HealthLynked Corp: Form 10-Q for the period ended Mar 31, 2024

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) BTG, a physical therapy practice in Bonita Springs, Florida that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery, and (iv) 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 MOD, a virtual distributor of discounted medical supplies selling to both consumers and medical practices throughout the United States.

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 the condensed consolidated financial statements.

Results of Operations

Comparison of Three Months Ended March 31, 2024 and 2023

The following table summarizes the changes in our results of operations for the three months ended March 31, 2024 compared with the three months ended March 31, 2023:

* - 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 March 31, 2024 decreased by $736,660, or 43% year-over-year, from $1,700,281, to $963,261, primarily as a result of (i) a 45% year-over-year decrease at our NCFM practice of $582,785 due to changes in clinical staffing that saw the departure of three physicians in 2023, two of which have been replaced and one more which is expected to be replaced in the second quarter of 2024, (ii) a 93% year-over-year decrease at our AEU practice of $107,385 due to the departure of our primary physician, and (iii) a 33% decrease at our practice facility of $70,183, offset by (iv) 28% increase of $23,694 at our BTG practice. The reduction in revenue was offset in part by a corresponding designed reduction in practice operating costs as described below in the fluctuation of “Practice salaries and benefits” and “Other practice operating costs,” which declined by a combined $522,165 from 2023 to 2024. While we expect patient service revenue to increase in future periods from levels realized in the three months ended March 31, 2024 as we add an additional physician and continue patient marketing and retention efforts, there is no guarantee that such increases will occur.

Subscription revenue in the three months ended March 31, 2024 decreased by $8,671, or 53% year-over-year, to $7,628, from $16,299, due primarily to a decrease in HealthLynked Network paid subscriptions that were paired with NCFM membership contracts.

Product revenue was $32,983 in the three months ended March 31, 2024, compared to $38,574 in the three months ended March 31, 2023, a decrease of $5,591, or 14%. Product revenue was earned by the Medical Distribution Division, comprised of the operations of MOD.

Operating Expenses and Costs

Practice salaries and benefits decreased by $380,501, or 39%, to $583,156 in the three months ended March 31, 2024, compared to $963,657 in the three months ended March 31, 2023, primarily as a result of focused cost reduction efforts at all of our practices starting in mid-2023.

Other practice operating costs decreased by $141,664 or 23%, to $482,583 in the three months ended March 31, 2024 from $624,247 in the three months ended March 31, 2023, primarily as a result of focused cost reduction efforts at all of our practices starting in mid-2023.

Cost of product revenue was $30,579 in the three months ended March 31, 2024, a decrease of $1,481, or 5%, compared to $32,060 in the same period of 2023, corresponding to the decline in product sales for the period compared to the same period in the prior year.

Selling, general and administrative costs decreased by $104,305, or 9%, to $999,443 in the three months ended March 31, 2024 compared to $1,103,748 in the three months ended March 31, 2023, primarily due to lower legal, consulting, and other overhead costs in our corporate function resulting from focused cost cutting efforts.

Depreciation and amortization in the three months ended March 31, 2024 decreased by $1,568, or 2%, to $86,509 compared to $88,077 in the three months ended March 31, 2023, primarily as a result of certain fixed asset reaching the end of their depreciable lives during 2023.

Loss from operations increased by $121,403, or 11%, to $1,178,038 in the three months ended March 31, 2024 compared to $1,056,635 in the three months ended March 31, 2023, primarily as a result of the decrease in revenue, offset in part by reduced practice operating costs and corporate overhead costs.

Other Income (Expenses)

Loss on extinguishment of debt in the three months ended March 31, 2023 was $44,763 resulting from early repayment of notes payable to our CEO and Chairman, Dr. Dent, representing the excess of the repayment amount over the carrying value (net of unamortized discounts) of the debt instruments at the time of repayment. Loss on extinguishment of debt in the three months ended March 31, 2024 was $96,660 resulting from a maturing note payable to Dr. Dent refinanced with a new convertible note payable in the same amount.

Amortization of original issue and debt discounts on notes payable and convertible notes in the three months ended March 31, 2024 was $108,265, an increase of $44,905, or 71%, compared to $63,360 in the three months ended March 31, 2023. Amortization of discounts arose from original issue discounts on notes payable, warrants attached to notes payable, and beneficial conversion features in convertible notes payable. The increase was due to higher notes payable balances, and therefore corresponding amortizable discount balances, in 2024 compared to 2023.

Gain (loss) from the change in fair value of contingent acquisition consideration increased by $1,782, or -104%, to a gain of $76 in the three months ended March 31, 2024, compared to a loss of ($1,706) in the three months ended March 31, 2023. These charges relate to the fourth and final year of the MOD earnout, which will resolve based on the performance of our Medical Distribution Division in calendar year 2024.

Interest expense decreased by $6,550, or 58%, to $4,831 for the three months ended March 31, 2024, compared to $11,381 in the three months ended March 31, 2023, due to a decrease in interest-bearing notes payable to related parties and third parties during the first quarter of 2024 compared to the same period of 2023.

Total other income (expenses) increased by $88,470, or 73%, to net expense of $209,680 in the three months ended March 31, 2024 compared to net expense of $121,210 in the three months ended March 31, 2023. The change was primarily a result of increased debt discount amortization charges in 2024 corresponding to higher debt balances and higher debt extinguishment loss in 2024.

Loss from continuing operations increased by $209,873, or 18%, to $1,387,718 in the three months ended March 31, 2024, compared to $1,177,845 in the three months ended March 31, 2023. The increased loss was due primarily a decrease in revenue, offset in part by reduced practice operating costs and corporate overhead costs.

Gain (loss) from operations of discontinued operations

As a result of the AHP Sale on January 17, 2023, our ACO/MSO Division was classified as discontinued operations in the accompanying consolidated statement of operations for the three months ended March 31, 2024 and 2023. Loss from operations of discontinued operations decreased by $44,289, or 100%, from $44,289 in the three months ended March 31, 2023 to $-0- in the three months ended March 31, 2024. The loss in 2023 reflects two weeks of operations in 2023 as well as winding down costs of the discontinued operation after the sale on January 17, 2023. No revenue or costs were incurred related to the business in the three months ended March 31, 2024.

Effective January 17, 2023, we completed the AHP Sale, at which time we discontinued the operations of CHM and ceased to have a controlling financial interest in AHP. In connection with the AHP Sale, as of January 17, 2023, we recognized the fair value of consideration received and receivable from the AHP Sale, recognized an indemnification liability related to potential claims resulting from the AHP Sale, derecognized the carrying value of assets and liabilities transferred to the Buyer or otherwise derecognized in connection with in the AHP Sale, and recorded a gain on sale for the excess of consideration received over carrying value of assets derecognized and liabilities recognized. Accordingly, we recorded a gain from disposal of AHP in the amount of $2,674,069 in the three months ended March 31, 2023.

Net loss

Net income (loss) decreased by $2,839,653, or 196%, to net loss of ($1,387,718) in the three months ended March 31, 2024, compared to net income of $1,451,93 in the three months ended March 31, 2023, primarily as a result of (i) the gain from disposal of AHP in the amount of $2,674,069 in the three months ended March 31, 2023 with no corresponding gain in the three months ended March 31, 2024, and (ii) lower revenue in 2024, offset by (iii) reduced practice operating costs and corporate overhead costs.

Seasonal Nature of Operations

We do not experience any material seasonality related to any of our continuing operations.

Liquidity and Capital Resources

Liquidity Condition

During the second quarter of 2014, the Financial Accounting Standards Board (“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 (May 15, 2025).

Management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our obligations due before May 15, 2025 and concluded that, without additional funding, we will not have sufficient funds to meet our obligations within one year from the date the consolidated financial statements were issued. Without raising additional capital, either via additional advances made pursuant to the SEPA or from other sources, there is substantial doubt about our ability to continue as a going concern through May 15, 2025. The accompanying 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.

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.

As of March 31, 2024, we had cash balances of $23,491, a working capital deficit of $798,224 and an accumulated deficit of $43,420,854. For the three months ended March 31, 2024, we had a net loss of $1,387,718 and we used cash from operating activities of $854,855. We expect to continue to incur net losses and have significant cash outflows for at least the next 12 months.

Significant Liquidity Transactions

Through March 31, 2024, we have funded our operations principally through a combination of sales of our common stock, convertible and non-convertible promissory notes, government issued debt, and related party debt, as described below.

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 have the right to sell to Yorkville up to 30,000,000 shares of our common stock, par value $0.0001 per share, at our request any time during the three-year 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 by 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 we will receive from those sales, if any. During the three months ended March 31, 2023, we sold 225,000 shares of common stock under the SEPA, receiving $18,765 in proceeds, all of which was applied to the balance of a then-outstanding promissory note payable to Yorkville. We have not sold any additional shares under the SEPA since January 2023.

During the three months ended March 31, 2024, we issued three new convertible notes payable to our CEO, Dr. Michael Dent, for aggregate net cash proceeds of $500,000 and refinancing of an existing note in the amount of $166,500. We also made cash repayments on notes payable totaling $221,278.

During the three months ended March 31, 2024, the Company sold 5,100,000 shares of common stock to three investors in separate private placement transactions. The Company received $355,000 in proceeds from the sale. In connection with the stock sale, the Company also issued 2,500,000 five-year warrants to purchase shares of common stock at an exercise price of $0.17 per share.

On January 17, 2023, we entered into the AHP Merger Agreement, pursuant to which the Buyer agreed to buy, and we agreed to sell, AHP. We received $750,000 upon signing of the AHP Merger Agreement, $31,381 in March 2023 for the Stub Period Reimbursement, $1,750,000 ($1,540,000 net after commissions) in Incremental Cash Consideration during June, July and August for meeting participating physician transfer milestones, and $1,873,993 gross ($1,186,231 net after commissions) in October 2023 from the 2022 MSSP Consideration. We may receive future proceeds comprised of proceeds from sale of shares of the Buyer if the Buyer completes an initial public offering by February 1, 2025 and up to $500,000 of the Physician Advance Consideration from the Buyer’s plan year 2023 (and if necessary, 2024) MSSP Shared Savings.

Without raising additional capital, whether via additional advances made pursuant to the SEPA, from the sale of equity or debt instruments, from receipt of remaining contingent consideration related to the sale of the ACO/MSO Division, or from other sources, there is substantial doubt about the Company’s ability to continue as a going concern through May 15, 2025. The accompanying 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.

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 practices 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.

We plan to raise additional capital to fund our ongoing plan of operation.

Historical Cash Flows

Operating Activities – During the three months ended March 31, 2024, we used cash from operating activities of $854,855, as compared with $1,099,513 in the three months ended March 31, 2023. The decrease in cash usage results primarily from cost reduction efforts at our Health Services practices, as well as a decrease of $47,163 in cash used in operations of our discontinued ACO/MSO Division resulting from the unit being sold on January 17, 2023.

Investing Activities – During the three months ended March 31, 2024, we used $2,598 in investing activities related to acquisition of computers and office equipment. During the three months ended March 31, 2023, we realized $781,381 from investing activities, comprised of cash proceeds received form the AHP sale, including $750,000 Upfront Cash Consideration and $31,381 Stub Period Reimbursement.

Financing Activities – During the three months ended March 31, 2024, cash provided by financing activities was $633,722, comprised of $355,000, from the sale of common stock and $500,000 from the issuance of notes payable to related parties, offset by $221,278 repayments made against notes payable balances. During the three months ended March 31, 2023, cash provided by financing activities was $324,907, comprised of $200,000 from the sale of common stock (net of $18,765 received from sales of common stock under the SEPA that were applied to the balance of a note payable) and $555,000 from the issuance of notes payable, offset by $430,393 repayments made against notes payable balances (net of $18,765 received from sales of common stock under the SEPA that were applied to the balance of a note payable).

Exercise of Warrants and Options

No warrants or options were exercised during the three months ended March 31, 2024 or 2023.

Other Outstanding Obligations at March 31, 2024

As of March 31, 2024, 85,357,246 shares of our common stock are issuable pursuant to the exercise of warrants with exercise prices ranging from $0.035 to $1.05.

As of March 31, 2024, 9,148,730 shares of our common stock are issuable pursuant to the exercise of options with exercise prices ranging from $0.0569 to $0.31.

As of March 31, 2024, 1,026,324 shares of our common stock are issuable pursuant to future vesting of stock grants.

As of March 31, 2024, 1,055,536 shares of our common stock are earned but unissued pursuant to consulting and director agreements.

Off Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable Securities and Exchange Commission rules.

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 March 31, 2024 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, and in light of the material weaknesses found in our internal controls over financial reporting, our management concluded that our disclosure controls and procedures were not effective as of March 31, 2024.

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 March 31, 2024 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).