in financing activities. Cash realized in 2021 was comprised mainly of $5,229,360 from the sale of common stock pursuant to private placements and puts under the Investment Agreement, $1,719,921 net proceeds from the Registered Direct Offering, and $350,200 proceeds from the exercise of options and warrants. We also made cash repayments against a vendor note in the amount of $51,109, retiring the note in full.

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of September 30, 2022 based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company is not required to provide the information required by this item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).