DataMeds AI, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Statement Regarding Forward-Looking Information” below. We have no obligation to update any of these forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements due to many factors, including, but not limited to, those set forth under the heading “Risk Factors” in this Quarterly Report. Factors that could cause or contribute to such differences include, but are not limited to, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this Quarterly Report. Cautionary Statement Regarding Forward-Looking Information This Quarterly Report contains statements that constitute forward-looking statements that are subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Some of the statements in this Quarterly Report constitute forward-looking statements because they relate to future events or the future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. These forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” or the negative of these terms or other similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. 28 Forward-looking statements in this Quarterly Report may include, for example, statements about: ● A shift in pharmacy mix toward lower margin plans, margin compression on branded medications, or the increased offering of specialty products, direct and indirect remuneration fees, mail order pharmacy steering, and programs; ● Wellgistics Health deriving a portion of its sales from prescription drug sales reimbursed by pharmacy benefit management companies; ● Wellgistics Health being adversely affected by a decrease in the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs; ● Changes in economic conditions that adversely affect consumer/client buying practices and market adoption of our mobile application and the accompanying revenues to premium access/services; ● Wellgistics Health’s relationships with its primary wholesaler for pharmacy operations and Wellgistics Health’s manufacturer relationships of its wholesale and hub technology platform subsidiaries; ● Changes in the healthcare industry and regulatory environments; ● The effects of competition on Wellgistics Health’s future business; ● Wellgistics Health’s ability to execute its business plans and strategy; and ● Other risks and uncertainties described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2025, and those risks described in the section entitled “ Risk Factors ” of this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. There can be no assurance that future developments affecting us will be those that we have anticipated. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statements in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Overview Incorporated in 2022, we are a holding company for operating companies centered around healthcare technology and pharmaceutical services. We seek to be a micro health ecosystem, with a portfolio of companies consisting of a technology platform, pharmacy, and wholesale operations that provide novel prescription hub and clinical services. We strive to shift the dynamic of pharmaceutical care to revolve around the patient for a range of therapeutic conditions by offering various integrated solutions through leveraging our business segments to address access, care coordination, dispensing, delivery, and clinical management of certain pharmaceutical products. Currently, we own one direct operating company, Wellgistics, LLC, and two indirect operating companies, Wellgistics Tech & Hub, LLC dba DelivMeds (f/k/a Alliance Pharma Solutions, LLC) (“Wellgistics Tech & Hub”) and Wellgistics Pharmacy, LLC (f/k/a Community Specialty Pharmacy, LLC) (“Wellgistics Pharmacy”), through an intermediary—Wood Sage, LLC. 29 Wellgistics, LLC Founded in 2013, Wellgistics, LLC serves as the wholesale arm of our healthcare ecosystem as a 50-state FDA licensed and NABP-accredited pharmaceutical wholesaler distributor, bridging the gap between small- to mid-size pharmaceutical manufacturers and independent retail pharmacies. Serving over 5,000 registered pharmacies nationwide, Wellgistics, LLC provides significant value by offering competitive pricing, unique products, and exceptional service, while also promoting manufacturers’ products to a diverse range of pharmacies. Wellgistics, LLC’s primary focus is on supporting independent retail pharmacies in search of better products, prices, and services, thereby ensuring their growth and sustainability in the competitive pharmaceutical sector. Wellgistics, LLC provides distribution and third party logistics services to both pharmaceutical manufacturers and independent retail pharmacies. With over 60 manufacturing relationships, Wellgistics, LLC identifies niche therapeutic products and work with its manufacturing clients to increase market access and visibility of its client relationships with product awareness and support campaigns. Specifically, Wellgistics, LLC helps promote product distribution through its network of pharmacy buyers by providing sales and marketing support. These services include providing product education, identifying opportunities for therapeutic substitution when clinically relevant, and cost savings opportunities for pharmacies and their patients. Wellgistics, LLC’s portfolio of products is comprised of 65% topical generics with a primary focus on the dermatology market, 20% oral generic formulations primarily in the non-narcotic pain category, 10% oral and topical brand formulations, and 5% in the over-the-counter market space. Its investments in cold chain infrastructure will position this division to compete in the specialty-lite therapy category while also expanding our ability to house additional branded products. We acquired Wellgistics, LLC in August 2024. Wellgistics Tech & Hub, LLC Founded in 2017 under the name Alliance Pharma Solutions, LLC and doing business as DelivMeds, Wellgistics Tech & Hub serves as the middleware technology arm of our healthcare ecosystem by facilitating prescription transfer and clinical concierge services to a network of independent pharmacies. After conducting an extensive market research survey focusing on competition, Wellgistics Tech & Hub identified several key differentiators from other healthcare technology solutions, including various integrations of the hub with pharmacy management software systems and pharmacy point of sale systems, among others. This suggests that Wellgistics Tech & Hub could serve as an end-to-end patient-centric solution automating the prescription journey. Powered by Wellgistics Pharmacy as the backend pharmacy, Wellgistics Tech & Hub is the frontend technology serving as the middleware between all key stakeholders referenced in what we refer to as the 5P-Model: patients, providers, pharmacies, payors or pharmacy benefit managers, and pharmaceutical manufacturing companies. Through Wellgistics Tech & Hub, we aim to preserve patient autonomy, improve price transparency, and aid in making a meaningful impact on patient outcomes by eliminating barriers to therapy while simultaneously boosting adherence. We work with channel partners such as pharmaceutical manufacturers, provider groups and accountable care organizations, telehealth companies, and employer groups to offer full suite of patient-centered pharmacy services. Wellgistics Tech & Hub’s business-to-business strategy approach enables prescriptions to be sent directly to Wellgistics Pharmacy and subsequently transferred to an eligible in-network independent pharmacy. Each channel partner is equipped with de-identified data to improve its respective business operation and or improve its renumeration from the value-based services the clinical concierge arm provides. We acquired Wellgistics Tech & Hub through our acquisition of Wood Sage in June 2024. Wellgistics Pharmacy, LLC Founded in 2011, Wellgistics Pharmacy serves as the backbone dispensing pharmacy of our healthcare ecosystem. First operating as a retail community specialty pharmacy, Wellgistics Pharmacy provides general and specialty pharmacy services dedicated to servicing the needs of patients, as well as clinical expertise, technology-driven innovation tools, and administrative efficiencies that support physicians, payers, and pharmaceutical manufacturers. Initially focusing on providing HIV/AIDS products, Wellgistics Pharmacy has expanded its business operations to perform 340B services by partnering with local clinics and provider groups. It has pursued pharmacy state licenses to convert its business into a mail order pharmacy. Currently, Wellgistics Pharmacy is licensed in 32 states and the District of Columbia, with superb license coverage along the east coast. While Wellgistics Pharmacy voluntarily forfeited its specialty accreditations, Wellgistics Pharmacy maintains specialty internal standard operating procedures and performs all of the functions of a specialty pharmacy. 30 Wellgistics Pharmacy purchases pharmaceuticals including specialty medications from manufacturers and wholesale distributors, fills prescriptions, labels, packages and delivers these pharmaceuticals to patients’ homes or physicians’ offices through contract couriers or carriers. It maintains a call center and customer support within its pharmacy located in Tampa, Florida. Wellgistics Pharmacy has several 340B relationships, acting as the dispensing pharmacy for these healthcare facilities that help drive revenue and prescription volume. Wellgistics Pharmacy’s relationship with Wellgistics, LLC and other wholesalers enables it to offer a competitive cash-based formulary for the uninsured and underinsured patient populations. Given its low-cost business model, Wellgistics Pharmacy believes there is an opportunity to gain market share with small- to medium-size employer groups in a partnership model with other consumer driven healthcare companies to the extent that more patients elect to pay out of pocket for prescriptions. We acquired Wellgistics Pharmacy through our acquisition of Wood Sage in June 2024. Wellgistics Health, Inc. As a micro health ecosystem, our portfolio of companies consists of a pharmacy, wholesale operations, and a technology division with a novel platform for hub and clinical services. We are focused on improving the lives of patients while delivering unique solutions for pharmacies, providers, pharmaceutical manufacturers, and payors. Our patient-centric approach combined with innovative healthcare applications positions us to shift the dynamic of care to revolve around the patient for a wide range of therapeutic conditions. We offer a full spectrum of integrated solutions by leveraging the synergies of our business segments to address access, care coordination, dispensing, delivery, and clinical management of pharmaceutical products ranging from “specialty-lite” to general maintenance conditions. Prior to acquiring Wood Sage, LLC, we did not generate revenue. As discussed above, we acquired Wellgistics Tech & Hub and Wellgistics Pharmacy through our acquisition of Wood Sage, LLC in June 2024, and acquired Wellgistics, LLC in August 2024. Currently, our revenues are derived from (i) pharmaceutical dispensing of products, (ii) care management services we deliver to patients and offer to pharmaceutical manufacturing clients, (iii) SaaS fees for use of our platform technology services, and (iv) product procurement and distribution to independent pharmacies. We expect that our ability to source and distribute pharmaceutical products to our pharmacy and network of independent pharmacy partners throughout the U.S. will adequately position us to negotiate greater discounts based on market share. Our management believes that our digital pharmacy, including its hub and clinical services technology platform, is poised to add significant value in the key specialty-lite market by providing patients access and convenience, while providing partners with ready-to-go market solutions with big data. Data released from the Centers for Medicare & Medicaid Services (“CMS”) illustrates that the National Health Expenditure Data for 2022 grew to $4.5 trillion dollars and accounted for 17.3% of GDP. A deeper dive of this report reveals that total retail prescription specialty drug market accounts for less than 10% of total drugs in the market but is responsible for greater than 50% of the prescription drug spend per annum. CMS anticipates an increase in the health spending share of GDP to 19.7% by 2032. IQVIA’S 2024 report on medicine spending trends found that overall spending in the U.S. market for medicines reached $435 billion in 2023. After evaluating reasons for increased healthcare expenditure, poor medication adherence continues to be a challenge that causes unnecessary strain on the healthcare system, including, but not limited to, increased hospital admissions and readmissions rates from medication non-compliance and adverse events. Our management believes that many of these factors are preventable by empowering patient autonomy in their healthcare journey, identifying cost savings opportunities, and providing access to clinical resources and support. We believe that our business model primely positions us to address the prescription spend in the “specialty lite” therapy area while improving patient health outcomes by equipping patients with our innovative digital health tools. We seek to expand the service coverage area of our pharmacy operations while strengthening its clinical expertise in several key therapeutic categories, including services such as care coordination and patient financial assistance. Furthermore, we expect that our partner relationships will enable us to offer a competitive cash formulary as an alternative option when high insurance deductibles make it economically feasible. We anticipate expanding our wholesale operations as we continue to partner and establish new manufacturer relationships. With many of these new relationships, we intend to provide sales and clinical education support to the pharmacies purchasing these products. We have strategically identified opportunities to wholesale products that are normally not carried by the three largest wholesalers in the United States, and will seek to carve out exclusivity or semi- exclusive relationships based on a time period to ensure we are maximizing our revenues. We expect that new partnerships with group purchasing organizations will be effective, as we increase the business divisions’ visibility with all or many of the member pharmacies. Our technology division will be connected to our pharmacy network enabling us to operate as a digital pharmacy and hub. Our pharmacy network leverages independent, locally-owned pharmacies that are rooted in their communities to create a powerful network of over 19,000 pharmacies across the United States capable of delivering prescriptions in hours. This channel services approximately 1.3 billion prescriptions annually and represents a $47 billion market at wholesale cost. 31 We seek to provide an end-to-end solution for digitizing the prescription journey through our Wellgistics Tech & Hub mobile application, which should help to preserve patient autonomy, improve prescription price transparency, and provide additional concierge services in an effort to boost medication adherence and improve patient outcomes. We intend to aggregate the data collected from our solution to provide comprehensive reports that are tied to medication adherence and outcomes to make a meaningful impact for all stakeholders involved. We expect to monetize this valuable data with manufacturers, payors and providers. Key Components of Results of Operations We are an early-stage company, and our historical results may not be indicative of our future results for reasons that may be difficult to anticipate. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations. Revenues Wellgistics Health is a holding company specifically formed to hold operating companies. We did not generate any revenue prior to our acquisition of Wood Sage, but now expect to generate all of our revenues through Wellgistics Tech & Hub, Wellgistics Pharmacy, and Wellgistics, LLC. Although Wellgistics Health may add other sources of revenue through the acquisition of other operating companies in the future, Wellgistics Health currently does not have any such plans. Wellgistics Health will be subject to risk of specific inflationary pressures on product prices and its impact on consumer spending. For example, increases in prescription drug costs could impact consumers ability to afford initial or on-going therapy. Wellgistics Health’s focus on the relatively expensive specialty lite business segment (i.e., $500 - $3,000 therapies) could be particularly impacted by increasing costs. Additionally, consumer discretionary funds could be reduced, impacting the ability to pay for digital services and subscription models that Wellgistics Health offers. If inflation continues to increase, sourcing and procuring specialty lite products may prove to be capital intensive. Wellgistics Health may not be able to adjust prices sufficiently to offset the effect without negatively impacting consumer demand or Wellgistics Health’s gross margin. All of these inflationary risk factors could materially and adversely impact Wellgistics Health’s business operations, financial condition and results of operations. Wellgistics Pharmacy recognizes product revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Wellgistics Pharmacy fills prescriptions for prescription and over-the-counter drugs written by a provider and recognizes revenue at the time the patient confirms the prescription order for payment of co-pays. Expenses Research and Development Expense Our research and development expenses will consist primarily of internal and external expenses incurred in connection with our research activities and development programs. These expenses will include, but are not limited to, software development, integrations with pharmacy management systems, development supplies, testing materials, personnel costs (including salaries and benefits), depreciation expense, overhead allocation, (consisting of various support and facility costs), stock-based compensation and consulting fees. Research and development costs will be expensed as incurred. 32 Sales and Marketing Expense Sales and marketing expenses will consist of personnel and personnel-related expenses, including stock-based compensation for our business development team as well as trade events participation, public relations, white paper development, social media, pharmacy trade and patient materials, advertising, sales collateral, syndicated data fees, and other marketing expenses. We expect to increase our sales and marketing activities to grow our customer base and increase market share. We also expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to scale the business. General and Administrative Expense General and administrative expenses currently consist of business development, consulting, and information technology development and support and third-party software expenses. In the future, general and administrative expenses will consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation expense) for personnel in executive, finance, accounting, corporate development and other administrative functions. General and administrative expenses will also include legal fees, professional fees paid for accounting, auditing, consulting, tax, and investor relations services, insurance costs, facility costs not otherwise included in research and development expenses. Following Wellgistics Health’s registration as a public company, also include public company expenses such as costs associated with compliance with the rules and regulations of the SEC and the stock exchange. Income Tax (Benefit) Expense Our income tax provision will consist of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in the tax law. We will maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe the recoverability of the tax assets is more likely than not. Results of Operations For the Three Months Ended March 31, 2025 and 2024 Three Months Ended March 31, 2025 2024 Net sales $ 10,863,443 $ - Cost of sales 10,170,802 - Gross profit 692,641 - Total operating expenses 32,041,009 79,764 Loss from operations (31,348,368 ) (79,764 ) Total other income (expense) (1,082,535 ) (3,358 ) Net loss (32,430,903 ) (83,122 ) Revenues and Cost of Revenues Net sales were $10,863,443 for the three months ended March 31, 2025, consisting of revenue primarily derived from Wellgistics Pharmacy operations after the closings of our acquisitions of Wood Sage on June 16, 2024, and of Wellgistics, LLC on August 30, 2024. Cost of revenues for the same period was $10,170,802. Gross profit was $692,641, representing a gross margin of $6.4%. The Company did not earn revenue for the three months ended March 31, 2024. 33 The following is a summary of the disaggregation of revenue for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 Product revenue - distribution services $ 10,668,287 $ - Pharmacy retail sales 114,676 - Third party logistics services 80,480 - Net sales $ 10,863,443 $ - General and Administrative Expense General and administrative expenses were $32,041,009 for the three months ended March 31, 2025, compared to $79,764 for the three months ended March 31, 2024. The increase was primarily due to the acquisition of Wellgistics, LLC in August 2024 and full-scale operations of the consolidated company in 2025. General and administrative expenses include personnel costs, and professional fees including audit, tax and legal. For the three months ended March 31, 2025, general and administrative expenses also included $27,773,421 of non-cash stock-based compensation related to the issuance of common stock to directors, employees, and consultants in exchange for services rendered. Depreciation and amortization Depreciation and amortization was $802,872 for the three months ended March 31, 2025, compared to $0 for the three months ended March 31, 2024. This included amortization of $763,064, which relates to intangible assets identified from acquisitions of Wood Sage and Wellgistics, LLC. Depreciation expense of $39,807 relates to fixed assets acquired from the Wellgistics, LLC acquisition. Interest Expense Interest expense was $1,094,490 and $3,358 for the three months ended March 31, 2025 and 2024, respectively. Interest expense in 2025 was incurred on Wellgistics Health’s outstanding notes and merchant cash advance agreements. Liquidity and Capital Resources Our future cash needs are expected to include cash for operating activities, working capital, purchases of property and equipment, strategic investments, development, and expansion of facilities. We will fund our operations primarily through operating cash flows, the issuance of debt and the sale of equity securities. We expect to generate positive cash flow from the operations in 2025 due to the annual revenue generated from Wood Sage and Wellgistics, LLC. In order to proceed with our business plan, we may need to raise additional funds through the issuance of debt, equity or other commercial arrangements that may not be available to us when needed or on terms that we deem favorable. To the extent we raise additional capital through the sale of equity or convertible securities, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to obtain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected. We may be required to delay, limit, reduce or terminate parts of its strategic business plan or future commercialization efforts. There can be no assurance that we will be able to obtain financing on acceptable terms. Our short-term liquidity requirements include initiatives related to the (i) expansion of existing facilities and upgrade of equipment in order to increase operational capacity, (ii) recruitment of additional employees to increase operational and business needs, upgrade of information technology, and (iii) continued buildout of corporate functions and public company compliance requirements, inclusive of accounting and legal fees. Our long-term liquidity requirements include initiatives related to (a) strategic acquisitions mean to further the development of our health ecosystem such as electronic health record systems, (b) expansion of micro-distribution centers for wholesale and other wholly owned pharmacies in strategic demographic regions, (c) investments into artificial intelligence, machine learning, and data warehousing capabilities, and (d) additional integrations with third-party partners such as PMS systems, ride-sharing logistics providers, enterprise health systems, and others to bolster the value proposition of our health ecosystem with a focus on improving operational efficiency while simultaneously removing interdependencies. 34 Debt Outstanding debt consists of the following: March 31, December 31, 2025 2024 Merchant cash advance $ 1,785,659 $ 1,259,415 Note payable - owners of Wellgistics 10,000,000 5,000,000 Note payable - third party, net of debt discount of $11,304 and $0 637,107 - Revolving line of credit 5,220,699 5,531,260 Seller promissory note 68,570 137,141 Current portion of debt obligations 17,712,035 11,927,816 Merchant cash advance $ - $ 55,085 Third party investor 100,000 100,000 Note payable - Scienture Holdings 1,300,000 1,300,000 Note payable - owners of Wellgistics 5,000,000 10,000,000 Long-term debt 6,400,000 11,455,085 Total debt $ 24,112,035 $ 23,382,901 Wellgistics Health Inc. (formerly Danam) On August 22, 2023, Wood Sage entered into a non-interest bearing promissory note (“Note”) with Integral pursuant to which Integral made a certain loan to Wood Sage in the amount of $1,300,000 to satisfy the purchase price under the CSP MIPA and APS MIPA. No later than 30 days after a change in control to Wood Sage, the aggregate unpaid principal balance of the Note will be due and payable by Wood Sage. As of March 31, 2025, the note is still outstanding and the parties mutually agreed for an extension. On October 11, 2024, the Company entered a merchant cash advance agreement with a third-party lender. This advance is secured by expected future sales transactions of the Company with expected payments on weekly basis. The Company received total proceeds of $1,500,000 against future receivables of $2,236,500. During the three months ended March 31, 2025, Company made total cash repayments of $700,680, including principal repayments of $401,511 and interest expense of $299,169. As of March 31, 2025, $1,003,909 in principal remained outstanding, which was included as a current liability on the consolidated balance sheet. On March 27, 2025, the Company entered into a merchant cash advance agreement with a third-party lender. Pursuant to the agreement, the Company will receive total funding of $1,900,000, secured by its future sales transactions, with repayments scheduled to be made on a weekly basis in the amount of $56,800. The funding was made against future receivables totaling $2,840,000. The Company received net proceeds of $781,750 on March 27, 2025. As of March 31, 2025, the outstanding balance of $781,750 is classified as a current liability on the consolidated balance sheet. 35 Note payable – owners of Wellgistics, LLC On August 23, 2024, Wellgistics Health and Wellgistics, LLC entered into the Fourth Amendment to the Wellgistics MIPA. Pursuant to the amended agreement, Wellgistics Health agreed to pay Wellgistics, LLC a promissory note in the aggregate principal amount of $15,000,000 plus simple interest accruing annually equal to the “Prime Rate” as published by the Wall Street Journal on January 1 of the applicable year, together payable in three equal annual instalments commencing on the first anniversary of the date that registration statement becomes effective. On March 6, 2025, the Company and Wellgistics, LLC further amended the Wellgistics MIPA to extend the due date of the $10 million closing cash payment such that the closing cash payment will be due on June 14, 2025. For the three months ended March 31, 2025, the Company recorded interest expense of $318,750 pertaining to the note. As of March 31, 2025 and December 31, 2024, accrued interest on the note totaled $743,750 and $425,000 respectively. As of March 31, 2025, $10,000,000 was included as a current liability on the consolidated balance sheet and the remaining $5,000,000 was classified as long-term. Note Payable – Third party On January 2, 2025, the Company entered into an unsecured promissory note agreement for a principal amount of $448,411. The promissory note bears interest at a rate of 10% per annum, with both principal and accrued interest due in full on May 15, 2025. In the event of default, interest accrues at a default rate of 12% per annum. In connection with this note, the Company received net proceeds of $415,000, with the remaining $33,411 recognized as a debt discount. For the three months ended March 31, 2025, the Company recorded interest expense of $11,304 and amortization of debt discount $22,107 related to this promissory note. As of March 31, 2025, the outstanding principal of $448,411 is classified under current liabilities. On February 2, 2025, the Company entered into an unsecured promissory note agreement for a principal amount of $100,000. The promissory note bears interest at a rate of 10% per annum, with both principal and accrued interest due in full on August 15, 2025. In the event of default, interest accrues at a default rate of 12% per annum. For the three months ended March 31, 2025, the Company recorded interest expense of $1,562 related to this promissory note. As of March 31, 2025, the outstanding principal of $100,000 is classified under current liabilities. On February 2, 2025, the Company entered into an unsecured promissory note agreement a principal amount of $100,000. The promissory note bears interest at a rate of 10% per annum, with both principal and accrued interest due in full on August 15, 2025. In the event of default, interest accrues at a default rate of 12% per annum. For the three months ended March 31, 2025, the Company recorded interest expense of $1,562 related to this promissory note. As of March 31, 2025, the outstanding principal of $100,000 is classified under current liabilities. Revolving line of credit – Wellgistics In November 2024, Wellgistics, LLC entered into a new credit agreement with for a line of credit of $10,000,000. The new line of credit has interest annual rate equal to the Term SOFR plus 11.5%, calculated and prorated daily on the daily balance. The new line of credit is collateralized by accounts receivable and inventory balances. Interest related to the line of credit amounted to $332,439 for the three months ended March 31, 2025. The outstanding balance on the line of credit as of March 31, 2025, and December 31, 2024 was $5,220,699 and $5,531,260 respectively, which is included as a current liability on the consolidated balance sheet. The Company assumed the initial revolving line of credit as part of the Wellgistics, LLC acquisition. Seller Promissory Note - Wellgistics In May 2022, Wellgistics, LLC entered into a promissory note agreement with in the amount of $1.2 million. The promissory note was part of the consideration to the seller in connection with its acquisition of American Pharmaceutical Ingredients, LLC (a subsidiary of Wellgistics, LLC). The promissory note bears interest at a rate of 2% per annum and will mature on April 1, 2025. Interest expense related to the promissory note was immaterial for the three months ended March 31, 2025. As of March 31, 2025 and December 31, 2024 the amount outstanding is $68,570 and $137,141, which is included as a current liability on the consolidated balance sheet. The Company assumed this debt as part of the Wellgistics, LLC acquisition. 36 The following table is a summary of annual principal payments of the Company’s outstanding debt: December 31, 2025 $ 17,723,339 2026 1,400,000 2027 5,000,000 $ 24,123,339 Dividends We intend to retain future earnings, if any, for future operations, expansion and debt repayment (if any) and we have no current plans to pay any cash dividends for the foreseeable future. In addition, our ability to pay dividends is likely to be limited by covenants of any future indebtedness. There are no, and we do not intend in the future for there to be any, restrictions in the covenants of any existing and outstanding indebtedness on our wholly-owned subsidiaries from distributing earnings in the form of dividends, loans or advances and through repayment of loans or advances to us. Cash Flows The following table summarizes our cash flows from operating, investing, and financing activities : Three Months Ended March 31, 2025 2024 Net cash provided by (used in) operating activities $ (1,347,449 ) $ 31,237 Net cash used in investing activities $ (273,133 ) $ - Net cash provided by financing activities $ 3,108,831 $ 260,000 Net change in cash and cash equivalents $ 1,488,249 $ 291,237 Cash from operating activities Net cash used in operating activities for the three months ended March 31, 2025, was $1,347,449, primarily due to our net loss of $32,341,047, partially offset by non-cash expenses of $28,674,553, and $2,408,901 in cash provided in operating assets and liabilities. Non-cash expenses was driven by stock-based compensation of $27,773,421. Cash provided by operating assets and liabilities was primarily driven by an increase in accounts payable of $1,876,683. Net cash provided by operating activities for the three months ended March 31, 2024, was primarily a result changes in operating assets and liabilities of $114,358, partially offset by our net loss of $83,122. Cash from investing activities Net cash used in investing activities for the three months ended March 31, 2025, was $273,133 due to payments made for intangible assets under development. Cash from financing activities Net cash provided by financing activities for the three months ended March 31, 2025, was $3,108,831. This was primarily driven by gross proceeds of $4,000,00 from the issuance of common stock in our IPO, $615,000 from promissory notes, and $471,158 in net proceeds from a merchant cash advance. These inflows were partially offset by $1,598,196 in offering costs, as well as repayments of a note payable and revolving line of credit. Net cash provided by financing activities for the three months ended March 31, 2024, consists of $250,000 in proceeds from a note payable and $10,000 in proceeds from common stock to be issued. 37 Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules. Critical Accounting Policies and Estimates Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amount of expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (i) the estimate or assumption is complex in nature or requires a high degree of judgment and (ii) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 1 to our financial statements included elsewhere in this proxy statement/prospectus. Our critical accounting policies include: Revenue Recognition The Company adopted Accounting Standards Codification (“ASC”) 606 upon inception. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract was determined to be within the scope of ASC 606, the Company assessed the goods or services promised within each contract and determined those that were performance obligations, and assessed whether each promised good or service was distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. The Company recognizes revenue at the point of sale. The majority of orders are placed via the Company’s website. Customers generally pay by credit card at the time they place their order. The Company does have larger customers to whom they have extended terms for payment. Generally, payments from these customers are due within 30 days of their order being shipped. However, a few customers have been given terms extending out to 45 days. Wellgistics, LLC. The Company recognizes revenue when goods are delivered to the customer. The gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are considered when estimating the impact of these revenue deductions on gross sales for a reporting period. All revenue for the Company is recognized at the point-in-time when delivered to customer based on contractual obligations. Any amount collected from customers for goods not yet delivered is recorded as unearned revenue. The company recognizes a refund liability if it receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the company does not expect to be entitled (that is, amounts not included in the transaction price). The refund liability (and corresponding change in the transaction price and, therefore, the contract liability) is updated at the end of each reporting period for changes in circumstances. 38 Wellgistics Pharmacy The Company is in the retail pharmacy business. and fills prescriptions for drugs written by a doctor and recognizes revenue at the time the patient confirms delivery of the prescription. Customer returns are not material. The following are the steps taken to recognize revenue. Step One: Identify the contract with the customer — The prescription is written by a doctor for a customer and delivered to the Company. The prescription identifies the performance obligations in the contract. The Company fills the prescription and delivers the prescription to the customer, fulfilling the contract. The collection is probable because there is confirmation that the customer has insurance for the reimbursement to the Company prior to filling of the prescription. Step Two: Identify the performance obligations in the contract — Each prescription is distinct to the customer. Step Three: Determine the transaction price — The consideration is not variable. The transaction price is determined to be the price of the prescription at the time of delivery which considers the expected reimbursements from third party payors (e.g., pharmacy benefit managers, insurance companies and government agencies). Step Four: Allocate the transaction price — The price of the prescription invoiced represents the expected amount of reimbursement from third party payors. There is no difference between contract price and “stand-alone selling price”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation — Revenue is recognized upon the delivery of the prescription. Business Combinations The Company accounts for acquisitions in which it obtains control of one or more businesses as a business combination. The purchase price of the acquired businesses is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the purchase price over those fair values is recognized as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments, in the period in which they are determined, to the assets acquired and liabilities assumed with the corresponding offset to goodwill. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company is not required to provide the information required by this Item 3 as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.