NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 1 - BUSINESS AND BUSINESS PRESENTATION
HealthLynked Corporation, a Nevada corporation
(the “Company” or “HLYK”) filed its Articles of Incorporation on August 4, 2014. On September 3, 2014 HLYK
filed Amended Articles of Incorporation clarifying that the total authorized shares of 250,000,000 shares are broken up between
230,000,000 common shares and 20,000,000 preferred shares. On February 5, 2018, the Company filed the amendment with the Secretary
of State of Nevada to increase the amount of authorized shares of common stock to 500,000,000 shares.
On September 5, 2014, HLYK entered into
a share exchange agreement (the “Share Exchange Agreement”) with Naples Women’s Center LLC (“NWC”),
a Florida Limited Liability Company (“LLC”), acquiring 100% of the LLC membership units of NWC through the issuance
of 50,000,000 shares of HLYK common stock to the members of NWC (the “Restructuring”).
NWC is a multi-specialty medical group
including OB/GYN (both Obstetrics and Gynecology), and General Practice located in Naples, Florida.
HLYK operates an online personal medical
information and record archive system, the “HealthLynked Network”, which enables patients and doctors to keep track
of medical information via the Internet in a cloud based system. Patients complete a detailed online personal medical history including
past surgical history, medications, allergies, and family history. Once this information is entered patients and their treating
physicians are able to update the information as needed to provide a comprehensive medical history.
These 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 GAAP.
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 generally accepted accounting principles 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 and
useful life of fixed assets.
Revenue Recognition
The Company recognizes revenue in accordance
with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”) which requires that four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered
and the collectability of those amounts. Patient service revenues are recognized at the time of service for the net amount expected
to be collected. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 45% of total
billings. Trade accounts receivable are recorded at this net amount. As of December 31, 2017 and December 31, 2016, the Company’s
gross accounts receivable were $256,446 and $333,804, respectively, and net accounts receivable were $113,349 and $146,874, respectively,
based upon net reporting of accounts receivable.
Capital Leases
Costs associated with capitalized leases
are capitalized and depreciated ratably over the term of the related useful life of the asset and/or the capital lease term. The
related depreciation for the years ended December 31, 2017 and 2016 was $18,348 and $18,348, respectively. Accumulated depreciation
of capitalized leases was $303,738 and $285,390 at December 31, 2017 and 2016, respectively.
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.
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 December 31, 2017 and 2016.
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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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
|
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.
Stock-Based Compensation
The Company accounts for stock based compensation
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 it 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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The Company uses the fair value method
for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock
based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is
completed (measurement date) and is recognized over the vesting periods.
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.
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.
Net Income (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 years ended December 31, 2017 and 2016, 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 December 31, 2017 and 2016, potentially dilutive securities were comprised of (i) 20,526,387
and 10,576,389 warrants outstanding, respectively, (ii) 2,349,996 and 1,600,000 stock options outstanding, respectively, (iii)
20,022,021 and 7,375,000 shares issuable upon conversion of convertible notes, respectively, and (iv) 628,750 and 940,000 unissued
shares subject to future vesting requirements granted pursuant to the Company’s Employee Incentive Plan.
Recent Accounting Pronouncements
In May 2014,
the FASB issued ASU 2014-09,
Revenue from Contracts with Customers — Topic 606
, which supersedes the revenue
recognition requirements in FASB ASC 605. The new guidance primarily states that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods and services. In January 2017 and September 2017, the FASB issued several amendments
to ASU 2014-09, including updates stemming from SEC Accounting Staff Announcement in July 2017. The amendments and updates included
clarification on accounting for principal versus agent considerations (i.e., reporting gross versus net), licenses of intellectual
property and identification of performance obligations. These amendments and updates do not change the core principle of the standard,
but provide clarity and implementation guidance. The Company will adopt this standard on January 1, 2018 and selected the
modified retrospective transition method. The Company will modify its accounting policies to reflect the requirements of this
standard, however, the planned adoption is not expected to impact the Company’s 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. Early adoption is permitted
for the accounting guidance on financial liabilities under the fair value option. The Company is currently evaluating the impact
of the new guidance on its financial statements.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
and subsequently amended the guidance relating largely to transition considerations under the
standard in January 2017. The objective of this update is to increase transparency and comparability among organizations by recognizing
lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is
effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be
applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine the impact
it may have on its financial statements.
In November 2016, the
FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. The objective of this ASU is to
eliminate the diversity in practice related to the classification of
restricted cash or restricted cash equivalents in the
statement of cash flows.
For public business entities, this ASU is effective for annual and
interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update
should be applied retrospectively to all periods presented. The Company will adopt this standard on January 1, 2018 and will not
have a material impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09,
Compensation -
Stock Compensation (Topic 718
)
:
Scope of Modification Accounting
(ASU 2016-09),
which provides
guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. This pronouncement is effective for annual reporting periods beginning after December 15, 2017.
The
Company will adopt this standard on January 1, 2018 and will not have a material impact on the Company’s financial statements.
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.
The Company
is currently evaluating the requirements of this new guidance and has not yet determined its impact on the Company’s financial
statements.
On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB
118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA). SAB 118 provides
a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under
ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which
the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA
is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial
statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the
SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included
in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect
immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.
NOTE 3 – GOING CONCERN MATTERS
AND LIQUIDITY
As of December 31, 2017, we had a working
capital deficit of $2,102,923 and accumulated deficit $4,705,230. For the year ended December 31, 2017, we had a net loss of $2,581,011
and net cash used by operating activities of $1,619,269. Net cash used in investing activities was $16,147. Net cash provided by
financing activities was $1,626,706, resulting principally from $848,639 from the proceeds of the sale of common stock, $429,500
net proceeds from the issuance of convertible notes, $338,470 proceeds from related party loans, and $148,510 proceeds from issuance
of notes payable. Subsequent to December 31, 2017, we received additional $400,000 net proceeds from the sale of common stock and
$120,000 from the issuance of convertible notes payable. We used a portion of the proceeds to retire convertible notes payable
with a face value of $143,000.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 3 – GOING CONCERN MATTERS
AND LIQUIDITY (CONTINUED)
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.
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.
During July 2016, HLYK entered into an
Investment Agreement (the “Investment Agreement”) pursuant to which the investor has agreed to purchase up to $3,000,000
of HLYK common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the
investor by the Company 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 the Company’s common shares for the ten consecutive trading days prior to
the put notice being issued. During the year ended December 31, 2017, the Company received $27,640 from the proceeds of the sale
of 222,588/ shares pursuant to the Investment Agreement.
The Company intends that the cost of
implementing its development and sales efforts related to the HealthLynked Network, as well as maintaining its existing and expanding
overhead and administrative costs, will be funded principally by cash received by the Company from the put rights associated with
the Investment Agreement and supplemented by other funding mechanisms, including sales of the Company’s common stock, loans
from related parties and convertible notes. The Company expects to repay its outstanding convertible notes, which have an aggregate
face value of $1,078,500 as of December 31, 2017, from outside funding sources, including but not limited to amounts available
upon the exercise of the put rights granted to the Company under the Investment Agreement, sales of equity, loans from related
parties and others or through the conversion of the notes into equity. 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 – DEFERRED OFFERING COSTS
On July 7, 2016, the Company 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 the Company’s common stock during the five consecutive trading days prior to
the date on which written notice is sent by the Company to the investor stating the number of shares that the Company is selling
to the investor, subject to certain discounts and adjustments. Further, for each $50,000 that the investor tenders to the Company
for the purchase of shares of common stock, the investor was to be granted warrants for the purchase of an equivalent number of
shares of common stock. The warrants were to expire five (5) years from their respective grant dates and have an exercise price
equal to 130% of the weighted average purchase price for the respective “$50,000 increment.”
On March 22, 2017, the Company and the
investor entered into an Amended Investment Agreement (the “Amended Investment Agreement”) whereby the parties agreed
to modify the terms of the Investment Agreement by providing that in lieu of granting the investor warrants for each $50,000 that
the investor tenders to the Company, the Company granted to the investor warrants to purchase an aggregate of 7,000,000 shares
of common stock. The warrants have the following fixed exercise prices: (i) 4,000,000 shares at $0.25 per share; (ii) 2,000,000
shares at $0.50 per share; and (iii) 1,000,000 shares at $1.00 per share. The warrants also contain a “cashless exercise”
provision and the shares underlying the warrants will not be registered. The fair value of the warrants was calculated using the
Black-Scholes pricing model at $56,635, with the following assumptions: risk-free interest rate of 1.95%, expected life of 5 years,
volatility of 40%, and expected dividend yield of zero.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 4 – DEFERRED OFFERING COSTS
(CONTINUED)
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 Amended Investment Agreement. The fair value of the warrants was calculated using
the Black-Scholes pricing model at $96,990, with the following assumptions: risk-free interest rate of 1.74%, expected life of
5 years, volatility of 40%, and expected dividend yield of zero.
This fair value of the warrants was recorded
as a deferred offering cost and will be amortized over the period during which the Company can access the financing, which begins
the day after a registration statement registering shares underlying the Investment Agreement is declared effective by the United
States Securities and Exchange Commission (the “SEC”), and ends 3 years from that date. On May 15, 2017, the SEC declared
effective a registration statement registering shares underlying the Investment Agreement. During the year ended December 31,
2017, the Company recognized $32,005 in general and administrative expense related to the cost of the warrants.
NOTE 5 – PROPERTY, PLANT, AND
EQUIPMENT
Property, plant and equipment at December 31, 2017 and 2016
are as follows:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Capital Lease equipment
|
|
$
|
343,492
|
|
|
$
|
343,492
|
|
Telephone equipment
|
|
|
12,308
|
|
|
|
12,308
|
|
Furniture, Transport and Office equipment
|
|
|
435,967
|
|
|
|
419,821
|
|
|
|
|
|
|
|
|
|
|
Total Property, plant and equipment
|
|
|
791,767
|
|
|
|
775,621
|
|
Less: accumulated depreciation
|
|
|
(728,391
|
)
|
|
|
(704,785
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
63,376
|
|
|
$
|
70,836
|
|
Depreciation expense during the years ended
December 31, 2017 and 2016 was $23,606 and $16,461, respectively.
NOTE 6 – DUE TO RELATED PARTY
Amounts due to related parties as of December
31, 2017 and 2016 were comprised of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Current portion:
|
|
|
|
|
|
|
Due to Dr. Michael Dent
|
|
$
|
616,795
|
|
|
$
|
---
|
|
Deferred compensation, Dr. Michael Dent
|
|
|
300,600
|
|
|
|
300,600
|
|
Due to MedOffice Direct
|
|
|
---
|
|
|
|
11,192
|
|
Total current portion
|
|
|
917,395
|
|
|
|
311,792
|
|
|
|
|
|
|
|
|
|
|
Long term portion:
|
|
|
|
|
|
|
|
|
Due to Dr. Michael Dent
|
|
|
---
|
|
|
|
237,157
|
|
|
|
|
|
|
|
|
|
|
Total due to related parties
|
|
$
|
917,395
|
|
|
$
|
548,949
|
|
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 6 – DUE TO RELATED PARTY
(CONTINUED)
Dr. Michael Dent
Prior to August 2014, NWC was owned and
controlled by the Company’s Chief Executive Officer, Dr. Michael Dent (“DMD”). DMD first provided an up to $175,000
unsecured note payable to the Company with a 0% interest rate. During 2013 the limit on the unsecured Note Payable was increased
up to $500,000 and during 2014 it was increased to $750,000 with a maturity date of December 31, 2017. During January 2017, the
note was again amended to extend the maturity date until December 31, 2018, to accrue interest on outstanding balances after January
1, 2017 at a rate of 10% per annum, and to fix interest accrued on balances between January 1, 2015 and December 31, 2016 at an
amount equal to $22,108 (the “$750k DMD Note”). All principal and interest is due at maturity of the $750k DMD Note.
Interest accrued on the $750k DMD Note as of December 31, 2017 and 2016 was $43,963 and $22,108, respectively.
During the year ended December 31, 2017,
the Company borrowed $322,500 from Dr. Dent under unsecured promissory notes as follows:
Inception Date
|
|
Maturity Date
|
|
Interest Rate
|
|
|
Amount
|
|
January 12, 2017
|
|
January 13, 2018
|
|
|
10
|
%
|
|
$
|
35,000
|
|
January 18, 2017
|
|
January 19, 2018
|
|
|
10
|
%
|
|
|
20,000
|
|
January 24, 2017
|
|
January 15, 2018
|
|
|
10
|
%
|
|
|
50,000
|
|
February 9, 2017
|
|
February 10, 2018
|
|
|
10
|
%
|
|
|
30,000
|
|
April 20, 2017
|
|
April 21, 2018
|
|
|
10
|
%
|
|
|
10,000
|
|
June 15, 2017
|
|
June 16, 2018
|
|
|
10
|
%
|
|
|
32,500
|
|
August 17, 2017
|
|
August 18, 2018
|
|
|
10
|
%
|
|
|
20,000
|
|
August 24, 2017
|
|
August 25, 2018
|
|
|
10
|
%
|
|
|
37,500
|
|
September 7, 2017
|
|
September 8, 2018
|
|
|
10
|
%
|
|
|
35,000
|
|
September 21, 2017
|
|
September 22, 2018
|
|
|
10
|
%
|
|
|
26,500
|
|
September 29, 2017
|
|
September 30, 2018
|
|
|
10
|
%
|
|
|
12,000
|
|
December 21, 2017
|
|
December 22, 2018
|
|
|
10
|
%
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
322,500
|
|
Interest accrued on the 2017 DMD Notes
as of December 31, 2017 and 2016 was $19,350 and -0-, respectively. During March 2018, the maturity date on notes payable to DMD
maturing on April 21, 2108 or earlier were extended by one year.
MedOffice Direct
During 2016, MedOffice Direct (“MOD”),
a company majority-owned by the Company’s CEO and largest shareholder, Dr. Michael Dent, paid a direct obligation of the
Company in the amount of $25,000. The Company also paid direct obligations of MOD totaling $13,808 in 2016, resulting in an amount
payable to MOD of $11,192 as of December 31, 2016. This amount was paid in full in January 2017.
During the year ended December 31, 2017,
the Company entered into an agreement with MOD pursuant to which the Company will pay rent to MOD in the amount of $2,040 per month
for office space in MOD’s facility used by the Company and its employees for the period from January 1, 2017 through July
31, 2018. During the years ended December 31, 2017 and 2016, the Company recognized rent expense related to the marketing agreement
in the amount of $24,480 and $-0-, respectively, pursuant to this agreement and had prepaid an additional $24,459 toward future
rent as of December 31, 2017.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 7 – CAPITAL LEASE
Capital lease obligations as of December 31, 2017 and 2016 are
comprised of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Note payable, New Everbank Lease
|
|
$
|
39,754
|
|
|
$
|
58,102
|
|
Less: note payable, New Everbank Lease (Capital leases), current portion
|
|
|
(18,348
|
)
|
|
|
(18,348
|
)
|
|
|
|
|
|
|
|
|
|
Notes payable, bank loans and capital leases, long-term portion
|
|
$
|
21,406
|
|
|
$
|
39,754
|
|
In March 2015, the Company entered into
a capital equipment finance lease for Ultra Sound equipment with Everbank. There was no interest on this lease. The monthly payment
is $1,529 for 60 months ending in March 2020. As of December 31, 2017, the Company owed Everbank $39,754 pursuant to this capital
lease. During the years ended December 31, 2017 and 2016, the Company made payments on this capital lease of $18,348 and $18,348,
respectively.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 7 – CAPITAL LEASE (CONTINUED)
Future minimum payments to which the Company
is obligated pursuant to the capital leases as of December 31, 2017 are as follows:
2018
|
|
$
|
18,348
|
|
2019
|
|
|
18,348
|
|
2020
|
|
|
3,058
|
|
2021
|
|
|
---
|
|
2022
|
|
|
---
|
|
|
|
|
|
|
Total
|
|
$
|
39,754
|
|
NOTE 8 – NOTES PAYABLE
On July 11, 2017, the Company entered into
a Merchant Cash Advance Factoring Agreement (“MCA”) with Power Up Lending Group, Ltd. (the “PULG”) pursuant
to which the Company received an advance of $26,000 before closing fees (the “July MCA”). The Company was required
to repay the July MCA, which acted like an ordinary note payable, at the rate of $1,372 per week until the balance of $34,580 was
repaid. At inception, the Company recognized a note payable in the amount of $34,580 and a discount against the note payable of
$9,550. The discount was being amortized over the life of the instrument. The July MCA was repaid in full on December 20, 2017.
During the year ended December 31, 2017, the Company recognized amortization of the discount in the amount of $9,550, including
$1,096 recognized to amortize the remaining discount at retirement.
On August 9, 2017, the Company entered
into a second MCA with PULG pursuant to which the Company received an advance of $51,000 before closing fees (the “August
MCA”). The Company was required to repay the advance, which acted like an ordinary note payable, at the rate of $2,752 per
week until the balance of $69,360 was repaid. At inception, the Company recognized a note payable in the amount of $69,360 and
a discount against the note payable of $19,380. The discount was being amortized over the life of the instrument. The August MCA
was repaid in full on December 20, 2017. During the year ended December 31, 2017, the Company recognized amortization of the discount
in the amount of $19,380, including $5,161 recognized to amortize the remaining discount at retirement.
On December 20, 2017, the Company entered
into a third MCA with PULG pursuant to which the Company received an advance of $75,000 before closing fees (the “December
MCA”). The Company is required to repay the advance, which acts like an ordinary note payable, at the rate of $4,048 per
week until the balance of $102,000 has been repaid in June 2018. At inception, the Company recognized a note payable in the amount
of $102,000 and a discount against the note payable of $28,500. The discount is being amortized over the life of the instrument.
During the year ended December 31, 2017, the Company recognized amortization of the discount in the amount of $1,619. As of December
31, 2017, the net carrying value of the instrument was $70,186.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE
Convertible notes payable as of December 31, 2017 and 2016 are
comprised of the following:
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Face Value
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
550,000
|
|
|
$
|
550,000
|
|
$50k Note - July 2016
|
|
|
50,000
|
|
|
|
50,000
|
|
$111k Note - May 2017
|
|
|
111,000
|
|
|
|
---
|
|
$53k Note - July 2017
|
|
|
53,000
|
|
|
|
---
|
|
$35k Note - September 2017
|
|
|
35,000
|
|
|
|
---
|
|
$55k Note - September 2017
|
|
|
55,000
|
|
|
|
---
|
|
$53k Note II - October 2017
|
|
|
53,000
|
|
|
|
---
|
|
$171.5k Note - October 2017
|
|
|
171,500
|
|
|
|
---
|
|
|
|
|
1,078,500
|
|
|
|
600,000
|
|
Unamortized Discount
|
|
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
---
|
|
|
$
|
(96,631
|
)
|
$50k Note - July 2016
|
|
|
---
|
|
|
|
(17,701
|
)
|
$111k Note - May 2017
|
|
|
(6,931
|
)
|
|
|
---
|
|
$53k Note - July 2017
|
|
|
(19,946
|
)
|
|
|
---
|
|
$35k Note - September 2017
|
|
|
(20,676
|
)
|
|
|
---
|
|
$55k Note - September 2017
|
|
|
(38,274
|
)
|
|
|
---
|
|
$53k Note II - October 2017
|
|
|
(39,939
|
)
|
|
|
---
|
|
$171.5k Note - October 2017
|
|
|
(140,876
|
)
|
|
|
---
|
|
|
|
|
(266,642
|
)
|
|
|
(114,332
|
)
|
Net Book Value
|
|
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
550,000
|
|
|
$
|
453,369
|
|
$50k Note - July 2016
|
|
|
50,000
|
|
|
|
32,299
|
|
$111k Note - May 2017
|
|
|
104,069
|
|
|
|
---
|
|
$53k Note - July 2017
|
|
|
33,054
|
|
|
|
---
|
|
$35k Note - September 2017
|
|
|
14,324
|
|
|
|
---
|
|
$55k Note - September 2017
|
|
|
16,726
|
|
|
|
---
|
|
$53k Note II - October 2017
|
|
|
13,061
|
|
|
|
---
|
|
$171.5k Note - October 2017
|
|
|
30,624
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of original issue discount and debt discount
|
|
$
|
811,858
|
|
|
$
|
485,668
|
|
Convertible Note Payable ($550,000)
– July 2016
On July 7, 2016, the Company entered into
a 6% fixed convertible secured promissory note with an investor with a face value of $550,000 (the “$550k Note”). The
$550k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price
of $0.08 per share, and is secured by all of the Company’s assets. The Company received $500,000 net proceeds from the note
after a $50,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 6,111,111
shares of the Company’s common stock at an exercise price of $0.09 per share. The fair value of the warrants was calculated
using the Black-Scholes pricing model at $157,812, with the following assumptions: risk-free interest rate of 0.97%, expected life
of 5 years, volatility of 40%, and expected dividend yield of zero. The net proceeds from the issuance of the $550k Note, being
$500,000 after the original issue discount, were then allocated to the warrants and the convertible note instrument based on their
relative fair values, of which $111,479 was allocated to the warrants and $388,521 to the convertible note. The intrinsic value
of the embedded conversion feature of the $550k Note was then calculated as $161,479. The original issue discount, warrants and
embedded conversion feature were then allocated and recorded as discounts against the carrying value of the $550k Note.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE (CONTINUED)
The final allocation of the proceeds at
inception was as follows:
Original issue discount
|
|
$
|
50,000
|
|
Warrants
|
|
|
111,479
|
|
Embedded conversion feature
|
|
|
161,479
|
|
Convertible note
|
|
|
227,042
|
|
|
|
|
|
|
Face value of convertible note
|
|
$
|
550,000
|
|
The $550k Note was originally schedule
to mature on April 11, 2017. During February 2017, the holder of the $550k Note agreed to extend the maturity date until July 7,
2017 in exchange for a five-year warrant to purchase 500,000 shares of HLYK common stock at an exercise price of $0.15 per share.
The fair value of the warrants of $7,506 was recorded as an additional discount against the $550k Note and was amortized over the
new remaining life of the $550k Note. The fair value of the warrant was calculated using the Black-Scholes pricing model at $7,506,
with the following assumptions: risk-free interest rate of 1.89%, expected life of 5 years, volatility of 40%, and expected dividend
yield of zero. The issuance of the warrants in exchange for the maturity extension was treated as a modification of existing debt
pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).
On August 8, 2017, in exchange for a five-year
warrant to purchase 1,000,000 shares of HLYK common stock at an exercise price of $0.30 per share, the holder of the $550k Note
agreed to (i) further extend the maturity date of the $550k Note until July 7, 2018, and (ii) further extend the maturity date
of the $50k Note (as defined herein) until July 11, 2018. The fair value of the warrant was calculated using the Black-Scholes
pricing model at $290,581, with the following assumptions: risk-free interest rate of 1.81%, expected life of 5 years, volatility
of 190.86%, and expected dividend yield of zero. The issuance of the warrants in exchange for the maturity extension was treated
as a modification of existing debt pursuant to the guidance of ASC 470-50. Because the fair value of the warrants was greater than
10% of the present value of the remaining cash flows under the $550k Note and $50k Note, the transaction was treated as a debt
extinguishment and reissuance of a new debt instrument, with the fair value of the warrants of $290,581 recorded as a loss on debt
extinguishment. The carrying value of the $550k Note (as well as the $50k Note) did not change as a result of the extinguishment
since the discounts recognized at inception of both notes were fully amortized at the time of the warrant issuance.
The discounts resulting from the original
issue discount, warrants and embedded conversion feature were amortized over the life of the $550k Note. Amortization expense related
to these discounts in the years ended December 31, 2017 and 2016 was $104,137 and $208,626, respectively. As of December 31, 2017,
the unamortized discount was $-0-. As of December 31, 2017, the $550k note was convertible into 6,875,000 of the Company’s
common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $550k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $550k Note totaling $33,000 and $16,003, respectively.
Convertible Notes Payable ($50,000)
– July 2016
On July 7, 2016, the Company entered into
a 10% fixed convertible commitment fee promissory note with an investor with a face value of $50,000 maturing on July 11, 2017
(the “$50k Note”). The $50k note was issued as a commitment fee payable to the Investment Agreement investor in exchange
for the investor’s commitment to enter into the Investment Agreement, subject to registration of the shares underlying the
Investment Agreement. The $50k Note is convertible into shares of the Company’s common stock at the discretion of the note
holder at a fixed price of $0.10 per share. The embedded conversion feature did not have any intrinsic value at issuance. Accordingly,
the full face value of $50,000 was allocated to the convertible note instrument. As of December 31, 2017, the $50k Note was convertible
into 500,000 of the Company’s common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $50k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $50k Note totaling $5,000 and $2,425, respectively.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE (CONTINUED)
Convertible Notes 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”).
The $111k Note matures on January 22, 2018. 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 $0.35 per share, 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
fair value of the warrants was calculated using the Black-Scholes pricing model at $42,305, with the following assumptions: risk-free
interest rate of 1.80%, expected life of 5 years, volatility of 40%, and expected dividend yield of zero. The net proceeds from
the issuance of the $111k Note, being $100,000 after the original issue discount, were then allocated to the warrants and the convertible
note instrument based on their relative fair values, of which $27,595 was allocated to the warrants and $72,405 to the convertible
note. The intrinsic value of the embedded conversion feature of the $111k note was then calculated as $38,595. The original issue
discount, warrants and embedded conversion feature were then allocated and recorded as discounts against the carrying value of
the $111k Note. The final allocation of the proceeds at inception was as follows:
Original issue discount
|
|
$
|
11,000
|
|
Warrants
|
|
|
27,595
|
|
Embedded conversion feature
|
|
|
38,595
|
|
Convertible note
|
|
|
33,810
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
111,000
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $111k Note. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $70,259 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $6,931. As of December 31, 2017, the $111k Note was convertible into 317,143 of the Company’s
common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $111k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $111k Note totaling $10,103 and $-0-, respectively.
Convertible Notes Payable ($53,000)
– July 2017
On July 10, 2017, the Company entered into
a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note”) to PULG. The $53k Note
included a $3,000 original issue discount, for net proceeds of $50,000. The $53k Note has an interest rate of 10% and a default
interest rate of 22% and matures on April 15, 2018. The $53k Note may be converted into common stock of the Company by the holder
at any time following 180 days 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 average of the three (3) lowest closing bid prices 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 $53k Note, 150% of the
outstanding principal and any interest due amount shall be immediately due.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE (CONTINUED)
The fair value of the embedded conversion
feature (“ECF”) of the $53k Note was calculated using the Black-Scholes pricing model at $58,154, with the following
assumptions: risk-free interest rate of 1.23%, expected life of 0.76 years, volatility of 183.6%, and expected dividend yield of
zero. Because the fair value of the ECF exceeded the net proceeds from the $53k Note, a charge was recorded to “Financing
cost” for the excess of the fair value of the fair value of the ECF of $58,154 over the net proceeds from the note of $50,000,
for a net charge of $8,154. 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
|
|
$
|
58,154
|
|
Original issue discount
|
|
|
3,000
|
|
Financing cost
|
|
|
(8,154
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
53,000
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $53k Note. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $33,054 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $19,946. As of December 31, 2017, the $53k Note was convertible into 1,930,783 of the Company’s
common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $53k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $53k Note totaling $2,527 and $-0-, respectively. On January 8, 2018, the Company prepaid the balance on the $53k Note, including accrued interest,
for the amount of $74,922.
Convertible Notes Payable ($35,000)
– September 2017
On September 7, 2017, the Company entered
into a securities purchase agreement for the sale of a $35,000 convertible note (the “$35k Note”) to PULG. The $35k
Note included a $3,000 original issue discount, for net proceeds of $32,000. The $35k Note has an interest rate of 10% and a default
interest rate of 20% and matures on June 15, 2018. The $35k Note may be converted into common stock of the Company by the holder
at any time following 180 days 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 average of the three (3) lowest closing bid prices 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 $35k 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 $35k Note, 150% of
the outstanding principal and any interest due amount shall be immediately due.
The fair value of the ECF of the $35k Note
was calculated using the Black-Scholes pricing model at $38,338, with the following assumptions: risk-free interest rate of 1.21%,
expected life of 0.77 years, volatility of 177.2%, and expected dividend yield of zero. Because the fair value of the ECF exceeded
the net proceeds from the $35k Note, a charge was recorded to “Financing cost” for the excess of the fair value of
the fair value of the ECF of $38,338 over the net proceeds from the note of $32,000, for a net charge of $6,338. 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
|
|
$
|
38,338
|
|
Original issue discount
|
|
|
3,000
|
|
Financing cost
|
|
|
(6,338
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
35,000
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $35k Note. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $14,324 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $20,676. As of December 31, 2017, the $35k Note was convertible into 1,275,046 of the Company’s
common shares.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE (CONTINUED)
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $35k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $35k Note totaling $1,103 and $-0-, respectively. On March 5, 2018, the Company prepaid the balance on the $35k Note, including accrued interest,
for the amount of $49,502.
Convertible Notes Payable ($55,000)
– September 2017
On September 11, 2017, the Company entered
into a securities purchase agreement for the sale of a $55,000 convertible note (the “$55k Note”) to Crown Bridge Partners
LLC. The $55k Note included a $7,500 original issue discount, for net proceeds of $47,500. The 55k Note has an interest rate of
10% and a default interest rate of 12% and matures on September 11, 2018. The $55k 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 60% multiplied by the lowest one (1) trading price for the Common Stock during the twenty (20) trading
day period ending on the last complete trading day prior to the date of conversion. If, at any time while the $55k Note is outstanding,
the conversion price pursuant to this formula is equal to or lower than $0.10, then an additional ten percent (10%) discount shall
be factored into the conversion price until the $55k Note is no longer outstanding. In the event that shares of the Company’s
Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional ten percent (10%) discount
shall be factored into the Variable Conversion Price until the Note is no longer outstanding.
The fair value of the ECF of the $55k Note
was calculated using the Black-Scholes pricing model at $65,332, with the following assumptions: risk-free interest rate of 1.24%,
expected life of 1 year, volatility of 175.1%, and expected dividend yield of zero. Because the fair value of the ECF exceeded
the net proceeds from the $55k Note, a charge was recorded to “Financing cost” for the excess of the fair value of
the fair value of the ECF of $65,332 over the net proceeds from the note of $47,500, for a net charge of $17,832. 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
|
|
$
|
65,332
|
|
Original issue discount
|
|
|
7,500
|
|
Financing cost
|
|
|
(17,832
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
55,000
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $55k Note. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $16,726 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $38,274. As of December 31, 2017, the $55k Note was convertible into 2,037,037 of the Company’s
common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $55k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $55k Note totaling $1,673 and $-0-, respectively. On March 13, 2018, the Company prepaid the balance on the $55k Note, including accrued interest,
for the amount of $85,258.
Convertible Notes Payable ($53,000)
– October 2017
On October 23, 2017, the Company entered
into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note II”) to PULG. The $53k
Note II included a $3,000 original issue discount, for net proceeds of $50,000. The $53k Note II has an interest rate of 10% and
a default interest rate of 20% and matures on July 30, 2018. The $53k Note II 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 39% discount to the average of the three (3) lowest closing bid prices 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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 – CONVERTIBLE NOTES
PAYABLE (CONTINUED)
The fair value of the ECF of the $53k Note
II was calculated using the Black-Scholes pricing model at $57,571, with the following assumptions: risk-free interest rate of
1.42%, expected life of 0.77 years, volatility of 174.46%, and expected dividend yield of zero. Because the fair value of the ECF
exceeded the net proceeds from the $53k Note II, a charge was recorded to “Financing cost” for the excess of the fair
value of the fair value of the ECF of $57,571 over the net proceeds from the note of $50,000, for a net charge of $7,571. 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
|
|
$
|
57,571
|
|
Original issue discount
|
|
|
3,000
|
|
Financing cost
|
|
|
(7,571
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
53,000
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $53k Note II. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $13,061 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $39,939. As of December 31, 2017, the $53k Note II was convertible into 1,930,783 of the Company’s
common shares.
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $53k Note II. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $53k Note II totaling $1,002 and $-0-, respectively.
Convertible Notes Payable ($171,500)
– October 2017
On October 27, 2017, the Company entered
into a securities purchase agreement for the sale of a $171,500 convertible note (the “$171.5k Note”) to an individual
lender. The $171.5k Note included a $21,500 original issue discount, for net proceeds of $150,000. The $171.5k Note has an interest
rate of 10% and a default interest rate of 22% and matures on October 26, 2018. The $171.5k Note may be converted into common stock
of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 35% discount to the lowest closing bid price during the twenty (20) 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 $171.5k 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 $171.5k Note, 150% of
the outstanding principal and any interest due amount shall be immediately due.
The fair value of the ECF of the $171.5k
Note was calculated using the Black-Scholes pricing model at $183,061, with the following assumptions: risk-free interest rate
of 1.42%, expected life of 1 year, volatility of 172.67%, and expected dividend yield of zero. Because the fair value of the ECF
exceeded the net proceeds from the $171.5k Note, a charge was recorded to “Financing cost” for the excess of the fair
value of the fair value of the ECF of $183,061 over the net proceeds from the note of $150,000, for a net charge of $33,061. 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
|
|
$
|
183,061
|
|
Original issue discount
|
|
|
21,500
|
|
Financing cost
|
|
|
(33,061
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Notes payable and bank loans, long-term portion
|
|
$
|
171,500
|
|
The discounts resulting from the original
issue discount, warrants and embedded conversion feature are being amortized over the life of the $171.5k Note. Amortization expense
related to these discounts in the years ended December 31, 2017 and 2016 was $30,625 and $-0-, respectively. As of December 31,
2017, the unamortized discount was $140,875. As of December 31, 2017, the $171.5k Note was convertible into 2,037,037 of the Company’s
common shares.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 9 –CONVERTIBLE NOTES PAYABLE
(CONTINUED)
During the years ended December 31, 2017
and 2016, the Company made no repayments on the $171.5k Note. During the years ended December 31, 2017 and 2016, the Company recorded
interest expense on the $171.5k Note totaling $3,054 and $-0-, respectively.
NOTE 10 – DERIVATIVE FINANCIAL
INSTRUMENTS
Derivative financial instruments are comprised
of the fair value of conversion features embedded in convertible promissory issued in 2017 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. The fair market value
of the derivative liabilities was calculated at inception of each of the $53k Note, the $35k Note, the $55k Note, the $53k Note
II, and the $171.5k Note and allocated to the respective convertible notes, with any excess recorded as a charge to “Financing
cost.” The derivative financial instruments are then 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 recorded
in years ended December 31, 2017 include the following:
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
Fair
|
|
|
|
Fair
|
|
|
Derivative
|
|
|
Value at
|
|
|
|
Value at
|
|
|
Financial
|
|
|
December 31
|
|
|
|
Inception
|
|
|
Instruments
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
$53k Note - July 2017
|
|
$
|
58,154
|
|
|
$
|
(9,278
|
)
|
|
$
|
48,876
|
|
$35k Note - September 2017
|
|
|
38,338
|
|
|
|
(2,177
|
)
|
|
|
36,161
|
|
$55k Note - September 2017
|
|
|
65,332
|
|
|
|
(676
|
)
|
|
|
64,656
|
|
$53k Note II - October 2017
|
|
|
57,571
|
|
|
|
645
|
|
|
|
58,216
|
|
$171.5k Note - October 2017
|
|
|
183,061
|
|
|
|
7,519
|
|
|
|
190,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
402,456
|
|
|
$
|
(3,967
|
)
|
|
$
|
398,489
|
|
Fair market value of the derivative financial
instruments is measured using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.21%
to 1.76%, expected life of 0.29 to 1.00 years, volatility of 172.67% to 205.70%, and expected dividend yield of zero. 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.
NOTE 11 – SHAREHOLDERS’
DEFICIT
Common Stock
The holders of the Company’s common
stock are entitled to one vote per share. In addition, the holders of common stock will be entitled to receive ratably dividends,
if any, declared by the board of directors out of legally available funds; however, the current policy of the board of directors
is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of common stock
will be entitled to share ratably in all assets that are legally available for distribution. The holders of common stock will have
no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock
will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be
designated solely by action of the board of directors and issued in the future.
On January 3, 2018, holders of a majority
of the voting power of the outstanding capital stock of the Company, acting by written consented, authorized and approved an amendment
to the Amended and Restated Articles of Incorporation of the Company increasing the amount of authorized shares of common stock
to 500,000,000 shares from 230,000,000 shares. On February 5, 2018, the Company filed the amendment with the Secretary of State
of Nevada to effect the increase.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 11 – SHAREHOLDERS’
DEFICIT (CONTINUED)
Preferred Stock
The Company’s board of directors
will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue
from time to time shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares,
designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by
our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights
and preemptive rights.
On September 4, 2014, the Company filed
with the Nevada Secretary of State a certificate of designation for up to 20,000,000 shares of Series A Convertible Preferred Stock
(the “Series A”). Each share of Series A Convertible Preferred Stock (“Series A”) issued in 2014 converts
into one share of common, has voting rights on an as converted basis, and receives liquidation preferences. Series A shares are
not redeemable and have no dividend rights. No shares of Series A were outstanding as of December 31, 2017 or 2016.
Issuance of Common Stock
During the year ended December 31, 2017, the Company sold 4,412,498
shares of common stock in private placement transactions to 15 investors. The Company received $533,000 in proceeds from the sales.
The shares were issued at a share price between $0.10 and $0.30 per share.
During the year ended December 31, 2017, the Company sold 1,461,111
shares of common stock in private placement transactions to 3 investors and received $288,000 in proceeds from the sales. The shares
were issued at a share price between $0.18 and $0.20 per share. In connection with the stock sales, the Company also issued 959,998
five-year warrants to purchase shares of common stock at an exercise price of $0.30 per share.
During the years ended December 31, 2017, the Company issued
222,588 common shares pursuant to draws made by the Company under the Investment Agreement. The Company received $27,640 in proceeds
from the draws.
During the years ended December 31, 2017, the Company issued
276,850 shares to a consultant and 176,250 to employees that vested pursuant to prior grants made under the Company’s Employee
Equity Incentive Plan (the “EIP”).
Common Stock Issuable
As of December 31, 2017 and 2016, the Company
was obligated to issue 47,101 and 80,643 shares of common stock, respectively, in exchange for professional services provided by
a third party consultant beginning in the fourth quarter of 2016. During the years ended December 31, 2017, the Company recognized
expense related to shares earned by the consultant of $58,265 and $6,451, respectively. During August 2017, 276,850 shares were
issued to the consultant with a value of $49,996, in satisfaction of shares accrued through August 25, 2017.
As of December 31, 2017 and 2016, the Company
was obligated to issue 75,000 shares to an employee pursuant to the EIP. The shares were issued in February 2017.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 11 – SHAREHOLDERS’
DEFICIT (CONTINUED)
Stock Warrants
Transactions involving our stock warrants during the years ended
December 31, 2017 and 2016 are summarized as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
Outstanding at beginning of the period
|
|
|
10,576,389
|
|
|
$
|
0.08
|
|
|
|
2,000,000
|
|
|
$
|
0.05
|
|
Granted during the period
|
|
|
9,949,998
|
|
|
$
|
0.39
|
|
|
|
8,576,389
|
|
|
$
|
0.09
|
|
Exercised during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Terminated during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Outstanding at end of the period
|
|
|
20,526,387
|
|
|
$
|
0.23
|
|
|
|
10,576,389
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of the period
|
|
|
20,526,387
|
|
|
$
|
0.23
|
|
|
|
10,576,389
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
|
4.2 years
|
|
|
|
5.2 years
|
|
The following table summarizes information
about the Company’s stock warrants outstanding as of December 31, 2017:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
$
|
0.05 to 0.09
|
|
|
|
8,388,889
|
|
|
|
4.3
|
|
|
$
|
0.08
|
|
|
|
8,388,889
|
|
|
$
|
0.08
|
|
$
|
0.10 to 0.15
|
|
|
|
2,687,500
|
|
|
|
3.6
|
|
|
$
|
0.11
|
|
|
|
2,687,500
|
|
|
$
|
0.11
|
|
$
|
0.25 to 0.50
|
|
|
|
8,259,998
|
|
|
|
0.9
|
|
|
$
|
0.88
|
|
|
|
8,259,998
|
|
|
$
|
0.88
|
|
$
|
0.51 to 1.00
|
|
|
|
1,190,000
|
|
|
|
4.3
|
|
|
$
|
0.97
|
|
|
|
1,190,000
|
|
|
$
|
0.97
|
|
$
|
0.05 to 1.00
|
|
|
|
20,526,387
|
|
|
|
2.9
|
|
|
$
|
0.46
|
|
|
|
20,526,387
|
|
|
$
|
0.46
|
|
During the year ended December 31, 2017,
the Company issued 9,949,998 warrants. The fair value of warrants issued in 2017 was calculated using the Black-Scholes pricing
model with the following assumptions: risk-free interest rate of 1.74% to 2.01%, expected life of 5 years, volatility of 40.00%
to 190.86%, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the years ended
December 31, 2017 and 2016 was $629,299 and $135,023, respectively.
Employee Equity Incentive Plan
On January 1, 2016, the Company instituted
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.
During August 2017, the Company issued
207,500 shares of common stock to employees under the EIP as a result of grants made in 2016 that vested during 2017.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 11 – SHAREHOLDERS’
DEFICIT (CONTINUED)
The following table summarizes the status
of shares issued and outstanding under the EIP outstanding as of and for the years ended December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
Outstanding at beginning of the period
|
|
|
1,552,500
|
|
|
|
---
|
|
Granted during the period
|
|
|
175,000
|
|
|
|
1,552,500
|
|
Terminated during the period
|
|
|
(228,750
|
)
|
|
|
---
|
|
Outstanding at end of the period
|
|
|
1,498,750
|
|
|
|
1,552,500
|
|
|
|
|
|
|
|
|
|
|
Shares vested at period-end
|
|
|
870,000
|
|
|
|
612,500
|
|
Weighted average grant date fair value of shares granted during the period
|
|
$
|
0.09
|
|
|
$
|
0.04
|
|
Aggregate grant date fair value of shares granted during the period
|
|
$
|
15,750
|
|
|
$
|
63,000
|
|
Shares available for grant pursuant to EIP at period-end
|
|
|
11,654,934
|
|
|
|
11,601,184
|
|
Total stock based compensation recognized
for grants under the EIP was $11,153 and $12,360 during the years ended December 31, 2017 and 2016, respectively. Total unrecognized
stock compensation related to these grants was $41,558 as of December 31, 2017.
A summary of the status of non-vested shares
issued pursuant to the EIP as of December 31, 2017 is presented below:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at beginning of period
|
|
|
940,000
|
|
|
$
|
0.04
|
|
|
|
---
|
|
|
$
|
---
|
|
Granted
|
|
|
100,000
|
|
|
$
|
0.09
|
|
|
|
1,552,500
|
|
|
$
|
0.04
|
|
Vested
|
|
|
(182,500
|
)
|
|
$
|
0.04
|
|
|
|
(612,500
|
)
|
|
$
|
0.04
|
|
Forfeited
|
|
|
(228,750
|
)
|
|
$
|
0.04
|
|
|
|
---
|
|
|
$
|
---
|
|
Nonvested at end of period
|
|
|
628,750
|
|
|
$
|
0.05
|
|
|
|
940,000
|
|
|
$
|
0.04
|
|
Employee Stock Options
The following table summarizes the status of options outstanding
as of and for the years ended of December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
Outstanding at beginning of the period
|
|
|
2,349,996
|
|
|
$
|
0.12
|
|
|
|
---
|
|
|
$
|
---
|
|
Granted during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
2,349,996
|
|
|
$
|
0.12
|
|
Exercised during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Terminated during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Outstanding at end of the period
|
|
|
2,349,996
|
|
|
$
|
0.12
|
|
|
|
2,349,996
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at period-end
|
|
|
575,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
Weighted average remaining life (in years)
|
|
|
8.6
|
|
|
|
|
|
|
|
9.6
|
|
|
|
|
|
Weighted average grant date fair value of options granted during the period
|
|
$
|
---
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
Options available for grant at period-end
|
|
|
11,654,934
|
|
|
|
|
|
|
|
11,601,184
|
|
|
|
|
|
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 11 – SHAREHOLDERS’
DEFICIT (CONTINUED)
The following table summarizes information
about the Company’s stock options outstanding as of December 31, 2017:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
$
|
0.08
|
|
|
|
1,600,000
|
|
|
|
8.5
|
|
|
$
|
0.08
|
|
|
|
525,000
|
|
|
$
|
0.08
|
|
$
|
0.20
|
|
|
|
749,996
|
|
|
|
8.9
|
|
|
$
|
0.20
|
|
|
|
50,000
|
|
|
$
|
0.20
|
|
$
|
0.08 to 0.20
|
|
|
|
2,349,996
|
|
|
|
8.6
|
|
|
$
|
0.12
|
|
|
|
575,000
|
|
|
$
|
0.09
|
|
Total stock based compensation recognized
related to option grants was $9,779 and $8,067 during the years ended December 31, 2017 and 2016, respectively.
A summary of the status of non-vested options
issued pursuant to the EIP as of December 31, 2017 and 2016 is presented below:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at beginning of period
|
|
|
2,249,996
|
|
|
$
|
0.03
|
|
|
|
---
|
|
|
$
|
---
|
|
Granted
|
|
|
---
|
|
|
$
|
---
|
|
|
|
2,349,996
|
|
|
$
|
0.03
|
|
Vested
|
|
|
(475,000
|
)
|
|
$
|
0.03
|
|
|
|
(100,000
|
)
|
|
$
|
0.03
|
|
Forfeited
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Nonvested at end of period
|
|
|
1,774,996
|
|
|
$
|
0.03
|
|
|
|
2,249,996
|
|
|
$
|
0.03
|
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
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. We are not
aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our
business, financial condition or operating results.
Leases
The Company has two real estate leases
in Naples, Florida. The Company entered into an operating lease for its main office in Naples, Florida beginning on August 1, 2013
and expiring July 31, 2020. The lease is for a 6901 square-foot space. The base rent for the first full year of the lease term
is $251,287 per annum with increases during the period. The Company 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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 12 – COMMITMENTS AND CONTINGENCIES
(CONTINUED)
During the year ended December 31, 2017,
the Company entered into an agreement with MOD pursuant to which the Company will pay rent to MOD in the amount of $2,040 per month
for office space in MOD’s facility used by the Company and its employees. The agreement is effective from January 1, 2017
through July 31, 2018. During the years ended December 31, 2017 and 2016, the Company recognized rent expense related to the marketing
agreement in the amount of $24,480 and $-0-, respectively, pursuant to this agreement and had prepaid an additional $24,459 toward
future rent as of December 31, 2017.
Total lease expense for the years ended
December 31, 2017 and 2016 was $294,745 and $336,385, respectively.
Future minimum lease payments (excluding
real estate taxes and maintenance costs) as of December 31, 2017 are as follows:
2018
|
|
$
|
281,460
|
|
2019
|
|
|
273,856
|
|
2020
|
|
|
162,055
|
|
2021
|
|
|
---
|
|
2022
|
|
|
---
|
|
|
|
|
|
|
Total
|
|
$
|
717,371
|
|
Employment/Consulting Agreements
The Company has employment agreements with
each of its four physicians. 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. The contracts expire at various times through 2019, with early termination available
upon a notice period of 30-90 days during which compensation is paid to the physician but NWC has no further severance obligation.
During 2016, Dr. Dent retired from practice to focus on his duties as CEO of HLYK.
On July 1, 2016, HLYK 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 HLYK. If Dr. Dent’s employment is terminated by HLYK (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, HLYK entered into an agreement
with Mr. George O’Leary, HLYK’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 HLYK.
If Mr. O’Leary employment is terminated by HLYK (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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 13 – INCOME TAXES
The tax reform bill that Congress voted to approve Dec. 20,
2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including
a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have
overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with
a flat rate of 21%. The Company has not reviewed the all of the changes the “Tax Cuts and Jobs Act” that will apply
to the Company, but is reviewing such changes. Due to the continuing loss position of the Company, such changes should not be
material.
The following is a reconciliation of the
statutory federal income tax rate applied to pre-tax accounting net loss compared to the income taxes in the consolidated statement
of operations:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Pre-tax loss
|
|
$
|
(2,581,011
|
)
|
|
$
|
(1,376,406
|
)
|
Statutory rate - Tax Law Change 2017
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax benefit at statutory rate
|
|
|
(542,012
|
)
|
|
|
(289,045
|
)
|
Permanent and other differences
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
$
|
(542,012
|
)
|
|
$
|
(289,045
|
)
|
As of December 31, 2017 and 2016, the types
of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts which gave rise
to deferred taxes, and their tax effects were as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
576,049
|
|
|
$
|
34,037
|
|
Stock based compensation expense
|
|
|
---
|
|
|
|
---
|
|
Total deferred tax assets
|
|
|
576,049
|
|
|
|
34,037
|
|
Valuation allowance
|
|
|
(576,049
|
)
|
|
|
(34,037
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
---
|
|
|
$
|
---
|
|
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.
Prior to 2014, the Company was an
S-Corporation, as defined in the Internal Revenue Code. As an S-Corporation, income/losses were passed through to the
stockholders for each year. During 2014, the Company failed to meet the requirements of an S-Corporation when it authorized
and issued a second class of stock other than common stock. The S-Corporation requirements allow only one class of stock,
among other certain requirements, to maintain S-Corporation status, as defined. The Company upon failing to maintain its S
Corporation status became a C-Corporation during 2014. Prior year losses and up to the date that the Company lost its
S-Corporation status are not available to the Company, since they were passed through to qualified S-Corporation
shareholders. The net operating loss (“NOL”) carryovers presented in this note are estimates based on the losses
reported at December 31, 2017, 2016 and 2015. Such NOL carryovers could also be subject to IRC Section 382 change of
ownership rules, but management has not reviewed the Company’s ownership changes at the date of this filing. Since the
NOLs based upon management’s assessment have a full valuation allowance, no benefit has been taken for the NOL’s,
as of the filing date.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 13 – INCOME TAXES (CONTINUED)
Prior to September 5, 2014, the date on
which NWC and HLYK completed the Restructuring, the Company’s business was comprised of the operations of NWC, which at the
time was an LLC comprised of two members. All income taxes resulting from the operation of NWC were passed through to the personal
income tax returns of the LLC members. Subsequent to September 5, 2014, HLKD reports the consolidated operations of NWC and HLKD
in its tax returns. On a consolidated basis, the Company did not have any tax liability for 2016 or 2017 due to its pre-tax losses.
Such return filings are being reviewed by Management, based upon the Company failing to meet the S-Corporation status, as defined.
The Company believes there would be no tax liability created for the S corporation failure, since the Company has had losses for
the periods presented in this filing.
The Company has not taken any uncertain
tax positions on any of its open income tax returns filed through the period ended December 31, 2017. The Company’s methods
of accounting are based on established income tax principles in the Internal Revenue Code and are properly calculated and reflected
within its income tax returns on the accrual basis. In addition, Management believes it has filed income tax returns in all applicable
jurisdictions in which the Company had material nexus warranting an income tax return filing.
The Company re-assesses the validity of
its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that
might cause the Company to change its judgment regarding the likelihood of a tax position’s sustainability under audit. The
Company has determined that there were no uncertain tax positions for the years ended December 31, 2017 and 2016.
NOTE 14 – SEGMENT REPORTING
The Company has two reportable segments:
NWC and HLYK. NWC is a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice. The
practice’s office is located in Naples, Florida. HLYK 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. Patients will complete a detailed online personal medical history including past surgical
history, medications, allergies, and family history. Once this information is entered patients and their treating physicians will
be able to update the information as needed to provide a comprehensive medical history.
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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 14 – SEGMENT REPORTING (CONTINUED)
Segment information for the years ended
December 31, 2017 and 2016 was as follows:
|
|
2017
|
|
|
2016
|
|
|
|
NWC
|
|
|
HLYK
|
|
|
Total
|
|
|
NWC
|
|
|
HLYK
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue, net
|
|
$
|
2,103,579
|
|
|
$
|
---
|
|
|
$
|
2,103,579
|
|
|
$
|
1,945,664
|
|
|
$
|
---
|
|
|
$
|
1,945,664
|
|
Medicare incentives
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Total revenue
|
|
|
2,103,579
|
|
|
|
---
|
|
|
|
2,103,579
|
|
|
|
1,945,664
|
|
|
|
---
|
|
|
|
1,945,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
1,395,455
|
|
|
|
626,990
|
|
|
|
2,022,445
|
|
|
|
1,338,572
|
|
|
|
221,153
|
|
|
|
1,559,725
|
|
General and administrative
|
|
|
854,080
|
|
|
|
994,786
|
|
|
|
1,848,866
|
|
|
|
1,023,691
|
|
|
|
520,175
|
|
|
|
1,543,866
|
|
Depreciation and amortization
|
|
|
22,387
|
|
|
|
1,219
|
|
|
|
23,606
|
|
|
|
16,461
|
|
|
|
---
|
|
|
|
16,461
|
|
Total Operating Expenses
|
|
|
2,271,922
|
|
|
|
1,622,995
|
|
|
|
3,894,917
|
|
|
|
2,378,724
|
|
|
|
741,328
|
|
|
|
3,120,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(168,343
|
)
|
|
$
|
(1,622,995
|
)
|
|
$
|
(1,791,338
|
)
|
|
$
|
(433,060
|
)
|
|
$
|
(741,328
|
)
|
|
$
|
(1,174,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
22,857
|
|
|
$
|
76,811
|
|
|
$
|
99,668
|
|
|
$
|
18,083
|
|
|
$
|
18,545
|
|
|
$
|
36,628
|
|
Loss on extinguishment of debt
|
|
$
|
---
|
|
|
$
|
290,581
|
|
|
$
|
290,581
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
Loss at inception of convertible notes payable
|
|
$
|
---
|
|
|
$
|
72,956
|
|
|
$
|
72,956
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
Amortization of original issue and debt discounts on convertible notes
|
|
$
|
---
|
|
|
$
|
330,435
|
|
|
$
|
330,435
|
|
|
$
|
---
|
|
|
$
|
208,626
|
|
|
$
|
208,626
|
|
Proceeds from settlement of lawsuit
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
(43,236
|
)
|
|
$
|
---
|
|
|
$
|
(43,236
|
)
|
Change in fair value of derivative financial instruments
|
|
$
|
---
|
|
|
$
|
(3,967
|
)
|
|
$
|
(3,967
|
)
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
Identifiable assets
|
|
$
|
269,424
|
|
|
$
|
170,359
|
|
|
$
|
439,783
|
|
|
$
|
240,115
|
|
|
$
|
89,396
|
|
|
$
|
329,511
|
|
During the year ended December 31, 2017,
HLYK realized revenue of $4,414 to subscription revenue billed to and paid for by NWC physicians for access to the HealthLynked
Network, which the Company test-launched during the third quarter of 2017. The revenue for HLYK and related expense for NWC were
eliminated on consolidation.
NOTE 15 – SUBSEQUENT EVENTS
On January 2, 2018, the Company entered
into a securities purchase agreement for the sale of a $57,750 convertible note (the “$58k Note”). The transaction
closed on January 3, 2018. The $58k Note included a $5,250 original issue discount and $2,500 fee for net proceeds of $50,000.
The $58k Note has an interest rate of 10% and a default interest rate of 18% and matures on January 2, 2019. The $58k 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 40% discount to the lowest bid or trading price of the Company’s
common stock during the twenty (20) 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, 200% 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.
HEALTHLYNKED CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
NOTE 15 – SUBSEQUENT EVENTS (CONTINUED)
On January 3, 2018, holders of a majority of the voting power
of the outstanding capital stock of the Company, acting by written consented, authorized and approved an amendment to the Amended
and Restated Articles of Incorporation of the Company increasing the amount of authorized shares of common stock to 500,000,000
shares from 230,000,000 shares. On February 5, 2018, the Company filed the amendment with the Secretary of State of Nevada to effect
the increase.
On January 8, 2018, Michael Dent loaned $75,000 to the Company
in the form of an unsecured promissory note. The note bears interest at 10% per annum and matures on January 9, 2019.
On January 8, 2018, the Company prepaid
the balance on the $53k Note, including accrued interest, for the amount of $74,922.
On January 11, 2018, the Company sold 588,235 shares of common
stock in a private placement transaction to an investor and received $50,000 in proceeds from the sale. The shares were issued
at a share price of $0.085 per share. In connection with the stock sales, the Company also issued 588,235 five-year warrants to
purchase shares of common stock at an exercise price of $0.15 per share.
On February 2, 2018, the Company entered
into a securities purchase agreement for the sale of a $112,750 convertible note (the “$113k Note”). The transaction
closed on February 8, 2018. The $113k Note included $12,750 fees for net proceeds of $100,000. The $113k Note has an interest
rate of 10% and a default interest rate of 24% and matures on February 2, 2019. The $113k 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 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty
(20) 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, 200% 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.
On February 12, 2018, the Company issued
a warrant to purchase 6,678,462 shares of common stock to Chief Executive Officer and Chairman Dr. Michael Dent as an inducement
to (i) extend the maturity dates of up to $439,450 loaned by Dr. Dent to the Company in 2017 and 2018 in the form of unsecured
promissory notes, including $75,000 loaned from Dr. Dent to the Company in January 2018 to allow the Company to retire an existing
convertible promissory note payable to Power-up Lending Group Ltd. before such convertible promissory note became eligible for
conversion, and (ii) provide continued loans to the Company. The warrant is immediately exercisable at an exercise price of $0.065
per share, subject to adjustment, and expires five years after the date of issuance.
On February 13, 2018, the Company entered
into a securities purchase agreement for the sale of a $83,000 convertible note (the “$83k Note”). The transaction
closed on February 21, 2018. The $83k Note included $8,000 fees for net proceeds of $75,000. The $83k Note has an interest rate
of 10% and a default interest rate of 24% and matures on February 13, 2019. The $113k 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 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty
(20) trading days prior to the conversion date. Upon an event of default, 200% of the outstanding principal and any interest due
amount shall be immediately due.
On February 28, 2018, the Company sold 2,352,942 shares of common
stock in private placement transactions to two investors and received $200,000 in proceeds from the sale. The shares were issued
at a share price of $0.085 per share. In connection with the stock sales, the Company also issued 1,764,706 five-year warrants
to purchase shares of common stock at an exercise price of $0.15 per share.
On March 5, 2018, the Company entered
into a securities purchase agreement for the sale of a $105,000 convertible note (the “$105k Note”). The transaction
closed on March 12, 2018. The $105k Note included $5,000 fees for net proceeds of $100,000. The $105k Note has an interest rate
of 10% and a default interest rate of 24% and matures on March 5, 2019. The $113k Note may be converted into common stock of the
Company by the holder at any time after the issuance date, subject to a 9.9% beneficial ownership limitation, at a conversion
price per share equal to 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty
(20) trading days prior to the conversion date. Upon an event of default, 110-150% of the outstanding principal and any interest
due amount shall be immediately due, depending on the nature of the breach.
On March 5, 2018, the Company prepaid the
balance on the $35k Note, including accrued interest, for the amount of $49,502.
On March 13, 2018, the Company prepaid
the balance on the $55k Note, including accrued interest, for the amount of $85,258.