OneMedNet Corp 10-Q

Item 1. Financial Statements ONEMEDNET CORPORATION BALANCE SHEETS (UNAUDITED) September 30, 2023 December 31, 2022 ASSETS Current Assets Cash and cash equivalents $ 611,822 $ 270,859 Accounts receivable, net of allowance 86,392 18,975 (2023 $ 0 and 2022 $ 102,700 ) Accounts receivable, net of allowance (2023 $0 and 2022 $102,700) 86,392 18,975 Prepaid expenses and other assets 87,387 100,945 Receivable from SPAC IPO Costs 2,059,975 900,152 Total current assets 2,845,576 1,290,931 Property and Equipment, Net 92,368 83,097 Total assets $ 2,937,944 $ 1,374,028 Liabilities and Stockholders’ Equity (Deficit) Current Liabilities Accounts payable & accrued expenses 1,475,276 $ 1,134,752 Deferred revenues 393,780 183,683 Convertible promissory notes 12,365,000 8,490,000 Canada Emergency Business Loan Act 44,330 - Total current liabilities 14,278,386 9,808,435 Long Term Liabilities Convertible promissory notes 1,500,000 1,500,000 Canada Emergency Business Loan Act - 44,144 Accrued interest, related party 1,193,896 690,772 Loan, related party 704,000 - Total liabilities 17,676,282 12,043,351 Stockholders’ Equity (Deficit) Preferred Series A-2, par value $ 0.0001 , 4,200,000 shares authorized, and 3,861,197 shares issued and outstanding as of September 30, 2023, and December 31, 2022 385 385 Preferred Shares A-1, par value $ 0.0001 , 4,400,000 shares authorized and, 3,204,000 shares issued and outstanding as of September 30, 2023, and December 31, 2022 320 320 Preferred Shares 320 320 Common Stock, par value $ 0.0001 , 30,000,000 shares authorized, and 4,550,166 shares issued and outstanding as of September 30, 2023, and December 31, 2022 455 455 Additional paid in capital 22,095,370 21,206,738 Accumulated deficit ( 36,834,868 ) ( 31,877,221 ) Total stockholders’ equity (deficit) ( 14,738,338 ) ( 10,669,323 ) Total liabilities and stockholders’ equity (deficit) $ 2,937,944 $ 1,374,028 The accompanying notes are an integral part of these unaudited financial statements. F- 1 ONEMEDNET CORPORATION STATEMENTS OF OPERATIONS (unaudited) Nine Months Ended September 30, 2023 Year Ended December 2022 Revenue $ 680,918 $ 888,970 Cost of Revenue 812,202 1,106,285 Gross Profit ( 131,284 ) ( 217,315 ) Operating Expenses General and administrative 2,167,719 2,034,938 Operations 162,453 203,529 Sales & Marketing 816,801 588,292 Research and development 1,133,149 710,362 Total Operating Expenses 4,280,122 3,537,121 Operating loss ( 4,411,406 ) ( 3,754,436 ) Other Expense (income) Interest expense 503,123 272,682 Other expense 43,118 29,942 Net other expense (income) 546,241 302,624 Net loss $ ( 4,957,647 ) $ ( 4,057,060 ) Earnings per Share September 30, 2023 -$ 1.09 and 2022 -$ 1.44 Diluted Earnings per Share September 30, 2023 -$ 0.29 and 2022 -$ 0.44 Common Stock Equivalents September 30, 2023 12,664,133 and 2022- 8,565,053 The accompanying notes are an integral part of these unaudited financial statements. F- 2 ONEMEDNET CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND YEAR ENDED DECEMBER 31, 2022 (UNAUDITED) Series A-2 Preferred Stock Series A-1 Preferred Stock Common Stock Additional Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Equity Balances, December 31, 2021 3,853,797 $ 385 3,204,000 $ 320 4,342,666 $ 434 $ 19,607,173 $ ( 25,310,924 ) $ ( 5,702,612 ) Issuance of common shares in exchange for services 200,000 20 199,980 200,000 Issuance of common shares in exchange for cash at $ 1.00 per share - 7,500 0.75 7,499 7,500 Stock-based compensation expense 1,392,086 1,392,086 2022 net loss - - - - - - ( 6,566,297 ) ( 6,566,297 ) Balances, December 31, 2022 3,853,797 $ 385 3,204,000 $ 320 4,550,166 $ 455 $ 21,206,738 $ ( 31,877,221 ) $ ( 10,669,323 ) Stock-based compensation expense 504,825 504,825 YTD Q2 2023 net loss - - - - - - ( 3,267,015 ) ( 3,267,015 ) Balances, June 30, 2023 3,853,797 $ 385 3,204,000 $ 320 4,550,166 $ 455 $ 21,711,563 $ ( 35,144,236 ) $ ( 13,431,513 ) Issuance of preferred shares in exchange for service at $ 2.50 per share 16,000 16,000 Stock-based compensation expense 367,807 367,807 YTD Q3 2023 net loss - - - - - - ( 1,690,632 ) ( 1,690,632 ) Net loss - - - - - - ( 1,690,632 ) ( 1,690,632 ) Balances, September 30, 2023 3,853,797 $ 385 3,204,000 $ 320 4,550,166 $ 455 $ 22,095,370 $ ( 36,834,868 ) $ ( 14,738,338 ) The accompanying notes are an integral part of these unaudited financial statements. F- 3 ONEMEDNET CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2023 Yearend December 31, 2022 Cash flow from Operating Activities Net Loss $ ( 4,957,647 ) $ ( 4,057,060 ) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 19,529 16,256 Stock-based compensation expense 888,632 52,754 Changes in assets and liabilities: Accounts Receivable ( 67,417 ) ( 88,645 ) Other current assets ( 1,146,266 ) ( 66,254 ) Accounts payable & accrued expenses 340,525 240,822 Deferred revenue 210,097 ( 306,886 ) Net cash flows from operating activities ( 4,712,547 ) ( 4,209,013 ) Cash used for Investing Activities Purchase of property and equipment ( 28,801 ) ( 48,766 ) Cash flow from Financing Activities Proceeds from Canada Emergency Business Loan Act 186 ( 1,849 ) Proceeds from Shareholders 704,000 - Proceeds from issuance of convertible promissory note payable 4,378,124 3,872,638 Net cash flows from financing activities 5,082,310 3,870,789 Net change in cash and cash equivalents 340,963 ( 386,990 ) Cash and Cash Equivalents, Beginning 270,859 699,320 Cash and Cash Equivalents, Ending $ 611,822 $ 312,330 The accompanying notes are an integral part of these unaudited financial statements. F- 4 ONEMEDNET CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS OneMedNet Corporation, a Delaware corporation (the “Company,” “we,” “us,” or “OneMedNet”) together with its wholly-owned subsidiary, OneMedNet Solutions Corporation, a Delaware corporation (“OneMedNet Solutions”) and its wholly-owned subsidiary, OneMedNet Technologies (Canada) Inc., incorporated on October 16, 2015 under the provisions of the Business Corporations Act of British Columbia whose functional currency is the Canadian dollar, is an expert in clinical imaging innovation solutions that connects healthcare providers and patients and satisfies a crucial need with the life sciences. It offers direct access to clinical images and associated contextual patient record. OneMedNet proved the commercial and regulatory viability of imaging Regulatory Grade Real-World Data (“iRWD TM ”), a promising emerging market, that exactly matches OneMedNet’s life science partners’ case selection protocol. All refences in this report on Form 10-Q to the “Company,” “we,” “us,” or “OneMedNet” include OneMedNet, OneMedNet Solutions and OneMedNet Technologies (Canada) Inc . Data Knights Acquisition Corp Merger On November 7, 2023, we consummated a merger (the “Merger”) following the approval at the special meeting of the shareholders of Data Knights Acquisition Corp., a Delaware corporation held on October 17, 2023 (the “Special Meeting”), Data Knights Merger Sub, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Data Knights Acquisition Corp., a Delaware corporation (“Data Knights”), consummated a merger (the “Merger”) with and into OneMedNet Solutions Corporation (formerly named OneMedNet Corporation), a Delaware corporation (“OneMedNet”) pursuant to an agreement and plan of merger, dated as of April 25, 2022 (the “Merger Agreement”), by and among Data Knights, Merger Sub, OneMedNet, Data Knights, LLC, a Delaware limited liability company (“Sponsor” or “Purchaser Representative”) in its capacity as the representative of the stockholders of Data Knights, and Paul Casey in his capacity as the representative of the stockholders of OneMedNet (“Seller Representative”). Accordingly, the Merger Agreement was adopted, and the Merger and other transactions contemplated thereby (collectively, the “Business Combination”) were approved and completed. The Business Combination was accounted for as a as a reverse recapitalization with OneMedNet as the accounting acquirer under the accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, the financial statements of the combined company represent a continuation of the financial statements of OneMedNet. On June 28, 2023, the Company and Data Knights entered into a Securities Purchase Agreement (the “SPA”) with certain investors (collectively referred to herein as the “Purchasers”) for PIPE financing in the aggregate original principal amount of $ 1,595,744.70 and the purchase price of $ 1.5 million. Pursuant to the Securities Purchase Agreement, Data Knights will issue and sell to each of the Purchasers, a new series of senior secured convertible notes (the “PIPE Notes”), which are convertible into shares of Common Stock at the Purchasers election at a conversion price equal to the lower of (i) $10.00 per share, and (ii) 92.5% of the lowest volume weighted average trading price for the ten (10) Trading Days immediately preceding the Conversion Date. The Purchasers’ $ 1.5 million investment in the PIPE Notes closed and funded contemporaneous to the Closing of the Business Combination. Effective immediately prior to the Closing, OneMedNet, Inc. issued the PIPE Notes to the Purchasers under the private offering exemptions under Securities Act of 1933, as amended (the “Securities Act”). On November 8, 2023, the Company received from the Business Combination with Data Knights net cash of $ 3,481.53 . The Company also assumed $ 21,600 in prepaid expenses, $ 11,200 in amount due to related parties, $ 3,556,278 in extension loan payable, $ 477,548 in working capital loan payable,$ 604,849 in warrant liabilities, common stock of $ 484 and additional paid-in capital of $ 917,476 . The working capital loan payable of $ 477,548 were issued to cover the transaction costs and will be paid within the year ending December 31, 2024. The total funds from the Business Combination of $ 3,481.53 was available for general corporate purposes. F- 5 NOTE 2 - GOING CONCERN The Company’s consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company does not have adequate liquidity to fund its operations through at least twelve months from the date these financial statements were available for issuance. The Company has an accumulated deficit of $ 36,834,868 (2022 - $ 31,877,221 ) and has had negative cash flows from operating activities for the period ended September 30, 2023 and year ended December 31, 2022. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. To continue in existence and expand its operations, the Company will be required to, and management plans to, raise additional working capital through an equity or debt offering and ultimately attain profitable operations. If the Company is not able to raise additional working capital, it would have a material adverse effect on the operations of the Company and continuing research and development of its product. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to continue receiving working capital cash payments and generating cash flow from operations. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid, short-term investments with a maturity of three months or less when purchased. Cash equivalents consist of money market funds and are carried at cost, which approximates fair value. The balances, at times, may exceed FDIC Insured limits. Impairment of Long-Lived Assets The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. There have been no losses during the quarter ended September 30, 2023 and the year ended December 31, 2022. Cost of Revenue Cost of Revenue is incurred by the company as a fixed cost for payroll and hosting and as a variable cost for curation and procurement of the data. F- 6 Patents and Trademarks Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents resulting in probable future economic benefits to the Company and are included in research and development expenses on the consolidated statements of operations. Research and Development Research and development expenditures were charged to operating expense as incurred for the periods ended September 30, 2023 and December 31, 2022. Stock-based Compensation The Company has a stock-based compensation plan, which is described in more detail in Note 8. The fair value of stock option and warrant grants are determined on the date of grant using the Black Scholes valuation model. Forfeitures of stock based awards are recorded as the actual forfeitures occur. Stock based compensation expense is recognized over the service period, net of estimated forfeitures, using the straight-line method. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The new guidance is effective for fiscal periods beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the effect that ASU No. 2016- 13 will have on its consolidated financial statements and related disclosures. The Company has issued convertible promissory notes with related party investors. In order to simplify, and provide less confusion, on accounting for debt with conversion options, FASB release ASU 2020-06 in August 2020. ASU 2020-06 simplifies the accounting for convertible instruments. The embedded conversion features are no longer separated from the debt with conversion features that are not required to be accounted for as derivatives under or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and therefore will be accounted for as a single equity instrument measured at its historical cost. The Company has early adopted ASU 2020-06 and therefore a derivative liability has not been recorded. Property and Equipment Property and equipment are summarized as follows: SCHEDULE OF PROPERTY AND EQUIPMENT 2023 2022 Computers $ 288,007 $ 259,206 Furniture and equipment 3,785 3,785 Total Property and Equipment 291,792 262,991 Less: accumulated depreciation ( 199,424 ) ( 179,895 ) Net Property and Equipment $ 92,368 $ 83,097 Depreciation and amortization expense was $ 19,529 for the period ended September 30, 2023 and $ 24,807 for the year ended December 31, 2022. Canadian Emergency Business Loan Act (CEBA) During December 2020, the Company applied for and received a $ 44,330 USD CEBA loan. The loan was provided by the Government of Canada to provide capital to organizations to see them through the current challenges and better position them to return to providing services and creating employment. The loan is unsecured. The loan is interest free to December 31, 2023. If the loan is paid back by December 31, 2023, $ 14,776 of the loan will be forgiven. If the loan is not paid back by December 31, 2023, the full $ 44,330 loan will be converted to loan repayable over three years with a 5 % interest rate. The Company accounted for the loan as debt in accordance with FASB Accounting Standards Codification 470 Debt and accrued interest in accordance with the interest method under FASB ASC 835-30. Full or partial loan forgiveness with legal release reduces the liability by the amount forgiven and record a gain on extinguishment in the statement of operations. F- 7 Shareholder Loan During the second quarter of 2023 related parties funded an additional $ 704,000 , these loans are not tied to convertible note agreements and are non-interest bearing. Shareholders’ Equity Series A-2 Preferred Stock Stockholders Equity The Series A-2 preferred stock includes a $ 0.15 per share annual noncumulative dividend when and if declared by the board of directors. No dividends have been declared as of September 30, 2023 and December 31, 2022. The Series A-2 preferred stock also includes a liquidation preference of 1.25 times the original issue price plus any declared but unpaid dividends upon the liquidation, dissolution, merger or sale of substantially all the assets of the Company and have a preference upon liquidation over Series A-1 preferred stock and common stock. Each share of Series A-2 preferred stock may be converted into equal shares of common stock at the option of the holder at any time. In addition, the Series A-2 preferred stock shares are automatically convertible into common shares upon the sale of shares of common stock to the public at the then applicable conversion price in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $ 20 million in proceeds, net of underwriting discounts and commissions. Each share of Series A-2 preferred stock has voting rights equal to the number of shares of common stock then issuable upon conversion of such share of preferred stock. The Company is obligated to redeem shares of Series A-2 Preferred Stock in the occurrence of a Deemed Liquidation Event unless a majority of the holders of Series A-2 Preferred Stock and a majority of the Series A-1 Preferred Stock consent otherwise. Series A-1 Preferred Stock The Series A-1 preferred stock includes a $ 0.15 per share annual noncumulative dividend when and if declared by the board of directors. No dividends have been declared as of June 30, 2023 and December 31, 2022. The Series A-1 preferred stock also includes a liquidation preference of 1.25 times the original issue price plus any declared but unpaid dividends upon the liquidation, dissolution, merger or sale of substantially all the assets of the Company and have a preference upon liquidation over common stock. Each share of Series A-1 preferred stock may be converted into equal shares of common stock at the option of the holder at any time. In addition, the Series A-1 preferred stock shares are automatically convertible into common shares upon the sale of shares of common stock to the public at the then applicable conversion price in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $ 20 million in proceeds, net of underwriting discounts and commissions. Each share of Series A-1 preferred stock has voting rights equal to the number of shares of common stock then issuable upon conversion of such share of preferred stock. The Company is obligated to redeem shares of Series A-1 Preferred Stock in the occurrence of a Deemed Liquidation Event unless a majority of the holders of Series A-1 Preferred Stock consent otherwise. Common Stock In 2023, in connection with services performed by the Board of Directors, common shares of 100,000 were issued at $ 1.00 per share. These were expensed as general and administrative expenses in the statement of operations. F- 8 Stock Options During 2020, the Company adopted a new equity incentive plan (the Plan), which provides for the granting of incentive and nonqualified stock options to employees, directors, and consultants. As of December 31, 2020, the Company has reserved 3,000,000 shares of common stock under the Plan. The Company believes that such awards better align the interests of its employees with those of its stockholders. Option awards are generally granted with an exercise price equal to the fair market value of the Company’s stock at the date of grant; those option awards generally vest with a range of one to four years of continuous service and have ten-year contractual terms. As there is no public data available for the share price valuation, the Company considers the Fair Market Value of $ 1 to be on the conservative side and similar to the exercise price. Certain option awards provide for accelerated vesting if there is a change in control, as defined in the Plan. The Plan also permits the granting of restricted stock and other stock-based awards. Unexercised options are cancelled upon termination of employment and become available under the Plan. Information with respect to options outstanding is summarized as follows: SCHEDULE OF OPTIONS OUTSTANDING Options Outstanding Weighted-Average Exercise Price Aggregate Intrinsic Value Outstanding as of December 31, 2022 1,031,000 $ 1.00 $ 1,031,000 Cancelled ( 168,740 ) Outstanding as of September 30, 2023 862,260 $ 1.00 $ 862,260 Options exercisable as of September 30, 2023 739,424 $ 1.00 $ 739,424 As of September 30, 2023 and December 31, 2022, there were 862,260 and 1,031,000 common stock options outstanding respectively, with a weighted average remaining contractual life of 5.32 and 7.11 years, respectively. As of September 30, 2023 and December 31, 2022, there were 739,424 and 567,581 common stock options exercisable at a weighted average remaining contractual life of 4.89 and 5.56 years, respectively. Black Scholes Assumptions The determination of the fair value of stock options using an option valuation model is affected by the Company’s stock price valuation, as well as assumptions regarding a number of complex and subjective variables. The volatility assumption is based on volatilities of similar companies over a period of time equal to the expected term of the stock options. The volatilities of similar companies are used in conjunction with the Company’s historical volatility because of the lack of sufficient relevant history for the Company’s common stock equal to the expected term. The expected term of the employee stock options represents the weighted average period for which the stock options are expected to remain outstanding. The expected term assumption is estimated based primarily on the options’ vesting terms and remaining contractual life and employees’ expected exercise and post- vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the expectation of no future dividend payouts by the Company. The fair value of the Company’s stock options was estimated assuming no expected dividends and the following weighted average assumptions: SCHEDULE OF FAIR VALUE OF STOCK OPTIONS 2022 2011 Expected life in years 5.89 6.08 Risk-free interest rate 0.55 % 0.49 % Expected dividend yield 0.00 % 0.00 % Expected volatility 32 % 60 % The total expense recognized for share-based payments was $ 20,132 for the period ending September 30, 2023 and $ 45,584 for the year ended December 31, 2022. These costs are included in the statements of operations. As of September 30, 2023 there was $ 8,591 and as of December 31, 2022, there was $ 75,987 of unrecognized compensation costs related to stock option grants which will be recognized over the next two years. F- 9 Stock Warrants In 2021, there were 174,102 outstanding common stock warrants issued for service at a weighted average exercise price of $ 0.10 . The weighted average remaining contractual life was 3.71 years as of September 30, 2023. In 2022 for the exercise price of $ 1.00 , the company issued 145,746 warrants for 2021 service and 294,000 warrants for 2022 service, 2,056,000 in warrants were issued attached to convertible notes. The weighted average remaining contractual life of the warrants issued in 2022 is 3.80 years. For the period ending September 30 2023, the company issued 1,550,000 warrants attached to convertible notes. The weighted average remaining contractual life of these warrants is 4.74 years. All warrants vested immediately upon grant issuance. The Company expensed $ 852,500 for the period ended September 30, 2023 and $ 1,346,288 in Fiscal 2022 in relation to the issuance of the Warrants. SCHEDULE OF STOCK WARRANTS Options Outstanding Weighted-Average Exercise Price Aggregate Intrinsic Value Outstanding as of December 31, 2022 2,669,848 $ 0.94 $ 2,513,156 Issued 1,550,000 Outstanding as of September 30, 2023 4,219,848 $ 0.96 $ 4,063,156 Warrants exercisable as of September 30, 2023 4,219,848 $ 0.96 $ 4,063,156 Commitments, Contingencies, and Concentrations Operating lease The Company has a month-to-month lease for a suite at a cost of $ 575 per month. The Company incurred $ 5,666 for the period ended September 30, 2023 and $ 7,694 for the year ended December 31, 2022 of rent expense. Receivable from SPAC for IPO Related Costs During 2022, the company entered a Business Combination Agreement with SPAC Data Knights. $ 2,059,975 of SPAC related expenses are on the Balance Sheet as receivable to be received at close of the merger. NOTE 4 — ACCOUNTS RECEIVABLE, NET Accounts receivable are unsecured, recorded at net realizable value, and do not bear interest. Accounts receivable are considered past due if not paid within the terms established between the Company and the customer. Amounts are only written off after all attempts at collections have been exhausted. The Company determines the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. As of December 31, 2022 the Company established allowances of $ 102,700 . The net receivable balances outstanding are fully collectible. NOTE 5 — PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. The straight-line method is used for computing depreciation and amortization. Assets are depreciated over their estimated useful lives ranging from three to five years . Cost of maintenance and repairs are charged to expense when incurred. F- 10 NOTE 6 — RELATED PARTY TRANSACTIONS Convertible Promissory Notes held by Related Party For the period ending September 2023, the Company entered into various Convertible Promissory Notes (“Note”) with related party investors totaling $ 2,100,000 (2022 - $ 4,700,000 ) and unrelated party investors of $ 1,775,000 (2022 - $ 440,000 ). The Notes issued are unsecured and bear an interest rate of six percent annually from the date of issuance until the outstanding principal is paid or converted. On November 11, 2022 the Convertible note agreement was amended and restated in order to (i) provide for the sale and issuance to Purchasers from the effective date of January 1, 2022 and after the date of this Agreement of up to an additional $ 4,000,000 aggregate principal amount of Notes and warrants to purchase shares of the Company’s capital stock, (ii) provide for the sale and issuance to Purchasers who purchased Notes under the Prior Agreement between the Effective Date and the date of this Agreement of warrants to purchase shares of the Company’s common stock at an exercise price of $ 1.00 per share; (iii) extend the maturity date of all outstanding Notes from December 31, 2022 to October 31, 2023. The principal and unpaid accrued interest on each Note will convert; (i) automatically, upon the Company’s issuance of equity securities (the “Next Equity Financing”) in a single transaction, or series of related transactions, with aggregate gross proceeds to the Company of at least $ 5,000,000 , into shares of the Company’s capital stock issued to investors in the Next Equity Financing, at a conversion price equal to the lesser of (A) a 20% discount to the lowest price per share of shares sold in the Next Equity Financing, or (B) $2.50 per share; (ii) at the noteholder’s option, in the event of a defined Corporate Transaction while such Note remains outstanding, into shares of the Company’s Series A-2 Preferred Stock at a conversion price equal to $ 2.50 per share; and (iii) at the noteholder’s option, on or after the Maturity Date while such Note remains outstanding, into shares of the Company’s Series A-2 Preferred Stock at a conversion price equal to $ 2.50 per share . If a Corporate Transaction occurs before the repayment or conversion of the Notes, the Company will pay at the closing of the Corporate Transaction to each noteholder that elects not to convert its Notes in connection with such Corporate Transaction an amount equal to the outstanding principal amount of such noteholder’s Note plus a 20% premium. “Corporate Transaction” means (a) a sale by the Company of all or substantially all of its assets, (b) a merger of the Company with or into another entity (if after such merger the holders of a majority of the Company’s voting securities immediately prior to the transaction do not hold a majority of the voting securities of the successor entity) or (c) the transfer of more than 50% of the Company’s voting securities to a person or group. During November 2019, the Company entered into a Convertible Promissory Note (“Note”) agreement with a related party investor. The total amount of the Note is $ 1,500,000 . The Note is unsecured and bears interest at a rate of four percent annually from the date of issuance until the outstanding principal is paid or converted. The Note matures on January 1, 2025. The Note shall automatically convert into the next offering of preferred stock upon closing of such next equity financing. The number of shares of preferred stock to be issued upon conversion shall be equal to the number obtained by dividing the outstanding principal and unpaid accrued interest owed on the date of conversion, by the conversion price. The conversion price is 100 percent of the lowest price per share paid for the next equity preferred stock by other investors in the next equity financing. In the event that prior to the conversion or repayment of amounts owed, the Company completes a financing transaction in which the Company sells equity securities but such transaction does not qualify as next equity financing (i.e. an “alternative financing”), then the principal and unpaid accrued interest may (upon written election of the purchaser holding the Note) convert into the securities issued by the Company in the alternative financing. The number of alternative financing equity securities to be issued upon such conversion shall be equal to the number obtained by dividing the outstanding principal and unpaid accrued interest owed by an amount equal to 100 percent multiplied by the lowest price per share at which the alternative financing equity securities are sold and issued for cash in the alternative financing. As of September 30, 2023 $ 13,865,000 and as of December 31, 2022 there was $ 9,990,000 in outstanding principal balance on the Notes, respectively, and $ 1,193,896 and $ 690,772 in accrued interest, respectively, all included in long-term liabilities on the balance sheet. There have been no payments of principal or interest to date. In connection with the $ 3,875,000 in convertible notes issued in 2023 (Fiscal 2022 - $ 5,140,000 ), 1,550,000 (Fiscal 2022 - 2,056,000 ) in warrants were issued. F- 11 NOTE 7 — REVENUE RECOGNITION Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer. 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 under topic 606. A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling price for each and recognized as revenue when, or as, the performance obligation is satisfied. The steps the company uses to determine revenue recognition are as follows: identification of the contract with a customer, identification of the performance obligations, determining the transaction price, allocation of the transaction price to the performance obligation and recognition of revenue when the Company satisfies the performance obligation. Individual promised goods and services in a contract are considered a performance obligation and accounted for separately if the good or service is distinct. A good or service is considered distinct if the customer can benefit from the good or service on its own or with other resources that are readily available to the customer and the good or service is separately identifiable from other promises in the arrangement. The Company generates revenue from two streams: (1) iRWD TM (imaging Real World Data) which provides regulatory grade imaging and clinical data in the Pharmaceutical, Device Manufacturing, CRO’s and AI markets and (2) BEAM which is a Medical Imaging Exchange platform between Hospital/Healthcare Systems, Imaging Centers, Physicians and Patients. iRWD is sold on a fixed fee basis based on the number of data units and the cost per data unit committed to in the customer contract. Revenue is recognized when the data is delivered to the customer. Beam revenue is subscription-based revenue which is recognized ratably over the subscription period committed to by the customer. The company invoices its Beam customers quarterly or annually in advance with the customer contracts automatically renewing unless the customer issues a cancellation notice. The Company excludes from revenue taxes collected from a customer that are assessed by a governmental authority and imposed on and concurrent with a specific revenue-producing transaction. The transaction price for the products is the invoiced amount. Advanced billings from contracts are deferred and recognized as revenue when earned. Deferred revenue consists of payments received in advance of performance under the contract. Such amounts are generally recognized as revenue over the contractual period. The Company receives payments from customers based upon contractual billing schedules. Accounts receivable is recorded when the right to consideration becomes unconditional. Payment terms on invoiced amounts typically range from zero to 90 days, with typical terms of 30 days. NOTE 8 — INCOME TAXES Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. The Company provides for deferred taxes at the enacted tax rate that is expected to apply when the temporary differences reverse. The Company has recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits. The Company has generated both federal and state net operating losses (NOL) of approximately $ 21 million and $ 23 million, respectively, which if not used, will begin to expire in 2030. The Company believes that its ability to fully utilize the existing NOL carryforwards could be restricted on a portion of the NOL by changes in control that may have occurred or may occur in the future and by its ability to generate net income. The Company has not yet conducted a formal study of whether, or to what extent, past changes in control of the Company impairs its NOL carryforwards because such NOL carryforwards cannot be utilized until the Company achieves profitability. F- 12 Components of deferred income taxes are as follows as of December 31: SCHEDULE OF DEFERRED INCOME TAXES 2022 2021 Deferred Tax Assets Net operating loss carry forward $ 6,973,587 $ 5,604,237 Stock Compensation 481,144 467,925 Other 53,268 51,617 Gross deferred tax assets 7,507,999 6,123,778 Less valuation allowance ( 7,507,999 ) ( 6,123,778 ) Net deferred tax assets $ - $ - The change in the valuation allowance was $ 1,384,220 and $ 764,878 for the years ended December 31, 2022 and 2021, respectively. The effective tax rate for the years ended December 31, 2022 and 2021 differs from the federal and state statutory rates due to the full valuation allowance. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statement is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The tax years from inception through December 31, 2022 remain subject to examination by all major taxing authorities due to the net operating loss carryovers. The Company is not currently under examination by any taxing jurisdiction. The Company did not incur any interest or penalties during the years ended December 31, 2022 or 2021. NOTE 9 — SHAREHOLDERS’ DEFICIT The Company is authorized to issue 100,000,000 shares of common stock, par value of $ 0.0001 per share (“Common Stock”), and 1,000,000 shares of undesignated preferred stock, par value of $ 0.0001 per share. Before the Business Combination, the Company was authorized to issue 200,000,000 shares of common stock, par value of $ 0.0001 per share, and 20,000,000 shares of preferred shares, par value of $ 0.0001 per share. Business combination with Data Knights Acquisition Corp. On November 7, 2023, the Company consummated the Merger with Data Knights and issued an aggregate of 20,000,000 shares of its common stock to the former shareholders of OneMedNet Corporation. On June 28, 2023, the Company and Data Knights entered into a Securities Purchase Agreement (the “SPA”) with certain investors (collectively referred to herein as the “Purchasers”) for PIPE financing in the aggregate original principal amount of $ 1,595,744.70 and the purchase price of $ 1.5 million. Pursuant to the Securities Purchase Agreement, Data Knights will issue and sell to each of the Purchasers, a new series of senior secured convertible notes (the “PIPE Notes”), which are convertible into shares of Common Stock at the Purchasers election at a conversion price equal to the lower of (i) $10.00 per share, and (ii) 92.5% of the lowest volume weighted average trading price for the ten (10) Trading Days immediately preceding the Conversion Date. The Purchasers’ $ 1.5 million investment in the PIPE Notes closed and funded contemporaneous to the Closing of the Business Combination. NOTE 10 — SUBSEQUENT EVENTS The Company has evaluated subsequent events occurring through October 23, 2023, the date the financial statements were available for issuance, for events requiring recording or disclosure in the Company’s financial statements. F- 13