Nakamoto Inc.: Form 10-Q for the period ended Jun 30, 2024

The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this report are forward-looking statements. The forward-looking statements in this report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following:

• our projected financial position and estimated cash burn rate;
• our estimates regarding expenses, future revenues and capital requirements;
• our ability to continue as a going concern;
• our need to raise substantial additional capital to fund our operations;
• our ability to obtain the necessary regulatory approvals to market and commercialize our products and planned future products;
• the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our customers, our competitors, healthcare systems or the global economy as a whole;
• the results of market research conducted by us or others;
• our ability to obtain and maintain intellectual property protection for our products and any planned future products;
• our reliance on third-party suppliers;
• our ability to expand our organization to accommodate potential growth and our ability to retain and attract key personnel;
• our ability to operate our business effectively and manage patient needs; and
• the successful development of our commercialization capabilities, including sales and marketing capabilities.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” included in our Registration Statement on Form S-1/A for the year ended December 31, 2023, as filed with the SEC on May 9, 2024. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable and the information included in this report is accurate, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

Overview

KindlyMD is a holistically-focused pain management clinic and healthcare data company formed in 2019. KindlyMD offers direct health care to patients integrating prescription medicine and behavioral health services to reduce opioid use in the chronic pain patient population. Its specialty outpatient clinical services are reimbursed by Medicare, Medicaid, and commercial insurance contracts as well as offered on a fee-for-service basis. The Company offers evaluation and management, including, but not limited to chronic pain, functional medicine, cognitive behavioral therapy, recovery support services, overdose education efforts, peer support, limited urgent care, preventative medicine, medically managed weight loss, and hormone therapy. KindlyMD believes these methods to be superior in managing the root cause of symptoms and improve outcomes while lowering dependency on opiates. Through its focus on an integrated model of prescriber and therapist teams, KindlyMD develops patient-specific care programs with a specific mission to reduce opioid use in the patient population while successfully treating patients with evidence based behavioral therapy and non-opioid alternatives.

Beyond its treatment of patients, KindlyMD collects data focused on why and how patients turn to alternative treatments to reduce prescription medication use and addiction. The Company captures all relevant datapoints to assist and appropriately treat each individual patient. This also results in valuable data for the Company and the Company’s investors. We strive to become a source for evidence-based guidelines, data, and education in the fight against the opioid crisis in America.

KindlyMD offers direct healthcare focused on what patients want and need, not what the doctor wants or needs. Its prescribers and therapists listen, use data and evidence, then help patients decide on a care plan. Through its focus on the de-stigmatization of behavioral healthcare, alternative therapies, and by taking a collaborative approach to counsel patients on every option available to them, KindlyMD is develops patient-specific care programs that embed behavioral therapy in every visit. KindlyMD providers are experts in de-prescribing and using alternatives to opioids, such as medical cannabis, Ketamine infusion therapy, and other prescription and non-prescription alternatives.

To further reduce inefficacious and opioid use we destigmatize behavioral health by embedding behavioral health into every program we offer. Sessions are reimbursed by insurance contracts or paid out of pocket. Additional work is done for addictions counseling, naloxone education, and risk mitigation strategies as part of our work on the Biden-Harris opioid initiative which places emphasis on decreasing overprescribing while improving access to addiction treatment and mental health initiatives. We offer naloxone to each chronic opioid patient as well as education and monitoring for addiction and recovery through the integrated model.

KindlyMD is most successful when patients report positive health outcomes as a result of our care. KindlyMD embeds prescribers with behavioral health consultants to develop person-specific care programs for patients. Its medical advisory committee evaluates the efficacy of those programs. Impact goals are set within individual programs and measured against national benchmarks and “Clinical Quality Measures.”

KindlyMD’s medical advisory committee is comprised of at least four individuals, including an MD, licensed behavioral health clinician, Advanced Practice Clinician, and a care coordinator. Individuals are appointed to the committee by the Board of Directors. The committee is responsible for reviewing Clinical Quality Measures for each calendar year, reviewing patient outcomes, and making recommendations for improvement in treatment protocols.

Recent Developments

Initial Public Offering

On May 31, 2024, KindlyMD entered into an underwriting agreement with WallachBeth Capital, LLC, as representative (the “Representative”) of the underwriters in connection with the initial public offering for sale of an aggregate of 1,240,910 units at a price to the public of $5.50 per share. Each unit offered under the underwriting agreement consists of one share of common stock, one tradeable warrant to purchase one share of common stock with an exercise price of $6.33 and a five-year exercise term; and one non-tradeable warrant to purchase one-half of one share of common stock with an exercise price of $6.33 and a five-year exercise term.

The underwriting agreement also provides for the issuance of 83,639 warrants to the Representative with an exercise price of $6.33 and a five-year exercise term. In addition, the underwriters have a 45-day option to purchase, at the public offering price, up to an additional 186,136 shares of common stock and/or tradeable warrants, and/or non-tradeable warrants, or any combination thereof, less, in each case, underwriting discounts and commissions to cover over-allotments.

On June 3, 2024, the IPO was completed, resulting in the issuance of 1,240,910 units. In addition, the underwriters partially exercised its over-allotment option, resulting in the issuance of 76,538 tradeable warrants and 76,538 non-tradeable warrants. As a result of the IPO, the Company received gross proceeds of approximately $6.8 million before deducting underwriting discounts and offering expenses. After deducting these and other offering expenses, the Company received net proceeds of approximately $5.9 million.

On June 3, 2024, the Company repaid all outstanding 10% OID promissory notes totaling $463,534 (including both principal and accrued interest) and issued each note holder common stock equal to the principal amount of the notes at the IPO price of $5.50 per share, totaling 80,808 shares of restricted common stock, with a fair value of $214,949 or $2.66 per share. These shares are subject to a 90-day lock-up agreement from the date of issuance. Consequently, the corresponding derivative liability was extinguished.

The common stock and tradeable warrants are trading on the Nasdaq Capital Market, under the symbols “KDLY” and “KDLYW,” respectively.

Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table sets forth key components of our results of operations during the three months ended June 30, 2024 and 2023, both in dollars and as a percentage of our revenues:

Revenues

The Company earned $91,553 in reimbursements from insurance payers during the three months ending June 30, 2024, which is a 163.7% increase over the $34,722 earned for the three months ending March 31, 2024. The Company earned $0 during the three and six months ended June 30, 2023.

Revenues decreased by $340,481, or 34.8%, to $639,057 for the three months ended June 30, 2024, from $979,538 for the three months ended June 30, 2023. The decrease in revenues is primarily attributed to a decrease in cash-pay patient care services as KindlyMD continues to shift toward insurance billing with commercial and governmental payers including Medicare, Medicaid, Select Health, Blue Cross Blue Shield, Cigna, and other commercial payers compared to the prior period.

Operating Expenses

Operating expenses increased by $95,423, or 6.0%, to $1,676,250 for the three months ended June 30, 2024, from $1,580,827 for the three months ended June 30, 2023. The increase in operating expenses is primarily attributable to the following:

1. Salaries and wages increased by $17,334, or 1.6%, to $1,126,893 for the three months ended June 30, 2024, from $1,109,559 for the three months ended June 30, 2023. The increase in salaries and wages is primarily attributed to additional staffing needs related to employee and contract labor for data lake implementation and increased compliance and billing and coding costs as KindlyMD shifts to insurance billing with commercial and governmental payers.

2. General and administrative expenses increased by $76,141, or 19.7%, to $461,677 for the three months ended June 30, 2024, from $385,536 for the three months ended June 30, 2023. The increase in general and administrative expenses is primarily attributed to investor relations and directors and officers insurance.

3. Cost of revenues increased by $2,439, or 4.1%, to $61,947 for the three months ended June 30, 2024, from $59,508 for the three months ended June 30, 2023. The increase in cost of revenues is primarily attributed to adjusted materials cost for retail sales along with a reduction to $0 of inventory reserve, which lowered the provisions previously set aside for potential inventory obsolescence.

Other Income (Expense)

Net other expenses increased by $287,341, or 5,886.9%, to $282,460 for the three months ended June 30, 2024, from net other income of $4,881 for the three months ended June 30, 2023. The increase in net other expenses is primarily attributable to the following:

1. Other income increased by $753, or 5.8%, to $13,828 for the three months ended June 30, 2024, from $13,075 for the three months ended June 30, 2023. This increase is primarily attributable to higher income from affiliate programs and educational partnerships during the period.

2. Interest expense increased by $310,256, or 3,786.4%, to $318,450 for the three months ended June 30, 2024, from $8,194 for the three months ended June 30, 2023. For the three months ended June 30, 2024, interest expense is primarily attributable to accrued interest of notes payable of $8,369 and amortization of debt discounts of $310,081. For the three months ended June 30, 2023, interest expense was primarily attributable to accrued interest of notes payable of $7,318 and amortization of debt discounts of $876.

3. As a result of the repayment and issuance of common shares upon settlement of notes payable in connection with a public offering IPO, during the three months ended June 30, 2024, the Company recorded a loss on extinguishment of debt of $38,889 and a gain on change in fair value of derivative liability of $61,051.

Net Loss

As a result of the cumulative effect of the factors described above, our net loss was $1,319,653 for the three months ended June 30, 2024, compared to $596,408 for the three months ended June 30, 2023.

Net loss per share decreased by $0.13, or 100.0%, to $(0.26) for the three months ended June 30, 2024, compared to $(0.13) for the three months ended June 30, 2023. KindlyMD management strives to look for opportunities to optimize revenue by increasing sales, acquiring additional clinics, improving margins, and controlling ongoing operating expenses.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table sets forth key components of our results of operations during the six months ended June 30, 2024 and 2023, both in dollars and as a percentage of our revenues:

Revenues

The Company earned $91,553 in reimbursements from insurance payers during the three months ending June 30, 2024, which is a 163.7% increase over the $34,722 earned for the three months ending March 31, 2024. The Company earned $126,325 in reimbursements from insurance payers during the six months ended June 30, 2024, and $0 during the three and six months ended June 30, 2023.

Revenues decreased by $671,797, or 31.4%, to $1,468,086 for the six months ended June 30, 2024, from $2,139,883 for the six months ended June 30, 2023. The decrease in revenues is primarily attributed to a decrease in cash-pay patient care services as KindlyMD continues to shift toward insurance billing with commercial and governmental payers including Medicare, Medicaid, Select Health, Blue Cross Blue Shield, and other commercial payers compared to the prior period.

Operating Expenses

Operating expenses decreased by $203,971, or 6.9%, to $2,742,406 for the six months ended June 30, 2024, from $2,946,377 for the six months ended June 30, 2023. The decrease in operating expenses is primarily attributable to the following:

1. Salaries and wages decreased by $208,001, or 10.2%, to $1,834,859 for the six months ended June 30, 2024, from $2,042,860 for the six months ended June 30, 2023. The decrease in salaries and wages is primarily attributed to decreased employee costs related to efficiency in patient care services.

2. General and administrative expenses increased by $43,503, or 5.8%, to $787,222 for the six months ended June 30, 2024, from $743,719 for the six months ended June 30, 2023. The increase in general and administrative expenses is primarily attributed to investor relations and directors and officers insurance.

3. Cost of revenues decreased by $38,441, or 35.6%, to $69,691 for the six months ended June 30, 2024, from $108,132 for the six months ended June 30, 2023. The decrease in cost of revenues is primarily attributed to the corresponding decline in product revenues and a reduction in our inventory reserve, which lowered the provisions previously set aside for potential inventory obsolescence.

Other Income (Expense)

Net other expenses increased by $356,766, or 1,225.7%, to $327,659 for the six months ended June 30, 2024, from net other income of $29,107 for the six months ended June 30, 2023. The increase in net other expenses is primarily attributable to the following:

1. Other income decreased by $11,433, or 30.7%, to $25,868 for the six months ended June 30, 2024, from $37,301 for the six months ended June 30, 2023. This decrease is primarily attributable to lower income from affiliate programs and educational partnerships during the period.

2. Interest expense increased by $367,495, or 4,484.9%, to $375,689 for the six months ended June 30, 2024, from $8,194 for the six months ended June 30, 2023. For the six months ended June 30, 2024, interest expense is primarily attributable to accrued interest of notes payable of $18,250 and amortization of debt discounts of $357,439. For the six months ended June 30, 2023, interest expense is primarily attributable to accrued interest of notes payable of $7,318 and amortization of debt discounts of $876.

3. As a result of the repayment and issuance of common shares upon settlement of notes payable in connection with a public offering IPO, during the six months ended June 30, 2024, the Company recorded a loss on extinguishment of debt of $38,889 and a gain on change in fair value of derivative liability of $61,051.

Net Loss

As a result of the cumulative effect of the factors described above, our net loss was $1,601,979 for the six months ended June 30, 2024, compared to $777,387 for the six months ended June 30, 2023.

Net loss per share decreased by $0.16, or 94.1%, to $(0.33) for the six months ended June 30, 2024, compared to $(0.17) for the six months ended June 30, 2023. Management continues to look for opportunities to increase sales, acquire additional clinics, improve margins, and control ongoing operating expenses.

Liquidity and Capital Resources

As of June 30, 2024, we had cash and cash equivalents of $4,740,006 and total working capital of $4,111,725. For the six months ended June 30, 2024, the Company incurred an operating loss of $1,274,320, and used cash flows in operating activities of $1,126,976.

To date, we have financed our operations primarily through revenues generated from operations and cash proceeds from financing activities. As discussed above, on June 3, 2024, we completed IPO through the issuance of common stock and warrants for total net proceeds of $6.02 million. The IPO provided the Company with adequate liquidity and cash reserves to meet our obligations for at least the 12-month period following the date of this report, and to facilitate our strategic operational business plans to create sustained cash flow generation.

Summary of Cash Flow

The following table provides detailed information about our net cash flows from operations for the periods indicated:

Net cash used in operating activities was $1,126,976 for the six months ended June 30, 2024, as compared to $274,964 for the six months ended June 30, 2023. The decrease in net cash used in operating activities was primarily a result of the net loss during the period.

Net cash used in investing activities was $11,182 for the six months ended June 30, 2024, as compared to $14,420 for the six months ended June 30, 2023. The decrease in cash used in investing activities is primarily attributed to decreased capital expenditures during the period.

Net cash provided by financing activities was $5,352,664 for the six months ended June 30, 2024, as compared to $213,091 for the six months ended June 30, 2023. The increase in net cash provided by financing activities is primarily attributed to the $5.9 million of net proceeds received in the public offering, offset by repayments of notes payable.

As a result of these cash flow activities, our net cash increased by $4,214,506, or 802.0%, from $525,500 as of December 31, 2023, to $4,740,006 as of June 30, 2024.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

The preparation of these condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of and during the reported period of the financial statements. Actual results could differ from those estimates. We evaluate our estimates and assumptions on an ongoing basis.

For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, Estimates and Assumptions” in our Annual Report on Form S-1/A for the fiscal year ended December 31, 2023 filed with the SEC on May 9, 2024.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

The Company does not currently maintain sufficient controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures would include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2024, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are not effective in providing reasonable assurance of compliance.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide information under this item.