UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–Q

 

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

 

For the quarterly period ended June 30, 2019

 

or

 

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

 

For the transition period from [               ] to [                ]

 

Commission file number: 000-55768

 

HealthLynked Corp.
(Exact name of registrant as specified in its charter)

 

Nevada   47-1634127
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

1726 Medical Blvd Suite 101, Naples, Florida 34110
(Address of principal executive offices)
 
239-513-1992
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

As of August 12, 2019, there were 102,477,506 shares of the issuer’s common stock, par value $0.0001, outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    PAGE NO.
     
PART I FINANCIAL INFORMATION 1
Item 1 Financial Statements (Unaudited) 1
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
Item 3 Quantitative and Qualitative Disclosures about Market Risk 57
Item 4 Controls and Procedures 57
     
Part II OTHER INFORMATION 58
Item 1 Legal Proceedings 58
Item 1A Risk Factors 58
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 58
Item 3 Defaults upon Senior Securities 58
Item 4 Mine Safety Disclosure 59
Item 5 Other Information 59
Item 6 Exhibits 59

 

i

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30,     December 31,  
    2019     2018  
    (unaudited)        
ASSETS            
Current Assets            
Cash   $ 125,739     $ 135,778  
Accounts receivable, net of allowance for doubtful accounts of $13,972 and $13,972 as of June 30, 2019 and December 31, 2018, respectively     124,095       114,884  
Inventory     93,583       —  
Prepaid expenses     32,015       28,542  
Deferred offering costs     44,807       96,022  
Total Current Assets     420,239       375,226  
                 
Property, plant and equipment, net of accumulated depreciation of $703,429 and $752,173 as of June 30, 2019 and December 31, 2018, respectively     553,922       42,597  
Goodwill and intangible assets, net of accumulated amortization of $1,775 and $0 as of June 30, 2019 and December 31, 2018, respectively     1,341,091       —  
ROU lease assets and deposits     442,451       9,540  
                 
Total Assets   $ 2,757,703     $ 427,363  
                 
LIABILITIES AND SHAREHOLDERS’ DEFICIT                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 514,372     $ 394,333  
Capital lease, current portion     —       19,877  
Lease liability, current portion     306,271       —  
Due to related party, current portion     463,174       429,717  
Notes payable to related party, current portion     684,586       672,471  
Convertible notes payable, net of original issue discount and debt discount of $722,954 and $386,473 as of June 30, 2019 and December 31, 2018, respectively     1,229,102       1,042,314  
Contingent acquisition consideration     500,000       —  
Derivative financial instruments     632,605       800,440  
Total Current Liabilities     4,330,110       3,359,152  
                 
Long-Term Liabilities                
Capital leases, long-term portion     —       3,058  
Lease liability, long term portion     125,695       —  
                 
Total Liabilities     4,455,805       3,362,210  
                 
Shareholders’ Deficit                
Common stock, par value $0.0001 per share, 500,000,000 shares authorized, 101,068,541 and 85,178,902 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively     10,107       8,518  
Common stock issuable, $0.0001 par value; 562,726 and 114,080 shares as of June 30, 2019 and December 31, 2018, respectively     105,348       26,137  
Additional paid-in capital     10,627,789       7,531,553  
Accumulated deficit     (12,441,346 )     (10,501,055 )
Total Shareholders’ Deficit     (1,698,102 )     (2,934,847 )
                 
Total Liabilities and Shareholders’ Deficit   $ 2,757,703     $ 427,363  

 

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

1

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2019     2018     2019     2018  
Revenue                        
Patient service revenue, net   $ 1,208,390     $ 566,320     $ 1,673,380     $ 1,211,959  
                                 
Cost of services     321,603       —       321,603       —  
                                 
Gross profit     886,787       566,320       1,351,777       1,211,959  
                                 
Operating Expenses                                
Salaries and benefits     767,818       618,143       1,297,043       1,178,999  
General and administrative     795,450       552,583       1,552,806       1,127,411  
Depreciation and amortization     21,710       6,029       23,365       12,058  
Total Operating Expenses     1,584,978       1,176,755       2,873,214       2,318,468  
                                 
Loss from operations     (698,191 )     (610,435 )     (1,521,437 )     (1,106,509 )
                                 
Other Income (Expenses)                                
Gain (loss) on extinguishment of debt     72,435       16,864       (67,363 )     (308,359 )
Change in fair value of debt     (30,409 )     (25,452 )     (60,106 )     (83,398 )
Financing cost     (87,332 )     (248,443 )     (121,235 )     (440,505 )
Amortization of original issue and debt discounts on notes payable and convertible notes     (299,613 )     (244,563 )     (478,997 )     (399,398 )
Change in fair value of derivative financial instrument     223,881       52,786       415,514       38,165  
Interest expense     (60,345 )     (51,006 )     (106,667 )     (91,353 )
Total other expenses     (181,383 )     (499,814 )     (418,854 )     (1,284,848 )
                                 
Net loss before provision for income taxes     (879,574 )     (1,110,249 )     (1,940,291 )     (2,391,357 )
                                 
Provision for income taxes     —       —       —       —  
                                 
Net loss   $ (879,574 )   $ (1,110,249 )   $ (1,940,291 )   $ (2,391,357 )
                                 
Net loss per share, basic and diluted:                                
Basic   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )
Fully diluted   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.03 )
                                 
Weighted average number of common shares:                                
Basic     98,502,106       75,871,643       93,532,128       74,397,741  
Fully diluted     98,502,106       75,871,643       93,532,128       74,397,741  

 

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

2

 

   

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

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

 

(continued)

 

3

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

 

    Number of Shares           Common     Additional           Total  
    Common     Common     Stock     Paid-in     Accumulated     Shareholders'  
    Stock     Stock     Issuable     Capital     Deficit     Deficit  
    (#)     ($)     ($)     ($)     ($)     ($)  
Balance at December 31, 2017     72,302,937       7,230       8,276       2,638,311       (4,705,230 )     (2,051,413 )
                                                 
Sale of common stock     631,204       63       236       133,312       ---       133,611  
Fair value of warrants allocated to proceeds of common stock     ---       ---       ---       117,956       ---       117,956  
Fair value of warrants issued to extend related party notes payable     ---       ---       ---       337,467       ---       337,467  
Fair value of warrants issued to extend convertible notes payable     ---       ---       ---       10,199       ---       10,199  
Consultant fees payable with common shares and warrants     ---       ---       5,287       ---       ---       5,287  
Shares and options issued pursuant to employee equity incentive plan     75,000       8       (8 )     5,577       ---       5,577  
Net loss     ---       ---       ---       ---       (1,281,108 )     (1,281,108 )
                                                 
Balance at March 31, 2018     73,009,141       7,301       13,791       3,242,822       (5,986,338 )     (2,722,424 )
                                                 
Sale of common stock     4,474,453       448       (236 )     365,659       ---       365,871  
Fair value of warrants allocated to proceeds of common stock     ---       ---       ---       28,065       ---       28,065  
Fair value of warrants issued to extend related party notes payable     ---       ---       ---       ---       ---       ---  
Fair value of warrants issued to extend convertible notes payable     ---       ---       ---       ---       ---       ---  
Fair value of warrants issued for professional services     ---       ---       ---       115,125       ---       115,125  
Consultant fees payable with common shares and warrants     277,147       28       (9,618 )     31,659       ---       22,069  
Shares and options issued pursuant to employee equity incentive plan     188,750       18       ---       6,011       ---       6,029  
Net loss     ---       ---       ---       ---       (1,110,249 )     (1,110,249 )
                                                 
Balance at June 30, 2018     77,949,491       7,795       3,937       3,789,341       (7,096,587 )     (3,295,514 )

  

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

4

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended June 30,  
    2019     2018  
Cash Flows from Operating Activities            
Net loss   $ (1,940,291 )   $ (2,391,357 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     23,365       12,058  
Stock based compensation, including amortization of prepaid fees     317,285       97,286  
Amortization of original issue discount and debt discount on convertible notes     478,997       399,398  
Financing cost     121,235       440,505  
Change in fair value of derivative financial instrument     (415,514 )     (38,165 )
Loss on extinguishment of debt     67,363       308,359  
Change in fair value of debt     60,106       83,398  
Changes in operating assets and liabilities:                
Accounts receivable     (9,210 )     (28,504 )
Inventory     (21,469 )     —  
Prepaid expenses and deposits     (9,380 )     (183,878 )
ROU lease assets     133,046       —  
Accounts payable and accrued expenses     133,270       45,345  
Lease liability     (128,084 )     —  
Due to related party, current portion     33,488       32,608  
Net cash used in operating activities     (1,155,793 )     (1,222,947 )
                 
Cash Flows from Investing Activities                
Acquisition of property and equipment     (4,302 )     (201 )
Acquisition, net of cash acquired     (465,000 )     —  
Net cash used in investing activities     (469,302 )     (201 )
                 
Cash Flows from Financing Activities                
Proceeds from sale of common stock     994,272       645,503  
Proceeds from exercise of warrants     200       —  
Proceeds from issuance of convertible notes     1,025,000       805,500  
Repayment of convertible notes, including prepayment premium     (404,416 )     (284,682 )
Proceeds from related party loans     —       101,450  
Repayment of related party loans     —       (9,000 )
Proceeds from notes payable and bank loans     —       73,500  
Repayment of notes payable and bank loans     —       (113,257 )
Payments on capital leases     —       (7,645 )
Net cash provided by financing activities     1,615,056       1,211,369  
                 
Net decrease in cash     (10,039 )     (11,779 )
Cash, beginning of period     135,778       50,006  
                 
Cash, end of period   $ 125,739     $ 38,227  

 

(continued)

 

5

 

 

HEALTHLYNKED CORP.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    Six Months Ended
June 30, 		 
    2019     2018  
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest   $ 15,589     $ 9,978  
Cash paid during the period for income tax   $ —     $ —  
Schedule of non-cash investing and financing activities:                
Initial derivative liability and fair value of beneficial conversion feature and original issue discount allocated to proceeds of variable convertible notes payable   $ 804,059     $ 1,246,005  
Common stock issuable issued during period   $ 25     $ 54  
Fair value of warrants issued for professional service   $ 54,257     $ 94,844  
Conversion of convertible note payable to common shares   $ 673,993     $ —  
Fair value of common shares issued with convertible notes payable   $ 17,176     $ —  
Cashless exercise of options and warrants   $ 221     $ —  
Adoption of lease obligation and ROU asset   $ 560,050     $ —  
Fair value of shares issued as acquisition consideration   $ 1,000,000     $ —  
Value of contingent acquisition consideration   $ 500,000     $ —  
Fair value of warrants issued to extend maturity date of convertible notes payable   $ —     $ 10,199  
Fair value of warrants issued to extend related party notes payable   $ —     $ 337,466  
Derivative liabilities written off with repayment of convertible notes payable   $ 288,569     $ 216,640  
Derivative liabilities written off with conversion of convertible notes payable   $ 267,811     $ —  
Fair value of warrants allocated to proceeds of fixed convertible notes payable   $ 225,323     $ —  

   

See the accompanying notes to these Unaudited Condensed Consolidated Financial Statements

 

6

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 1 – BUSINESS AND BUSINESS PRESENTATION

 

HealthLynked Corp., a Nevada corporation (the “Company”) was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of Nevada setting the total number of authorized shares at 250,000,000 shares, which included up to 230,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock. On February 5, 2018, the Company filed an Amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of Nevada to increase the number of authorized shares of common stock to 500,000,000 shares. The Company also previously had 2,953,840 designated shares of Series A Preferred Stock in 2014, which were converted into the 2,953,840 shares of the Company’s common shares on July 30, 2016.

 

On September 5, 2014, the Company 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 Company 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.

 

On June 28, 2018, the Company formed wholly-owned subsidiary HLYK FL LLC (“Merger Sub”) to act as the acquiring entity in the acquisition of Hughes Center for Functional Medicine, P.A. (the “HCFM”). The acquisition of HCFM was completed on April 12, 2019. At the time of the acquisition, HCFM was renamed and rebranded as Naples Center for Functional Medicine (“NCFM”). See “Note 4 – Acquisition.” NCFM is a Functional Medical Practice located in Naples, Florida and is engaged in improving the health of its patients through individualized and integrative health care. NWC and NCFM comprise the Company’s “Health Services” segment.

 

The Company also develops and 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. Business activities surrounding the HealthLynked Network comprise the Company’s “Digital Healthcare” segment.

 

These unaudited condensed consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended December 31, 2018 and 2017, respectively, which are included in the Company’s Form 10-K filed with the United States Securities and Exchange Commission on April 1, 2019. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of results for the entire year ending December 31, 2019.

 

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 unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise. 

7

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Use of Estimates

 

The preparation of the condensed 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, borrowing rate consideration for ROU lease assets including related lease liability and useful life of fixed assets.

 

Adopted Accounting Pronouncements

 

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) using the required modified retrospective approach. ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. See discussion below under the caption “Leases” in this Note 2 and in Note 9 for more detail on the Company’s accounting policy with respect to lease accounting.

 

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

 

Patient Service Revenue

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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

 

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

 

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

 

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

 

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 47% of total billings. Trade accounts receivable are recorded at this net amount. As of June 30, 2019 and December 31, 2018, the Company’s gross accounts receivable were $265,159 and $244,956, respectively, and net accounts receivable were $124,095 and $114,884, respectively, based upon net reporting of accounts receivable. As of June 30, 2019 and December 31, 2018, the Company’s allowance of doubtful accounts was $13,972 and $13,972, respectively.

 

Leases

 

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

 

9

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Adoption of ASU 2016-02 had an impact of $427,004 and $431,996 on the Company’s assets and liabilities, respectively, and had no material impact on cash provided by or used in operating, investing or financing activities on the Company’s unaudited condensed consolidated statements of cash flows.

 

Inventory

 

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

 

Goodwill and Intangible Assets

 

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

carrying value.

 

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

 

The Company also maintains intangible assets with indefinite lives, which are not amortized. These intangibles are tested for impairment on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of these assets is less than their carrying value. No impairment charges were recognized in the three and six months ended June 30, 2019 or 2018.

 

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 June 30, 2019 and December 31, 2018.  

 

10

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Convertible Notes

 

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

 

Derivative Financial Instruments

 

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

 

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

 

Fair Value of Assets and Liabilities

 

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

 

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

 

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

 

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

 

11

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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

 

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.

 

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. No Income Tax has been provided for the three or six months ended June 30, 2019, since the Company has sustained a loss for the period. Due to the uncertainty of the utilization and recoverability of the loss carry-forwards (including the three and six months ended June 30, 2019) and other deferred tax assets, management has determined a full valuation allowance for the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.

 

Recurring Fair Value Measurements

 

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

 

Net Loss per Share  

 

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. During the three and six months ended June 30, 2019 and 2018, the Company reported a net loss and excluded all outstanding stock options, warrants and other dilutive securities from the calculation of diluted net loss per common share because inclusion of these securities would have been anti-dilutive. As of June 30, 2019 and December 31, 2018, potentially dilutive securities were comprised of (i) 43,783,874 and 46,161,463 warrants outstanding, respectively, (ii) 4,036,750 and 3,707,996 stock options outstanding, respectively, (iii) 15,128,584 and 15,517,111 shares issuable upon conversion of convertible notes, respectively, and (iv) 463,750 and 540,000 unissued shares subject to future vesting requirements granted pursuant to the Company’s Employee Incentive Plan.  

 

12

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Common stock awards

 

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

 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 11, Shareholders’ Deficit .

 

Business Segments

 

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has two operating segments: Health Services (multi-specialty medical group including the NWC OB/GYN practice and the NCFM practice acquired in April 2019) and Digital Healthcare (develops and markets the “HealthLynked Network,” an online personal medical information and record archive system).

 

NOTE 3 – GOING CONCERN MATTERS AND LIQUIDITY

 

As of June 30, 2019, the Company had a working capital deficit of $3,909,871 and accumulated deficit $12,441,346. For the six months ended June 30, 2019, the Company had a net loss of $1,940,291 and net cash used by operating activities of $1,155,793. Net cash used in investing activities was $469,302, comprised principally of the cash portion of paid for the acquisition of NCFM totaling $465,000 (net of cash acquired). Net cash provided by financing activities was $1,615,056, resulting principally from $1,025,000 net proceeds from the issuance of convertible notes and $994,272 proceeds from the sale of common stock.

 

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. 

 

13

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 3 – GOING CONCERN MATTERS AND LIQUIDITY (CONTINUED)

 

During July 2016, the Company entered into an Investment Agreement (the “Investment Agreement”) pursuant to which the investor has agreed to purchase up to $3,000,000 of Company 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 six months ended June 30, 2019, the Company received $604,272 from the proceeds of the sale of 2,696,597 shares pursuant to the Investment Agreement.

 

NOTE 4 – ACQUISITION

 

On April 12, 2019 the Company acquired a 100% interest in HCFM, a medical practice engaged in improving the health of its patients through individualized and integrative health care. Under the terms of acquisition, the Company paid HCFM shareholders $500,000 in cash, issued 3,968,254 shares of the Company’s common stock and agreed to an earn-out provision of $500,000 that may be earned based on the performance of HCFM in fiscal years ended December 31, 2019, 2020, and 2021.  The total consideration represents a transaction value of $2,000,000. The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business Combinations” (“ASC 805”).

 

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

 

The following table summarizes the consideration paid for HCFM and the value of assets acquired that were recognized at the acquisition date. There were no liabilities assumed in the acquisition of HCFM.

 

Cash   $ 500,000  
Common Stock (3,968,254 shares)     1,000,000  
Earn Out Agreement     500,000  
         
Fair Value of Total Consideration     2,000,000  

 

The fair value of the 3,968,254 common shares issued as part of the acquisition consideration was determined using the intraday volume weighted average price of the Company’s common shares on the acquisition date. The terms of the earn out require the Company to pay the former owner of HCFM up to $100,000, $200,000 and $200,000 on the first, second and third anniversary, respectively, based on achievement by NCFM of revenue of at least $3,100,000 (50% weighting) and EBITDA of at least $550,000 (50% weighting) in the year preceding each anniversary date.

 

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

 

         
Cash   $ 35,000  
Hyperbaric Chambers     452,289  
Medical Equipment     29,940  
Computer Equipment/Software     19,739  
Office Furniture & Equipment     23,052  
Inventory     72,114  
Leasehold Improvements     25,000  
Website     41,000  
Patient Management Platform Database     1,230,000  
Goodwill     71,866  
         
Fair Value of Identifiable Assets Acquired   $ 2,000,000  

  

Goodwill of $71,866 arising from the acquisition consists of value associated with the legacy name. None of the goodwill recognized is expected to be deductible for income tax purposes. The fair value of the website of $41,000 was determined based upon the cost to reconstruct and put into use applying current market rates.

 

14

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 4 – ACQUISITION (CONTINUED)

 

The fair value of the Patient Management Platform Database of $1,230,000 was estimated by applying the income approach. Under the income approach, the expected future cash flows generated by the Patient Management Platform Database are estimated and discounted to their net present value at an appropriate risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average cost of capital and return on assets, as well as the risks inherent in the business. Cash flows were estimated based on EBITDA using forecasted revenue and costs. The measure is based on significant inputs that are not observable in the market (i.e. Level 3 inputs). Key assumptions include (i) a capitalization rate of 11.75% (ii) sustainable growth of 5% and (iii) a benefit stream using EBITDA cash flow.

 

The amounts of revenue and net income of HCFM included in the Company’s consolidated income statement from the acquisition date to the period ending June 30, 2019 are as follows:

 

Revenue   $ 690,127  
Net income   $ 84,856  

 

The following represents the pro forma consolidated income statement as if HCFM had been included in the consolidated results of the Company for the entire six-month periods ending June 30, 2019 and 2018:

 

    Six Months Ended June 30,  
    2019     2018  
             
Revenue   $ 2,569,030     $ 2,925,174  
Net income   $ (1,890,058 )   $ (2,160,552 )

 

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of HCFM to reflect (i) the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2019 and 2018, respectively, and (ii) financing charges related directly to the acquisition of HCFM that would have been incurred in 2018 if the acquisition had been completed on January 1, 2018.

 

NOTE 5 – DEFERRED OFFERING COSTS AND PREPAID EXPENSES

 

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.

 

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.

   

15

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 5 – DEFERRED OFFERING COSTS AND PREPAID EXPENSES (CONTINUED)

 

This fair value of the warrants described above 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 three months ended June 30, 2019 and 2018, the Company recognized $12,802 and $12,802, respectively, in general and administrative expense related to the cost of the warrants. During the six months ended June 30, 2019 and 2018, the Company recognized $25,604 and $25,604, respectively, in general and administrative expense related to the cost of the warrants.

 

Prepaid Expenses

 

On December 6, 2018, the Company granted additional three-year warrants to purchase 240,000 shares at an exercise price of $0.20 per share to two advisors for services to be provided over a three-month period. The fair value of the warrants was calculated using the Black-Scholes pricing model at $35,462, with the following assumptions: risk-free interest rate of 2.76%, expected life of 3 years, volatility of 285.22%, and expected dividend yield of zero. The Company recognized no expense in the three months ended June 30, 2019 and 2018 and $25,611 and $-0- in the six months ended June 30, 2019 and 2018, respectively, to general and administrative expense related to the cost of the warrants.

 

NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT

 

Property, plant and equipment at June 30, 2019 and December 31, 2018 are as follows:

 

    June 30,     December 31,  
    2019     2018  
             
Capital lease equipment   $ 251,752     $ 343,492  
Medical equipment     482,229       —  
Telephone equipment     12,308       12,308  
Furniture, transport and office equipment     511,062       438,970  
                 
Total property, plant and equipment     1,257,351       794,770  
Less: accumulated depreciation     (703,429 )     (752,173 )
                 
Property, plant and equipment, net   $ 553,922     $ 42,597  

 

Depreciation expense during the three months ended three months ended June 30, 2019 and 2018 was $21,710 and $6,029, respectively. Depreciation expense during the six months ended three months ended June 30, 2019 and 2018 was $23,365 and $12,058, respectively.

 

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS

 

Goodwill and intangible assets at June 30, 2019 and December 31, 2018 are as follows:

 

    June 30,     December 31,  
    2019     2018  
             
Medical database   $ 1,230,000     $     —  
Website     41,000       —  
                 
Total intangible assets     1,271,000       —  
Less: accumulated amortization     (1,775 )     —  
                 
Intangible assets, net     1,269,225          
Plus: goodwill     71,866          
                 
Goodwill and intangible assets, net   $ 1,341,091     $ —  

 

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

16

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

  

NOTE 7 – GOODWILL AND INTANGIBLE ASSETS (CONTINUED)

  

Amortization expense in the three and six months ended June 30, 2019 was $1,775. No amortization expense was recognized in the three and six months ended June 30, 2018. No impairment charges were recognized related to goodwill and intangible assets in the six months ended June 30, 2019 or 2018.

   

NOTE 8 – NOTES PAYABLE AND OTHER AMOUNTS DUE TO RELATED PARTY

 

    June 30,     December 31,  
    2019     2018  
Due to related party:            
Deferred compensation, Dr. Michael Dent   $ 300,600     $ 300,600  
Accrued interest payable to Dr. Michael Dent     162,574       129,117  
Total due to related party     463,174       429,717  
                 
Notes payable to related party:                
Notes payable to Dr. Michael Dent, current portion   $ 684,586     $ 672,471  

 

Notes Payable to 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. All principal and interest is due at maturity of the $750k DMD Note on December 31, 2019. Interest accrued on the $750k DMD Note as of June 30, 2019 and December 31, 2018 was $78,704 and $66,859, respectively.

 

The carrying values of notes payable to Dr. Michael Dent as of June 30, 2019 and December 31, 2018 were as follows:

 

            Interest   June 30,     December 31,  
Inception Date   Maturity Date   Borrower   Rate   2019     2018  
January 12, 2017   January 13, 2019   HLYK   10%   $ 42,995 *   $ 40,560 *
January 18, 2017   January 19, 2019   HLYK   10%     24,537 *     23,165 *
January 24, 2017   January 15, 2019   HLYK   10%     61,265 *     57,839 *
February 9, 2017   February 10, 2019   HLYK   10%     36,635 *     34,586 *
April 20, 2017   April 21, 2019   HLYK   10%     12,030 *     11,357 *
June 15, 2017   June 16, 2019   HLYK   10%     38,624 *     36,464 *
August 17, 2017   August 18, 2018   HLYK   10%     20,000       20,000  
August 24, 2017   August 25, 2018   HLYK   10%     37,500       37,500  
September 7, 2017   September 8, 2018   HLYK   10%     35,000       35,000  
September 21, 2017   September 22, 2018   HLYK   10%     26,500       26,500  
September 29, 2017   September 30, 2018   HLYK   10%     12,000       12,000  
December 21, 2017   December 22, 2018   HLYK   10%     14,000       14,000  
January 8, 2018   January 9, 2019   HLYK   10%     75,000       75,000  
January 11, 2018   January 12, 2019   HLYK   10%     9,000       9,000  
January 26, 2018   January 27, 2019   HLYK   10%     17,450       17,450  
January 3, 2014   December 31, 2018   NWC   10%     222,050       222,050  
                             
                $ 684,586     $ 672,471  

 

* - Denotes that note payable is carried at fair value

 

On July 18, 2018, in connection with a $2,000,000 private placement by a third-party investor, Dr. Dent agreed to extend the maturity date on all of the above notes until December 31, 2019. Interest accrued on the above unsecured promissory notes as of June 30, 2019 and December 31, 2018 was $83,901 and $62,258, respectively.

 

17

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 8 – NOTES PAYABLE AND OTHER AMOUNTS DUE TO RELATED PARTY (CONTINUED)

 

On February 12, 2018, the Company issued a warrant to purchase 6,678,462 shares of common stock to DMD 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. The fair value of the warrants was calculated using the Black-Scholes pricing model at $337,466, with the following assumptions: risk-free interest rate of 2.56%, expected life of 5 years, volatility of 268.90%, and expected dividend yield of zero. On March 28, 2018, DMD agreed to extend the maturity dates of promissory notes with an aggregate face value of $177,500, which were originally scheduled to mature before September 30, 2018, by one year from the original maturity date. Because the fair value of the warrants was greater than 10% of the present value of the remaining cash flows under the modified promissory notes, the transaction was treated as a debt extinguishment and reissuance of new debt instruments pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). A loss on debt extinguishment was recorded in the amount of $348,938, equal to the fair value of the warrants of $337,466, plus the excess of $11,472 of the fair value of the reissued debt instruments over the carrying value of the existing debt instruments. The change in fair value of the reissued debt instruments subsequent to the reissuance date, which is included on the statement of operations in “Change in fair value of debt,” was $6,256 and $4,532 in the three months ended June 30, 2019 and 2018, respectively, and $12,084 and $7,981 in the six months ended June 30, 2019 and 2018, respectively,

 

MedOffice Direct

 

During 2017, the Company entered into an agreement with MedOffice Direct (“MOD”), a company majority-owned by the Company’s CEO and largest shareholder, Dr. Michael Dent, pursuant to which the Company agreed to 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. The agreement terminated on July 31, 2018. During the three months ended June 30, 2019 and 2018, the Company recognized rent expense to MOD in the amount of $-0- and $6,120, respectively, pursuant to this agreement. During the six months ended June 30, 2019 and 2018, the Company recognized rent expense to MOD in the amount of $-0- and $12,240, respectively, pursuant to this agreement.

 

During 2017, the Company entered into a separate Marketing Agreement with MOD pursuant to which MOD agreed to market the HealthLynked Network to its physician practice clients, in exchange for a semi-annual fee of $25,000. This agreement was terminated effective April 1, 2018. During the six months ended June 30, 2019 and 2018, the Company recognized general and administrative expense in the amount of $-0- and $12,500, respectively, pursuant to this agreement. On July 1, 2018 the Company and MOD signed a marketing and service agreement pursuant to which the Company will include MOD offering as part of its product offering to physicians and the Company will receive 8% of revenue for new sales related to MOD products sold through the HealthLynked Network.

 

NOTE 9 – LEASES

 

The Company has two operating leases for office space and equipment that expire in July 2020 and a separate operating lease for office space that expires in May 2022. The Company’s weighted-average remaining lease term relating to its operating leases is 1.7 years, with a weighted-average discount rate of 17.36%.

 

The Company is also lessee in a capital equipment finance lease for medical equipment entered into in March 2015 and expiring in March 2020. The Company’s weighted-average remaining lease term relating to its financing lease is 0.8 years, with a weighted-average discount rate of 9.38%. The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.

 

18

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 9 – LEASES (CONTINUED)

 

The table below summarizes the Company’s lease-related assets and liabilities as of June 30, 2019:

 

    As of June 30, 2019  
    Operating     Financing     Total  
    Leases     Leases     Leases  
Lease assets   $ 413,864     $ 13,140     $ 427,004  
                         
Lease liabilities                        
Lease liabilities (short term)   $ 293,131     $ 13,140     $ 306,271  
Lease liabilities (long term)     125,695       —       125,695  
Total lease liabilities   $ 418,826     $ 13,140     $ 431,966  

 

The Company incurred lease expense of $90,160 for the three months ended June 30, 2019, of which $85,573 related to operating leases and $4,587 related to financing leases. The Company incurred lease expense of $163,575 for the six months ended June 30, 2019, of which $154,401 related to operating leases and $9,174 related to financing leases.

 

Maturities of operating lease liabilities were as follows as of June 30, 2019:

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2019 (July through December)   $ 174,091     $ 9,174     $ 183,265  
2020     234,891       4,587       239,478  
2021     75,019       —       75,019  
2022     28,443       —       28,443  
2023     —       —       —  
Total lease payments     512,444       13,761       526,205  
Less interest     (93,618 )     (621 )     (94,239 )
Present value of lease liabilities   $ 418,826     $ 13,140     $ 431,966  

 

NOTE 10 – CONVERTIBLE NOTES PAYABLE

 

On December 20, 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 $75,000 before closing fees (the “December MCA”). The Company was 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, which was scheduled for 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 was being amortized over the life of the instrument. The December MCA was repaid on June 1, 2018. The Company made installment payments of $-0- and $36,429, respectively, during the three months ended June 30, 2019 and 2018 and $-0- and $89,048, respectively, during the six months ended June 30, 2019 and 2018. The Company recognized amortization of the discount in the amount of $-0- and $12,307 in the three months ended June 30, 2019 and 2018, respectively and $-0- and $26,881 in the six months ended June 30, 2019 and 2018, respectively, including $2,267 recognized to amortize the remaining discount at retirement in June 2018.

 

On June 1, 2018, the Company entered into a new MCA with PULG pursuant to which the Company received an advance of $75,000 before closing fees. The Company was required to repay the advance at the rate of $4,048 per week until the balance of $102,000 was repaid, which was scheduled for November 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 December 2018 MCA was repaid in full in November 2018. During the three and six months ended June 30, 2018, the Company recognized amortization of the discount in the amount of $4,560.

 

19

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable as of June 30, 2019 and December 31, 2018 are comprised of the following:

 

    June 30,     December 31,  
    2019     2018  
             
$550k Note - July 2016   $ 630,065 *   $ 594,813  
$50k Note - July 2016     63,885 *     60,312  
$111k Note - May 2017     132,606 *     125,190  
$171.5k Note - October 2017     —       186,472  
$103k Note I - October 2018     —       103,000  
$103k Note II - November 2018     —       103,000  
$153k Note - November 2018     43,000       153,000  
$103k Note III - December 2018     —       103,000  
$78k Note I - January 2019     78,000       —  
$78k Note II - January 2019     78,000       —  
$103k Note III - April 2019     103,000       —  
$104.5k Note - April 2019     104,500       —  
$104.5k Note II - April 2019     104,500       —  
$357.5k Note - April 2019     357,500       —  
$103k Note IV - May 2019     103,000       —  
$154k Note - June 2019     154,000       —  
      1,952,056       1,428,787  
Less: unamortized discount     (722,954 )     (386,473 )
Convertible notes payable, net of original issue discount and debt discount     1,229,102       1,042,314  

 

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

 

20

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Amortization expense recognized on each convertible note outstanding during the three and six months ended June 30, 2019 and 2018 were as follows:

 

    Amortization of Debt Discount  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2019     2018     2019     2018  
                         
$111k Note - May 2017     —       —       —       6,931  
$53k Note - July 2017     —       —       —       1,520  
$35k Note - September 2017     —       —       —       7,972  
$55k Note - September 2017     —       —       —       10,849  
$53k Note II - October 2017     —       3,407       —       20,443  
$171.5k Note - October 2017     —       38,796       —       85,278  
$57.8k Note - January 2018     —       14,398       —       28,321  
$112.8k Note - February 2018     —       28,110       —       45,718  
$83k Note - February 2018     —       20,693       —       31,153  
$105k Note - March 2018     —       26,178       —       33,658  
$63k Note I - April 2018     —       19,469       —       19,469  
$57.8k Note II - April 2018     —       11,866       —       11,866  
$90k Note - April 2018     —       18,000       —       18,000  
$53k Note III - April 2018     —       13,481       —       13,481  
$68.3k Note - May 2018     —       10,816       —       10,816  
$37k Note - May 2018     —       5,474       —       5,474  
$63k Note II - May 2018     —       9,025       —       9,025  
$78.8k Note - May 2018     —       7,983       —       7,983  
$103k Note I - October 2018     1,446       —       33,972       —  
$103k Note II - November 2018     13,096       —       44,952       —  
$153k Note - November 2018     39,278       —       89,718       —  
$103k Note III - December 2018     17,214       —       42,611       —  
$78k Note I - January 2019     26,000       —       47,714       —  
$78k Note II - January 2019     24,061       —       41,512       —  
$103k Note III - April 2019     27,384       —       27,384       —  
$104.5k Note - April 2019     22,842       —       22,842       —  
$104.5k Note II - April 2019     22,842       —       22,842       —  
$357.5k Note - April 2019     75,362       —       75,362       —  
$103k Note IV - May 2019     18,727       —       18,727       —  
$154k Note - June 2019     11,361       —       11,361       —  
                                 
    $ 299,613     $ 227,696     $ 478,997     $ 367,957  

 

21

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Unamortized debt discount on outstanding convertible notes payable as of June 30, 2019 and December 31, 2018 are comprised of the following:

 

    Unamortized Discount as of  
    June 30,     December 31,  
    2019     2018  
             
$103k Note I - October 2018   $ —     $ 76,256  
$103k Note II - November 2018     —       85,656  
$153k Note - November 2018     7,877       129,462  
$103k Note III - December 2018     —       95,099  
$78k Note I - January 2019     30,286       —  
$78k Note II - January 2019     36,488       —  
$103k Note III - April 2019     75,616       —  
$104.5k Note - April 2019     81,658       —  
$104.5k Note II - April 2019     81,658       —  
$357.5k Note - April 2019     182,459       —  
$103k Note IV - May 2019     84,273       —  
$154k Note - June 2019     142,639       —  
                 
    $ 722,954     $ 386,473  

 

22

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Interest expense recognized on each convertible note outstanding during the three and six months ended June 30, 2019 and 2018 were as follows:

 

    Interest Expense  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2019     2018     2019     2018  
                         
$550k Note - July 2016   $ 8,227     $ 8,227     $ 16,364     $ 16,364  
$50k Note - July 2016     1,247       1,247       2,479       2,479  
$111k Note - May 2017     4,123       4,078       8,200       8,246  
$53k Note - July 2017     —       —       —       116  
$35k Note - September 2017     —       —       —       614  
$55k Note - September 2017     —       —       —       1,085  
$53k Note II - October 2017     —       261       —       1,568  
$171.5k Note - October 2017     —       4,276       1,785       8,504  
$57.8k Note - January 2018     —       1,440       —       2,832  
$112.8k Note - February 2018     —       2,811       —       4,572  
$83k Note - February 2018     —       2,069       —       3,115  
$105k Note - March 2018     —       2,618       —       3,366  
$63k Note I - April 2018     —       1,536       —       1,536  
$57.8k Note II - April 2018     —       1,187       —       1,187  
$90k Note - April 2018     —       1,800       —       1,800  
$53k Note III - April 2018     —       1,060       —       1,060  
$68.3k Note - May 2018     —       1,085       —       1,085  
$37k Note - May 2018     —       547       —       547  
$63k Note II - May 2018     —       898       —       898  
$78.8k Note - May 2018     —       798       —       798  
$103k Note I - October 2018     113       —       2,653       —  
$103k Note II - November 2018     1,044       —       3,584       —  
$153k Note - November 2018     2,938       —       6,710       —  
$103k Note III - December 2018     1,721       —       4,261       —  
$78k Note I - January 2019     1,945       —       3,569       —  
$78k Note II - January 2019     1,945       —       3,355       —  
$103k Note III - April 2019     2,483       —       2,483       —  
$104.5k Note - April 2019     2,290       —       2,290       —  
$104.5k Note II - April 2019     2,290       —       2,290       —  
$357.5k Note - April 2019     10,450       —       10,450       —  
$103k Note IV - May 2019     1,524       —       1,524       —  
$154k Note - June 2019     1,139       —       1,139       —  
                                 
    $ 43,479     $ 35,938     $ 73,136     $ 61,772  

 

23

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Certain of our convertible notes payable are also carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” The changes in fair value during the three and six months ended June 30, 2019 and 2018 on such instruments were as follows:

 

   

Change in

Fair Value of Debt

   

Change in

Fair Value of Debt

    Fair Value of Debt as of  
    Three Months Ended June 30,    

Six Months Ended June 30,

    June 30     December 31,  
    2019     2018     2019     2018     2019     2018  
                                     
$550k Note - July 2016   $ 18,415     $ 16,110     $ 35,253     $ 62,408     $ 630,066     $ 594,813  
$50k Note - July 2016     1,865       1,572       3,573       9,771       63,885       60,312  
$111k Note - May 2017     3,872       3,238       7,416       12,053       132,606       125,190  
$171.5k Note - October 2017     —       —       1,781       —       —       186,472  
                                                 
    $ 24,152     $ 20,920     $ 48,023     $ 84,232     $ 826,557     $ 966,787  

 

Convertible Notes 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, or 6,875,000 of the Company’s common shares, 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. The $550k Note was originally scheduled to mature on April 11, 2017, but the maturity date was extended to July 7, 2018 during August 2017 and to December 31, 2019 during July 2018. The discount from the original issue discount, warrants and embedded conversion feature (“ECF”) associated with the $550k Note was amortized over the original life of the note. The $550k Note is carried at fair value due to an extinguishment and reissuance recorded in 2017 and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.”

 

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 (the “$50k Note”). The $50k Note was originally scheduled to mature on April 11, 2017, but the maturity date was extended to July 11, 2018 during August 2017 and to December 31, 2019 during July 2018. 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, or 500,000 of the Company’s common shares. The $50k Note is carried at fair value due to an extinguishment and reissuance recorded in 2017 and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.”

 

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 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, or 317,143 of the Company’s common shares, and is secured by all of the Company’s assets. The Company received $100,000 net proceeds from the note after an $11,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 133,333 shares of the Company’s common stock at an exercise price of $0.75 per share.

 

24

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

On March 28, 2018, in exchange for a five-year warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $0.05 per share, the holder of the $111k Note agreed to extend the maturity date from the original date of January 22, 2018 until July 11, 2018. The fair value of the warrants using Black/Scholes was $10,199 with the following assumptions: risk-free interest rate of 2.59%, expected life of 5 years, volatility of 578.45%, and expected dividend yield of zero. The issuance of the warrants in exchange for the maturity extension was treated as an extinguishment and reissuance of existing debt pursuant to the guidance of ASC 470-50. Accordingly, the $111k Note is carried at fair value and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” During July 2018, the maturity date of the $111k Note was further extended until December 31, 2019.

 

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. On January 8, 2018, the Company prepaid the balance on the $53k Note, including accrued interest, for a one-time cash payment of $74,922. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 53,000  
Carrying value of derivative financial instruments arising from ECF     53,893  
Accrued interest     2,644  
Less cash repayment     (74,922 )
Less carrying value of debt discount at extinguishment     (18,427 )
         
Gain on extinguishment of debt   $ 16,188  

 

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. On March 5, 2018, the Company prepaid the balance on the $35k Note, including accrued interest, for a one-time cash payment of $49,502. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 35,000  
Carrying value of derivative financial instruments arising from ECF     37,269  
Accrued interest     1,716  
Less cash repayment     (49,502 )
Less carrying value of debt discount at extinguishment     (12,705 )
         
Gain on extinguishment of debt   $ 11,778  

 

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. On March 13, 2018, the Company prepaid the balance on the $55k Note, including accrued interest, for a one-time cash payment of $85,258. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 55,000  
Carrying value of derivative financial instruments arising from ECF     69,687  
Accrued interest     2,759  
Less cash repayment     (85,258 )
Less carrying value of debt discount at extinguishment     (27,425 )
         
Gain on extinguishment of debt   $ 14,763  

 

25

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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 had an interest rate of 10% and a default interest rate of 22% and matures on October 26, 2018. The $171.5k Note was convertible 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 was 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 was immediately due. On February 7, 2019, the holder of the $171.5k Note converted the entire principal balance of $171,500 into 2,512,821 shares of Company common stock.

 

Convertible Notes Payable ($57,750) – January 2018

 

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 had an interest rate of 10% and a default interest rate of 18% and was scheduled to mature on January 2, 2019. The $58k Note was convertible 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 28% 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. On June 26, 2018, the holder agreed, without consideration, to reduce the discount to 28% of the volume weighted average price of the Company’s common stock for the 10 days prior to the conversion date. During third and fourth quarter of 2018, the holder of the $58k Note converted the entire principal balance of $57,750, as well as accrued interest in the amount of $3,786, into 384,839 shares of Company common stock.

 

Convertible Notes Payable ($112,750) – February 2018

 

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 August 7, 2018, the Company prepaid the balance on the $113k Note, including accrued interest, for a one-time cash payment of $151,536. In connection with the extinguishment, the Company also issued the holder a 3-year warrant to purchase 100,000 shares of Company common stock at an exercise price of $0.25. The fair value of the warrant was $50,614. The Company recognized a gain on debt extinguishment of $2,054 in the third quarter of 2018 in connection with the repayment

 

Convertible Notes Payable ($83,000) – February 2018

 

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.

 

26

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

On August 16, 2018, the Company prepaid the balance on the $83k Note, including accrued interest, for a one-time cash payment of $111,596. In connection with the extinguishment, the Company also issued the holder a 5-year warrant to purchase 237,143 shares of Company common stock at an exercise price of $0.35. The fair value of the warrant was $92,400. The Company recognized a loss on debt extinguishment of $51,251 in the third quarter of 2018 in connection with the repayment.

 

Convertible Notes Payable ($105,000) – March 2018

 

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 6-month anniversary of 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 August 30, 2018, the Company prepaid the balance on the $105k Note, including accrued interest, for a one-time cash payment of $140,697. The Company recognized a gain on debt extinguishment of $51,804 in the third quarter of 2018 in connection with the repayment.

 

Convertible Notes Payable ($63,000) – April 2018

 

On April 2, 2018, the Company entered into a securities purchase agreement for the sale of a $63,000 convertible note (the “$63k Note”). On September 28, 2018, the Company prepaid the balance on the $63k Note, including accrued interest, for a one-time cash payment of $89,198. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 63,000  
Carrying value of derivative financial instruments arising from ECF     72,336  
Accrued interest     3,124  
Less cash repayment     (89,198 )
Less carrying value of debt discount at extinguishment     (23,406 )
         
Gain on extinguishment of debt   $ 25,856  

 

 

Convertible Notes Payable ($57,750) – April 2018

 

On April 16, 2018, the Company entered into a securities purchase agreement for the sale of a $57,750 convertible note (the “$57.8k Note II”). On October 16, 2018, the Company prepaid the balance on the $57.8k Note II, including accrued interest, for a one-time cash payment of $81,850. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 57,750  
Carrying value of derivative financial instruments arising from ECF     74,428  
Accrued interest     2,895  
Less cash repayment     (81,850 )
Less carrying value of debt discount at extinguishment     (28,796 )
         
Gain on extinguishment of debt   $ 24,427  

 

27

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Notes Payable ($90,000) – April 2018

 

On April 18, 2018, the Company entered into a securities purchase agreement for the sale of a $90,000 convertible note (the “$90k Note”). On August 24, 2018, the Company prepaid the balance on the $90k Note, including accrued interest, for a one-time cash payment of $119,240. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 90,000  
Carrying value of derivative financial instruments arising from ECF     123,030  
Accrued interest     3,156  
Less cash repayment     (119,240 )
Less carrying value of debt discount at extinguishment     (58,438 )
         
Gain on extinguishment of debt   $ 38,508  

 

Convertible Notes Payable ($53,000) – April 2018

 

On April 18, 2018, the Company entered into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note III”). On October 18, 2018, the Company prepaid the balance on the $53k Note III, including accrued interest, for a one-time cash payment of $75,039. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 53,000  
Carrying value of derivative financial instruments arising from ECF     59,533  
Accrued interest     2,657  
Less cash repayment     (75,039 )
Less carrying value of debt discount at extinguishment     (19,206 )
         
Gain on extinguishment of debt   $ 20,945  

 

Convertible Notes Payable ($68,250) – May 2018

 

On May 3, 2018, the Company entered into a securities purchase agreement for the sale of a $68,250 convertible note (the “$68.3k Note”). On October 30, 2018, the Company prepaid the balance on the $68.3k Note, including accrued interest, for a one-time cash payment of $91,644. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 68,250  
Carrying value of derivative financial instruments arising from ECF     91,132  
Accrued interest     3,366  
Less cash repayment     (91,644 )
Less carrying value of debt discount at extinguishment     (34,684 )
         
Gain on extinguishment of debt   $ 36,420  

 

28

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Notes Payable ($37,000) – May 2018

 

On May 7, 2018, the Company entered into a securities purchase agreement for the sale of a $37,000 convertible note (the “$37k Note”). On November 2, 2018, the Company prepaid the balance on the $37k Note, including accrued interest, for a one-time cash payment of $49,144. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 37,000  
Carrying value of derivative financial instruments arising from ECF     47,763  
Accrued interest     1,815  
Less cash repayment     (49,144 )
Less carrying value of debt discount at extinguishment     (18,855 )
         
Gain on extinguishment of debt   $ 18,579  

 

Convertible Notes Payable ($63,000) – May 2018

 

On May 9, 2018, the Company entered into a securities purchase agreement for the sale of a $63,000 convertible note (the “$63k Note II”). On November 5, 2018, the Company prepaid the balance on the $63k Note II, including accrued interest, for a one-time cash payment of $89,198. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 63,000  
Carrying value of derivative financial instruments arising from ECF     81,017  
Accrued interest     3,107  
Less cash repayment     (89,198 )
Less carrying value of debt discount at extinguishment     (31,760 )
         
Gain on extinguishment of debt   $ 26,166  

 

Convertible Notes Payable ($78,750) – May 2018

 

On May 24, 2018, the Company entered into a securities purchase agreement for the sale of a $78,750 convertible note (the “$78.8k Note”). On November 20, 2018, the Company prepaid the balance on the $78.8k Note, including accrued interest, for a one-time cash payment of $104,738. The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 78,750  
Carrying value of derivative financial instruments arising from ECF     100,669  
Accrued interest     3,938  
Less cash repayment     (104,738 )
Less carrying value of debt discount at extinguishment     (39,914 )
         
Gain on extinguishment of debt   $ 38,705  

 

29

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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

 

On October 18, 2018, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note I”). On April 4, 2019, the Company prepaid the balance on the $103k Note I, including accrued interest, for a one-time cash payment of $134,500. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2019 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 103,000  
Carrying value of derivative financial instruments arising from ECF     97,212  
Accrued interest     4,741  
Less cash repayment     (134,500 )
Less carrying value of debt discount at extinguishment     (42,284 )
         
Gain on extinguishment of debt   $ 28,169  

 

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

 

On November 12, 2018, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note II”). On May 7, 2019, the Company prepaid the balance on the $103k Note II, including accrued interest, for a one-time cash payment of $134,888. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2019 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 103,000  
Carrying value of derivative financial instruments arising from ECF     91,446  
Accrued interest     4,967  
Less cash repayment     (134,888 )
Less carrying value of debt discount at extinguishment     (40,704 )
         
Gain on extinguishment of debt   $ 23,821  

 

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

 

On November 19, 2018, the Company entered into a securities purchase agreement for the sale of a $153,000 convertible note (the “$153k Note”). The $153k Note included $3,000 fees for net proceeds of $150,000. The $153k Note has an interest rate of 10% and a default interest rate of 22% and matures on August 19, 2019. The $153k Note may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the ten (10) 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. During three and six months ended June 30, 2019, the holder of the $153k Note converted principal in the amount of $110,000 into 740,002 shares of Company common stock. The principal balance as of June 30, 2019 was $43,000.

 

30

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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

 

On December 3, 2018, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note III”). On May 31, 2019, the Company prepaid the balance on the $103k Note III, including accrued interest, for a one-time cash payment of $135,029. The Company recognized a gain on debt extinguishment in the three and six months ended June 30, 2019 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 103,000  
Carrying value of derivative financial instruments arising from ECF     99,911  
Accrued interest     5,051  
Less cash repayment     (135,029 )
Less carrying value of debt discount at extinguishment     (52,488 )
         
Gain on extinguishment of debt   $ 20,445  

 

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

 

On January 14, 2019, the Company entered into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note”). The $78k Note included $3,000 fees for net proceeds of $75,000. The $78k Note has an interest rate of 10% and a default interest rate of 24% and matures on October 14, 2019. The $78k Note may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the ten (10) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF of the $78k Note was calculated using the Black-Scholes pricing model at $78,088, with the following assumptions: risk-free interest rate of 2.57%, expected life of 0.75 years, volatility of 243.61%, and expected dividend yield of zero. In connection with the $78k Note, the Company also issued to the holder 28,000 shares of Company common stock valued at $4,676, which was recorded to equity. Because the fair value of the ECF exceeded the net proceeds from the $78k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $78,088 and the common shares issued of $4,676 over the net proceeds from the note of $75,000, for a net charge of $7,764. 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   $ 78,088  
Original issue discount and fees     3,000  
Fair value of shares recorded to equity     4,676  
Financing cost     (7,764 )
Convertible note     —  
         
Gross proceeds   $ 78,000  

 

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

 

On January 24, 2019, the Company entered into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note II”). The $78k Note II included $3,000 fees for net proceeds of $75,000. The $78k Note II has an interest rate of 10% and a default interest rate of 22% and matures on November 15, 2019. The $78k Note II may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

31

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $78k Note II was calculated using the Black-Scholes pricing model at $101,139, with the following assumptions: risk-free interest rate of 2.58%, expected life of 0.81 years, volatility of 243.03%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $78k Note II, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $101,139 over the net proceeds from the note of $75,000, for a net charge of $26,139. 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   $ 101,139  
Original issue discount and fees     3,000  
Financing cost     (26,139 )
Convertible note     —  
         
Gross proceeds   $ 78,000  

 

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

 

On April 3, 2019, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note III”). The $103k Note III included $3,000 fees for net proceeds of $100,000. The $103k Note III has an interest rate of 10% and a default interest rate of 22% and matures on February 28, 2020. The $103k Note III may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF of the $103k Note III was calculated using the Black-Scholes pricing model at $126,313 with the following assumptions: risk-free interest rate of 2.41%, expected life of 0.91 years, volatility of 203.70%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $126,313 over the net proceeds from the note of $100,000, for a net charge of $26,313. 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   $ 126,313  
Original issue discount and fees     3,000  
Financing cost     (26,313 )
Convertible note     —  
         
Gross proceeds   $ 103,000  

 

Convertible Notes Payable ($209,000) – April 2019

 

On April 11, 2019, the Company entered into securities purchase agreements for the sale of two identical convertible notes with an aggregate face value of $209,000 (the “$209k Notes”). The $209k Notes included $9,000 fees for net proceeds of $200,000. The $209k Notes have an interest rate of 10% and a default interest rate of 22%, mature on April 11, 2020, and may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the ten (10) trading days prior to the conversion date. In connection with the $209k Notes, the Company also issued to the holder 25,000 shares of Company common stock valued at $6,250, which was recorded to equity. 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.

32

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $209k Notes was calculated using the Black-Scholes pricing model at $205,516, with the following assumptions: risk-free interest rate of 2.44%, expected life of 1 year, volatility of 203.29%, and expected dividend yield of zero. In connection with the $209k Notes, the Company also issued to the holders 50,000 shares of Company common stock valued at $12,500, which was recorded to equity. Because the fair value of the ECF exceeded the net proceeds from the $209k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $205,516 and the common shares issued of $12,500 over the net proceeds from the note of $200,000, for a net charge of $18,016. 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   $ 205,516  
Original issue discount and fees     9,000  
Fair value of shares recorded to equity     12,500  
Financing cost     (18,016 )
Convertible note     —  
         
Gross proceeds   $ 209,000  

 

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

 

On April 15, 2019, the Company issued a fixed convertible note with a face value of $357,500 (the “$357.5k Note”). The $357.5k Note included $32,500 fees for net proceeds of $325,000. The $357.5k Note has an interest rate of 10%, matures on December 31, 2019, and may be converted into common stock of the Company by the holder at any time, subject to a 9.99% beneficial ownership limitation, at a fixed conversion price per share of $0.20, or 1,787,500 shares. At inception, the investors were also granted a five-year warrant to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.25 per share. Upon an event of default, 140% of the outstanding principal and any interest due amount shall be immediately due and the conversion price resets to a 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.

 

The fair value of the warrants was calculated using the Black-Scholes pricing model at $150,782, with the following assumptions: risk-free interest rate of 2.37%, expected life of 5 years, volatility of 191.68%, and expected dividend yield of zero. The net proceeds from the issuance of the $357.5k Note, being $325,000 after the original issue discount, were then allocated to the warrants and the convertible note instrument based on their relative fair values, of which $96,411 was allocated to the warrants and $228,589 to the convertible note. The intrinsic value of the embedded conversion feature of the $357.5k Note was then calculated as $128,911. The original issue discount, warrants and embedded conversion feature were then allocated and recorded as discounts against the carrying value of the $357.5k Note. The final allocation of the proceeds at inception was as follows:

 

Original issue discount   $ 32,500  
Warrants     96,411  
Embedded conversion feature     128,911  
Convertible note     99,678  
         
Gross proceeds   $ 357,500  

 

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

 

On May 7, 2019, the Company entered into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note IV”). The $103k Note IV included $3,000 fees for net proceeds of $100,000. The $103k Note IV has an interest rate of 10% and a default interest rate of 22% and matures on February 28, 2020. The $103k Note IV may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

33

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 11 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $103k Note IV was calculated using the Black-Scholes pricing model at $115,729 with the following assumptions: risk-free interest rate of 2.37%, expected life of 0.81 years, volatility of 180.30%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $115,729 over the net proceeds from the note of $100,000, for a net charge of $15,729. 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   $ 115,729  
Original issue discount and fees     3,000  
Financing cost     (15,729 )
Convertible note     —  
         
Gross proceeds   $ 103,000  

 

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

 

On June 3, 2019, the Company entered into a securities purchase agreement for the sale of a $154,000 convertible note (the “$154k Note”). The $154k Note included $4,000 fees for net proceeds of $150,000. The $154k Note has an interest rate of 10% and a default interest rate of 22% and matures on February 28, 2020. The $154k Note may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the Note, 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.

 

Embedded conversion feature   $ 177,273  
Original issue discount and fees     4,000  
Financing cost     (27,273 )
Convertible note     —  
         
Gross proceeds   $ 154,000  

 

NOTE 12 – DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments are comprised of the fair value of conversion features embedded in convertible promissory notes for which the conversion rate is not fixed, but instead is adjusted based on a discount to the market price of the Company’s common stock. The fair market value of the derivative liabilities was calculated at inception of each convertible promissory notes for which the conversion rate is not fixed and allocated to the respective convertible notes, with any excess recorded as a charge to “Financing cost.” The 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.”

 

34

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 12 – DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

 

Derivative financial instruments and changes thereto recorded in the three and six months ended June 30, 2019 and 2018 include the following:

 

    Three Months Ended
June 30, 		    Six Months Ended
June 30, 		 
    2019     2018     2019     2018  
                         
Balance, beginning of period   $ 580,855     $ 769,323     $ 800,440     $ 398,489  
Inception of derivative financial instruments     624,832       728,943       804,059       1,246,005  
Change in fair value of derivative financial instruments     (223,881 )     (52,786 )     (415,514 )     (38,165 )
Conversion or extinguishment of derivative financial instruments     (349,201 )     (55,791 )     (556,380 )     (216,640 )
                                 
Balance, end of period   $ 632,605     $ 1,389,689     $ 632,605     $ 1,389,689  

  

During the three months ended June 30, 2019, the holder of one convertible note converted principal of $110,000 into 740,002 common shares. During the six months ended June 30, 2019, the holders of two convertible note converted principal of $281,500 into 3,252,823 common shares. There were no conversions during the three or six months ended June 30, 2018.

 

During the six months ended June 30, 2018, three convertible notes were repaid in full for cash. Accordingly, the derivative financial instruments associated with the ECFs of these convertible notes were written off in connection with the extinguishment of each convertible note.

 

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 1.92% to 2.73%, expected life of 0.14 to 1.00 years, volatility of 141.63% to 293.37% 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 13 – SHAREHOLDERS’ DEFICIT

 

Sales of Common Stock

 

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 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.

 

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

 

35

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 13 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

During six months ended June 30, 2019 and 2018, the Company issued 2,696,597 and 1,856,480 common shares, respectively, pursuant to draws made by the Company under the Investment Agreement and received an aggregate of $604,272 and $328,003, respectively, in net proceeds from the draws.

 

Common Stock Issuable

 

As of June 30, 2019 and December 31, 2018, the Company was obligated to issue 312,726 and 114,080 shares of common stock, respectively, in exchange for professional services provided by two third party consultants. During the six months ended June 30, 2019 and 2018, the Company recognized expense related to shares earned by the consultants of $44,793 and $27,354, respectively.

 

As of June 30, 2019, the Company was also obligated to issue 250,000 shares sold in a private placement in June 2019 for which shares were issued in July 2019.

 

Stock Warrants

 

Transactions involving our stock warrants during the three months ended six months ended June 30, 2019 and 2018 are summarized as follows:

 

    2019     2018  
          Weighted           Weighted  
          Average           Average  
          Exercise           Exercise  
    Number     Price     Number     Price  
Outstanding at beginning of the period     46,161,463     $ 0.18       20,526,387     $ 0.23  
Granted during the period     1,721,667     $ 0.35       9,960,403     $ 0.10  
Exercised during the period     (4,099,256 )   $ 0.00       —     $ —  
Terminated during the period     —     $ —       —     $ —  
Outstanding at end of the period     43,783,874     $ 0.20       30,486,790     $ 0.19  
                                 
Exercisable at end of the period     43,783,874     $ 0.20       30,486,790     $ 0.19  
                                 
                                 
Weighted average remaining life     3.3 years               4.0 years          

 

The following table summarizes information about the Company’s stock warrants outstanding as of June 30, 2019:

 

Warrants Outstanding     Warrants Exercisable  
          Weighted-                    
          Average     Weighted-           Weighted-  
          Remaining     Average           Average  
Exercise     Number   Contractual     Exercise     Number     Exercise  
Prices     Outstanding   Life (years)     Price     Exercisable     Price  
$ 0.0001 to 0.09     16,157,768     3.2     $ 0.07       16,157,768     $ 0.07  
$ 0.10 to 0.24     14,520,441     3.5     $ 0.19       14,520,441     $ 0.19  
$ 0.25 to 0.49     9,165,665     3.2     $ 0.29       9,165,665     $ 0.29  
$ 0.50 to 1.00     3,940,000     2.7     $ 0.64       3,940,000     $ 0.64  
$ 0.05 to 1.00     43,783,874     3.3     $ 0.21       43,783,874     $ 0.21  

 

During the six months ended June 30, 2019, the Company issued 1,721,667 warrants. The fair value of the warrant was calculated using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.80% to 2.93%, expected life of 3.00 to 5.00 years, volatility of 141.76 % to 308.60 %, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the six months ended June 30, 2019 was $468,125.

36

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 13 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

During the six months ended June 30, 2018, the Company issued 9,960,403 warrants. The fair value of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 2.32% to 2.83%, expected life of 3-5 years, volatility of 261.18% to 301.64%, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the six months ended June 30, 2018 was $705,221.  

 

Employee Equity Incentive Plan

 

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

 

The following table summarizes the status of shares issued and outstanding under the EIP outstanding as of and for the six months ended June 30, 2019 and 2018:

 

    2019     2018  
Outstanding at beginning of the period     1,738,750       1,498,750  
Granted during the period     135,313       —  
Terminated during the period     —       —  
Outstanding at end of the period     1,874,063       1,498,750  
                 
Shares vested at period-end     1,410,313       1,058,750  
Weighted average grant date fair value of shares granted during the period   $ 0.26     $ —  
Aggregate grant date fair value of shares granted during the period   $ 12,805     $ —  
Shares available for grant pursuant to EIP at period-end     9,592,868       11,496,934  

 

Total stock-based compensation recognized for grants under the EIP was $58,594 and $6,445 during the six months ended June 30, 2019 and 2018. Total unrecognized stock compensation related to these grants was $82,384 as of June 30, 2019.

 

A summary of the status of non-vested shares issued pursuant to the EIP as of and for the six months ended June 30, 2019 and 2018 is presented below:

 

    2019     2018  
          Weighted           Weighted  
          Average           Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  
Nonvested at beginning of period     540,000     $ 0.16       628,750     $ 0.05  
Granted     —     $ —       —     $ —  
Vested     (76,250 )   $ 0.04       (188,750 )   $ 0.04  
Forfeited     —     $ —       —     $ —  
Nonvested at end of period     463,750     $ 0.18       440,000     $ 0.05  

 

37

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 13 – SHAREHOLDERS’ DEFICIT (CONTINUED)

 

Employee Stock Options

 

The following table summarizes the status of options outstanding as of and for the six months ended June 30, 2019 and 2018:

 

    2019     2018  
          Weighted           Weighted  
          Average           Average  
          Exercise           Exercise  
    Number     Price     Number     Price  
Outstanding at beginning of the period     3,707,996     $ 0.18       2,349,996     $ 0.12  
Granted during the period     1,078,750     $ 0.26       158,000     $ 0.11  
Exercised during the period     (154,166 )   $ 0.20       —     $ —  
Forfeited during the period     (595,830 )   $ 0.20       —     $ —  
Outstanding at end of the period     4,036,750     $ 0.20       2,507,996     $ 0.12  
                                 
Options exercisable at period-end     1,273,500               836,000          
Weighted average remaining life (in years)     8.4               7.9          
Weighted average grant date fair value of options granted during the period   $ 0.20             $ 0.09          
Options available for grant at period-end     9,592,868               11,496,934          

 

The following table summarizes information about the Company’s stock options outstanding as of June 30, 2019:

 

Options Outstanding     Options Exercisable  
          Weighted-                    
          Average     Weighted-           Weighted-  
          Remaining     Average           Average  
Exercise     Number   Contractual     Exercise     Number     Exercise  
Prices     Outstanding   Life (years)     Price     Exercisable     Price  
$ — to 0.10     1,733,000     6.9     $ 0.08       1,195,500       0.08  
$ 0.11 to 0.31     2,303,750     9.6     $ 0.29       78,000       0.31  
$ 0.08 to 0.31     4,036,750     8.4     $ 0.20       1,273,500     $ 0.10  

 

Total stock-based compensation recognized related to option grants was $33,581 and $3,223 during the three months ended June 30, 2019 and 2018, respectively, and $62,037 and $6,445 during the six months ended June 30, 2019 and 2018, respectively.

 

A summary of the status of non-vested options issued pursuant to the EIP as of and for the six months ended June 30, 2019 and 2018 is presented below:

 

    2019     2018  
          Weighted           Weighted  
          Average           Average  
          Grant Date           Grant Date  
    Shares     Fair Value     Shares     Fair Value  
Nonvested at beginning of period     2,332,413     $ 0.13       1,774,996     $ 0.03  
Granted     1,078,750     $ 0.20       158,000     $ 0.09  
Vested     (52,083 )   $ 0.03       (261,000 )   $ 0.02  
Forfeited     (595,830 )   $ 0.02       —     $ —  
Nonvested at end of period     2,763,250     $ 0.19       1,671,996     $ 0.03  

 

38

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 14 – 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

 

Maturities of lease liabilities were as follows as of June 30, 2019:

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2019 (July through December)   $ 174,091     $ 9,174     $ 183,265  
2020     234,891       4,587       239,478  
2021     75,019       —       75,019  
2022     28,443       —       28,443  
2023     —       —       —  
Total lease payments     512,444       13,761       526,205  
Less interest     (93,618 )     (621 )     (94,239 )
Present value of lease liabilities   $ 418,826     $ 13,140     $ 431,966  

 

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 the Company has no further severance obligation.

 

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

 

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

 

39

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 15 – SEGMENT REPORTING

 

The Company has two reportable segments: Health Services and Digital Healthcare. Health Services is comprised of the operations of (i) NWC, a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice, and (ii) NCFM, a Functional Medical Practice acquired in April 2019 that is engaged in improving the health of its patients through individualized and integrative health care. The Company’s Digital Healthcare segment develops and plans to operate an online personal medical information and record archive system, the “HealthLynked Network”, which will enable patients and doctors to keep track of medical information via the Internet in a cloud-based system.

 

The Company evaluates performance and allocates resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

 

Segment information for the three months ended June 30, 2019 and 2018 was as follows:

 

    Three Months Ended
June 30, 2019 		    Three Months Ended
June 30, 2018 		 
    Health Services     Digital Healthcare     Total     Health Services     Digital Healthcare     Total  
Revenue                                    
Patient service revenue, net   $ 1,208,390     $ —     $ 1,208,390     $ 566,320       —       566,320  
Cost of services     321,603       —       321,603       —       —       —  
Gross profit     886,787       —       886,787       566,320       —       566,320  
                                                 
Operating Expenses                                                
Salaries and benefits     595,048       172,770       767,818       348,955       269,188       618,143  
General and administrative     306,783       488,667       795,450       190,808       361,775       552,583  
Depreciation and amortization     21,116       594       21,710       5,575       454       6,029  
Total Operating Expenses     922,947       662,031       1,584,978       545,338       631,417       1,176,755  
                                                 
Income (loss) from operations   $ (36,160 )   $ (662,031 )   $ (698,191 )   $ 20,982       (631,417 )     (610,435 )
                                                 
Other Segment Information                                                
Interest expense   $ 6,017     $ 54,328     $ 60,345     $ 6,005       45,001       51,006  
Loss on extinguishment of debt   $ —     $ (72,435 )   $ (72,435 )   $ —       (16,864 )     (16,864 )
Financing cost   $ —     $ 87,332     $ 87,332     $ —       248,443       248,443  
Amortization of original issue and debt discounts on convertible notes   $ —     $ 299,613     $ 299,613     $ —       244,563       244,563  
Change in fair value of debt     —     $ 30,409     $ 30,409       —       25,452       25,452  
Change in fair value of derivative financial instruments   $ —     $ (223,881 )   $ (223,881 )   $ —       (52,786 )     (52,786 )

 

40

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 15 – SEGMENT REPORTING (CONTINUED)

 

Segment information for the six months ended June 30, 2019 and 2018 was as follows:

 

    Six Months Ended
June 30, 2019 		    Six Months Ended
June 30, 2018 		 
    Health Services     Digital Healthcare     Total     Health Services     Digital Healthcare     Total  
Revenue                                    
Patient service revenue, net   $ 1,673,380     $ —     $ 1,673,380     $ 1,211,959     $ —     $ 1,211,959  
Cost of services     321,603       —       321,603       —       —       —  
Gross profit     1,351,777       —       1,351,777       1,211,959       —       1,211,959  
                                                 
Operating Expenses                                                
Salaries and benefits     945,286       351,757       1,297,043       752,010       426,989       1,178,999  
General and administrative     549,383       1,003,423       1,552,806       416,460       710,951       1,127,411  
Depreciation and amortization     22,176       1,189       23,365       11,149       909       12,058  
Total Operating Expenses     1,516,845       1,356,369       2,873,214       1,179,619       1,138,849       2,318,468  
                                                 
Income (loss) from operations   $ (165,068 )   $ (1,356,369 )   $ (1,521,437 )   $ 32,340     $ (1,138,849 )   $ (1,106,509 )
                                                 
Other Segment Information                                                
Interest expense   $ 11,845     $ 94,822     $ 106,667     $ 11,702     $ 79,651     $ 91,353  
Loss on extinguishment of debt   $ —     $ 67,363     $ 67,363     $ —     $ 308,359     $ 308,359  
Financing cost   $ —     $ 121,235     $ 121,235     $ —     $ 440,505     $ 440,505  
Amortization of original issue and debt discounts on convertible notes   $ —     $ 478,997     $ 478,997     $ —     $ 399,398     $ 399,398  
Change in fair value of debt   $ —     $ 60,106     $ 60,106     $ —     $ 83,398     $ 83,398  
Change in fair value of derivative financial instruments   $ —     $ (415,514 )   $ (415,514 )   $ —     $ 38,165     $ 38,165  

 

 

    June 30, 2019     December 31, 2018  
Identifiable assets   $ 2,664,554     $ 93,149     $ 2,757,703     $ 184,912     $ 242,451     $ 427,363  
Goodwill   $ 71,866     $ —     $ 71,866     $ —     $ —     $ —  

  

The Digital Healthcare segment recognized revenue of $3,717 and $-0- in the three months ended June 30, 2019 and 2018, respectively, and $3,911 and $6,888 in the six months ended June 30, 2019 and 2018, respectively, related to subscription revenue billed to and paid for by the Company’s physicians for access to the HealthLynked Network. The revenue for Digital Healthcare and related expense for Health Services were eliminated on consolidation.

 

NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the short-term nature of such instruments.

 

41

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

 

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

 

The following table summarizes the conclusions reached regarding fair value measurements as of June 30, 2019 and December 31, 2018:

 

    As of June 30, 2019  
                      Total  
    Level 1     Level 2     Level 3     Fair Value  
Convertible notes payable   $ —     $ —     $ 826,556     $ 826,556  
Notes payable to related party     —       —       216,086       216,086  
Derivative financial instruments     —       —       632,605       632,605  
                                 
Total   $ —     $ —     $ 1,675,247     $ 1,675,247  

 

    As of December 31, 2018  
                      Total  
    Level 1     Level 2     Level 3     Fair Value  
Convertible notes payable   $ —     $ —     $ 780,315     $ 780,315  
Notes payable to related party     —       —       203,971       203,971  
Derivative financial instruments     —       —       800,440       800,440  
                                 
Total   $ —     $ —     $ 1,784,726     $ 1,784,726  

 

The changes in Level 3 financial instruments that are measured at fair value on a recurring basis during the three and six months ended June 30, 2019 and 2018 were as follows:

 

    Three Months Ended
June 30, 		    Six Months Ended
June 30, 		 
    2019     2018     2019     2018  
                         
Convertible notes payable   $ (24,153 )   $ (20,921 )   $ (48,022 )   $ (75,418 )
Notes payable to related party     (6,256 )     (4,531 )     (12,084 )     (7,980 )
Derivative financial instruments     223,881       52,786       415,514       38,165  
                                 
Total   $ 193,472     $ 27,334     $ 355,408     $ (45,233 )

 

42

 

 

HEALTHLYNKED CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 17 – SUBSEQUENT EVENTS

 

On July 11, 2019, the Company entered into securities purchase agreements for the sale of two identical convertible notes with an aggregate face value of $135,850 (the “$136k Notes”). The $136k Notes included $5,850 fees for net proceeds to the Company of $130,000. The $136k Notes have an interest rate of 10% and a default interest rate of 22%, mature on April 11, 2020, and may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the thirteen (13) trading days prior to the conversion date. In connection with the $136k Notes, the Company also issued to the holder 32,500 shares of Company common stock. 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.

 

On July 16, 2019, the Company entered into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note III”). The $78k Note II included $3,000 fees for net proceeds of $75,000. The $78k Note III has an interest rate of 10% and a default interest rate of 22% and matures on April 30, 2020. The $78k Note III may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

On July 18, 2019, the Company entered into securities purchase agreements for the sale of a convertible note with a face value of $230,000 (the “$230k Note”). The $230k Note included $20,000 fees and discounts for net proceeds to the Company of $210,000. The $230k Note has an interest rate of 10% and a default interest rate of 24%, matures on July 18, 2020, and may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 35% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default, the amount of principal shall increase by between 10 and 50% depending on the nature of the default.

 

On July 18, 2019, the holder of the $153k Note converted remaining principal of $43,000 and accrued interest of $8,768 into 330,892 shares of common stock. The $153k Note was converted in full and retired following this conversion.

 

On July 15, 2019, the Company repaid in full principal and interest on the $78k Note dated January 14, 2019 for a one-time cash payment of $102,321.

 

On July 24, 2019, the Company repaid in full principal and interest on the $78k Note II dated January 24, 2019 for a one-time cash payment of $102,255. 

 

43

 

 

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

 

Forward-Looking Statements

 

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

 

Overview

 

HealthLynked Corp. (the “Company,” “we,” “our, or “us”) was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, we filed Amended and Restated Articles of Incorporation with the Secretary of State of Nevada setting the total number of authorized shares at 250,000,000 shares, which included up to 230,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock. On February 5, 2018, we filed an Amendment to our Amended and Restated Articles of Incorporation with the Secretary of State of Nevada to increase the number of authorized shares of common stock to 500,000,000 shares. We also previously had 2,953,840 designated shares of Series A Preferred Stock in 2014, which were converted into the 2,953,840 shares of our common shares on July 30, 2016.

 

On September 5, 2014, we 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 Company 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.

 

On April 12, 2019, we acquired Naples Center for Functional Medicine (“NCFM”), a Functional Medical Practice located in Naples, Florida that is engaged in improving the health of its patients through individualized and integrative health care. NWC and NCFM comprise our “Health Services” segment.

 

We also develop and operate 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 can update the information as needed to provide a comprehensive medical history. Business activities surrounding the HealthLynked Network comprise our “Digital Healthcare” segment.

 

Critical accounting policies and significant judgments and estimates

 

This management’s discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. The Company’s estimates are based on historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that the accounting policies discussed below are critical to understanding the Company’s historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

  

44

 

 

 

Patient Service Revenue

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

45

 

 

The Company also provides services to uninsured patients, and offers those uninsured patients a discount, either by policy or law, from standard charges. The Company estimates the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience and current market conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price are generally recorded as adjustments to patient service revenue in the period of the change.

 

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 47% of total billings. Trade accounts receivable are recorded at this net amount.

 

Inventory

 

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

 

Leases

 

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) using the required modified retrospective approach. ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting.

 

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

 

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Adoption of ASU 2016-02 had an impact of $427,004 and $431,996 on the Company’s assets and liabilities, respectively, and had no material impact on cash provided by or used in operating, investing or financing activities on the Company’s consolidated statements of cash flows.

  

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.

 

46

 

 

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 June 30, 2019 and December 31, 2018.  

 

Convertible Notes

 

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

 

Derivative Financial Instruments

 

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

 

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

 

Fair Value of Assets and Liabilities

 

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

 

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

 

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

 

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

 

47

 

 

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.

 

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. No Income Tax has been provided for the six months ended June 30, 2019, since the Company has sustained a loss for the period. Due to the uncertainty of the utilization and recoverability of the loss carry-forwards (including the six months ended June 30, 2019) and other deferred tax assets, management has determined a full valuation allowance for the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.

 

Recurring Fair Value Measurements

 

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

 

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. Outstanding stock options, warrants and other dilutive securities are excluded from the calculation of diluted net loss per common share if inclusion of these securities would be anti-dilutive.  

 

Common stock awards

 

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

 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 13 to our consolidated financial statements attached to this Form 10-Q.

 

48

 

 

Business Segments

 

The Company uses the “management approach” to identify its reportable segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. Using the management approach, the Company determined that it has two operating segments: Health Services (multi-specialty medical group including OB/GYN and General Practice) and Digital Healthcare (develops and markets the “HealthLynked Network,” an online personal medical information and record archive system).

 

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 adopted this standard on January 1, 2018 and selected the modified retrospective transition method. The Company has modified its accounting policies to reflect the requirements of this standard, however, the planned adoption did not materially 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. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance did not materially impact the Company’s financial statements and related disclosures.

 

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

 

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

 

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

 

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

 

49

 

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2019 and 2018

 

The following table summarizes the changes in our results of operations for the three months ended June 30, 2019 compared with the three months ended June 30, 2018:

 

    Three Months Ended
June 30, 		    Change  
    2019     2018     Increase (Decrease)
in $ 		    Increase (Decrease)
in % 		 
Patient service revenue, net   $ 1,208,390     $ 566,320     $ 642,070       113 %
Cost of services     321,603       —       321,603       100 %
Gross profit     886,787       566,320       320,467       57 %
                                 
Operating Expenses                                
Salaries and benefits     767,818       618,143       149,675       24 %
General and administrative     795,450       552,583       242,867       44 %
Depreciation and amortization     21,710       6,029       15,681       260 %
Loss from operations     (698,191 )     (610,435 )     87,756       14 %
                                 
Other Income (Expenses)                                
Gain on extinguishment of debt     72,435       16,864       (55,571 )     330 %
Change in fair value of debt     (30,409 )     (25,452 )     4,957       19 %
Financing cost     (87,332 )     (248,443 )     (161,111 )     -65 %
Amortization of original issue and debt discounts on notes payable and convertible notes     (299,613 )     (244,563 )     55,050       23 %
Change in fair value of derivative financial instruments     223,881       52,786       (171,095 )     324 %
Interest expense     (60,345 )     (51,006 )     9,339       18 %
Total other expenses     (181,383 )     (499,814 )     (318,431 )     -64 %
                                 
Net loss   $ (879,574 )   $ (1,110,249 )   $ (230,675 )     -21 %

 

Patient service revenue increased by $642,070, or 113%, from three months ended June 30, 2018 to 2019, primarily as a result of $690,126 revenue from NCFM, which was acquired on April 12, 2019, offset by lower revenue from NWC operations of $48,056 due to physician turnover, disability and retirement.

 

Cost of services increased by $321,603, or 100%, from three months ended June 30, 2019 to 2018, as a result of laboratory and supplement costs associated with NCFM patient services revenue.

 

Gross profit increased by $320,467, or 57%, from three months ended June 30, 2019 to 2018, primarily as a result of profits generated by NCFM from the acquisition date of April 12, 2019 through June 30, 2019.

 

Salaries and benefits increased by $149,675, or 24%, in 2019 primarily as a result of new salary and benefits expense from the acquisition of NCFM, offset by lower salary expense associated with a shift from a direct sales to an indirect sale approach for our Digital Healthcare segment.

 

General and administrative costs increased by $242,867, or 44%, in 2019 primarily due to general and administrative expense from the operation of NCFM, higher stock-based consulting fees and professional costs in 2019, as well as higher legal, professional and accounting costs related in part to the acquisition of HCFM.

 

Depreciation and amortization increased by $15,681, or 206%, in 2019 primarily as a result of depreciation of assets acquired in the NCFM acquisition, offset by lower depreciation from the adoption of ASU 2016-02 in 2019, which resulted in charges associated with a capital lease that were previously recorded as depreciation being charged to general and administrative expense.

 

50

 

 

Loss from operations increased by $87,756, or 14%, in 2019 primarily as a result of lower NWC revenue due to physician turnover, disability and retirement, offset by additional revenue and profit from the operation of NCFM from the acquisition date of April 12, 2019 through June 30, 2019.

 

Gain on extinguishment of debt increased by $55,571, or 330%, in 2019. Gain on extinguishment of debt in both 2018 and 2019 arose from repayment of convertible notes payable, which gave rise to a gain as a result of derivative liabilities associated with this note that were written off in connection with the repayment.

 

Change in fair value of debt increased by $4,957, or 19%, and results from certain convertible notes and notes payable to Dr. Michael Dent that were extended in previous periods and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period is recorded as “Change in fair value of debt.”

 

Financing cost decreased by $161,111, or 65%, in 2019. Financing cost arises from the issuance of convertible promissory notes with a floating conversion rate that gave rise to an ECF derivative instrument with a fair value greater than the face value of the notes. During 2019, we entered into six such notes with aggregate face value of $926,500, as compared to 2018 when we entered into eight such notes with aggregate face value of $510,750.

 

Amortization of original issue and debt discounts increased by $55,050, or 23%, in 2019 as a result of the amortization of convertible notes with larger average discount balances being amortized in 2019.

 

Change in fair value of derivative financial instruments increased by $171,095, or 324%, as a result of gains in fair value of derivative financial instruments embedded in convertible promissory notes in 2019.

 

Interest expense increased by $9,339, or 18%, in 2019 as a result of higher average balance on convertible notes and notes payable to Dr. Dent during 2019.

 

Total other expenses decreased by $318,431, or 64%, in 2019 primarily as a result of gains from changes in the fair values of derivative financial instruments, decreased financing costs associated with lower inception value of convertible notes in 2019, and fewer extinguished convertible notes compared to 2018 that gave rise to debt extinguishment losses.

 

Net loss decreased by $230,675, or 21%, in 2019 primarily as a result of profits generated by NCFM from the acquisition date of April 12, 2019 through June 30, 2019, gains from changes in the fair values of derivative financial instruments, decreased financing costs associated with lower inception value of convertible notes in 2019, and fewer extinguished convertible notes compared to 2018 that gave rise to debt extinguishment losses, offset by higher operating expenses due in part to the operations of NCFM from the acquisition date of April 12, 2019 through June 30, 2019.

 

51

 

 

Comparison of six Months Ended June 30, 2019 and 2018

 

The following table summarizes the changes in our results of operations for the six months ended June 30, 2019 compared with the six months ended June 30, 2018:

 

    Six Months Ended
June 30, 		    Change  
    2019     2018     Increase (Decrease)
in $ 		    Increase (Decrease)
in % 		 
Patient service revenue, net   $ 1,673,380     $ 1,211,959     $ 461,421       38 %
Cost of services     321,603       —       321,603       100 %
Gross profit     1,351,777       1,211,959       139,818       12 %
                                 
Operating Expenses                                
Salaries and benefits     1,297,043       1,178,999       118,044       10 %
General and administrative     1,552,806       1,127,411       425,395       38 %
Depreciation and amortization     23,365       12,058       11,307       94 %
Loss from operations     (1,521,437 )     (1,106,509 )     414,928       37 %
                                 
Other Income (Expenses)                                
Loss on extinguishment of debt     (67,363 )     (308,359 )     (240,996 )     -78 %
Change in fair value of debt     (60,106 )     (83,398 )     (23,292 )     -28 %
Financing cost     (121,235 )     (440,505 )     (319,270 )     -72 %
Amortization of original issue and debt discounts on notes payable and convertible notes     (478,997 )     (399,398 )     79,599       20 %
Change in fair value of derivative financial instruments     415,514       38,165       (377,349 )     989 %
Interest expense     (106,667 )     (91,353 )     15,314       17 %
Total other expenses     (418,854 )     (1,284,848 )     (865,994 )     -67 %
                                 
Net loss   $ (1,940,291 )   $ (2,391,357 )   $ (451,066 )     -19 %

 

Patient service revenue increased by $461,421, or 38%, from six months ended June 30, 2019 to 2018, primarily as a result of $690,126 revenue from NCFM, which was acquired on April 12, 2019, offset by lower revenue from NWC operations of $229,005 due to physician turnover, disability and retirement.

 

Cost of services increased by $321,603, or 100%, from six months ended June 30, 2019 to 2018, as a result of laboratory and supplement costs associated with NCFM patient services revenue.

 

Gross profit increased by $139,818, or 12%, from six months ended June 30, 2019 to 2018, primarily as a result of profits generated by NCFM from the acquisition date of April 12, 2019 through June 30, 2019.

 

Salaries and benefits increased by $118,044, or 10%, in 2019 primarily as a result of new salary and benefits expense from the acquisition of NCFM, offset by lower salary expense associated with a shift from a direct sales to an indirect sale approach for our Digital Healthcare segment.

 

General and administrative costs increased by $425,395, or 38%, in 2019 primarily due to general and administrative expense from the operation of NCFM, higher stock-based consulting fees and professional costs in 2019, as well as higher legal, professional and accounting costs related in part to the acquisition of HCFM.

 

Depreciation and amortization increased by $11,307, or 94%, in 2019 primarily as a result of depreciation of assets acquired in the NCFM acquisition, offset by lower depreciation from the adoption of ASU 2016-02 in 2019, which resulted in charges associated with a capital lease that were previously recorded as depreciation being charged to general and administrative expense.

 

52

 

 

Loss from operations increased by $414,928, or 37%, in 2019 primarily as a result of lower NWC revenue due to physician turnover, disability and retirement, offset by additional revenue and profit from the operation of NCFM from the acquisition date of April 12, 2019 through June 30, 2019

 

Loss on extinguishment of debt decreased by $240,996, or 78%, in 2019. Loss on extinguishment of debt in 2019 arose from conversion of a convertible note, net of gains from cash repayment of convertible notes payable, which gave rise to a gain primarily as a result of derivative liabilities associated with this note that were written off in connection with the repayment. Gain on extinguishment of debt in 2018 arose from cash repayment of a convertible note payable.

 

Change in fair value of debt decreased by $23,292, or 28%, and results from certain convertible notes and notes payable to Dr. Michael Dent that were extended in previous periods and treated as an extinguishment and reissuance for accounting purposes, requiring these notes to be subsequently carried at fair value. The change in fair value at the end of each reporting period is recorded as “Change in fair value of debt.”

 

Financing cost decreased by $319,270, or 72%, in 2019. Financing cost arises from the issuance of convertible promissory notes with a floating conversion rate that gave rise to an ECF derivative instrument with a fair value greater than the face value of the notes. During 2019, we entered into eight such notes with aggregate face value of 1,082,500, as compared to 2018 when we entered into eight such notes with aggregate face value of $510,750.

 

Amortization of original issue and debt discounts increased by $79,599, or 20%, in 2019 as a result of the amortization of convertible notes with larger average discount balances being amortized in 2019.

 

Change in fair value of derivative financial instruments increased by $377,349, or 989%, as a result of gains in fair value of derivative financial instruments embedded in convertible promissory notes in 2019.

 

Interest expense increased by $15,314, or 17%, in 2019 as a result of higher average balance on convertible notes and notes payable to Dr. Dent during 2019.

 

Total other expenses decreased by $865,994, or 67%, in 2019 primarily as a result of gains from changes in the fair values of derivative financial instruments, decreased financing costs associated with lower inception value of convertible notes in 2019, and fewer extinguished convertible notes compared to 2018 that gave rise to debt extinguishment losses.

 

Net loss decreased by $451,066, or 19%, in 2019 primarily as a result of profits generated by NCFM from the acquisition date of April 12, 2019 through June 30, 2019, gains from changes in the fair values of derivative financial instruments, decreased financing costs associated with lower inception value of convertible notes in 2019, and fewer extinguished convertible notes compared to 2018 that gave rise to debt extinguishment losses, offset by higher operating expenses and lower revenue from our NWC operations resulting from physician turnover, disability and retirement.

 

Liquidity and Capital Resources

 

Going Concern

 

As of June 30, 2019, we had a working capital deficit of $3,909,871 and accumulated deficit $12,441,346. For the six months ended June 30, 2019, we had a net loss of $1,940,291 and net cash used by operating activities of $1,155,793. Net cash used in investing activities was $469,302, comprised principally of the cash portion of paid for the acquisition of NCFM totaling $465,000 (net of cash acquired). Net cash provided by financing activities was $1,615,056, resulting principally from $1,025,000 net proceeds from the issuance of convertible notes and $994,272 proceeds from the sale of common stock.

 

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

 

53

 

 

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

 

As further discussed below in “Significant Liquidity Events,” in July 2018, we completed a Private Placement (the “July 2018 Private Placement”) and received net proceeds of $1,774,690. Moreover, in July 2016, we entered into an Investment Agreement (the “Investment Agreement”) pursuant to which the investor has agreed to purchase up to $3,000,000 of our common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the investor by us pursuant to a specified formula that limits the number of shares able to be put to the investor to the number equal to the average trading volume of our common shares for the ten consecutive trading days prior to the put notice being issued. During the six months ended June 30, 2019, we received $604,272 from the proceeds of the sale of 2,696,597 shares pursuant to the Investment Agreement.

 

We intend that the cost of implementing our development and sales efforts related to the HealthLynked Network, as well as maintaining our existing and expanding overhead and administrative costs, will be funded principally by cash received from (i) cash flow generated from the operations of the NCFM business acquired in April 2019, (ii) the July 2018 Private Placement, (iii) the put rights associated with the Investment Agreement, and (iv) other funding mechanisms, including sales of our common stock, loans from related parties and convertible notes. We expect to repay our outstanding convertible notes, which have an aggregate face value of $1,836,500 as of June 30, 2019, from outside funding sources, including but not limited to new convertible notes payable, amounts available upon the exercise of the put rights granted to us under the Investment Agreement, sales of equity, loans from related parties and others or through the conversion of the convertible notes into equity. No assurances can be given that we will be able to access sufficient outside capital in a timely fashion in order to repay the convertible notes before they mature. If necessary funds are not available, our business and operations would be materially adversely affected and in such event, we would attempt to reduce costs and adjust its business plan.

 

Significant Liquidity Events

 

Through June 30, 2019, we have funded our operations principally through a combination of convertible promissory notes, private placements of our common stock, promissory notes and related party debt, as described below.

 

July 2018 Private Placement

 

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

 

Investment Agreement

 

On July 7, 2016, we entered into the Investment Agreement with an accredited investor pursuant to which an accredited investor agreed to invest up to $3,000,000 to purchase the Company’s common stock, par value of $.0001 per share. The purchase price for such shares shall be 80% of the lowest volume weighted average price of our common stock during the five consecutive trading days prior to the date on which written notice is sent by us to the investor stating the number of shares that the Company is selling to the investor, subject to certain discounts and adjustments. Further, pursuant to an Amended Investment Agreement dated March 22, 2017, we granted to the investor warrants to purchase an aggregate of seven (7) million shares of common stock with the following fixed exercise prices: (i) four million shares at $0.25 per share; (ii) two million shares at $0.50 per share; and (iii) one million shares at $1.00 per share. The warrants also contain a “cashless exercise” provision and the shares underlying the warrants will not be registered. During the six months ended June 30, 2019 and years ended December 31, 2018 and 2017, we received proceeds from the sale of shares pursuant to the Investment Agreement totaling $604,272 (2,696,597 shares), $440,523 (2,440,337 shares) and $27,640 (222,588 shares), respectively.

 

Other Sales of Common Stock

 

During the six months ended June 30, 2018, we sold 3,249,177 shares of common stock in private placement transactions and received $317,175 in proceeds.

 

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

 

54

 

 

Convertible Notes Payable

 

As of June 30, 2019, we had outstanding convertible notes payable with aggregate face value of $1,836,500 maturing between August 2019 and June 2020, as follows:

 

                Conversion      
          Interest     Price/      
    Face Value     Rate     Discount     Term
$550k Note - July 2016   $ 550,000       6 %   $ 0.08     December 31, 2019
$50k Note - July 2016     50,000       10 %   $ 0.10     December 31, 2019
$111k Note - May 2017     111,000       10 %   $ 0.35     December 31, 2019
$153k Note - November 2018     43,000       10 %     25 %   August 19, 2019
$78k Note I - January 2019     78,000       10 %     25 %   October 14, 2019
$78k Note II - January 2019     78,000       10 %     39 %   November 15, 2019
$103k Note III - April 2019     103,000       10 %     39 %   February 28, 2020
$104.5k Note - April 2019     104,500       10 %     25 %   April 11, 2020
$104.5k Note II - April 2019     104,500       10 %     25 %   April 11, 2020
$357.5k Note - April 2019     357,500       10 %   $ 0.20     December 31, 2019
$103k Note IV - May 2019     103,000       10 %     39 %   February 28, 2020
$154k Note - June 2019     154,000       10 %     39 %   June 3, 2020
    $ 1,836,500                      

 

Plan of operation and future funding requirements

 

Our plan of operations is to operate our Health Services division and continue to invest in our cloud-based online personal medical information and record archiving system, the “HealthLynked Network,” which enables patients and doctors to keep track of medical information via the Internet in a cloud-based system.

 

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

 

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

 

The capital from the July 2018 Private Placement was raised for the purpose of technology enhancement, sales and marketing initiatives and for our planned acquisition strategy. Beginning in the fourth quarter of 2018 and first quarter of 2019, we planned to acquire health service businesses and offer physician owners cash, stock, and deferred compensation. We expect to initially target practices in Florida with at least $1 million in annual revenue and that demonstrate at least three current consecutive years of strong profitability. On April 12, 2019, the Company completed its first such acquisition, acquiring HCFM for (i) $500,000 in cash, (ii) 3,968,254 shares of the Corporation’s common stock, and (iii) “earn-out” payments in the aggregate amount of $500,000 to be paid over three (3) years, subject to certain revenue and profit targets. HCFM is a functional medicine practice focusing on neurodegenerative diseases such as Alzheimer’s, Parkinson’s and Multiple Sclerosis along with other treatments aimed at improving health and slowing aging, including hormones, thyroid, weight loss, wellness and prevention. During the year ended December 31, 2018 (the last full fiscal year prior to the acquisition), HCFM’s revenue was $3,023,344 and net income was $290,955.

 

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

 

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

 

55

 

 

We intend that the cost of implementing our development and telesales efforts related to the HealthLynked Network, as well as maintaining our existing and expanding overhead and administrative costs, will be funded by the cash received by us from the put rights associated with the Investment Agreement, new convertible notes payable and additional direct equity investments. We expect to repay outstanding convertible notes from outside funding sources, including but not limited to amounts available upon the exercise of the put rights granted to us under the Investment Agreement, additional sales of our equity, loans from outside parties and the conversion of such related party notes to equity. No assurances can be given that we will be able to access sufficient outside capital in a timely fashion in order to repay the convertible notes before they mature. In order to access cash available under the Investment Agreement, our common stock must be listed on a recognized stock exchange or market and the shares underlying the arrangement must be subject to an effective registration statement. On May 10, 2017, our stock began trading on the OTCQB, which qualifies as a recognized stock exchange or market pursuant to the terms of the Investment Agreement, under the symbol “HLYK.” Although we have met the requirements to utilize the funds available under the Investment Agreement, there can be no assurances that we will be able to continue to meet these requirements. Additionally, the amount available to us upon the exercise of the put rights granted to us under the Investment Agreement is dependent upon the trading volume of our stock. Between May 22, 2017 and June 30, 2019, our daily trading volume averaged approximately 121,000 shares per day. Based upon increases in our volume since the end of 2017, Iconic Holdings has increased our maximum amount to access on the equity line from $150,000 maximum to $300,000 maximum. We project that amounts available to us upon the exercise of the put rights granted to us under the Investment Agreement will be sufficient to meet our operational and other capital requirements.

 

Historical Cash Flows

 

    Six Months
Ended June 30, 		 
    2019     2018  
Net cash (used in) provided by:            
Operating activities   $ (1,155,793 )   $ (1,222,947 )
Investing Activities     (469,302 )     (201 )
Financing activities     1,615,056       1,211,369  
Net increase (decrease) in cash   $ (10,039 )   $ (11,779 )

 

Operating Activities – During the six months ended June 30, 2019, we used cash from operating activities of $1,155,793, as compared with $1,222,947 in the same period of 2018. The slight increase in cash usage results from an increase in professional and other overhead costs associated with preparing for product launch and the acquisition of NCFM in 2019, offset by positive cash flow from operations of $128,323 generated by NCFM after the acquisition and through June 30, 2019.

 

Investing Activities – During the six months ended June 30, 2019, we used $465,000 for the acquisition of HCFM (net of $35,000 cash received). Capital expenditures of $4,302 in the six months ended June 30, 2019 and $201 in the six months ended June 30, 2018 are comprised of computer equipment and furniture.

 

Financing Activities – During the six months ended June 30, 2019, we realized $994,272 from the proceeds of the sale of shares of common stock to investors and pursuant to the Investment Agreement and $1,025,000 net proceeds from the issuance of convertible notes. During the six months ended June 30, 2018, we realized $805,500 net proceeds from the issuance of convertible notes, $645,503 from the proceeds of the sale of shares of common stock to investors and pursuant to the Investment Agreement, $101,450 proceeds from related party loans, and $73,500 from notes payable, while making repayments of $284,682 against convertible notes, $113,257 against notes payable, $9,000 against related party loans and $7,645 on capital lease obligations.

 

Exercise of Warrants and Options

 

During the six months ended June 30, 2019, we generated proceeds of $200 from the exercise of 2,000,000 warrants.

 

Other Outstanding Obligations

 

Warrants

 

As of June 30, 2019, 43,783,874 shares of our Common Stock were issuable pursuant to the exercise of warrants with exercise prices ranging from $0.0001 to $1.00.

 

Options

 

As of June 30, 2019, 4,036,750 shares of our Common Stock were issuable pursuant to the exercise of options with exercise prices ranging from $0.08 to $0.31.

 

Off Balance Sheet Arrangements

 

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

 

56

 

 

Contractual Obligations

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2019 (July through December)   $ 174,091     $ 9,174     $ 183,265  
2020     234,891       4,587       239,478  
2021     75,019       —       75,019  
2022     28,443       —       28,443  
2023     —       —       —  
Total lease payments     512,444       13,761       526,205  
Less interest     (93,618 )     (621 )     (94,239 )
Present value of lease liabilities   $ 418,826     $ 13,140     $ 431,966  

 

Operating lease commitments relate to four leases in Naples, Florida. First, the Company entered into an operating lease for its main office in Naples, Florida. The lease commenced on August 1, 2013 and expires 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. Second, 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. Third, the Company leases on a month-to-month basis approximately 2,500 square feet of office space in Naples, FL for its Digital Healthcare segment. Monthly rent is approximately $3,300. Fourth, NCFM leases its office in Naples, Florida. The lease commenced on April 5, 2019 and expires May 30, 2022. The lease is for an approximately 3,700 square-foot space. The base rent for the first full year of the lease term is $66,825 per annum with increases during the remaining lease period.

 

Financing lease commitments are comprised of a capital equipment finance lease for Ultrasound equipment with Everbank. There was no interest on this lease. The monthly payment is $1,529 for 60 months ending in March 2020.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting as of June 30, 2019 based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management concluded that our internal control over financial reporting was effective at June 30, 2019.

 

Changes in Internal Control over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

57

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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

 

Item 1A. Risk Factors

 

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

 

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

 

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

 

On April 12, 2019, we issued 3,968,254 shares to the seller as partial consideration for our acquisition of HCFM.

 

On April 16, we issued 50,000 common shares to accredited investors as an inducement to enter into convertible promissory note transactions.

 

On May 9, 2019, we issued 30,000 common shares to a third-party consultant as partial compensation for professional services.

 

During May and June 2019, we issued 740,002 common shares to a convertible note holder upon conversion of outstanding principal by the note holder.

 

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

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

58

 

  

Item 6. Exhibits

 

Exhibit No.   Exhibit Description
10.1   Securities Purchase Agreement with Morningview Financial LLC dated January 2, 2018 (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.2   Convertible Promissory Note with Morningview Financial LLC dated January 2, 2018 (Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.3   Securities Purchase Agreement with Auctus Fund LLC dated February 2, 2018 (Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.4   Convertible Promissory Note with Auctus Fund LLC dated February 2, 2018 (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.6   Securities Purchase Agreement with EMA Financial LLC dated February 13, 2018 (Filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.7   Convertible Promissory Note with EMA Financial LLC dated February 13, 2018 (Filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.8   Form of Warrant Agreement issued to Dr. Michael Dent (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 15, 2018)
10.9   Securities Purchase Agreement with LG Capital Funding LLC dated March 5, 2018 (Filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.10   Convertible Promissory Note with LG Capital Funding LLC dated March 5, 2018 (Filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2018)
10.11   Form of Securities Purchase Agreement with BHP Capital NY Inc. dated January 14, 2019 (Filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.12   Form of Convertible Promissory Note with BHP Capital NY Inc. dated January 14, 2019  (Filed as Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.13   Agreement and Plan of Merger, dated January 15, 2019, by and among HealthLynked Corp., HLYK Florida, LLC,  Hughes Center for Functional Medicine, P.A., and Pamela A. Hughes, D.O. (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 22, 2019)
10.14   Press Release, dated January 22, 2019 (Filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 22, 2019)
10.15   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated January 24, 2019  (Filed as Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.16   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated January 24, 2019  (Filed as Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.17   First Amendment to Agreement and Plan of Merger, dated April 12, 2019, by and among HealthLynked Corp., HLYK Florida, LLC, Hughes Center for Functional Medicine, P.A., and Pamela A. Hughes, D.O. (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2019)
10.18   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated April 3, 2019  (Filed as Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.19   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated April 3, 2019  (Filed as Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.20   Form of Securities Purchase Agreement with BHP Capital NY Inc. and Jefferson Street Capital LLC dated April 11, 2019  (Filed as Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.21   Form of Convertible Promissory Note with BHP Capital NY Inc. dated April 11, 2019  (Filed as Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.22   Form of Convertible Promissory Note with Jefferson Street Capital LLC dated April 11, 2019  (Filed as Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.23   Form of Convertible Promissory Note with Iconic Holdings LLC dated April 15, 2019  (Filed as Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)

 

59

 

 

Exhibit No.   Exhibit Description
10.24   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated May 7, 2019  (Filed as Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.25   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated May 7, 2019 (Filed as Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 15, 2019)
10.26*   Form of Securities Purchase Agreement with Morningview Financial LLC dated June 3, 2019
10.27*   Form of Convertible Promissory Note with Morningview Financial LLC dated June 3, 2019
10.28*   Form of Securities Purchase Agreement with BHP Capital NY Inc. and Jefferson Street Capital LLC dated July 11, 2019
10.29*   Form of Convertible Promissory Note with BHP Capital NY Inc. dated July 11, 2019
10.30*   Form of Convertible Promissory Note with Jefferson Street Capital LLC dated July 11, 2019
10.31*   Form of Securities Purchase Agreement with Power Up Lending Group Ltd. dated July 16, 2019
10.32*   Form of Convertible Promissory Note with Power Up Lending Group Ltd. dated July 16, 2019
10.33*   Form of Securities Purchase Agreement with GS Capital Partners LLC dated July 18, 2019
10.34*   Form of Convertible Promissory Note with GS Capital Partners LLC dated July 18, 2019
31.1*   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer.
31.2*   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer.
32.1*   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
32.2*   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
101*   XBRL Instance Document
    XBRL Taxonomy Extension Schema Document
    XBRL Taxonomy Extension Calculation Linkbase Document
    XBRL Taxonomy Extension Definition Linkbase Document
    XBRL Taxonomy Extension Label Linkbase Document
    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

60

 

 

SIGNATURES

 

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

 

Dated: August 14, 2019

 

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

Chief Executive Officer and Chairman

(Principal Executive Officer)

 

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

Chief Financial Officer

(Principal Financial Officer)

 

 

61

 

 

HealthLynked (QB) (USOTC:HLYK)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more HealthLynked (QB) Charts.
HealthLynked (QB) (USOTC:HLYK)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more HealthLynked (QB) Charts.