UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–Q

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

or

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from [               ] to [                ]

 

Commission file number: 000-55768

 

HealthLynked Corp.
(Exact name of registrant as specified in its charter)
     
Nevada   47-1634127
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
1726 Medical Blvd Suite 101, Naples, Florida 34110
(Address of principal executive offices)
 
239-513-1992
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer  
Non-accelerated filer   Smaller reporting company  
    Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

 

As of August 14, 2020, there were 133,902,816 shares of the issuer's common stock, par value $0.0001, outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    PAGE NO.
     
PART I FINANCIAL INFORMATION 1
Item 1 Financial Statements (Unaudited) 1
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 41
Item 3 Quantitative and Qualitative Disclosures about Market Risk 50
Item 4 Controls and Procedures 50
     
Part II OTHER INFORMATION 51
Item 1 Legal Proceedings 51
Item 1A Risk Factors 51
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 52
Item 3 Defaults upon Senior Securities 52
Item 4 Mine Safety Disclosure 52
Item 5 Other Information 52
Item 6 Exhibits 53

 

i

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,     December 31,  
    2020     2019  
    (Unaudited)        
ASSETS            
Current Assets            
Cash   $ 356,084     $ 110,441  
Accounts receivable, net of allowance for doubtful accounts of $13,972 and $13,972 as of June 30, 2020 and December 31, 2019, respectively     158,090       83,251  
Inventory     105,200       70,460  
Prepaid expenses     58,990       119,328  
Deferred offering costs           19,203  
Total Current Assets     678,364       402,683  
                 
Property, plant and equipment, net of accumulated depreciation of $794,888 and $749,316 as of June 30, 2020 and December 31, 2019, respectively     471,257       513,788  
Goodwill and intangible assets, net of accumulated amortization of $9,997 and $5,908 as of June 30, 2020 and December 31, 2019, respectively     2,587,397       1,336,958  
ROU lease assets and deposits     177,874       293,125  
                 
Total Assets   $ 3,914,892     $ 2,546,554  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 658,967     $ 836,465  
Deferred revenue     106,281        
Lease liability, current portion     82,745       201,523  
Due to related party, current portion     525,669       493,457  
Notes payable to related party, current portion     827,981       743,955  
Government notes payable     745,869        
Convertible notes payable, net of original issue discount and debt discount of $212,246 and $777,668 as of June 30, 2020 and December 31, 2019, respectively     1,907,690       1,542,036  
Contingent acquisition consideration, current portion     986,330       100,000  
Derivative financial instruments     257,384       991,288  
Total Current Liabilities     6,098,916       4,908,724  
                 
Long-Term Liabilities                
Contingent acquisition consideration, long term portion     369,435       400,000  
Lease liability, long term portion     86,503       80,510  
                 
Total Liabilities     6,554,854       5,389,234  
                 
Shareholders' Deficit                
Common stock, par value $0.0001 per share, 500,000,000 shares authorized, 131,251,775 and 109,894,490 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively     13,125       10,990  
Common stock issuable, $0.0001 par value; 1,925,839 and 1,047,904 shares as of June 30, 2020 and December 31, 2019, respectively     212,945       159,538  
Additional paid-in capital     15,261,686       13,016,446  
Accumulated deficit     (18,127,718 )     (16,029,654 )
Total Shareholders' Deficit     (2,639,962 )     (2,842,680 )
                 
Total Liabilities and Shareholders' Deficit   $ 3,914,892     $ 2,546,554  

 

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

1

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
Revenue                        
Patient service revenue, net   $ 1,111,090     $ 1,208,390     $ 2,448,030     $ 1,673,380  
Consulting revenue     50,420             50,420        
Total revenue     1,161,510       1,208,390       2,498,450       1,673,380  
                                 
Operating Expenses                                
Practice salaries and benefits     555,086       703,851       1,320,207       1,054,091  
Other practice operating expenses     521,022       521,552       1,084,713       766,091  
Medicare shared savings expenses     64,236             64,236        
General and administrative     646,309       659,468       1,157,285       1,351,270  
Depreciation and amortization     24,874       21,710       49,660       23,365  
Total Operating Expenses     1,811,527       1,906,581       3,676,101       3,194,817  
                                 
Loss from operations     (650,017 )     (698,191 )     (1,177,651 )     (1,521,437 )
                                 
Other Income (Expenses)                                
Gain (loss) on extinguishment of debt     (428,435 )     72,435       (896,372 )     (67,363 )
Change in fair value of debt     (155,667 )     (30,409 )     (119,702 )     (60,106 )
Financing cost           (87,332 )           (121,235 )
Amortization of original issue and debt discounts on notes payable and convertible notes     (172,951 )     (299,613 )     (465,114 )     (478,997 )
Change in fair value of derivative financial instruments     (13,672 )     223,881       726,683       415,514  
Change in fair value of contingent acquisition consideration     (38,688 )           (45,309 )      
Interest expense     (58,418 )     (60,345 )     (120,599 )     (106,667 )
Total other expenses     (867,831 )     (181,383 )     (920,413 )     (418,854 )
                                 
Net loss before provision for income taxes     (1,517,848 )     (879,574 )     (2,098,064 )     (1,940,291 )
                                 
Provision for income taxes                        
                                 
Net loss   $ (1,517,848 )   $ (879,574 )   $ (2,098,064 )   $ (1,940,291 )
                                 
Net loss per share, basic and diluted:                                
Basic   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.02 )
Fully diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.02 )
                                 
Weighted average number of common shares:                                
Basic     125,535,787       98,502,106      

120,068,873

      93,532,128  
Fully diluted     125,535,787       98,502,106      

120,068,873

      93,532,128  

  

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

2

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

THREE AND SIX MONTHS ENDED JUNE 30, 2020

(UNAUDITED)

 

    Number of Shares           Common     Additional           Total  
    Common     Common     Stock     Paid-in     Accumulated     Shareholders'  
    Stock     Stock     Issuable     Capital     Deficit     Deficit  
    (#)     ($)     ($)     ($)     ($)     ($)  
Balance at December 31, 2019     109,894,490       10,990       159,538       13,016,446       (16,029,654 )     (2,842,680 )
                                                 
Sale of common stock     4,187,566       419       (59,000 )     407,181               348,600  
Fair value of warrants allocated to proceeds of common stock                       88,833             88,833  
Conversion of convertible notes payable to common stock     4,672,612       467       51,652       600,441             652,560  
Consultant and director fees payable with common shares and warrants                 60,212       6,666             66,878  
Shares and options issued pursuant to employee equity incentive plan     132,500       13       (7,161 )     45,724             38,576  
Net loss                             (580,216 )     (580,216 )
                                                 
Balance at March 31, 2020     118,887,168       11,889       205,241       14,165,291       (16,609,870 )     (2,227,449 )
                                                 
Acquisition of Cura Health Management LLC     2,240,838       224             201,451             201,675  
Sale of common stock     3,180,312       318       24,651       228,808             253,777  
Fair value of warrants allocated to proceeds of common stock                       33,482             33,482  
Conversion of convertible notes payable to common stock     6,669,320       667       (51,652 )     584,268             533,283  
Consultant and director fees payable with common shares and warrants     111,110       11       34,705       8,989             43,705  
Shares and options issued pursuant to employee equity incentive plan     163,027       16               39,397             39,413  
Net loss                             (1,517,848 )     (1,517,848 )
                                                 
Balance at June 30, 2020     131,251,775       13,125       212,945       15,261,686       (18,127,718 )     (2,639,962 )

  

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements


3

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

THREE AND SIX MONTHS ENDED JUNE 30, 2019

(UNAUDITED) 

 

    Number of Shares           Common     Additional           Total  
    Common     Common     Stock     Paid-in     Accumulated     Shareholders'  
    Stock     Stock     Issuable     Capital     Deficit     Deficit  
    (#)     ($)     ($)     ($)     ($)     ($)  
Balance at December 31, 2018     85,178,902       8,518       26,137       7,531,553       (10,501,055 )     (2,934,847 )
                                                 
Sale of common stock     3,261,978       326             693,832             694,158  
Fair value of warrants allocated to proceeds of common stock                       139,068             139,068  
Shares issued with convertible notes payable     28,000       3             4,673             4,676  
Fair value of warrants issued for professional services                       54,257             54,257  
Conversion of convertible notes payable to common stock     2,512,821       251             534,980             535,231  
Consultant fees payable with common shares and warrants     270,000       27       19,960       6,850             26,837  
Shares and options issued pursuant to employee equity incentive plan     113,750       12             61,223             61,235  
Exercise of stock warrants     2,098,427       210             (210 )            
Exercise of stock options     113,141       11             (11 )            
Net loss                             (1,060,717 )     (1,060,717 )
                                                 
Balance at March 31, 2019     93,577,019       9,358       46,097       9,026,215       (11,561,772 )     (2,480,102 )
                                                 
Acquisition of Hughes Center for Functional Medicine     3,968,254       397             999,603             1,000,000  
Sale of common stock     567,953       57       34,418       110,989             145,464  
Fair value of warrants allocated to proceeds of common stock                       15,582             15,582  
Fair value of warrants allocated to proceeds of convertible notes payable                       225,323             225,323  
Shares issued with convertible notes payable     50,000       5             12,495             12,500  
Fair value of warrants issued for professional services                                    
Conversion of convertible notes payable to common stock     740,002       74             138,688             138,762  
Consultant fees payable with common shares and warrants     30,000       3       24,833       39,510             64,346  
Shares and options issued pursuant to employee equity incentive plan     135,313       13             59,384             59,397  
Exercise of stock warrants     2,000,000       200                         200  
Exercise of stock options                                    
Net loss                             (879,574 )     (879,574 )
                                                 
Balance at June 30, 2019     101,068,541       10,107       105,348       10,627,789       (12,441,346 )     (1,698,102 )

  

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements


4

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended
June 30,
 
    2020     2019  
Cash Flows from Operating Activities            
Net loss   $ (2,098,064 )   $ (1,940,291 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     49,660       23,365  
Stock based compensation, including amortization of prepaid fees     207,777       317,285  
Amortization of original issue discount and debt discount on convertible notes     465,114       478,997  
Financing cost           121,235  
Change in fair value of derivative financial instruments     (726,683 )     (415,514 )
Loss on extinguishment of debt     896,372       67,363  
Change in fair value of debt     119,702       60,106  
Change in fair value of contingent acquisition consideration     45,309        
Changes in operating assets and liabilities:                
Accounts receivable     15,357       (9,210 )
Inventory     (34,740 )     (21,469 )
Prepaid expenses and deposits     74,671       (9,380 )
ROU lease assets     159,508       133,046  
Accounts payable and accrued expenses     (141,532 )     133,270  
Lease liability     (156,082 )     (128,084 )
Due to related party, current portion     32,211       33,488  
Deferred revenue     2,247        
Net cash used in operating activities     (1,089,173 )     (1,155,793 )
                 
Cash Flows from Investing Activities                
Acquisition, net of cash acquired     (164,005 )     (465,000 )
Payment of contingent acquisition consideration     (47,000 )      
Acquisition of property and equipment     (3,041 )     (4,302 )
Net cash used in investing activities     (214,046 )     (469,302 )
                 
Cash Flows from Financing Activities                
Proceeds from sale of common stock     724,692       994,272  
Proceeds from exercise of warrants           200  
Proceeds from issuance of convertible notes     827,500       1,025,000  
Repayment of convertible notes     (746,758 )     (404,416 )
Proceeds from related party loans     149,000        
Repayment of related party loans     (151,441 )      
Proceeds from government loans     745,869        
Net cash provided by financing activities     1,548,862       1,615,056  
                 
Net increase (decrease) in cash     245,643       (10,039 )
Cash, beginning of period     110,441       135,778  
                 
Cash, end of period   $ 356,084     $ 125,739  

 

(continued)

 

5

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended
June 30,
 
    2020     2019  
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest   $ 29,342     $ 15,589  
Cash paid during the period for income tax   $     $  
Schedule of non-cash investing and financing activities:                
Initial derivative liability and fair value of beneficial conversion feature and original issue discount allocated to proceeds of variable convertible notes payable   $ 211,497     $ 804,059  
Common stock issuable issued during period   $ 66,161     $ 25  
Fair value of warrants issued for professional service   $     $ 54,257  
Conversion of convertible note payable to common shares   $ 1,044,892     $ 673,993  
Fair value of common shares issued with convertible notes payable   $     $ 17,176  
Cashless exercise of options and warrants   $     $ 221  
Adoption of lease obligation and ROU asset   $ 43,297     $ 560,050  
Fair value of shares issued as acquisition consideration   $ 201,675     $ 1,000,000  
Fair value of contingent acquisition consideration issued   $ 1,057,785     $ 500,000  
Derivative liabilities written off with repayment of convertible notes payable   $ 115,646     $ 288,569  
Derivative liabilities written off with conversion of convertible notes payable   $ 103,073     $ 267,811  
Reduction in contingent acquisition consideration   $ 200,328     $  
Fair value of warrants allocated to proceeds of fixed convertible notes payable   $     $ 225,323  

 

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements


6

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 1 - BUSINESS AND BUSINESS PRESENTATION

 

HealthLynked Corp. (the “Company”) was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of Nevada setting the total number of authorized shares at 250,000,000 shares, which included up to 230,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock. On February 5, 2018, the Company filed an Amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of Nevada to increase the number of authorized shares of common stock to 500,000,000 shares.

 

The Company operates in three distinct divisions: the Health Services Division, the Digital Healthcare Division and, upon acquisition of Cura Health Management LLC (“CHM”) along with its subsidiary ACO Health Partners LLC (“AHP”) on May 18, 2020, Accountable Care Organization (“ACO”) and Managed Service Organization (“MSO”), referred to as the ACO/MSO Division. The Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology) and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice acquired in April 2019 that is engaged in improving the health of its patients through individualized and integrative health care, and (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice in Bonita Springs, FL opened in January 2020 that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery. The Digital Healthcare division develops and plans to operate an online personal medical information and record archive system, the “HealthLynked Network,” which will enable patients and doctors to keep track of medical information via the Internet in a cloud-based system. The ACO/MSO Division is comprised of the business acquired with CHM, which assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which rewards providers for efficiency in patient care.

 

These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2019 and 2018, respectively, which are included in the Company’s Form 10-K, filed with the United States Securities and Exchange Commission on March 30, 2020. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results for the entire year ending December 31, 2020.

 

On a consolidated basis, the Company’s operations are comprised of the parent company, HealthLynked Corp. and its four wholly owned subsidiaries: NWC, BTG, HYLK FL (doing business as NCFM and CHM) and AHP. All significant intercompany transactions and balances have been eliminated upon consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current period presentation. 

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the presentation of the accompanying consolidated financial statements follows:

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).

 

All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets, borrowing rate consideration for right-of-use (“ROU”) lease assets including related lease liability and useful life of fixed assets.

 

7

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Adopted Accounting Pronouncements

 

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) using the required modified retrospective approach. ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. See discussion below under the caption “Leases” in this Note 2 and in Note 8 for more detail on the Company’s accounting policy with respect to lease accounting.

 

Effective January 1, 2019, the Company adopted ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The adoption of this guidance did not materially impact the Company’s financial statements and related disclosures.

 

Revenue Recognition

 

Patient service revenue

 

Patient service revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient care. These amounts are due from patients and third-party payors (including health insurers and government programs) and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, the Company bills patients and third-party payors within days after the services are performed and/or the patient is discharged from the facility. Revenue is recognized as performance obligations are satisfied.

 

Performance obligations are determined based on the nature of the services provided by the Company. Revenue for performance obligations satisfied over time is recognized based on actual charges incurred in relation to total expected charges. The Company believes that this method provides a faithful depiction of the transfer of services over the term of the performance obligation based on the inputs needed to satisfy the obligation. Revenue for performance obligations satisfied at a point in time is recognized when goods or services are provided and the Company does not believe it is required to provide additional goods or services to the patient.

 

The Company determines the transaction price based on standard charges for goods and services provided, reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients in accordance with the Company’s policy, and/or implicit price concessions provided to uninsured patients. The Company determines its estimates of contractual adjustments and discounts based on contractual agreements, its discount policies, and historical experience. The Company determines its estimate of implicit price concessions based on its historical collection experience with this class of patients.

 

Agreements with third-party payors typically provide for payments at amounts less than established charges. A summary of the payment arrangements with major third-party payors follows:

 

Medicare: Certain inpatient acute care services are paid at prospectively determined rates per discharge based on clinical, diagnostic and other factors. Certain services are paid based on cost-reimbursement methodologies subject to certain limits. Physician services are paid based upon established fee schedules. Outpatient services are paid using prospectively determined rates.

 

Medicaid: Reimbursements for Medicaid services are generally paid at prospectively determined rates per discharge, per occasion of service, or per covered member.

 

Other: Payment agreements with certain commercial insurance carriers, health maintenance organizations, and preferred provider organizations provide for payment using prospectively determined rates per discharge, discounts from established charges, and prospectively determined daily rates.

 

8

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Laws and regulations concerning government programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by governmental agencies, various health care organizations have received requests for information and notices regarding alleged noncompliance with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no assurance that regulatory authorities will not challenge the Company’s compliance with these laws and regulations, and it is not possible to determine the impact, if any, such claims or penalties would have upon the Company. In addition, the contracts the Company has with commercial payors also provide for retroactive audit and review of claims.

 

Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations.

 

The Company also provides services to uninsured patients, and offers those uninsured patients a discount, either by policy or law, from standard charges. The Company estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change. Patient services provided by NCFM are provided on a cash basis and not submitted through third party insurance providers.

 

Medicare Shared Savings Revenue

 

The Company earns Medicare shared savings revenue based on performance of the population of patient lives for which it is accountable as an ACO against benchmarks established by the MSSP. Because the MSSP, which was formed in 2012, is relatively new and has limited historical experience, the Company cannot accurately predict the amount of shared savings that will be determined by CMS. Such amounts are determined annually when the Company is notified by CMS of the amount of shared savings earned. Accordingly, the Company recognizes Medicare shared savings revenue in the period in which the CMS notifies the Company of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. The Company expects that Medicare shared savings revenue, if any, for the program year ended December 31, 2019 will be reported in the three months ended September 30, 2020 when the MSSP revenue is either known or able to be estimated with reasonable certainty. Based on the ACO operating agreements, the Company bears all costs of the ACO operations until revenue is recognized. At that point, the Company shares in up to 100% of the revenue to recover its costs incurred.

 

Consulting Revenue

 

Also pursuant to ASC 606, the Company recognizes service revenue as services are provided, with any unearned but paid amounts recorded a deferred revenue liability at each balance sheet date.

 

Deferred Revenue

 

The Company’s deferred revenue liability balance was $106,281 and $-0- as of June 30, 2020 and December 31, 2019, respectively.

 

Provider shared savings expense

 

Provider shared savings expense represents payments made to the ACO’s participating providers. The pool of provider shared savings expense paid to all participating providers, as well as the amounts paid to each individual participating provider from the pool, is determined by ACO management. Shared Savings expense is recognized in the period in which the size of the payment pool is determined, which typically corresponds the period in which the shared saving payment is received from CMS and shared savings revenue is recognized. This typically occurs in the second half of the year following the completion of the program year.

 

Cash and Cash Equivalents

 

For financial statement purposes, the Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.

 

Accounts Receivable

 

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past collectability of the insurance companies, government agencies, and customers’ accounts receivable during the related period which generally approximates 48% of total billings for patient services. Trade accounts receivable are recorded at this net amount. As of June 30, 2020 and December 31, 2019, the Company’s gross patient services accounts receivable were $185,307 and $174,531, respectively. As of June 30, 2020 and December 31, 2019, net patient services accounts receivable were $102,363 and $83,251, respectively, and accounts receivable from other revenue were $55,727 and $-0-, respectively. As of June 30, 2020 and December 31, 2019, the Company’s allowance of doubtful accounts was $13,972 and $13,972, respectively.

 

9

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Leases

 

Upon transition under ASU 2016-02, the Company elected the suite of practical expedients as a package applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases. For new leases, the Company will determine if an arrangement is or contains a lease at inception. Leases are included as ROU assets within other assets and ROU liabilities within accrued expenses and other liabilities and within other long-term liabilities on the Company’s consolidated balance sheets.

 

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company adopted ASU 2016-02 in the first quarter of 2019. See Note 8 for more complete details on balances as of the reporting periods presented herein. The adoption had no material impact on cash provided by or used in operating, investing or financing activities on the Company’s unaudited condensed consolidated statements of cash flows.

 

Inventory

 

Inventory consisting of supplements, is stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Outdated inventory is directly charged to cost of goods sold.

 

Goodwill and Intangible Assets

 

Goodwill is recognized as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value.

 

The Company recognizes an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their estimated useful lives unless the estimated useful life is determined to be indefinite. Amortizable intangible assets are being amortized primarily over useful lives of five years. The straight-line method of amortization is used as it has been determined to approximate the use pattern of the assets. Impairment losses are recognized if the carrying amount of an intangible that is subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.

 

The Company also maintains intangible assets with indefinite lives, which are not amortized. These intangibles are tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of these assets is less than their carrying value. No impairment charges were recognized in the three or six months ended June 30, 2020 or 2019.

 

Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. There are no patients/customers that represent 10% or more of the Company’s revenue or accounts receivable. Generally, the Company’s cash and cash equivalents are in checking accounts.

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For consolidated financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 5 to 7 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.

 

10

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There was no impairment as of or for the periods ended June 30, 2020 or 2019. 

 

Convertible Notes

 

Convertible notes are regarded as compound instruments, consisting of a liability component and an equity component. The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized as additional paid-in capital and included in equity, net of income tax effects, and is not subsequently remeasured. After initial measurement, they are carried at amortized cost using the effective interest method. Convertible notes for which the maturity date has been extended and that qualify for debt extinguishment treatment are recorded at fair value on the extinguishment date and then revalue at the end of each reporting period, with the change recorded to the statement of operations under “Change in Fair Value of Debt.”

 

Derivative Financial Instruments

 

The Company reviews the terms of convertible debt, equity instruments and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. Also, in connection with the issuance of financing instruments, the Company may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is recognized, in order to initially record the derivative instrument liabilities at their fair value. The discount from the face value of convertible debt instruments resulting from allocating some or all of the proceeds to the derivative instruments is amortized over the life of the instrument through periodic charges to income.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

 

Fair Value of Assets and Liabilities

 

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards have established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

 

Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities;

 

Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data;

 

Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.


11

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 

 

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Prior to January 1, 2020, the Company utilized the closed-form Black-Scholes option pricing model to estimate the fair value of options, warrants, beneficial conversion features and other Level 3 financial assets and liabilities. Effective January 1, 2020, the Company changed to a binomial lattice option pricing model. The Company believes that the binomial lattice model results in a better estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fair value these instruments and, unlike the Black-Scholes model, also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation to employees and nonemployees under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. Effective January 1, 2020, the Company uses a binomial lattice pricing model to estimate the fair value of options and warrants granted. In prior periods, the Company used the Black-Scholes pricing model.

 

Income Taxes

 

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. No Income Tax has been provided for the three and six months ended June 30, 2020 or 2019, since the Company has sustained a loss for both periods. Due to the uncertainty of the utilization and recoverability of the loss carry-forwards and other deferred tax assets, management has determined a full valuation allowance for the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.

 

Recurring Fair Value Measurements

 

The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable, accrued liabilities, and derivative financial instruments approximated their fair value.

 

12

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Net Loss per Share 

 

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. During the three and six months ended June 30, 2020 and 2019, the Company reported a net loss and excluded all outstanding stock options, warrants and other dilutive securities from the calculation of diluted net loss per common share because inclusion of these securities would have been anti-dilutive. As of June 30, 2020 and December 31, 2019, potentially dilutive securities were comprised of (i) 49,208,018 and 47,056,293 warrants outstanding, respectively, (ii) 3,229,250 and 3,269,250 stock options outstanding, respectively, (iii) 30,529,156 and 23,210,423 shares issuable upon conversion of convertible notes, respectively, and (iv) 300,000 and 332,500 unissued shares subject to future vesting requirements granted pursuant to the Company’s Employee Incentive Plan. 

 

Common stock awards

 

The Company grants common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally the date the performance of services is complete. The fair value of the awards is recognized on a straight-line basis as services are rendered. The share-based payments related to common stock awards for the settlement of services provided by non-employees is recorded on the consolidated statement of comprehensive loss in the same manner and charged to the same account as if such settlements had been made in cash.

 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes pricing model as of the measurement date. Effective January 1, 2020, the Company uses a binomial lattice pricing model to estimate the fair value of compensation options and warrants. In prior periods, the Company used the Black-Scholes pricing model. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 14, Shareholders’ Deficit.

 

Business Segments

 

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has three operating segments: Health Services (multi-specialty medical group including the NWC OB/GYN practice, the NCFM practice acquired in April 2019 and the BTG physical therapy practice launched in 2020), Digital Healthcare (develops and markets the “HealthLynked Network,” an online personal medical information and record archive system), and ACO/MSO (comprised of the ACO/MSO business acquired with CHM in May 2020, which assists physician practices in providing coordinated and more efficient care to patients via the MSSP).

 

Recent Accounting Pronouncements

 

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) using the required modified retrospective approach. ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. See discussion below under the caption “Leases” in this Note 2 and in Note 8 for more detail on the Company’s accounting policy with respect to lease accounting.

 

Effective January 1, 2019, the Company adopted ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The adoption of this guidance did not materially impact the Company’s financial statements and related disclosures.

 

Accounting standards recently adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments are estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The new accounting guidance generally requires the modified retrospective transition method, with the cumulative effect of applying the new accounting guidance recognized as an adjustment to opening retained earnings in the year of adoption, except for certain financial assets where the prospective transition method is required, such as available-for-sale debt securities for which an other-than-temporary impairment has been recorded. The ASUs became effective for us on January 1, 2020. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, the one step quantitative impairment test calculates goodwill impairment as the excess of the carrying value of a reporting unit over its fair value, up to the carrying value of the goodwill. The ASU should be applied on a prospective basis. ASU 2017-04 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company's consolidated financial statements and related disclosures.

 

 

13

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

In August 2018, the FASB issued ASU 2018-13, Fair Value measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company's consolidated financial statements and related disclosures.


In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 requires a customer in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Therefore, a customer in a hosting arrangement that is a service contract determines which project stage an implementation activity relates to. Costs for implementation activities in the application development stage are capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. ASU 2018-15 also requires the customer to expense the capitalized implementation costs over the term of the hosting arrangement, and to apply the existing impairment guidance in Subtopic 350-40 to the capitalized implementation costs as if the costs were long-lived assets. ASU 2018-15 can be applied either retrospectively or prospectively and is effective for annual reporting periods beginning after December 15, 2019, and interim periods therein, with early adoption permitted. ASU 2018-15 became effective for us on January 1, 2020. We have elected to apply the standard prospectively. The adoption of this update did not have a material impact on the Company's consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective in the first quarter of fiscal 2019. We adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact our financial statements and related disclosures.

 

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share, Distinguishing Liabilities from Equity and Derivatives and Hedging, which changes the accounting and earnings per share for certain instruments with down round features. The amendments in this ASU should be applied using a cumulative-effect adjustment as of the beginning of the fiscal year or retrospective adjustment to each period presented and is effective for annual periods beginning after December 15, 2018, and interim periods within those periods. We adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact our financial statements and related disclosures.

 

In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASC Update No 2018-02 (Topic 220) Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  This ASC update allows for a reclassification into retained earnings of the stranded tax effects in accumulated other comprehensive income (“AOCI”) resulting from the enactment of the Tax Cuts and Jobs Act (“TCJA”). The updated guidance is effective for interim and annual periods beginning after December 15, 2018.  We adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact our financial statements and related disclosures.

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07, equity-classified nonemployee share-based payment awards are measured at the grant date fair value on the grant date The probability of satisfying performance conditions must be considered for equity-classified nonemployee share-based payment awards with such conditions. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact our financial statements and related disclosures.

 

In July 2018, the FASB issued ASU 2018-09 to provide clarification and correction of errors to the Codification. The amendments in this update cover multiple Accounting Standards Updates. Some topics in the update may require transition guidance with effective dates for annual periods beginning after December 15, 2018. We adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact our financial statements and related disclosures.

 

No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our unaudited condensed consolidated Financial Statements.

 

NOTE 3 – GOING CONCERN MATTERS AND LIQUIDITY

 

As of June 30, 2020, the Company had a working capital deficit of $5,420,552 and accumulated deficit $18,127,718. For the six months ended June 30, 2020, the Company had a net loss of $2,098,064 and net cash used by operating activities of $1,089,173. Net cash used in investing activities was $214,046. Net cash provided by financing activities was $1,548,862, resulting principally from $827,500 net proceeds from the issuance of convertible notes, $724,692 proceeds from the sale of common stock, $745,869 proceeds from loans issued by the federal government under the Payroll Protection Act, and $149,000 proceeds from the issuance of related party loans.

 

The Company’s cash balance and revenues generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from the date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include attempting to improve its business profitability and its ability to generate sufficient cash flow from its operations to meet its needs on a timely basis, obtaining additional working capital funds through equity and debt financing arrangements, and restructuring on-going operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the date of this report. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures, working capital, and other requirements. Management intends to make every effort to identify and develop sources of funds. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all.

 

14

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 3 – GOING CONCERN MATTERS AND LIQUIDITY (CONTINUED)

 

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. 

 

A novel strain of coronavirus, COVID-19, that was first identified in China in December 2019, has surfaced in several regions across the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The further spread of COVID-19, and the requirement to take action to limit the spread of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business and financial condition, including our potential to conduct financings on terms acceptable to us, if at all. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. 

 

The Company intends that the cost of completing intended acquisitions, implementing its development and sales efforts related to the HealthLynked Network, as well as maintaining existing and expanding overhead and administrative costs, will be financed from (i) profits generated by NCFM and, upon completion of the acquisition, from Cura and AHP, and (ii) outside funding sources, including the put rights associated with the Investment Agreement, issuance of convertible notes, sales of common stock, and loans from related parties. The Company expects to repay our outstanding convertible notes, which have an aggregate face value of $2,051,250 as of June 30, 2020, from outside funding sources, including but not limited to new convertible notes payable, amounts available upon the exercise of the put rights granted under the Investment Agreement, sales of equity, loans from related parties and others, or through the conversion of convertible notes into equity. In May 2020, the Investment Agreement, which was scheduled to expire on May 15, 2020, was extended an additional two years to May 15, 2022. No assurances can be given that the Company will be able to access sufficient outside capital in a timely fashion in order to repay the convertible notes before they mature. If necessary funds are not available, the Company’s business and operations would be materially adversely affected and in such event, the Company would attempt to reduce costs and adjust its business plan.

 

NOTE 4 – ACQUISITIONS

 

Hughes Center for Functional Medicine – April 2019

 

On April 12, 2019, the Company acquired a 100% interest in Hughes Center for Functional Medicine (“HCFM”), a medical practice engaged in improving the health of its patients through individualized and integrative health care. Under the terms of acquisition, the Company paid HCFM shareholders $500,000 in cash, issued 3,968,254 shares of the Company’s common stock and agreed to an earn-out provision of $500,000 that may be earned based on the performance of HCFM in the years ended on the first, second and third anniversary dates of the acquisition closing. The total consideration fair value represents a transaction value of $1,799,672. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business Combinations” (“ASC 805”).

 

Following the acquisition, HCFM was rebranded as NCFM and was combined with NWC to form the Company’s Health Services segment. As a result of the acquisition, the Company is expected to be a leading provider of Functional Medicine in Southwest Florida. The Company also expects to reduce costs in its Health Services segment through economies of scale.

 

The following table summarizes the fair value of consideration paid for HCFM:

 

Cash   $ 500,000  
Common Stock (3,968,254 shares)     1,000,000  
Contingent acquisition consideration subject to earn-out     299,672  
         
Fair Value of Total Consideration   $ 1,799,672  

 

15

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 4 – ACQUISITIONS (CONTINUED)

 

The fair value of the 3,968,254 common shares issued as part of the acquisition consideration was determined using the intraday volume weighted average price of the Company’s common shares on the acquisition date. The terms of the earn out require the Company to pay the former owner of HCFM up to $100,000, $200,000 and $200,000 on the first, second and third anniversary, respectively, based on achievement by NCFM of revenue of at least $3,100,000 (50% weighting) and EBITDA of at least $550,000 (50% weighting) in the year preceding each anniversary date. The fair value of the contingent acquisition consideration related to the future earn-out payments was calculated using a probability-weighted discounted cash flow projection. The fair value of the contingent acquisition consideration is remeasured at the end of each reporting period and changes are included in the statement of operations under the caption “Change in fair value of contingent acquisition consideration.” During the three months ended June 30, 2020 and 2019, the Company recognized losses on the change in the fair value of contingent acquisition consideration related to the HCFM acquisition of $4,706 and $-0-, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized losses on the change in the fair value of contingent acquisition consideration of $11,327 and $-0-, respectively. During the six months ended June 30, 2020, the Company paid the seller $47,000 in satisfaction of the first year of earn-out.

 

The following table summarizes the estimated fair values of the assets acquired at the acquisition date. There were no liabilities assumed in the acquisition of HCFM.

 

Cash   $ 35,000  
Hyperbaric Chambers     452,289  
Medical Equipment     29,940  
Computer Equipment/Software     19,739  
Office Furniture & Equipment     23,052  
Inventory     72,114  
Leasehold Improvements     25,000  
Website     41,000  
Patient Management Platform Database     1,101,538  
         
Fair Value of Identifiable Assets Acquired   $ 1,799,672  

 

The fair value of the website of $41,000 was determined based upon the cost to reconstruct and put into use applying current market rates. The fair value of the Patient Management Platform Database of $1,101,538 was estimated by applying the income approach. Under the income approach, the expected future cash flows generated by the Patient Management Platform Database are estimated and discounted to their net present value at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital and return on assets, as well as the risks inherent in the business. Cash flows were estimated based on EBITDA using forecasted revenue and costs. The measure is based on significant inputs that are not observable in the market (i.e. Level 3 inputs). Key assumptions include (i) a capitalization rate of 11.75% (ii) sustainable growth of 5% and (iii) a benefit stream using EBITDA cash flow. The Company finalized the purchase price allocation in March 2020 and determined that no goodwill was included in the acquisition.

 

Cura Health Management LLC – May 2020

 

On May 18, 2020, the Company acquired a 100% interest in Cura Health Management LLC (“CHM”) and its wholly owned subsidiary ACO Health Partners, LLC (“AHP”). CHM and AHP assist physician practices in providing coordinated and more efficient care to patients via the MSSP. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business Combinations” (“ASC 805”). Following the acquisition, the business of CHM will comprise the Company’s ACO/MSO Division.

 

Under the terms of acquisition, the Company paid CHM shareholders the following consideration: (i) $214,000 in cash paid at closing, (ii) 2,240,838 shares of HealthLynked common stock issued at closing, (iii) up to $223,500 additional cash and $660,000 in additional shares of HealthLynked common payable at the time CHM receives the final assessment of the calculation of MSSP savings for the 2019 program year, with this amount prorated based on a target MSSP payment (plus other ancillary revenue) of $1,725,000, and (iv) up to $437,500 based on the business achieving annual revenue of $2,250,000 and annual profit of $500,000 in each of the four years following closing.

 

16

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 4 – ACQUISITIONS (CONTINUED)

 

The total consideration fair value represents a transaction value of $1,473,460. The following table summarizes the fair value of consideration paid:

 

Cash paid at closing   $ 214,000  
Shares issued at closing     201,675  
Cash and shares contingent upon 2019 program year MSSP payment target     778,192  
Cash contingent upon four-year earn-out     279,593  
         
    $ 1,473,460  

 

The fair value of the 2,240,838 common shares issued at closing was determined using the intraday average high and low trading price of the Company’s common shares on the acquisition date. The terms of the earn out require the Company to pay the former owners of CHM up to $62,500, $125,000, $125,000 and $125,000 on the first, second, third and fourth anniversary, respectively, based on achievement by the underlying business of revenue of at least $2,250,000 (50% weighting) and profit of at least $500,000 (50% weighting) in the year preceding each anniversary date. The fair value of the contingent acquisition consideration related to both the four-year earn-out and the current year MSSP savings amount were calculated using a probability-weighted discounted cash flow projection. The fair value of the contingent acquisition consideration is remeasured at the end of each reporting period and changes are included in the statement of operations under the caption “Change in fair value of contingent acquisition consideration.” During the three and six months ended June 30, 2020 and 2019, the Company recognized losses on the change in the fair value of contingent acquisition consideration related to the CHM acquisition of $33,981 and $-0-, respectively.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

 

Cash   $ 49,995  
Accounts receivable     90,197  
Prepayments     15,294  
ACO physician contracts     1,073,000  
Goodwill     381,856  
Accounts payable     (32,846 )
Deferred revenue     (104,034 )
         
Fair Value of Identifiable Assets Acquired and Liabilities Assumed   $ 1,473,460  

 

The fair value of the ACO Physician Contracts of $1,073,000 was estimated by applying the income approach. Under the income approach, the expected future cash flows generated by the ACO Physician Contracts are estimated and discounted to their net present value at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital and return on assets, as well as the risks inherent in the business. Cash flows were estimated based on EBITDA using forecasted revenue and costs. The measure is based on significant inputs that are not observable in the market (i.e. Level 3 inputs). Key assumptions include (i) a capitalization rate of 24.24% (ii) sustainable growth of 5.00% and (iii) a benefit stream using EBITDA cash flow. Goodwill of $381,856 arising from the acquisition consists of value associated with the legacy name. None of the goodwill recognized is expected to be deductible for income tax purposes.

 

Pro Forma Financial Information

 

The following represents the pro forma consolidated income statement as if HCFM and CHM had been included in the consolidated results of the Company for the entire six-month period ending June 30, 2020 and 2019:

 

    Six Months Ended
June 30,
 
    2020     2019  
Revenue   $ 2,700,128     $ 2,821,128  
Net loss   $ (2,175,860 )   $ (1,991,173 )

 

17

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 4 – ACQUISITIONS (CONTINUED)

 

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of HCFM and CHM to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2020 and 2019, respectively.

 

NOTE 5 – DEFERRED OFFERING COSTS AND PREPAID EXPENSES

 

On March 22, 2017, the Company the Company granted to the investor in the Investment Agreement warrants to purchase 4,000,000 shares at $0.25 per share, 2,000,000 shares at $0.50 per share and 1,000,000 shares at $1.00 per share. On June 7, 2017, the Company also granted warrants to purchase 200,000 shares at $0.25 per share, 100,000 shares at $0.50 per share and 50,000 shares at $1.00 per share to an advisor as a fee in connection with the Investment Agreement. The aggregate fair value of these warrants totaling $153,625 was recorded as a deferred offering cost and is being amortized over the initial period during which the Company was able access the financing, which began on May 15, 2017 and ended on May 15, 2020. The Company recognized general and administrative expense related to the cost of the warrants of $6,401 and $12,802 in the three months ended June 30, 2020 and 2019, respectively, and $19,203 and $25,604 in the six months ended June 30, 2020 and 2019, respectively.

 

On December 6, 2018, the Company granted three-year warrants to purchase 240,000 shares at an exercise price of $0.20 per share to two advisors for services to be provided over a three-month period. The fair value of the warrants of $35,462 was amortized over a three-month service period.. The Company recognized general and administrative expense related to the warrants of $-0- and $-0- in the three months ended June 30, 2020 and 2019, respectively, and $-0- and $25,611 in the six months ended June 30, 2020 and 2019, respectively.

 

NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT

 

Property, plant and equipment at June 30, 2020 and December 31, 2019 are as follows:

 

    June 30,     December 31,  
    2020     2019  
             
Capital lease equipment   $ 251,752     $ 251,752  
Medical equipment     484,126       482,229  
Telephone equipment     12,308       12,308  
Furniture, transport and office equipment     517,959       516,815  
                 
Total property, plant and equipment     1,266,145       1,263,104  
Less: accumulated depreciation     (794,888 )     (749,316 )
                 
Property, plant and equipment, net   $ 471,257     $ 513,788  

 

Depreciation expense during the three months ended June 30, 2020 and 2019 was $22,830 and $21,710, respectively. Depreciation expense during the six months ended June 30, 2020 and 2019 was $45,572 and $21,590, respectively.

 

18

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 7 – INTANGIBLE ASSETS

 

Intangible assets at June 30, 2020 and December 31, 2019 are as follows:

 

    June 30,     December 31,  
    2020     2019  
             
NCFM: Medical database   $ 1,101,538     $ 1,230,000  
NCFM: Website     41,000       41,000  
CHM: ACO physician contracts     1,073,000        
Goodwill     381,856       71,866  
                 
Total intangible assets     2,597,394       1,342,866  
Less: accumulated amortization     (9,997 )     (5,908 )
                 
Intangible assets, net   $ 2,587,397     $ 1,336,958  

 

Goodwill and intangible assets arose from the acquisitions of NCFM in April 2019 and CHM in May 2020. The NCFM medical database is assumed to have an indefinite life and is not amortized and the website is being amortized on a straight-line basis over its estimated useful life of five years. The CHM ACO physician contracts are assumed to have an indefinite life and are not amortized. Goodwill represents the excess of consideration transferred over the fair value of the net identifiable assets acquired related to the acquisition of CHM.

 

Amortization expense in the three months ended June 30, 2020 and 2019 was $2,045 and $1,775, respectively. Amortization expense in the six months ended June 30, 2020 and 2019 was $4,089 and $1,775, respectively. No impairment charges were recognized related to goodwill and intangible assets in the three or six months ended June 30, 2020 or 2019.

 

NOTE 8 – LEASES

 

The Company has two operating leases for office space and equipment that expire in July 2020, an operating lease for office space that expires in May 2022, and an operating lease for office space that expires in March 2023. As of June 30, 2020, the Company’s weighted-average remaining lease term relating to its operating leases was 1.9 years, with a weighted-average discount rate of 21.19%. The Company was also lessee in a capital equipment finance lease for medical equipment entered into in March 2015 that expired in March 2020.

 

The table below summarizes the Company’s lease-related assets and liabilities as of June 30, 2020:

 

    As of June 30, 2020     As of December 31, 2019  
    Operating     Financing     Total     Operating     Financing     Total  
    Leases     Leases     Leases     Leases     Leases     Leases  
Lease assets   $ 161,467     $     $ 161,467     $ 273,196     $ 4,482     $ 277,678  
                                                 
Lease liabilities                                                
Lease liabilities (short term)   $ 82,745     $     $ 82,745     $ 197,041     $ 4,482     $ 201,523  
Lease liabilities (long term)     86,503             86,503       80,510             80,510  
Total lease liabilities   $ 169,248     $     $ 169,248     $ 277,551     $ 4,482     $ 282,033  

 

19

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 8 – LEASES (CONTINUED)

 

Lease expense in the three and six months ended June 30, 2020 and 2019 was as follow:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
Operating leases   $ 90,682     $ 85,573     $ 181,365     $ 154,401  
Financing leases           4,587       4,587       9,174  
                                 
Total lease expense   $ 90,682     $ 90,160     $ 185,952     $ 163,575  

 

Maturities of operating and capital lease liabilities were as follows as of June 30, 2020:

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2020   $ 71,466     $     $ 71,466  
2021     98,531             98,531  
2022     52,662             52,662  
2023     6,099             6,099  
Total lease payments     228,758             228,758  
Less interest     (59,510 )           (59,510 )
Present value of lease liabilities   $ 169,248     $     $ 169,248  

 

NOTE 9 – DEFERRED REVENUE

 

Amounts related to deferred contract revenue in the three and six months ended June 30, 2020 and 2019 was as follow:

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2020     2019     2020     2019  
                         
Balance, beginning of period   $     $     $     $  
Acquisition of CHM     104,034             104,034        
Payments received for unearned revenue    

52,667

           

52,667

       
Revenue earned     (50,420 )           (50,420 )      
                                 
Balance, end of period   $ 106,281     $     $ 106,281     $  

 

Deferred revenue relates to contracted consulting services at CHM for which payment has been made but services have not yet been rendered as of the measurement date. The Company typically satisfies its performance obligations related to such contracts upon completion of service. Payment is typically made in the month prior to the services being provided.

 

NOTE 10 – NOTES PAYABLE AND OTHER AMOUNTS DUE TO RELATED PARTY

 

Amounts due to related parties as of June 30, 2020 and December 31, 2019 were comprised of the following:

 

    June 30,     December 31,  
    2020     2019  
Due to related party:            
Deferred compensation, Dr. Michael Dent   $ 300,600     $ 300,600  
Accrued interest payable to Dr. Michael Dent     225,069       192,857  
Total due to related party     525,669       493,457  
                 
Notes payable to related party:                
Notes payable to Dr. Michael Dent and family (all current)   $ 827,981     $ 743,955  

 

20

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 10 – NOTES PAYABLE AND OTHER AMOUNTS DUE TO RELATED PARTY (CONTINUED)

 

Notes Payable to Dr. Michael Dent

 

Our founder and CEO, Dr. Michael Dent, has made loans to the Company from time to time in the form of unsecured promissory notes payable. The carrying values of notes payable to Dr. Dent as of June 30, 2020 and December 31, 2019 were as follows:

 

        Interest     June 30,     December 31,  
Inception Date   Maturity Date   Rate     2020     2019  
January 12, 2017   December 31, 2020     10 %   $ 40,852 *   $ 38,378 *
January 18, 2017   December 31, 2020     10 %     23,316 *     21,904 *
January 24, 2017   December 31, 2020     10 %     58,223 *     54,696 *
February 9, 2017   December 31, 2020     10 %     34,824 *     32,715 *
April 20, 2017   December 31, 2020     10 %     11,447 *     10,754 *
June 15, 2017   December 31, 2020     10 %     36,788 *     34,560 *
August 17, 2017   December 31, 2020     10 %     22,350 *     20,997 *
August 24, 2017   December 31, 2020     10 %     41,847 *     39,312 *
September 7, 2017   December 31, 2020     10 %     38,945 *     36,586 *
September 21, 2017   December 31, 2020     10 %     29,402 *     27,621 *
September 29, 2017   December 31, 2020     10 %     13,292 *     12,487 *
December 21, 2017   December 31, 2020     10 %     15,242 *     14,318 *
January 8, 2018   December 31, 2020     10 %     81,342 *     76,415 *
January 11, 2018   December 31, 2020     10 %     9,755 *     9,164 *
January 26, 2018   December 31, 2020     10 %     18,854 *     17,712 *
January 3, 2014   December 31, 2020     10 %     315,443 *     296,336 *
January 7, 2020   July 3, 2020     10 %     36,059        
                             
                $ 827,981     $ 743,955  

 

* Denotes that note payable is reflected at fair value

 

As denoted in the table above, certain of our notes payable to Dr. Dent are carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” The changes in fair value during the three months ended June 30, 2020 and 2019 was $62,570 and $6,256, respectively. The changes in fair value during the six months ended June 30, 2020 and 2019 was $47,967 and $12,084, respectively. The fair value of these notes as of June 30, 2020 and December 31, 2019 was $791,922 and $743,955, respectively.

 

On January 7, 2020, the Company entered into a Merchant Cash Advance Factoring Agreement (“MCA”) with a trust controlled by Dr. Dent, pursuant to which the Company received an advance of $150,000 before closing fees (the “2020 MCA”). The Company is required to repay the 2020 MCA, which acts like an ordinary note payable, at the rate of $7,212 per week until the balance of $187,500 is repaid, which was scheduled for July 2020. At inception, the Company recognized a note payable in the amount of $187,500 and a discount against the note payable of $38,500. The discount is being amortized over the life of the instrument. The Company made installment payments against the MCA of $72,114 and $-0-, respectively, during the three months ended June 30, 2020 and 2019, and $151,441 and $-0-, respectively, during the six months ended June 30, 2020 and 2019. The Company recognized amortization of the discount in the amount of $20,488 and $-0-, respectively, during the three months ended June 30, 2020 and 2019, and $38,500 and $-0-, respectively, during the six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, the carrying value of the MCA was $36,059 and $-0-, respectively. This note was repaid in full and retired during July 2020.

 

Interest accrued on the above notes payable as of June 30, 2020 and December 31, 2019 was $225,069 and $192,888, respectively. Interest expense on the above unsecured promissory notes was $36,594 and $16,417 for the three months ended June 30, 2020 and 2019, respectively, and $70,711 and $32,654 for the six months ended June 30, 2020 and 2019, respectively.

 

21

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 11 – GOVERNMENT NOTES PAYABLE

 

During the six months ended June 30, 2020, the Company and its subsidiaries received an aggregate of $745,869 in loans under the Paycheck Protection Program (the “PPP”). The PPP loans, administered by the U.S. Small Business Administration and processed through Wells Fargo bank, were issued under the recently enacted Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. The loans bear interest at 1% per annum in mature in May 2022. Principal and interest payments are deferred for the first six months of the loans. Pursuant to the terms of the PPP, principal amounts may be forgiven if loan proceeds are used for qualifying expenses as described in the CARES Act, including costs such as payroll, benefits, employer payroll taxes, rent and utilities.

 

Interest accrued on the PPP loans as of June 30, 2020 and December 31, 2019 was $861 and $-0-, respectively. Interest expense on the PPP loans was $861 and $-0- for the three months ended June 30, 2020 and 2019, respectively, and $861 and $-0- for the six months ended June 30, 2020 and 2019, respectively.

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable as of June 30, 2020 and December 31, 2019 were comprised of the following:

 

    June 30,     December 31,  
    2020     2019  
             
$550k Note - July 2016   $ 583,343 *   $ 548,010 *
$50k Note - July 2016     60,533 *     56,866 *
$111k Note - May 2017     113,388 *     118,606 *
$357.5k Note - April 2019     349,922 *     328,728 *
$154k Note - June 2019           50,000  
$136k Notes - July 2019           135,850  
$78k Note III - July 2019           78,000  
$230k Note - July 2019           230,000  
$108.9k Note - August 2019           108,947  
$142.5k Note - October 2019     142,500       142,500  
$103k Note V - October 2019           103,000  
$108.9k Note II - October 2019           108,947  
$128.5k Note - October 2019           128,500  
$103k Note VI - November 2019           103,000  
$78.8k Note II - December 2019           78,750  
$131.3k Note - January 2020     131,250        
$78k Note IV - January 2020     78,000        
$157.5k Note - March 2020     157,500        
$157.5k Note II - April 2020     157,500        
$135k Note - April 2020     135,000        
$83k Note II - April 2020     83,000        
$128k Note - April 2020     128,000        
      2,119,936       2,319,704  
Less: unamortized discount     (212,246 )     (777,668 )
Convertible notes payable, net of original issue discount and debt discount   $ 1,907,690     $ 1,542,036  

 

* - Denotes that convertible note payable is carried at fair value

 

22

 

  

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Amortization of debt discount recognized on each convertible note outstanding during the three and six months ended June 30, 2020 and 2019 were as follows:

 

    Amortization of Debt Discount  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
$103k Note I - October 2018   $     $ 1,446     $     $ 33,972  
$103k Note II - November 2018           13,096             44,952  
$153k Note - November 2018           39,276             89,718  
$103k Note III - December 2018           17,214             42,611  
$78k Note I - January 2019           26,000             47,714  
$78k Note II - January 2019           24,061             41,512  
$103k Note III - April 2019           27,384             27,384  
$104.5k Note - April 2019           22,842             22,842  
$104.5k Note II - April 2019           22,842             22,842  
$357.5k Note - April 2019           75,364             75,362  
$103k Note IV - May 2019           18,727             18,727  
$154k Note - June 2019           11,361       1,093       11,361  
$67.9k Note - July 2019                 7,252        
$67.9k Note II - July 2019                 2,813        
$78k Note III - July 2019                 6,208        
$230k Note - July 2019                 58,527        
$108.9k Note - August 2019     78             21,038        
$142.5k Note - October 2019     35,430             70,861        
$103k Note V - October 2019     930             29,143        
$108.9k Note II - October 2019     11,475             33,205        
$128.5k Note - October 2019     19,755             51,705        
$103k Note VI - November 2019     10,730             39,450        
$78.8k Note II - December 2019     11,194             27,111        
$131.3k Note - January 2020     8,103             15,048        
$78k Note IV - January 2020     7,317             13,347        
$157.5k Note - March 2020     10,248             12,610        
$157.5k Note II - April 2020     12,308             12,308        
$135k Note - April 2020     9,974             9,974        
$83k Note II - April 2020     7,092             7,092        
$128k Note - April 2020     7,829             7,829        
                                 
    $ 152,463     $ 299,613     $ 426,614     $ 478,997  

 

23

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Unamortized debt discount on outstanding convertible notes payable as of June 30, 2020 and December 31, 2019 were comprised of the following:

 

    Unamortized Discount as of  
    June 30,     December 31,  
    2020     2019  
             
$154k Note - June 2019   $     $ 21,175  
$67.9k Note - July 2019           20,497  
$67.9k Note II - July 2019           20,497  
$78k Note III - July 2019           32,657  
$230k Note - July 2019           125,684  
$108.9k Note - August 2019           59,392  
$142.5k Note - October 2019     36,209       107,070  
$103k Note V - October 2019           70,686  
$108.9k Note II - October 2019           72,592  
$128.5k Note - October 2019           106,732  
$103k Note VI - November 2019           81,740  
$78.8k Note II - December 2019           58,946  
$131.3k Note - January 2020     17,541        
$78k Note IV - January 2020     8,603        
$157.5k Note - March 2020     28,490        
$157.5k Note II - April 2020     38,169        
$135k Note - April 2020     32,855        
$83k Note II - April 2020     19,191        
$128k Note - April 2020     31,188        
                 
    $ 212,246     $ 777,668  

 

24

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Interest expense recognized on each convertible note outstanding during the three and six months ended June 30, 2020 and 2019 were as follows:

 

    Interest Expense  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
$550k Note - July 2016   $ 8,227     $ 8,227     $ 16,455     $ 16,364  
$50k Note - July 2016     1,247       1,247       2,493       2,479  
$111k Note - May 2017     2,019       4,123       6,714       8,200  
$171.5k Note - October 2017                       1,785  
$103k Note I - October 2018           113             2,653  
$103k Note II - November 2018           1,044             3,584  
$153k Note - November 2018           2,938             6,710  
$103k Note III - December 2018           1,721             4,261  
$78k Note I - January 2019           1,945             3,569  
$78k Note II - January 2019           1,945             3,355  
$103k Note III - April 2019           2,483             2,483  
$104.5k Note - April 2019           2,290             2,290  
$104.5k Note II - April 2019           2,290             2,290  
$357.5k Note - April 2019     8,913       10,450       9,742       10,453  
$103k Note IV - May 2019           1,524             1,524  
$154k Note - June 2019           1,139       46       1,139  
$67.9k Note - July 2019                 707        
$67.9k Note II - July 2019                 177        
$78k Note III - July 2019                 492        
$230k Note - July 2019                 3,041        
$108.9k Note - August 2019     19             2,564        
$142.5k Note - October 2019     3,553             9,291        
$103k Note V - October 2019     85             2,653        
$108.9k Note II - October 2019     1,254             3,970        
$128.5k Note - October 2019     1,946             5,149        
$103k Note VI - November 2019     959             3,527        
$78.8k Note II - December 2019     1,381             3,344        
$131.3k Note - January 2020     3,272             6,077        
$78k Note IV - January 2020     1,945             3,547        
$157.5k Note - March 2020     3,927             4,833        
$157.5k Note II - April 2020     3,840             3,840        
$135k Note - April 2020     3,144             3,144        
$83k Note II - April 2020     1,933             1,933        
$128k Note - April 2020     2,139             2,139        
                                 
    $ 49,803     $ 43,479     $ 95,878     $ 73,139  

 

25

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Certain of our convertible notes payable are also carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” The changes in fair value during the three and six months ended June 30, 2020 and 2019 and the fair value as of such instruments as of June 30, 2020 and December 31, 2019 were as follows:

 

    Change in Fair Value of Debt        
    Three Months Ended     Six Months Ended     Fair Value of Debt as of  
    June 30,     June 30,     June 30,     December 31,  
    2020     2019     2020     2019     2020     2019  
                                     
$550k Note - July 2016   $ 46,090     $ 18,415     $ 35,333     $ 35,253     $ 583,342     $ 548,010  
$50k Note - July 2016     4,783       1,865       3,667       3,573       60,533       56,866  
$111k Note - May 2017     14,577       3,872       11,541       7,416       113,388       118,606  
$171.5k Note - October 2017                       1,781              
$357.5k Note - April 2019     27,647             21,194             349,923       328,727  
                                                 
    $ 93,097     $ 24,152     $ 71,735     $ 48,023     $ 1,107,186     $ 1,052,209  

 

Convertible Note Payable ($111,000) – May 2017

 

On May 22, 2017, the Company entered into a 10% fixed convertible secured promissory note with an investor with a face value of $111,000. The $111k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.15 per share, or 740,000 of the Company’s common shares, and is secured by all of the Company’s assets. The Company received $100,000 net proceeds from the note after an $11,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 133,333 shares of the Company’s common stock at an exercise price of $0.75 per share. The $111k Note matures on December 31, 2020. On February 6, 2020, the holder of the $111k Note converted $30,000 principal on the note into 448,029 shares of Company common stock. In connection with the conversion, the Company recognized a loss on debt extinguishment of $25,394, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

Convertible Notes Payable ($103,000) – October 2018 

 

On October 18, 2018, the Company issued a $103,000 convertible note (the “$103k Note I”). On April 4, 2019, the Company prepaid the balance on the $103k Note I, including accrued interest, for a one-time cash payment of $134,500. In connection with the repayment, the Company recognized a gain on debt extinguishment of $28,169 in the six months ended June 30, 2019, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Notes Payable ($103,000) – November 2018

 

On November 12, 2018, the Company issued a $103,000 convertible note (the “$103k Note II”). On May 7, 2019, the Company prepaid the balance on the $103k Note II, including accrued interest, for a one-time cash payment of $134,888. In connection with the repayment, the Company recognized a gain on debt extinguishment of $23,821 in the six months ended June 30, 2019, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Notes Payable ($153,000) – November 2018

 

On November 19, 2018, the Company issued a $153,000 convertible note (the “$153k Note”). During six months ended June 30, 2019, the holder of the $153k Note converted principal in the amount of $110,000 into 740,002 shares of Company common stock. The remaining principal balance of $43,000 was converted in the second half of 2019.

 

26

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Notes Payable ($103,000) – December 2018

 

On December 3, 2018, the Company issued a $103,000 convertible note (the “$103k Note III”). On May 31, 2019, the Company prepaid the balance on the $103k Note III, including accrued interest, for a one-time cash payment of $135,029. In connection with the repayment, the Company recognized a gain on debt extinguishment of $20,445 in the six months ended June 30, 2019, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($78,000) – January 2019

 

On January 14, 2019, the Company issued a $78,000 convertible note (the “$78k Note”). The $78k Note, including accrued interest, was repaid in July 2019 for a one-time cash payment of $102,321. In connection with the repayment, the Company recognized a loss on debt extinguishment of $6,258 in the six months ended June 30, 2019, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($78,000) – January 2019

 

On January 24, 2019, the Company issued a $78,000 convertible note (the “$78k Note II”). The $78k Note II, including accrued interest, was repaid in July 2019 for a one-time cash payment of $102,255. In connection with the repayment, the Company recognized a gain on debt extinguishment of $11,161 in the six months ended June 30, 2019, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($103,000) – April 2019

 

On April 3, 2019, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note III”). During the second half of 2019, the Company prepaid the balance on the $103k Note III, including accrued interest, for a one-time cash payment of $135,099.

 

Convertible Note Payable ($104,500) – April 2019

 

On April 11, 2019, the Company entered into securities purchase agreements for the sale of a $104,500 convertible note (the “$104.5k Note I”). During the second half of 2019, the holder of the $104.5k Note I converted the full principal in the amount of $104,500 and $5,768 of accrued interest into 1,176,189 shares of Company common stock.

 

Convertible Note Payable ($104,500) – April 2019

 

On April 11, 2019, the Company entered into securities purchase agreements for the sale of a second $104,500 convertible note (the “$104.5k Note II”). During the second half of 2019, the Company prepaid the balance on the $104.5k Note II, including accrued interest, for a one-time cash payment of $142,500.

 

Convertible Note Payable ($357,500) – April 2019

 

On April 15, 2019, the Company issued a fixed convertible note with a face value of $357,500 (the “$357.5k Note”). The $357.5k Note has an interest rate of 10%, matures on December 31, 2020, and may be converted into common stock of the Company by the holder at any time, subject to a 9.99% beneficial ownership limitation, at a fixed conversion price per share of $0.15, or 2,383,333 shares.

 

Convertible Note Payable ($103,000) – May 2019

 

On May 7, 2019, the Company issued a $103,000 convertible note (the “$103k Note IV”). During the second half of 2019, the Company prepaid the balance on the $103k Note IV, including accrued interest, for a one-time cash payment of $133,900.

 

27

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Note Payable ($154,000) – June 2019

 

On June 3, 2019, the Company issued a $154,000 convertible note (the “$154k Note”), of which $54,000 was converted in the second half of 2019. During the six months ended June 30, 2020, the holder converted the remaining unpaid principal balance of $50,000 and accrued interest of $8,572 into 968,390 shares of Company common stock. In connection with the conversion, the Company recognized a loss on debt extinguishment of $125,865 in the six months ended June 30, 2020, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

Convertible Note Payable ($67,925) – July 2019

 

On July 11, 2019, the Company issued a $67,925 convertible note (the “$67.9k Note I”). During the six months ended June 30, 2020, the holder converted the full principal of $67,925 and accrued interest of $3,926 into 885,847 shares of Company common stock. In connection with the conversion, the Company recognized a loss on debt extinguishment of $55,117 in the six months ended June 30, 2020, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

Convertible Note Payable ($67,925) – July 2019

 

On July 11, 2019, the Company issued a second $67,925 convertible note (the “$67.9k Note II”). During the six months ended June 30, 2020, the Company prepaid the balance on the $67.9k Note II, including accrued interest, for a one-time cash payment of $89,152. In connection with the repayment, the Company recognized a loss on debt extinguishment of $26,890 in the six months ended June 30, 2020, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($78,000) – July 2019

 

On July 16, 2019, the Company issued a $78,000 convertible note (the “$78k Note III”). During the three months ended June 30, 2020, the Company prepaid the balance on the $78k Note III, including accrued interest, for a one-time cash payment of $102,388. In connection with the repayment, the Company recognized a loss on debt extinguishment of $31,432 in the six months ended June 30, 2020, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($230,000) – July 2019

 

On July 18, 2019, the Company issued a convertible note with a face value of $230,000 (the “$230k Note”). During the three months ended June 30, 2020, the holder converted $80,000 of principal and $4,373 of accrued interest on the note into 1,236,668 shares of Company common stock and the Company repaid principal of $150,000 and accrued interest of $9,128 for cash payments totaling $181,554. The note was retired upon these conversions and repayments. In connection with the conversions and repayments, the Company recognized a loss on debt extinguishment of $112,498 in the six months ended June 30, 2020 equal to the excess of the cash payment amount and the fair value of the shares issued at conversion over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($108,947) – August 2019

 

On August 26, 2019, the Company issued a convertible note with a face value of $108,947 (the “$108.9k Note”). During the six months ended June 30, 2020, the holder converted the full principal of $108,947 and accrued interest of $6,354 into 2,650,251 shares of Company common stock. In connection with the conversions, the Company recognized a loss on debt extinguishment of $161,617 in the six months ended June 30, 2020, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

28

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Note Payable ($103,000) – October 2019

 

On October 1, 2019, the Company issued a $103,000 convertible note (the “$103k Note V”). On April 3, 2020, 2020, the Company prepaid the balance on the $103k Note V, including accrued interest, for a one-time cash payment of $135,205. In connection with the repayment, the Company recognized a loss on debt extinguishment of $43,777 in the six months ended June 30, 2020, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($108,947) – October 2019

 

On October 30, 2019, the Company issued a convertible note with a face value of $108,947 (the “$108.9k Note II”). During the six months ended June 30, 2020, the holder converted the full principal of $108,947 and accrued interest of $5,821 into 1,954,870 shares of Company common stock. In connection with the conversions, the Company recognized a loss on debt extinguishment of $76,895 in the six months ended June 30, 2020, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

Convertible Note Payable ($128,500) – October 2019

 

On October 30, 2019, the Company issued a $128,500 convertible note (the “$128.5k Note”). During the six months ended June 30, 2020, the holder converted the full principal of $128,500 and accrued interest of $8,832 into 3,197,877 shares of Company common stock. In connection with the conversion, the Company recognized a loss on debt extinguishment of $154,248 in the six months ended June 30, 2020, representing the excess of the fair value of the shares issued at conversion over the carrying value of the portion of the host instrument and the bifurcated conversion feature converted.

 

Convertible Note Payable ($103,000) – November 2019

 

On November 4, 2019, the Company issued a $103,000 convertible note (the “$103k Note VI”). On May 4, 2020, the Company prepaid the balance on the $103k Note VI, including accrued interest, for a one-time cash payment of $135,099. In connection with the repayment, the Company recognized a loss on debt extinguishment of $45,077 in the six months ended June 30, 2020, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($78,750) – December 2019

 

On December 2, 2019, the Company issued a $78,750 convertible note (the “$78.8k Note”). On June 3, 2020, the Company prepaid the balance on the $78.8k Note, including accrued interest, for a one-time cash payment of $103,359. In connection with the repayment, the Company recognized a loss on debt extinguishment of $37,554 in the six months ended June 30, 2020, equal to the excess of the payment amount over the carrying value of the note, derivative embedded conversion feature and accrued interest.

 

Convertible Note Payable ($131,250) – January 2020

 

On January 13, 2020, the Company issued a $131,250 convertible note (the “$131.3k Note”). The $131.3k Note included $8,750 fees and discounts for net proceeds of $122,500. The $131.3k Note has an interest rate of 10% and a default interest rate of 22% and matures on January 13, 2021. The $131.3k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the thirteen (13) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

29

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the embedded conversion feature (“ECF”) was calculated using a binomial lattice pricing model at $23,838. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 23,838  
Original issue discount and fees     8,750  
Convertible note     98,662  
         
Gross proceeds   $ 131,250  

 

Convertible Note Payable ($78,000) – January 2020

 

On January 16, 2020, the Company issued a $78,000 convertible note (the “$78k Note IV”). The $78k Note IV included $3,000 fees for net proceeds of $75,000. The $78k Note IV has an interest rate of 10% and a default interest rate of 22% and matures on October 15, 2020. The $78k Note IV may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $18,950. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 18,950  
Original issue discount and fees     3,000  
Convertible note     56,050  
         
Gross proceeds   $ 78,000  

 

Convertible Note Payable ($157,500) – March 2020

 

On March 10, 2020, the Company issued a $157,500 convertible note (the “$157.5k Note”). The $157.5k Note included $11,000 fees for net proceeds of $146,500. The $157.5k Note has an interest rate of 10% and a default interest rate of 22% and matures on March 10, 2021. The $157.5k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the thirteen (13) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $30,102. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 30,102  
Original issue discount and fees     11,000  
Convertible note     116,398  
         
Gross proceeds   $ 157,500  

 

30

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Note Payable ($157,500) – April 2020

 

On April 2, 2020, the Company issued a $157,500 convertible note (the “$157.5k Note”). The $157.5k Note included $10,500 fees and discounts for net proceeds of $147,000. The $157.5k Note has an interest rate of 10% and a default interest rate of 22% and matures on April 2, 2021. The $157.5k Note may be converted into common stock of the Company by the holder at any time six months after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 29% discount to the lowest bid or trading price of the Company’s common stock during the thirteen (13) trading days prior to the conversion date.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $39,978. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 39,978  
Original issue discount and fees     10,500  
Convertible note     107,022  
         
Gross proceeds   $ 157,500  

 

Convertible Note Payable ($135,000) – April 2020

 

On April 6, 2020, the Company issued a $135,000 convertible note (the “$135k Note”). The $135k Note included $3,500 fees and discounts for net proceeds of $131,500. The $135k Note has an interest rate of 10% and a default interest rate of 18% and matures on April 6, 2021. The $135k Note may be converted into common stock of the Company by the holder at any time six months after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $39,329. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 39,329  
Original issue discount and fees     3,500  
Convertible note     92,171  
         
Gross proceeds   $ 135,000  

 

Convertible Note Payable ($83,000) – April 2020

 

On April 6, 2020, the Company issued an $83,000 convertible note (the “$83k Note”). The $83k Note included $3,000 fees and discounts for net proceeds of $80,000. The $83k Note has an interest rate of 10% and a default interest rate of 22% and matures on February 15, 2021. The $83k Note may be converted into common stock of the Company by the holder at any time six months after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $23,283. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 23,283  
Original issue discount and fees     3,000  
Convertible note     56,717  
         
Gross proceeds   $ 83,000  

 

31

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Note Payable ($128,000) – April 2020

 

On April 30, 2020, the Company issued a $128,000 convertible note (the “$128k Note”). The $128k Note included $3,000 fees and discounts for net proceeds of $125,000. The $128k Note has an interest rate of 10% and a default interest rate of 2% and matures on February 28, 2021. The $128k Note may be converted into common stock of the Company by the holder at any time six months after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date.

 

The fair value of the ECF was calculated using a binomial lattice pricing model at $36,018. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 36,018  
Original issue discount and fees     3,000  
Convertible note     88,982  
         
Gross proceeds   $ 128,000  

 

NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments are comprised of (i) the fair value of ECFs embedded in convertible promissory notes for which the conversion rate is not fixed, but instead is adjusted based on a discount to the market price of the Company’s common stock, and (ii) a conditional cash redemption feature included in certain outstanding warrant agreements. The fair market value of the ECF derivative liabilities was calculated at inception of each convertible promissory note for which the conversion rate is not fixed and allocated to the respective convertible notes, with any excess recorded as a charge to “Financing cost.” The fair market value of the warrant feature derivative liabilities, which is only exercisable upon a change of control of the Company, was calculated as of the time that the beneficial ownership of the Company’s management and board fell below 50% and therefore a change of control a transaction, including a hostile takeover, was no longer within the Company’s control. Derivative financial instruments are revalued at the end of each period, with the change in value recorded to “Change in fair value of on derivative financial instruments.”

 

Derivative financial instruments and changes thereto recorded in the three and six months ended June 30, 2020 and 2019 include the following:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
Balance, beginning of period   $ 219,938     $ 580,855     $ 991,288     $ 800,440  
Inception of derivative financial instruments     138,608       624,832       211,498       804,059  
Change in fair value of derivative financial instruments     13,672       (223,881 )     (726,683 )     (415,514 )
Conversion or extinguishment of derivative financial instruments     (114,834 )     (349,201 )     (218,719 )     (556,380 )
                                 
Balance, end of period   $ 257,384     $ 632,605     $ 257,384     $ 632,605  

 

32

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 13 – DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

Fair market value of the derivative financial instruments was measured using the following assumptions:

 

    Six Months Ended
June 30,
 
    2020     2019  
             
Pricing model utilized   Binomial Lattice     Black/Scholes  
Risk free rate range   0.05% to 1.61%     1.92% to 2.73%  
Expected life range (in years)   0.14 to 1.00     0.14 to 1.00  
Volatility range   117.48% to 134.20%     141.63% to 293.37%  
Dividend yield   0.00%     0.00%  

 

In addition, specific assumptions regarding investor exercise behavior were used in 2020, including probability assumptions related to estimated exercise behavior. The entire amount of derivative instrument liabilities is classified as current due to the fact that settlement of the derivative instruments could be required within twelve months of the balance sheet date.

 

During the six months ended June 30, 2020 and 2019, eight and zero convertible notes, respectively, were converted in part or in full into common shares by the holders, and six and zero convertible notes, respectively, were repaid in part or in full in cash. Accordingly, the derivative financial instruments associated with the ECFs of these convertible notes were written off in connection with the extinguishment of each convertible note.

 

NOTE 14 – SHAREHOLDERS’ DEFICIT

 

Private Placements

 

During the six months ended June 30, 2019, the Company sold 1,383,334 shares of common stock in three separate private placement transactions and received $390,000 in proceeds from the sales. In connection with the stock sales, the Company also issued 125,000 five-year warrants to purchase shares of common stock at an exercise price of $0.30 per share, 566,667 five-year warrants to purchase shares of common stock at an exercise price of $0.40 per share and 250,000 three-year warrants to purchase shares of common stock at an exercise price of $0.50 per share.

 

During the six months ended June 30, 2020, the Company sold 4,303,427 shares of common stock in 12 separate private placement transactions and received $478,500 in proceeds from the sales. The shares were issued at per share prices between $0.06 and $0.14. In connection with the stock sales, the Company also issued 1,926,725 five-year warrants to purchase shares of common stock at exercise price between $0.16 and $0.24 per share. Of these shares, 535,714 with respect to proceeds of $32,500 were issuable as of June 30, 2020.

 

Investment Agreement Draws

 

During six months ended June 30, 2020 and 2019, the Company issued 3,298,975 and 2,696,597 common shares, respectively, pursuant to draws made by the Company under the Investment Agreement and received an aggregate of $266,190 and $604,272, respectively, in net proceeds from the draws.

 

Common Stock Issuable

 

As of June 30, 2020 and December 31, 2019, the Company was obligated to issue the following shares:

 

    June 30, 2020     December 31, 2019  
    Amount     Shares     Amount     Shares  
                         
Shares issuable pursuant to consulting agreements   $ 146,795       965,530     $ 93,377       493,142  
Shares issuable to consultants, employees and directors     41,500       424,595       7,161       75,000  
Shares issuable pursuant to stock subscriptions received     24,650       535,714       59,000       479,762  
    $ 212,945       1,925,839     $ 159,538       1,047,904  

 

33

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 14 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

During December 2019, the Company completed stock subscription agreements totaling $59,000 for the sale of 479,762 shares of common stock. The funds were received and shares were issued in January and February 2020.

 

Stock Warrants

 

Transactions involving our stock warrants during the six months ended June 30, 2020 and 2019 are summarized as follows:

 

    2020     2019  
          Weighted           Weighted  
          Average           Average  
          Exercise           Exercise  
    Number     Price     Number     Price  
Outstanding at beginning of the period     47,056,293     $ 0.18       46,161,463     $ 0.18  
Granted during the period     2,151,725     $ 0.21       1,721,667     $ 0.35  
Exercised during the period         $       (4,099,256 )   $ (0.00 )
Terminated during the period         $           $  
Outstanding at end of the period     49,208,018     $ 0.18       43,783,874     $ 0.20  
                                 
Exercisable at end of the period     49,208,018     $ 0.18       43,783,874     $ 0.20  
                                 
Weighted average remaining life     3.6 years               3.3 years          

 

The following table summarizes information about the Company’s stock warrants outstanding as of June 30, 2020:

 

Warrants Outstanding     Warrants Exercisable  
            Weighted-                    
            Average     Weighted-           Weighted-  
            Remaining     Average           Average  
Exercise     Number     Contractual     Exercise     Number     Exercise  
Prices     Outstanding     Life (years)     Price     Exercisable     Price  
$ 0.0001 to 0.09       15,287,011       4.4     $ 0.07       15,287,011     $ 0.07  
$ 0.10 to 0.24       19,887,047       3.1     $ 0.18       19,887,047     $ 0.18  
$ 0.25 to 0.49       10,093,960       3.9     $ 0.28       10,093,960     $ 0.28  
$ 0.50 to 1.00       3,940,000       1.7     $ 0.28       3,940,000     $ 0.28  
$ 0.05 to 1.00       49,208,018       3.6     $ 0.18       49,208,018     $ 0.18  

 

During the six months ended June 30, 2020 and 2019, the Company issued 2,151,725 and 1,721,667 warrants, respectively, the aggregate grant date fair value of which was $144,234 and $468,125, respectively. The fair value of the warrants was calculated using the following range of assumptions:

 

    Six Months Ended June 30,  
    2020     2019  
             
Pricing model utilized   Binomial Lattice     Black/Scholes  
Risk free rate range   0.30% to 1.59%     2.44% to 2.52%  
Expected life range (in years)   5.00 years     3.00 to 5.00  
Volatility range   119.69% to 132.19%     212.96% to 216.35%  
Dividend yield   0.00%     0.00%  

 

In addition, specific assumptions regarding investor exercise behavior were used in 2020, including probability assumptions related to estimated exercise behavior.

 

34

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 14 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

Employee Equity Incentive Plan

 

On January 1, 2016, the Company instituted the Employee Equity Incentive Plan (the “EIP”) for the purpose of having equity awards available to allow for equity participation by its employees. The EIP allows for the issuance of up to 15,503,680 shares of the Company’s common stock to employees, which may be issued in the form of stock options, stock appreciation rights, or restricted shares. The EIP is governed by the Company’s board, or a committee that may be appointed by the board in the future.

 

The following table summarizes the status of shares issued and outstanding under the EIP outstanding as of and for the six months ended June 30, 2020 and 2019:

 

    2020     2019  
Outstanding at beginning of the period     1,874,063       1,738,750  
Granted during the period     232,500       135,313  
Terminated during the period     (62,500 )      
Outstanding at end of the period     2,044,063       1,874,063  
                 
Shares vested at period-end     1,744,063       1,410,313  
Weighted average grant date fair value of shares granted during the period   $ 0.10     $ 0.26  
Aggregate grant date fair value of shares granted during the period   $ 18,760     $ 12,805  
Shares available for grant pursuant to EIP at period-end     10,230,368       9,592,868  

 

Total stock-based compensation recognized for grants under the EIP was $12,456 and $25,815 during the three months ended June 30, 2020 and 2019, respectively, and $30,153 and $58,594 during the six months ended June 30, 2020 and 2019, respectively. Total unrecognized stock compensation related to these grants was $42,686 as of June 30, 2020.

 

A summary of the status of nonvested shares issued pursuant to the EIP as of and for the six months ended June 30, 2020 and 2019 is presented below:

 

    2020     2019  
          Weighted           Weighted  
          Average           Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  
Nonvested at beginning of period     332,500     $ 0.17       540,000     $ 0.16  
Granted     232,500     $ 0.10           $  
Vested     (177,500 )   $ 0.08       (76,250 )   $ 0.04  
Forfeited     (87,500 )   $ 0.06           $  
Nonvested at end of period     300,000     $ 0.20       463,750     $ 0.18  

 

35

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 14 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

Employee Stock Options

 

The following table summarizes the status of options outstanding as of and for the six months ended June 30, 2020 and 2019:

 

    2020     2019  
          Weighted           Weighted  
          Average           Average  
          Exercise           Exercise  
    Number     Price     Number     Price  
Outstanding at beginning of the period     3,269,250     $ 0.21       3,707,996     $ 0.18  
Granted during the period     40,000     $ 0.10       1,078,750     $ 0.26  
Exercised during the period         $       (154,166 )   $ 0.20  
Forfeited during the period     (80,000 )   $ 0.26       (595,830 )   $ 0.20  
Outstanding at end of the period     3,229,250     $ 0.20       4,036,750     $ 0.20  
                                 
Options exercisable at period-end     1,974,875               1,273,500          
Weighted average remaining life (in years)     7.2               8.4          
Weighted average grant date fair value of options granted during the period   $ 0.08             $ 0.20          
Options available for grant at period-end     10,255,368               9,592,868          

 

The following table summarizes information about the Company’s stock options outstanding as of June 30, 2020:

 

Options Outstanding     Options Exercisable  
            Weighted-                  
            Average   Weighted-           Weighted-  
            Remaining   Average           Average  
Exercise     Number     Contractual   Exercise     Number     Exercise  
Prices     Outstanding     Life (years)   Price     Exercisable     Price  
$ — to 0.10       1,283,000     5.5   $ 0.08       1,283,000       0.08  
$ 0.11 to 0.31       1,946,250     8.4   $ 0.28       691,875       0.29  
$ 0.08 to 0.31       3,229,250     7.2   $ 0.20       1,974,875     $ 0.16  

 

Total stock-based compensation recognized related to option grants was $20,971 and $33,581 during the three months ended June 30, 2020 and 2019, respectively, and $41,850 and $62,037 during the six months ended June 30, 2020 and 2019, respectively.

 

A summary of the status of nonvested options issued pursuant to the EIP as of and for the six months ended June 30, 2020 and 2019 is presented below:

 

    2020     2019  
          Weighted           Weighted  
          Average           Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  
Nonvested at beginning of period     1,636,250     $ 0.22       2,332,413     $ 0.13  
Granted     40,000     $ 0.08       1,078,750     $ 0.20  
Vested     (341,875 )   $ 0.20       (52,083 )   $ 0.03  
Forfeited     (80,000 )   $ 0.21       (595,830 )   $ 0.02  
Nonvested at end of period     1,254,375     $ 0.22       2,763,250     $ 0.19  

 

36

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

Contracts related to Medicare shared savings revenue

 

The Company acquired CHM and its subsidiary AHP on May 18, 2020. CHM and AHP combine to operate an ACO under the terms of the MSSP as administered by the CMS. The MSSP is a program created under the Affordable Care Act (the “ACA,” also known as “Obamacare”) designed to enhance the efficiency of healthcare provided to patients covered by Medicare. The program allows for the creation of ACOs, which are organizations that agree to take responsibility for the efficiency of healthcare services provided by a group of participating healthcare providers under Medicare. The ACO is held accountable for the efficiency of the healthcare services of its participating providers as measured against benchmarks prescribed in the MSSP and earns shared savings payments if such benchmarks are met.

 

The Company, via AHP is party to a Medicare Shared Savings Program Accountable Care Organization Participation Agreement with the CMS that establishes AHP as an ACO. The agreement is effective through December 31, 2024. The Company must comply with the terms and conditions of the agreement in order to maintain its status as an ACO and generate shared savings revenue.

 

The Company, via CHM, is party to 33 separate participant agreements with participating providers that are members of the Company’s ACO with expiration dates between 2020 and 2024. These agreements include certain restrictions and requirements to which the participating providers must adhere in order to maintain participation in the ACO.

 

Service contracts

 

The Company carries various service contracts on its office buildings & certain copier equipment for repairs, maintenance and inspections. All contracts are short term and can be cancelled.

 

Litigation

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

On July 20, 2020, Empery Asset Master Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (the “Complainants”) filed a complaint against the Company in the Supreme Court of the State of New York. The Complaint alleges that the Company’s acquisition of CHM, in which the Company issued stock consideration of 2,240,838 common shares, triggered a change of control clause in warrants held by the Complainants that would allow the Complainants to demand cash value for their warrants. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the actions at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations. The Company had not responded to the Complaint as of the date of this filing.

 

Leases

 

Maturities of lease liabilities were as follows as of June 30, 2020:

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2020   $ 71,466     $     $ 71,466  
2021     98,531             98,531  
2022     52,662             52,662  
2023     6,099             6,099  
Total lease payments     228,758             228,758  
Less interest     (59,510 )           (59,510 )
Present value of lease liabilities   $ 169,248     $     $ 169,248  

 

Our lease for office space for our NWC practice expired in July 2020. The Company entered into a new three-year lease agreement for a different facility in Naples facility comprised of 3,650 square feet commencing in July 2020.

 

Employment/Consulting Agreements

 

The Company has employment agreements with certain of its physicians, nurse practitioners and physical therapists in the Health Services division. The agreements generally call for a fixed salary at the beginning of the contract with a transaction to performance-based pay later in the contract.

 

On July 1, 2016, the Company entered into an employment agreement with Dr. Michael Dent, Chief Executive Officer and a member of the Board of Directors. Dr. Dent’s employment agreement continues until terminated by Dr. Dent or the Company. If Dr. Dent’s employment is terminated by the Company (unless such termination is “For Cause” as defined in his employment agreement), then upon signing a general waiver and release, Dr. Dent will be entitled to severance in an amount equal to 12 months of his then-current annual base salary, as well as the pro-rata portion of any bonus that would be due and payable to him. In the event that Dr. Dent terminates the employment agreement, he shall be entitled to any accrued but unpaid salary and other benefits up to and including the date of termination, and the pro-rata portion of any unvested time-based options up until the date of termination.

 

On July 1, 2016, the Company entered into an agreement with Mr. George O’Leary, the Company’s Chief Financial Officer and a member of the Board of Directors, extending his prior agreement with the Company. Mr. O’Leary’s employment agreement continues until terminated by Mr. O’Leary or the Company. If Mr. O’Leary employment is terminated by the Company (unless such termination is “For Cause” as defined in his employment agreement), then upon signing a general waiver and release, Mr. O’Leary will be entitled to receive his base salary and the Company shall maintain his employee benefits for a period of twelve (12) months beginning on the date of termination. In the event that Mr. O’Leary terminates the agreement, he shall be entitled to any accrued by unpaid salary and other benefits up to and including the date of termination. On July 1, 2018, the Company and Mr. O’Leary entered into an Extension Letter Agreement pursuant to which Mr. O’Leary was increased to full time employment (previously half-time) and agreed to extend the term of his employment to September 30, 2022. In addition to a base salary, the extension provides Mr. O’Leary with certain performance-based cash bonuses, stock grants, and stock option grants.

 

On May 18, 2020, the Company entered into separate 4-year consulting services agreements with each of the two principals of the ACO/MSO business acquired in May 2020 that call for each person to earn fixed annual consulting fees and a share of Medicare shared savings revenue, consulting revenue and overall profits generated by the underlying business. 

37

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 16 – SEGMENT REPORTING

 

The Company has three reportable segments: Health Services, Digital Healthcare and ACO/MCO. Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice acquired in April 2019 that is engaged in improving the health of its patients through individualized and integrative health care, and (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice in Bonita Springs, FL that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery. The Company’s Digital Healthcare segment develops and plans to operate an online personal medical information and record archive system, the “HealthLynked Network,” which will enable patients and doctors to keep track of medical information via the Internet in a cloud-based system. The ACO/MSO Division is comprised of the business acquired with CHM, which assists physician practices in providing coordinated and more efficient care to patients via the MSSP as administered by the CMS, which rewards providers for efficiency in patient care. The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

 

Segment information for the three months ended June 30, 2020 and 2019 was as follows:

 

    Three Months Ended
June 30, 2020
    Three Months Ended
June 30, 2019
 
    Health
Services
    Digital
Healthcare
    ACO /
MSO
    Total     Health
Services
    Digital
Healthcare
    ACO /
MSO
    Total  
Revenue                                                
Patient service revenue, net   $ 1,111,090     $     $     $ 1,111,090     $ 1,208,390     $     $     $ 1,208,390  
Medicare shared savings revenue                                                
Consulting revenue                     50,420       50,420                          
Total revenue     1,111,090             50,420       1,161,510       1,208,390                   1,208,390  
                                                                 
Operating Expenses                                                                
Practice salaries and benefits     555,086                   555,086       703,851                   703,851  
Other practice operating expenses     521,022                   521,022       521,552                   521,552  
Medicare shared savings expenses                     64,236       64,236                          
General and administrative           646,309             646,309             659,468             659,468  
Depreciation and amortization     24,279       595             24,874       21,116       594             21,710  
Total Operating Expenses     1,100,387       646,904       64,236       1,811,527       1,246,519       660,062             1,906,581  
                                                                 
Loss from operations   $ 10,703     $ (646,904 )   $ (13,816 )   $ (650,017 )   $ (38,129 )   $ (660,062 )   $     $ (698,191 )
                                                                 
Other Segment Information                                                                
Interest expense   $ 6,374     $ 52,044     $     $ 58,418     $ 6,017     $ 54,328     $     $ 60,345  
Loss on extinguishment of debt   $     $ 428,435     $     $ 428,435     $     $ (72,435 )   $     $ (72,435 )
Financing cost   $     $     $     $     $     $ 87,332     $     $ 87,332  
Amortization of original issue and debt discounts on convertible notes   $     $ 172,951     $     $ 172,951     $     $ 299,613     $     $ 299,613  
Change in fair value of debt   $     $ 155,667     $     $ 155,667     $     $ 30,409     $     $ 30,409  
Change in fair value of derivative financial instruments   $     $ 13,672     $     $ 13,672     $     $ (223,881 )   $     $ (223,881 )
Change in fair value of contingent acquisition consideration   $     $ 38,688     $     $ 38,688     $     $     $     $  

 

38

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 16 – SEGMENT REPORTING (CONTINUED)

 

Segment information for the six months ended June 30, 2020 and 2019 was as follows:

 

    Six Months Ended
June 30, 2020
    Six Months Ended
June 30, 2019
 
    Health
Services
    Digital
Healthcare
    ACO /
MSO
    Total     Health
Services
    Digital
Healthcare
    ACO /
MSO
    Total  
Revenue                                                
Patient service revenue, net   $ 2,448,030     $     $     $ 2,448,030     $ 1,673,380     $     $     $ 1,673,380  
Medicare shared savings revenue                                                
Consulting revenue                 50,420       50,420                          
Total revenue     2,448,030             50,420       2,498,450       1,673,380                   1,673,380  
                                                                 
Operating Expenses                                                                
Practice salaries and benefits     1,320,207                   1,320,207       1,054,091                   1,054,091  
Other practice operating expenses     1,084,713                   1,084,713       766,091                   766,091  
Medicare shared savings expenses                 64,236       64,236                              
General and administrative           1,157,285             1,157,285             1,351,270             1,351,270  
Depreciation and amortization     48,470       1,190             49,660       22,176       1,189             23,365  
Total Operating Expenses     2,453,390       1,158,475       64,236       3,676,101       1,842,358       1,352,459             3,194,817  
                                                                 
Loss from operations   $ (5,360 )   $ (1,158,475 )   $ (13,816 )   $ (1,177,651 )   $ (168,978 )   $ (1,352,459 )   $     $ (1,521,437 )
                                                                 
Other Segment Information                                                                
Interest expense   $ 11,910     $ 108,689     $     $ 120,599     $ 11,845     $ 94,822     $     $ 106,667  
Loss on extinguishment of debt   $     $ 896,372     $     $ 896,372     $     $ 67,363     $     $ 67,363  
Financing cost   $     $     $     $     $     $ 121,235     $     $ 121,235  
Amortization of original issue and debt discounts on convertible notes   $     $ 465,114     $     $ 465,114     $     $ 478,997     $     $ 478,997  
Change in fair value of debt   $     $ 119,702     $     $ 119,702     $     $ 60,106     $     $ 60,106  
Change in fair value of derivative financial instruments   $     $ (726,683 )   $     $ (726,683 )   $     $ (415,514 )   $     $ (415,514 )
Change in fair value of contingent acquisition consideration   $     $ 45,309     $     $ 45,309                                  

 

    June 30, 2020     December 31, 2019  
Identifiable assets   $ 2,229,258     $ 92,734     $ 1,592,900     $ 3,914,892     $ 2,428,752     $ 117,802     $     $ 2,546,554  
Goodwill   $     $     $

381,856

    $

381,856

    $ 71,866     $     $     $ 71,866  

 

The Digital Healthcare segment recognized revenue of $1,075 and $3,717 in the three months ended June 30, 2020 and 2019, respectively, and $2,431 and $3,911 in the six months ended June 30, 2020 and 2019, respectively, related to subscription revenue billed to and paid for by the Company’s physicians for access to the HealthLynked Network. The revenue for Digital Healthcare and related expense for Health Services were eliminated on consolidation.

 

39

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 17 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the short-term nature of such instruments. The Company measures certain financial instruments at fair value on a recurring basis, including certain convertible notes payable and related party loans which were extinguished and reissued and are therefore subject to fair value measurement, as well as derivative financial instruments arising from conversion features embedded in convertible promissory notes for which the conversion rate is not fixed. All financial instruments carried at fair value fall within Level 3 of the fair value hierarchy as their value is based on unobservable inputs. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made.

 

The following table summarizes the conclusions reached regarding fair value measurements as of June 30, 2020 and December 31, 2019:

 

    As of June 30, 2020  
                      Total  
    Level 1     Level 2     Level 3     Fair Value  
Convertible notes payable   $     $     $ 757,264     $ 757,264  
Notes payable to related party                 205,450       205,450  
Derivative financial instruments                 257,384       257,384  
Contingent acquisition consideration                 1,355,765       1,355,765  
                                 
Total   $     $     $ 2,575,863     $ 2,575,863  

 

    As of December 31, 2019  
                      Total  
    Level 1     Level 2     Level 3     Fair Value  
Convertible notes payable   $     $     $ 723,482     $ 723,482  
Notes payable to related party                 193,007       193,007  
Derivative financial instruments                 991,288       991,288  
Contingent acquisition consideration                 500,000       500,000  
                                 
Total   $     $     $ 2,407,777     $ 2,407,777  

 

The changes in Level 3 financial instruments that are measured at fair value on a recurring basis during the three and six months ended June 30, 2020 and 2019 were as follows:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
                         
Convertible notes payable   $ (93,097 )   $ (24,153 )   $ (71,735 )   $ (48,022 )
Notes payable to related party     (62,570 )     (6,256 )     (47,967 )     (12,084 )
Derivative financial instruments     (13,672 )     223,881       726,683       415,514  
Contingent acquisition consideration     (38,688 )           (45,309 )      
                                 
Total   $ (208,027 )   $ 193,472     $ 561,672     $ 355,408  

 

NOTE 18 – SUBSEQUENT EVENTS

 

On July 13, 2020, the Company prepaid the balance on the $131.3k Note, including accrued interest, for a one-time cash payment of $172,108.  

 

On July 20, 2020, the Company prepaid the balance on the $78k Note IV, including accrued interest, for a one-time cash payment of $102,308. 

 

During July and August 2020, the Company sold 2,617,059 shares of common stock in three separate private placement transactions and received $213,500 in proceeds from the sales. The shares were transacted at per share sales prices between $0.06 and $0.17. In connection with the stock sales, the Company also issued 1,308,529 five-year warrants to purchase shares of common stock with exercise prices between $0.16 and $0.27.

 

40

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited financial statements and the related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in our most recent Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted.

 

Overview

 

HealthLynked Corp. (the “Company,” “we,” “our, or “us”) was incorporated in the State of Nevada on August 4, 2014. We currently operate in three distinct divisions: Health Services and Digital Healthcare. Our Health Services division is comprised of the operations of (i) Naples Women’s Center (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice, (ii) Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice acquired in April 2019 that is engaged in improving the health of its patients through individualized and integrative health care, and (iii) Bridging the Gap Physical Therapy (“BTG”), a physical therapy practice in Bonita Springs, FL that provides hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery. Our Digital Healthcare division develops and plans to operate an online personal medical information and record archive system, the “HealthLynked Network,” which will enable patients and doctors to keep track of medical information via the Internet in a cloud-based system. Our ACO/MSO Division is comprised of the business acquired with CHM, which assists physician practices in providing coordinated and more efficient care to patients via the Medicare Shared Savings Program (“MSSP”) as administered by the Centers for Medicare and Medicaid Services (the “CMS”), which rewards providers for efficiency in patient care.

 

Recent Developments

 

In January 2020, we launched a new physical therapy practice in Bonita Springs, Florida called Bridging the Gap Physical Therapy. BTG employs two doctors who provide hands-on functional manual therapy techniques to speed patients’ recovery and manage pain without pain medication or surgery.

 

On May 18, 2020, we acquired a 100% interest in Cura Health Management LLC (“CHM”) and its wholly owned subsidiary ACO Health Partners, LLC (“AHP”). CHM is a healthcare enablement company that empowers local providers to own and operate in a franchise-like model that extends their reach and capabilities to maximize revenue, deliver quality care and improve patient outcomes. CHM’s resources and solutions are administered as an extension of providers’ current in-practice resources, expanding care coordination, care management services and value-based analytics. These solutions support financial success within both traditional payment models and expansion to new services, allowing partners to succeed within current and ever emerging value-based payment models. AHP is an accountable care organization (“ACO”) with providers around the U.S. participating in the Medicare Shared Savings Program (“MSSP). The MSSP is a program created under the Affordable Care Act and administered by the Center for Medicare and Medicaid Services (the “CMS”) to enhance the efficiency of healthcare provided to patients covered by Medicare. The MSSP allows for the creation of ACOs, which are organizations that agree to take responsibility for the efficiency of healthcare services provided by a group of participating healthcare providers under Medicare. The ACO is held accountable for the efficiency of the healthcare services of its participating providers as measured against prescribed MSSP benchmarks. If the ACO’s covered patient population meets the MSSP benchmarks, the ACO then receives an incentive payment, as determined by the CMS, for each calendar year if the global population of patient lives covered by all providers in the ACO meets the MSSP benchmark requirements.

 

Business Update Regarding COVID-19

 

During the first half of 2020, the spread of a new strain of coronavirus and the disease created by that virus, COVID-19, has created a global pandemic presenting substantial public health and economic challenges around the world. The global pandemic is affecting our employees, communities and business operations, as well as the global economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

 

41

 

 

The disclosure in the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is qualified by the disclosure in this section on the impacts of COVID-19 and, to the extent that the disclosure in the remainder of this MD&A refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact discussed in this section of the impacts of the COVID-19 pandemic. The effect of the COVID-19 pandemic is rapidly evolving and, as such, the information contained herein is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.

 

Critical accounting policies and significant judgments and estimates

 

See Note 2, "Significant Accounting Policies," in the Notes to unaudited condensed consolidated Financial Statements.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2020 and 2019

 

The following table summarizes the changes in our results of operations for the three months ended June 30, 2020 compared with the three months ended June 30, 2019:

 

    Three Months Ended
June 30,
    Change  
    2020     2019     Increase (Decrease) in $     Increase (Decrease) in %  
Patient service revenue, net   $ 1,111,090     $ 1,208,390     $ (97,300 )     -8 %
Consulting revenue     50,420             50,420       100 %
Total revenue     1,161,510       1,208,390       (46,880 )     -4 %
                                 
Operating Expenses                                
Practice salaries and benefits     555,086       703,851       (148,765 )     -21 %
Other practice operating costs     521,022       521,552       (530 )     0 %
Medicare shared savings expenses     64,236             64,236       100 %
General and administrative     646,309       659,468       (13,159 )     -2 %
Depreciation and amortization     24,874       21,710       3,164       15 %
Loss from operations     (650,017 )     (698,191 )     48,174       7 %
                                 
Other Income (Expenses)                                
Loss on extinguishment of debt     (428,435 )     72,435       (500,870 )     691 %
Change in fair value of debt     (155,667 )     (30,409 )     (125,258 )     -412 %
Financing cost           (87,332 )     87,332       100 %
Amortization of original issue and debt discounts on notes payable and convertible notes     (172,951 )     (299,613 )     126,662       42 %
Change in fair value of derivative financial instruments     (13,672 )     223,881       (237,553 )     106 %
Change in fair value of contingent acquisition consideration     (38,688 )           (38,688 )     -100 %
Interest expense     (58,418 )     (60,345 )     1,927       3 %
Total other expenses     (867,831 )     (181,383 )     (686,448 )     -378 %
                                 
Net loss   $ (1,517,848 )   $ (879,574 )   $ (638,274 )     -73 %

 

Patient service revenue decreased by $97,300, or 8%, from 2019 to 2020, primarily as a result of decreased in-person patient services revenue beginning in March 2020 as a result of the Coronavirus pandemic.

 

Consulting revenue increased by $50,420, or 100%, from 2019 to 2020. Consulting revenue was earned by the newly formed ACO/MSO Division comprised of the operations of CHM acquired in May 2020.

 

We acquired CHM in May 2020. CHM’s primary source of revenue is derived from payments earned under the Medicare shared savings program. Such amounts are determined annually when we are notified by CMS of the amount of shared savings earned. Accordingly, we recognize Medicare shared savings revenue in the period in which the CMS notifies us of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. We expect that Medicare shared savings revenue, if any, for the program year ended December 31, 2019 will be reported in the three months ended September 30, 2020 when the MSSP revenue is either known or able to be estimated with reasonable certainty. Accordingly, no such revenue was recognized in the three months ended June 30, 2020. 

 

42

 

 

Practice salaries and benefits decreased by $148,765, or 21%, in 2020 primarily as a result of temporary pay reductions implemented in second quarter 2020 due to the Coronavirus pandemic as well permanent reductions in staff at Naples Women’s Center in 2020.

 

Other practice operating costs decreased by $530, or less than 1%, in 2020 primarily as a result of lower NWC practice operating costs, offset by a full quarter of NCFM practice operating costs in 2020 (compared to a half quarter in second quarter 2019).

 

General and administrative costs decreased by $13,159, or 2%, in 2020 primarily due to lower legal and accounting fees in 2020 as well as lower corporate overhead expense associated with a shift from a direct sales to an indirect sale approach for our Digital Healthcare segment.

 

Depreciation and amortization increased by $3,164, or 15%, in 2020 primarily as a result of depreciation of assets acquired in the NCFM acquisition.

 

Loss from operations decreased by $48,174, or 7%, in 2020 primarily as a result revenue and profit from the operations of NCFM and BTG in 2020, offset in part by Medicare shared savings expenses acquired with CHM.

 

Loss on extinguishment of debt increased by $500,870, or 691%, to a loss of $428,435 in 2020 compared to a gain of $72,435 in the same period of 2019, primarily as a result of the impact of repayment and conversion of convertible notes payable. Losses on extinguishment of debt arise when the fair value consideration paid to retire a convertible note exceeds the carrying value of the instrument being retired, including any related derivative financial instruments such as embedded conversion features (“ECFs”). During 2020, we repaid $284,750 of principal and holders converted an additional $271,395 of principal into common shares. During 2019, we repaid $309,000 of principal and holders converted an additional $110,000 of principal into common shares. Moreover, during the first quarter of 2020 we changed from the Black-Scholes model to a binomial lattice model to estimate the fair value of certain financial instruments, including derivative financial instruments associated with outstanding convertible notes retired during 2020. The change in methodology generally resulted in lower values of our ECF derivative financial instruments, which in turn resulted in higher losses on debt extinguishment when such liabilities were retired.

 

Losses from the change in fair value of debt increased by $125,258, or 412%, in 2020. Such losses result primarily from certain convertible notes and notes payable to related parties that, in previous periods, were extended and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period is recorded as “Change in fair value of debt.”

 

Financing cost decreased by $87,332, or 100% in 2020. Financing cost arises when the inception date fair value of embedded conversion features on a convertible note are greater than the face value of the note. No such notes were issued in 2020.

 

Amortization of original issue and debt discounts decreased by $126,662, or 42%, in 2020 as a result of the amortization of convertible notes with smaller average discount balances being amortized in 2020.

 

Change in fair value of derivative financial instruments increased by $237,553, or 106%, to a loss of $13,672 compared to gains of $223,881 in 2019. The change is due primarily to our change on January 1, 2020 from the Black-Scholes model to a binomial lattice model to estimate the fair value of certain financial instruments, including derivative financial instruments. We believe that the binomial lattice model results in a better estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fair value these instruments and, unlike the Black-Scholes model, also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments.

 

Change in the fair value of contingent acquisition consideration was $38,688 in 2020. There was no corresponding change in the same period 2019. Fair value of contingent acquisition consideration related to our acquisition of HCFM in April 2019 and CHM in May 2020 is estimated at each reporting period using a probability-weighted discounted cash flow model.

 

Interest expense decreased by $1,927, or 3%, as a result of lower average balance on convertible notes and notes payable to related parties during 2020.

 

Total other expenses increased by $686,448, or 378%, in 2020 primarily as a result of higher losses on extinguishment of debt related to repayment of convertible notes payable, higher losses on change in fair value of derivative financial instruments in 2020 resulting from a change in estimate methodology, offset by lower amortization of original issue and debt discounts due to lower average debt discount balances.

 

43

 

 

Net loss increased by $638,274, or 73%, in 2020 primarily as a result of higher losses on extinguishment of debt related to repayment of convertible notes payable, higher losses on change in fair value of derivative financial instruments in 2020 resulting from a change in estimate methodology, offset in part by lower practice salaries and benefits and lower amortization of original issue and debt discounts due to lower average debt discount balances.

 

Comparison of Six Months Ended June 30, 2020 and 2019

 

The following table summarizes the changes in our results of operations for the six months ended June 30, 2020 compared with the six months ended June 30, 2019:

 

    Six Months Ended
June 30,
    Change  
    2020     2019     Increase (Decrease) in $     Increase (Decrease) in %  
Patient service revenue, net   $ 2,448,030     $ 1,673,380     $ 774,650       46 %
Consulting revenue     50,420             50,420       100 %
Total revenue     2,498,450       1,673,380       825,070       49 %
                                 
Operating Expenses                                
Practice salaries and benefits     1,320,207       1,054,091       266,116       25 %
Other practice operating costs     1,084,713       766,091       318,622       42 %
Medicare shared savings expenses     64,236             64,236       100 %
General and administrative     1,157,285       1,351,270       (193,985 )     -14 %
Depreciation and amortization     49,660       23,365       26,295       113 %
Loss from operations     (1,177,651 )     (1,521,437 )     343,786       23 %
                                 
Other Income (Expenses)                                
Loss on extinguishment of debt     (896,372 )     (67,363 )     (829,009 )     -1231 %
Change in fair value of debt     (119,702 )     (60,106 )     (59,596 )     -99 %
Financing cost           (121,235 )     121,235       100 %
Amortization of original issue and debt discounts on notes payable and convertible notes     (465,114 )     (478,997 )     13,883       3 %
Change in fair value of derivative financial instruments     726,683       415,514       311,169       -75 %
Change in fair value of contingent acquisition consideration     (45,309 )           (45,309 )     -100 %
Interest expense     (120,599 )     (106,667 )     (13,932 )     -13 %
Total other expenses     (920,413 )     (418,854 )     (501,559 )     -120 %
                                 
Net loss   $ (2,098,064 )   $ (1,940,291 )   $ (157,773 )     -8 %

 

Patient service revenue increased by $774,650, or 46%, from 2019 to 2020, primarily as a result of higher revenue from NCFM (which was acquired April 15, 2019 and therefore only reflected in our operating results for two-and-a-half months of the 2019 period) of $812,467 and $202,997 revenue from BTG (which started January 9, 2020 with no corresponding revenue in 2019), offset by lower revenue from NWC operations of $240,814.

 

Consulting revenue increased by $50,420, or 100%, from 2019 to 2020. Consulting revenue was earned by the newly formed ACO/MSO Division comprised of the operations acquired with CHM in May 2020.

 

We acquired CHM in May 2020. CHM’s primary source of revenue is derived from payments earned under the Medicare shared savings program. Such amounts are determined annually when we are notified by CMS of the amount of shared savings earned. Accordingly, we recognize Medicare shared savings revenue in the period in which the CMS notifies us of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. We expect that Medicare shared savings revenue, if any, for the program year ended December 31, 2019 will be reported in the three months ended September 30, 2020 when the MSSP revenue is either known or able to be estimated with reasonable certainty. Accordingly, no such revenue was recognized in the six months ended June 30, 2020.

 

Practice salaries and benefits increased by $266,116, or 25%, in 2020 primarily as a result of primarily as a result of new practice salary and benefits expense from the inception of BTG in 2020 and a full six months of NCFM operating costs in 2020 compared to only two-and-a-half months in 2019.

 

Other practice operating costs increased by $318,622, or 42%, in 2020 primarily as a result of a full period of practice operating costs related to BTG and NCFM in 2020, offset by lower practice operating costs corresponding to lower revenue at NWC.

 

44

 

 

General and administrative costs decreased by $193,985, or 14%, in 2020 primarily due to lower legal and accounting fees in 2020 as well as lower corporate overhead expense associated with a shift from a direct sales to an indirect sale approach for our Digital Healthcare segment.

 

Depreciation and amortization increased by $26,295, or 113%, in 2020 primarily as a result of depreciation of assets acquired in the NCFM acquisition.

 

Loss from operations decreased by $343,786, or 23%, in 2020 primarily as a result revenue and profit from the operations of NCFM and BTG in 2020, offset in part by Medicare shared savings expenses acquired with CHM.

 

Loss on extinguishment of debt increased by $829,009, or 1,231%, primarily as a result of the impact of repayment and conversion of convertible notes payable. Losses on extinguishment of debt arise when the fair value consideration paid to retire a convertible note exceeds the carrying value of the instrument being retired, including any related derivative financial instruments such as embedded conversion features (“ECFs”). During 2020, we repaid $580,675 of principal and holders converted an additional $561,078 of principal into common shares. During 2019, we repaid $309,000 of principal and holders converted an additional $298,252 of principal into common shares. Moreover, during the first quarter of 2020 we changed from the Black-Scholes model to a binomial lattice model to estimate the fair value of certain financial instruments, including derivative financial instruments associated with outstanding convertible notes retired during 2020. The change in methodology generally resulted in lower values of our ECF derivative financial instruments, which in turn resulted in higher losses on debt extinguishment when such liabilities were retired.

 

Losses from the change in fair value of debt increased by $59,596, or 99%, in 2020. Such gains and losses result from certain convertible notes and notes payable to related parties that, in previous periods, were extended and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period is recorded as “Change in fair value of debt.”

 

Financing cost decreased by $121,235, or 100% in 2020. Financing cost arises when the inception date fair value of embedded conversion features on a convertible note are greater than the face value of the note. No such notes were issued in 2020.

 

Amortization of original issue and debt discounts decreased by $13,883, or 3%, in 2020 as a result of the amortization of convertible notes with smaller average discount balances being amortized in 2020.

 

Gains from the change in fair value of derivative financial instruments increased by $311,169, or 75%. The change is due primarily to our change on January 1, 2020 from the Black-Scholes model to a binomial lattice model to estimate the fair value of certain financial instruments, including derivative financial instruments. We believe that the binomial lattice model results in a better estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fair value these instruments and, unlike the Black-Scholes model, also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments.

 

Change in the fair value of contingent acquisition consideration was $45,309 in 2020. There was no corresponding change in the same period 2019. Fair value of contingent acquisition consideration related to our acquisition of HCFM in April 2019 and CHM in May 2020 is estimated at each reporting period using a probability-weighted discounted cash flow model.

 

Interest expense increased by $13,932, or 13%, as a result of higher average balance on convertible notes and notes payable to related parties during 2020.

 

Total other expenses increased by $501,559, or 120%, in 2020 primarily as a result of higher losses on extinguishment of debt related to repayment of convertible notes payable and a reduced losses on change in fair value of derivative financial instruments in 2020, offset by higher gains from the change in fair value of derivative financial instruments.

 

Net loss increased by $157,773, or 8%, in 2020 primarily as a result of higher losses on extinguishment of debt, offset by a 49% increase in revenue and 23% decrease in operating loss primarily from the contributions of NCFM and BTG and higher gains from the change in fair value of derivative financial instruments

 

Seasonal Nature of Operations

 

We acquired CHM in May 2020. CHM’s primary source of revenue is derived from payments earned under the Medicare shared savings program. Such amounts are determined annually when we are notified by CMS of the amount of shared savings earned. Accordingly, we recognize Medicare shared savings revenue in the period in which the CMS notifies us of the exact amount of shared savings to be paid, which historically has occurred during the three-month period ended September 30 for the program year ended December 31 of the previous year. We expect that Medicare shared savings revenue, if any, for the program year ended December 31, 2019 will be reported in the three months ended September 30, 2020 when the MSSP revenue is either known or able to be estimated with reasonable certainty. Accordingly, no such revenue was recognized in the three or six months ended June 30, 2020. Any future recognition of Medicare shared savings revenue is expected to result in a material increase in our consolidated revenues in the third fiscal quarter of each year compared to the first, second and fourth fiscal quarters. Likewise, in the period in which we recognize Medicare shared savings revenue, we also determine the amount of shared savings expense to be paid to physicians participating in our ACO. This expense is also expected to be recognized in the third fiscal quarter of each year and is expected to materially increase our total operating expenses in the third fiscal quarter compared to other quarters of the fiscal year. 

 

45

 

 

Liquidity and Capital Resources

 

Going Concern

 

As of June 30, 2020, we had a working capital deficit of $5,420,552 and accumulated deficit $18,127,718. For the six months ended June 30, 2020, we had a net loss of $2,098,064 and net cash used by operating activities of $1,089,173. Net cash used in investing activities was $214,046. Net cash provided by financing activities was $1,548,862, resulting principally from $827,500 net proceeds from the issuance of convertible notes, $724,692 proceeds from the sale of common stock, $745,869 proceeds from loans issued by the federal government under the Payroll Protection Act, and $149,000 proceeds from the issuance of related party loans.

 

Our cash balance and revenues generated are not currently sufficient and cannot be projected to cover our operating expenses for the next twelve months from the date of this report. These matters raise substantial doubt about our ability to continue as a going concern. Management’s plans include attempting to improve its business profitability and its ability to generate sufficient cash flow from its operations to meet its needs on a timely basis, obtaining additional working capital funds through equity and debt financing arrangements, and restructuring on-going operations to eliminate inefficiencies to raise cash balance in order to meet our anticipated cash requirements for the next twelve months from the date of this report. However, there can be no assurance that these plans and arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other requirements. Management intends to make every effort to identify and develop sources of funds. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to us on satisfactory terms and conditions, if at all.

 

Our ability to continue as a going concern is dependent upon our ability to raise additional capital and achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should we be unable to continue as a going concern. 

 

A novel strain of coronavirus, COVID-19, that was first identified in China in December 2019, has surfaced in several regions across the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas. The further spread of COVID-19, and the requirement to take action to limit the spread of the illness, may impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business and financial condition, including our potential to conduct financings on terms acceptable to us, if at all. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. 

 

In July 2016, we entered into an Investment Agreement (the “Investment Agreement”) pursuant to which the investor agreed to purchase up to $3,000,000 of our common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the investor by us pursuant to a specified formula that limits the number of shares able to be put to the investor to the number equal to the average trading volume of our common shares for the ten consecutive trading days prior to the put notice being issued. In May 2020, the Investment Agreement, which was scheduled to expire on May 15, 2020, was extended an additional two years to May 15, 2022. During the six months ended June 30, 2020 and 2019, we received $266,190 and $604,272, respectively, from the proceeds of the sale of 3,298,975 and 2,696,597 shares, respectively, pursuant to the Investment Agreement.

 

We intend that the cost of implementing our development and sales efforts related to the HealthLynked Network, as well as maintaining our existing and expanding overhead and administrative costs, will be financed from (i) profits generated by NCFM and CHM, and (ii) outside funding sources available to us, including the put rights associated with the Investment Agreement, issuance of convertible notes, sales of our common stock, and loans from related parties. We expect to repay our outstanding convertible notes, which have an aggregate face value of $2,051,250 as of June 30, 2020, from outside funding sources, including but not limited to new convertible notes payable, amounts available upon the exercise of the put rights granted to us under the Investment Agreement, sales of equity, loans from related parties and others, or through the conversion of the convertible notes into equity. No assurances can be given that we will be able to access sufficient outside capital in a timely fashion in order to repay the convertible notes before they mature. If necessary funds are not available, our business and operations would be materially adversely affected and in such event, we would attempt to reduce costs and adjust our business plan.

 

46

 

 

Significant Liquidity Events

 

Through June 30, 2020, we have funded our operations principally through a combination of convertible promissory notes, private placements of our common stock, promissory notes and related party debt, as described below.

 

July 2018 Private Placement

 

On July 17, 2018, we completed a transaction (the “July 2018 Private Placement”) pursuant to which we sold the following securities: (1) an aggregate of 3,900,000 shares of our common stock, par value $0.0001 per share, (2) Pre-Funded Warrants to purchase an aggregate of 4,100,000 shares of our common stock with an exercise price of $0.0001 and a term of five-years, (3) Series A Warrants to purchase up to an aggregate of 8,000,000 shares of our common stock with an exercise price of $0.25 per share (subsequently reset to $0.2233 on the Repricing Date) and a term of five years, and (4) Series B Warrants to purchase up to a maximum of 17,000,000 shares of our common stock (subsequently reset at 2,745,757 pursuant to the terms of such warrants) at an exercise price of $0.0001. Net proceeds to the Company were $1,774,690. The Company also issued to the placement agent 640,000 Series A Warrants with the same terms as the investor’s Series A Warrants and Series B Warrants to purchase up to a maximum of 219,661 shares of Company common stock at an exercise price of $0.0001.

 

Investment Agreement

 

On July 7, 2016, we entered into the Investment Agreement with an accredited investor pursuant to which an accredited investor agreed to invest up to $3,000,000 to purchase the Company’s common stock, par value of $.0001 per share. The purchase price for such shares shall be 80% of the lowest volume weighted average price of our common stock during the five consecutive trading days prior to the date on which written notice is sent by us to the investor stating the number of shares that the Company is selling to the investor, subject to certain discounts and adjustments. Further, pursuant to an Amended Investment Agreement dated March 22, 2017, we granted to the investor warrants to purchase an aggregate of seven (7) million shares of common stock with the following fixed exercise prices: (i) four million shares at $0.25 per share; (ii) two million shares at $0.50 per share; and (iii) one million shares at $1.00 per share. The warrants also contain a “cashless exercise” provision and the shares underlying the warrants will not be registered. During the six months ended June 30, 2020 and years ended December 31, 2019 and 2018, we received proceeds from the sale of shares pursuant to the Investment Agreement totaling $266,190 (3,298,975 shares), $929,986 (5,074,068 shares) and $440,523 (2,440,337 shares), respectively. During May 2020, the Investment Agreement was extended by two years and now expires on May 15, 2022.

 

Other Sales of Common Stock

 

During the six months ended June 30, 2020, we sold 4,303,427 shares of common stock in 12 separate private placement transactions and received $478,500 in proceeds from the sales.

 

During the six months ended June 30, 2019, we sold 1,383,334 shares of common stock in three separate private placement transactions and received $390,000 in proceeds from the sales.

 

Convertible Notes Payable

 

As of June 30, 2020, we had outstanding convertible notes payable with aggregate face value of $2,051,250 maturing between October 1, 2020 and April 6, 2021, as follows:

 

                Conversion      
          Interest     Price/      
    Face Value     Rate     Discount     Maturity
$550k Note - July 2016   $ 550,000       6 %   $ 0.08     December 31, 2020
$50k Note - July 2016     50,000       10 %   $ 0.10     December 31, 2020
$111k Note - May 2017     81,000       10 %   $ 0.35     December 31, 2020
$357.5k Note - April 2019     357,500       10 %   $ 0.20     December 31, 2020
$142.5k Note - October 2019     142,500       10 %     39 %   October 1, 2020
$131.3k Note - January 2020     131,250       10 %     25 %   January 31, 2021
$78k Note IV - January 2020     78,000       10 %     39 %   October 15, 2020
$157.5k Note - March 2020     157,500       10 %     25 %   March 10, 2021
$157.5k Note II - April 2020     157,500       10 %     29 %   April 2, 2021
$135k Note - April 2020     135,000       10 %     39 %   April 6, 2021
$83k Note II - April 2020     83,000       10 %     39 %   February 15, 2021
$128k Note - April 2020     128,000       10 %     39 %   February 28, 2021
    $ 2,051,250                      

 

47

 

 

Plan of operation and future funding requirements

 

Our plan of operations is to profitably operate our Health Services business and continue to invest in our Digital Healthcare business, including our cloud-based online personal medical information and record archiving system, the “HealthLynked Network.”

 

We intend to market the HealthLynked Network via direct sales force targeting physicians’ offices, direct to patient marketing, affiliated marketing campaigns, co-marketing with online medical supplies retailer MedOffice Direct, and expanded southeast regional sales efforts. We intend that our initial primary sales strategy will be direct physician sales through the use of regional sales representatives whom we will hire as access to capital allows. In combination with our direct sales, we intend to also utilize Internet based marketing to increase penetration to targeted geographical areas. These campaigns will be focused on both physician providers and patient members.

 

If we fail to complete the development of, or successfully market, the HealthLynked Network, our ability to realize future increases in revenue and operating profits could be impacted, and our results of operations and financial position would be materially adversely affected.

 

In July 2018 we raised approximately $1.8 million in the July 2018 Private Placement for the purpose of technology enhancement, sales and marketing initiatives and to fund a portion of the first phase of our planned acquisition strategy. In 2019, we began implementation of our plan to acquire health service businesses and offer physician owners cash, stock, and deferred compensation. On April 15, 2019, we acquired HCFM for $750,000 in cash, $750,000 in shares of our common stock and $500,000 in a three-year performance-based payout. On May 18, 2020, we acquired CHM for $214,000 in cash, $201,675 in shares of our common stock, up to $223,000 cash and $660,000 in shares of our common stock based on a target MSSP payment of $1,725,000 in the current year, and up to $437,500 in a four-year performance-based payout.

 

Currently, we are focusing on acquiring additional profitable ACOs with a concentration on physician-based ACOs in Florida, the Southeast, Texas, New York and Michigan. ACOs’ objectives are to reduce patients’ healthcare costs while improving their health. Our initial targets are physician-based Florida Medicare ACOs. Profitable ACOs have shared savings, which are payments made by the Medicare governing body CMS to ACOs whose Medicare patients have aggregate total savings over the regional threshold for all Medicare patients in the territory and that meet CMS’ quality standards. Given HealthLynked’s goal to improve healthcare and reduce healthcare costs for all patients, we anticipate that the ACO acquisition model can help us expand both physician and patient utilization of the HealthLynked Network while continuing to add incremental revenue and profit from to our health services and ACO segments.

 

We plan to raise additional capital to fund our ongoing acquisition strategy. In addition, during 2019 we extended a significant portion of our outstanding debt until December 31, 2020. Specifically, all of Dr. Michael Dent’s notes payable with an aggregate face value of $646,000 and convertible notes payable held by Iconic Holdings LLC with an aggregate face value of $1,068,000 were extended until December 31, 2020.

 

Historical Cash Flows

 

   

Six Months Ended

June 30,

 
    2020     2019  
Net cash (used in) provided by:            
Operating activities   $ (1,089,173 )   $ (1,155,793 )
Investing Activities     (214,046 )     (469,302 )
Financing activities    

1,548,862

      1,615,056  
Net increase (decrease) in cash   $ 245,643     $ (10,039 )

 

Operating Activities – During the six months ended June 30, 2020, we used cash from operating activities of $1,089,173, as compared with $1,155,793 in the same period of 2019. The decrease in cash usage results primarily from profits generated by NCFM and BTG in 2020, neither of which operated for the full corresponding year-to-date period in 2019.

 

Investing Activities – During the six months ended June 30, 2020 and 2019, we used $214,046 and $469,302, respectively, in investing activities. Cash used in 2020 was comprised mainly of $164,005 used to acquire CHM (net of $49,995 cash received) and $47,000 paid against contingent acquisition consideration related to the acquisition of NCFM, while cash used in 2019 included $465,000 for the acquisition of HCFM (net of $35,000 cash received) and other computer and equipment purchases.

 

48

 

 

Financing Activities – During the six months ended June 30, 2020, we realized $724,692 from the proceeds of the sale of shares of common stock to investors and pursuant to the Investment Agreement, $827,500 net proceeds from the issuance of convertible notes, $149,000 from related party loans and $745,869 net proceeds from government loans under the PPP program. We also repaid $746,758 of convertible loans and $151,441 of related party loans. During the six months ended June 30, 2019, we realized $994,272 from the proceeds of the sale of shares of common stock to investors and pursuant to the Investment Agreement and $1,025,000 net proceeds from the issuance of convertible notes.

 

Exercise of Warrants and Options

 

There were no proceeds generated from the exercise of warrants or options during the six months ended June 30, 2020 or 2019.

 

Other Outstanding Obligations

 

Warrants

 

As of June 30, 2020, 49,208,018 shares of our Common Stock were issuable pursuant to the exercise of warrants with exercise prices ranging from $0.0001 to $1.00.

 

Options

As of June 30, 2020, 3,229,250 shares of our Common Stock were issuable pursuant to the exercise of options with exercise prices ranging from $0.08 to $0.31.

 

Off Balance Sheet Arrangements

 

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

 

Contractual Obligations

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2020   $ 71,466     $     $ 71,466  
2021     98,531             98,531  
2022     52,662             52,662  
2023     6,099             6,099  
Total lease payments     228,758             228,758  
Less interest     (59,510 )           (59,510 )
Present value of lease liabilities   $ 169,248     $     $ 169,248  

 

Operating lease commitments relate to the following leases in Naples, Florida. First, we entered into an operating lease for our NWC practice office in Naples, Florida commencing on August 1, 2013 that expired July 31, 2020. Second, we entered into another operating lease in the same building for an additional 361 square feet space for use of the medical equipment for the same period. The base rent for the first full year of the lease term is $13,140 per annum. Third, we lease on a month-to-month basis approximately 2,500 square feet of office space in Naples, FL used for Digital Services division administration. Monthly rent is approximately $3,300. Fourth, we lease approximately 3,700 square feet for our NCFM practice office in Naples, Florida. The lease commenced on April 5, 2019 and expires May 30, 2022. Base rent for the first full year of the lease term is $66,825 per annum with scheduled increases in years two and three. Fifth, we entered into an operating lease for our BTG practice in Bonita Springs, FL. The lease commenced on January 9, 2020 and expires June 30, 2023. The lease is for a 2,149 square-foot space. The base rent for the first full year of the lease term is $21,490 per annum with increases during the period. Sixth, we lease on a month-to-month basis approximately 3,000 square feet of office space in Jacksonville, FL from which we operate our ACO/MCO Division.

 

Our previous financing lease commitment, comprised of a capital equipment finance lease for Ultrasound equipment, expired in March 2020. Moreover, our lease for office space for our NWC practice expired in July 2020. We entered into a new three-year lease agreement for a different facility in Naples facility comprised of 3,650 square feet commencing in July 2020. 

 

49

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting as of June 30, 2020 based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our internal control over financial reporting was effective at June 30, 2020.

 

Changes in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

50

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

On July 20, 2020, Empery Asset Master Ltd., Empery Tax Efficient, LP and Empery Tax Efficient II, LP, (the “Complainants”) filed a complaint against the Company in the Supreme Court of the State of New York. The Complaint alleges that the Company’s acquisition of CHM, in which the Company issued stock consideration of 2,240,838 common shares, triggered a change of control clause in warrants held by the Complainants that would allow the Complainants to demand cash value for their warrants. The Company believes that the asserted claims lack merit and intends to defend against all of the claims vigorously. Due to the inherent uncertainties of litigation, the Company cannot predict the outcome of the actions at this time and can give no assurance that the asserted claims will not have a material adverse effect on its financial position or results of operations. The Company had not responded to the Complaint as of the date of this filing.

 

Item 1A. Risk Factors

 

During the period presented in this report, we have identified the material changes to our risk factors listed below as a result of our acquisition of CHM.

 

The Affordable Care Act, or ACA, and subsequent rules promulgated by CMS, including any repeal, replacement or modification to the ACA, could have a material adverse effect on our business and financial results.

 

The ACA was signed into law in March 2010 and legislated broad-based changes to the U.S. health care system which continue to have a material impact on our business. There is considerable discussion within the new Presidential administration and Congress about repealing and replacing the ACA. At this time, it is uncertain whether, when, and what changes will be made to the ACA, and what impact such changes could have on our business. However, any changes to the ACA, including through any repeal and replacement to the ACA, could have a material adverse effect on our business, financial position and results of operations.

 

Under the MSSP, CMS has historically made payments to ACOs for a measurement year in the second half of the following year, which negatively impacts our cash flows. In order to receive revenues from CMS under the MSSP, the ACO must meet certain minimum savings rates (i.e. save the federal government money) and meet certain quality measures. More specifically, an ACO's medical expenses for its assigned beneficiaries during a relevant measurement year must be below the benchmark established by CMS for such ACO. Notwithstanding our efforts, our ACO may be unable to meet the required savings rates or may not satisfy the quality measures, which may result in our receiving no revenues and losing our investment in the acquisition and operation of CMS and AHP. In addition, the MSSP presents challenges and risks associated with the timeliness and accuracy of data and interpretation of complex rules, which may impact the timing and amount of revenue we can recognize and could have a material adverse effect on our ability to recoup any of our investment in this new business. Further, there can be no assurance that we will maintain positive relations with our ACO partners which may result in certain of the ACOs terminating our relationship, which could result in a potential loss of our investment. We continue to evaluate our ACO based on a variety of factors, including the level of commitment by the physicians in the ACO and the likelihood of the ACO achieving shared savings.

 

51

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Except as previously disclosed in a Current Report on Form 8-K, or as set forth below, the Company has not sold securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”), during the period covered by this report.

 

On May 18, 2020, we issued 2,240,838 shares to the seller as partial consideration for our acquisition of CHM.

 

During the six months ended June 30, 2020, we sold 4,303,427 shares of common stock in 12 separate private placement transactions and received $478,500 in proceeds from the sales. The shares were issued at per share prices between $0.06 and $0.14. In connection with the stock sales, we also issued 1,926,725 five-year warrants to purchase shares of common stock at exercise price between $0.16 and $0.24 per share.

 

During the three months ended June 30, 2020, we issued 11,341,932 shares of common stock upon the full or partial conversion of seven separate convertible notes payable. The shares retired $561,078 of convertible note payable principal and $37,878 of accrued interest.

 

The sales of the above securities were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, as transactions by an issuer not involving any public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof, and appropriate restrictive legends were placed upon the stock certificates issued in these transactions.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

52

 

 

Item 6. Exhibits

 

Exhibit No.   Exhibit Description
3.1   Articles of Incorporation (Filed as Exhibit 3.1 to the Company’s Draft Registration Statement on Form S-1 filed with the Commission on January 9, 2017)
3.2   Amended and Restated Articles of Incorporation (Filed as Exhibit 3.2 to the Company’s Draft Registration Statement on Form S-1 filed with the Commission on January 9, 2017)
3.3   By-Laws (Filed as Exhibit 3.3 to the Company’s Draft Registration Statement on Form S-1 filed with the Commission on January 9, 2017)
3.4   Certificate of Designation of Series A Convertible Preferred Stock (Filed as Exhibit 3.4 to the Company’s Draft Registration Statement on Form S-1 filed with the Commission on January 9, 2017)
3.5   Certificate of Amended to Articles of Incorporation (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 6, 2018)
10.1   Form of Securities Purchase Agreement with Platinum Point Capital LLC dated April 2, 2020 (Filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.2   Form of Convertible Promissory Note with Platinum Point Capital LLC dated April 2, 2020 (Filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.3   Form of Securities Purchase Agreement with Morningview Financial, LLC dated April 6, 2020 (Filed as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.4   Form of Convertible Promissory Note with Morningview Financial, LLC dated April 6, 2020 (Filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.5   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated April 6, 2020 (Filed as Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.6   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated April 6, 2020 (Filed as Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.7   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated April 30, 2020 (Filed as Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.8   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated April 30, 2020 (Filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2020)
10.9   First Amendment to Agreement and Plan of Merger, dated May 18, 2020, by and among HealthLynked Corp., HLYK Florida, LLC, Cura Health Management LLC, ACO Health Partners, LLC, Bradberry Holdings LLC and FocusOne Holdings, LLC (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 20, 2020)
10.10   Form of HealthLynked Corp. Promissory Note, dated May 3, 2020 (Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 14, 2020)
10.11   Form of NWC Promissory Note, dated May 3, 2020 (Filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 14, 2020)
10.12   Form of HLYK FL Promissory Note, dated May 3, 2020 (Filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 14, 2020)
31.1 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
31.2 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
32.1 * Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
32.2 * Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
101 * XBRL Instance Document
    XBRL Taxonomy Extension Schema Document
    XBRL Taxonomy Extension Calculation Linkbase Document
    XBRL Taxonomy Extension Definition Linkbase Document
    XBRL Taxonomy Extension Label Linkbase Document

 

* Filed herewith.

 

53

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: August 14, 2020

 

  HEALTHLYNKED CORP.
   
  By: /s/ Michael Dent
    Name: Michael Dent
    Title:

Chief Executive Officer and Chairman

(Principal Executive Officer)

   
  By: /s/ George O’Leary
    Name: George O’Leary
    Title:

Chief Financial Officer

(Principal Financial Officer)

 

 

 54

 

HealthLynked (QB) (USOTC:HLYK)
Historical Stock Chart
From Sep 2020 to Oct 2020 Click Here for more HealthLynked (QB) Charts.
HealthLynked (QB) (USOTC:HLYK)
Historical Stock Chart
From Oct 2019 to Oct 2020 Click Here for more HealthLynked (QB) Charts.