Kindly MD Inc

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2024 (UNAUDITED)

NOTE 1—BASIS OF PRESENTATION AND OTHER INFORMATION

The accompanying unaudited condensed financial statements of Kindly MD, Inc. (the “Company,” “KindlyMD,” “we,” “us,” or “our”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2023 balance sheet data was derived from audited financial statements but do not include all disclosures required by GAAP. The interim unaudited condensed financial statements should be read in conjunction with those financial statements included in the Form S-1/A, as filed with the Securities and Exchange Commission on May 9, 2024. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, consisting solely of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Reclassifications

Certain reclassifications within operating expenses have been made to the prior period’s financial statements to conform to the current period financial statement presentation. There is no impact in total to the results of operations and cash flows in all periods presented.

***Recently Issued Accounting Pronouncements ***

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the FASB. The Company has evaluated all recent accounting pronouncements and determined that the adoption of pronouncements applicable to the Company has not had or is not expected to have a material impact on the Company’s financial statements.

NOTE 2—LIQUIDITY AND GOING CONCERN ASSESSMENT

Management assesses liquidity and going concern uncertainty in the Company’s condensed financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the financial statements are issued, which is referred to as the “look-forward period,” as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management considered various scenarios, forecasts, projections, estimates and made certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, management made certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.

As of March 31, 2024, we had cash and cash equivalents of $287,383 and total working capital deficit of $505,419. For the three months ended March 31, 2024, the Company incurred an operating loss of $237,127, and used cash flows in operating activities of $213,439.

As further disclosed in Note 9, on June 3, 2024, the Company completed an initial public offering (“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 its obligations for at least the 12-month period following the date of this report, and to assist us in implementing our strategic operational business plans to create sustained cash flow generation thereafter.

Management has prepared estimates of operations and believes that sufficient funds will be generated from operations to fund its operations, and to service its debt obligations for one year from the date of the filing of these financial statements. The accompanying condensed financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business. Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts, for one year from the date of the filing of these financial statements, indicate improved operations and the Company’s ability to continue operations as a going concern.

NOTE 3—DISAGGREGATION OF REVENUES

Our revenue is disaggregated based on revenue type, including (i) patient care services related to medical evaluation and treatment, and (ii) product retail sales.

The Company’s revenues for the three months ended March 31, 2024 and 2023 are disaggregated as follows:

The Company earned $34,722 in reimbursements from insurance payers during the three months ended March 31, 2024, compared to $0 during the three months ended March 31, 2023.

NOTE 4—INVENTORY

Inventory consisted of the following at March 31, 2024 and December 31, 2023:

NOTE 5—PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2024 and December 31, 2023:

Depreciation expense for the three months ended March 31, 2024 and 2023 was $24,901 and $25,442, respectively.

NOTE 6—OPERATING LEASES

The following was included in our balance sheets at March 31, 2024 and December 31, 2023:

The components of net lease expense consisted of the following for the three months ended March 31, 2024 and 2023:

Cash payments included in the measurement of our operating lease liabilities were $35,961 and $32,377 for the three months ended March 31, 2024 and 2023, respectively.

Maturities of operating lease liabilities at March 31, 2024 were as follows:

NOTE 7—NOTES PAYABLE

10% OID Promissory Notes

On January 24, 2024, the Company entered into a securities purchase agreement in a private placement transaction with a certain accredited investor, pursuant to which the Company issued and sold to the investor a 10% original issue discount (“OID”) promissory note in the principal amount of $55,556 for total cash proceeds of $45,000. The note bears interest at a rate of 10% per annum and matures on January 24, 2025. Should the Company undertake an IPO before the maturity date, the note holder is to receive (i) equity shares equal to the principal amount at the IPO share price, and (ii) repayment of the principal and accrued interest in cash. The note contains customary covenants and events of default for a loan of this type.

The Company evaluated whether this promissory note contains embedded features that qualify as derivatives pursuant to ASC 815. The Company determined that the notes embedded features, specifically should the Company undertake an IPO before the maturity date, the note holder will receive (i) equity shares equal to the principal amount at the IPO share price, and (ii) repayment of the principal and accrued interest in cash. These embedded features constitute deemed redemption features as a result of the substantial premium received by the note holder. The Company concluded that these redemption features require bifurcation from the note and subsequent accounting in the same manner as a freestanding derivative.

The fair value of the embedded redemption derivative liability within this promissory note was calculated using a Probability Weighted Expected Return valuation methodology, considering the likelihood of occurrence. The model used a discount rate of 15% and assumptions of an 80% probability related to likelihood of the Company undergoing an IPO. Subsequent changes in the fair value of the redemption features are measured at each reporting period and recognized in the statement of operations. The OID and issuance costs for the promissory note, along with the fair value of the embedded redemption derivative liability, were collectively recorded as a debt discount. This discount will be amortized to interest expense over the respective term of the convertible notes using the effective interest method.

As further disclosed in Note 9, the IPO was completed on June 3, 2024. In accordance with the terms of the 10% OID promissory note agreements, the Company repaid the outstanding notes and issued each note holder common stock equal to the principal amount of the notes at the IPO price of $5.50. Consequently, the corresponding derivative liability was extinguished.

Derivative Liabilities

The following table provides a roll-forward of the derivative liability for the three months ended March 31, 2024:

Estimated maturities of principal payments for notes payable at March 31, 2024 were as follows:

NOTE 8—STOCKHOLDERS’ DEFICIT

Preferred Stock

As of March 31, 2024 and December 31, 2023, the Company was authorized to issue 10,000,000 preferred shares. As of March 31, 2024 and December 31, 2023, the Company hadno preferred shares issued and outstanding.

Common Stock

As of March 31, 2024 and December 31, 2023, the Company was authorized to issue 100,000,000 common shares. As of March 31, 2024 and December 31, 2023, the Company had 4,617,798 common shares issued and outstanding.

Stock Options

On January 2, 2024, the Company granted options to purchase 5,590 shares of common stock to executives and employees. The stock options have an exercise price of $5.50 per share and vest on July 1, 2024. The Company has calculated the estimated fair market value of these options at $15,500 using the Black-Scholes pricing model.

Below is a table summarizing the changes in stock options outstanding during the three months ended March 31, 2024:

Stock-based compensation expense of $7,616 was recorded during the three months ended March 31, 2024. As of March 31, 2024, the remaining unrecognized compensation cost related to non-vested options is $7,884.

As of March 31, 2024, the outstanding stock options have a weighted average remaining contractual life of 7.39 years and a total intrinsic value of $0.

NOTE 9—SUBSEQUENT EVENTS

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 afive 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 afive 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 afive 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 $6.0 million.

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

Bridge Financings

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. These shares are subject to a 90-day lock-up agreement from the date of issuance. Consequently, the corresponding derivative liability was extinguished.