Annual Report (10-k)

Date : 04/01/2019 @ 8:15PM
Source : Edgar (US Regulatory)
Stock : Healthlynked Corp. (QB) (HLYK)
Quote : 0.235  -0.0075 (-3.09%) @ 4:49PM

Annual Report (10-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–K

 

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

 

For the fiscal year ended December 31, 2018

 

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)   (Zip Code)
 

Registrant’s telephone number, including area code: 239-513-1992

 

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

 

Securities registered pursuant to Section 12(g) of the Act: 

 

Title of Class: Common Stock, par value $0.0001 per share

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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 ☒

 

On June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $7,941,473, based upon the closing price on that date of the Common Stock of the registrant on the OTCQB of $0.30549. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 10% or more of its Common Stock are deemed affiliates of the registrant.

 

As of March 27, 2019, there were 93,142,418 shares of the issuer’s common stock, par value $0.0001, issued and outstanding.

 

 

  

 

 

TABLE OF CONTENTS

 

      PAGE
PART I      
Item 1. BUSINESS   1
Item 1A. RISK FACTORS   10
Item 1B. UNRESOLVED STAFF COMMENTS   22
Item 2. PROPERTIES   22
Item 3. LEGAL PROCEEDINGS   22
Item 4. MINE SAFETY DISCLOSURE   22
       
PART II    
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   23
Item 6. SELECTED FINANCIAL DATA   25
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   25
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   36
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   37
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   38
Item 9A. CONTROLS AND PROCEDURES   38
Item 9B. OTHER INFORMATION   38
PART III    
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   39
Item 11. EXECUTIVE COMPENSATION   41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   43
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   43
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   44
       
PART IV    
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   45
SIGNATURES 49

  

i

 

 

PART I.

 

Item 1. Business

 

Overview

 

HealthLynked Corp. is a growth stage company incorporated in the state of Nevada on August 6, 2014. We operate a cloud-based Patient Information Network (PIN) and record archiving system, referred to as the “HealthLynked Network”, which enables patients and doctors to keep track of medical information via the Internet in a cloud based system. Through our website, www.HealthLynked.com and our mobile apps, patients can complete a detailed online personal medical history including past surgical history, medications, allergies, and family medical history. Once this information is entered, patients and their treating physicians are able to update the information as needed, to provide a comprehensive and up to date medical history.

 

We believe that the HealthLynked Network offers several advantages to patients and physicians not available in the market today. We provide a comprehensive marketing solution allowing physicians to market to both active and inactive patients, and an easy to use connection at the point of care through our patient access HUB. Patient members can access medical newsfeeds and groups. Our real-time appointment scheduling application allows for patients to book appointments online with participating healthcare providers. Our database and record archives allow for seamless sharing of medical records between healthcare providers and keeps patients in control of shared access. In the HealthLynked Network, parents can create accounts for their children that are linked to their family account, allowing them to provide access to healthcare providers, track vaccination records, allow hospitals and schools access to important medical information in case of emergencies. The HealthLynked Network will be accessible 24 hours a day, 7 days a week, via the internet and on mobile applications for both Android and IOS devices. We believe this type of accessibility is important for schools and during office visits, but more important, in times of a medical emergency.

 

We anticipate that our system will also provide for 24-hour access to medical specialist healthcare providers who can answer medical questions and direct appropriate care to paying members. In addition to 24-hour access, patients may also schedule telemedicine consultations at set times with participating healthcare providers who have expertise in various specialized areas of medicine. Participating physicians can elect to allow patients to request online appointments either via our real-time app or by setting, in their administrator dashboard panel, times and days of the week that patients may request appointments. Appointment requests are then sent by our system to an email address specified by the physician’s office, who are then requested to follow up to confirm these appointment requests or automatically accept the appointment request.

 

HealthLynked has created 880,000 physician base profiles for most physicians in the United States. Physicians’ HealthLynked profiles are searchable on the Internet. Physicians claim their profiles confirming the accuracy of the information free of charge.

 

There are three type of providers in the HealthLynked Network: in-network, out of network and participating providers. All physicians can claim their profile and update basic information online and add videos and images of their profile. Once a provider has claimed their profile they are considered in-network. Providers that opt pay a monthly fee for access to the full range of HealthLynked Network services, which include online scheduling, marketing services and analytics about their practice performance.

 

HealthLynked provider profiles enable participating providers to market directly to patients through our patient access HUB and online marketing services to recruit new patients and reengage with former patients. Physician practices generate more income the more patients they treat, so maximizing efficiency and patient turnover is critical to increasing total revenues and profitability. As such, we believe that our system will enable physicians to reduce the amount of time required to process patient intake forms, as patients will no longer be required to spend ten to thirty minutes filling out forms at each visit, and the practices’ staffs will not need to input this information multiple times into their electronic medical records systems. Patients complete their online profiles once, and thereafter, they and their physicians are able to update their profiles as needed. Physicians’ participating in the HealthLynked Network are required to update the patient records within 24 hours of seeing the patient. The information is organized in an easy to read format in order that a physician be able to review the necessary information quickly during, and prior to, patient visits, which in turn facilitates a more comprehensive and effective patient encounter.

 

Patient data is stored in conformity with the Health Insurance Portability and Accountability Act of 1996, the Health Information Technology for Economic and Clinical Health Act, and the regulations promulgated under each by the U.S. Department of Health and Human Services, Office of Civil Rights (collectively, “HIPAA”). The network utilizes Amazon AWS infrastructure which uses Amazon “HIPPA” complaint servers along with Amazon RDS with LAMP, HTML5 and several JavaScript frameworks, including Angular and React. Recommendations for end users are 512 kbps+ internet connection speed and a web browser such as Google Chrome, Internet Explorer, Mozilla Firefox, Safari or handheld devices such as iOS devices, android phones or tablets. Our developers utilize third party controls for functionality and user interface where the use of those controls adds value to the system beyond custom creation of new tools. We intend to adjust forward compatibility for major browser version updates, new browsers, operating system updates or new operating system as needed. The HealthLynked Network is EMR agnostic, and is compatible with all electronic medical records systems, allowing for minimal barriers to participation and broader penetration of the market.

 

1

 

 

Acquisition of NWC

 

In August 2014, we acquired the NWC, an OB/GYN practice in Naples, Florida that was established in 1996.

 

This acquisition provided a foundation for ongoing development of the HealthLynked Network by allowing us to register NWC’s approximately 6,000 active patients and 6,500 inactive patients and to utilize the expertise of our employed physicians to help in the design and strategy for deployment of the HealthLynked Network. It is anticipated that future medical practices may be acquired from time to time as we see fit to further develop, test and deploy the HealthLynked Network into new strategic regional areas throughout the country.

 

Through NWC, we also provide Obstetrical and Gynecological medical services to patients in the South West Florida region. NWC currently employs four OB/GYN physicians and two ARNP nurse practitioners. The services offered include obstetrical services for high and low risk patients, in office ultrasonography, and prenatal testing. Gynecological services include general physical exams, surgical procedures such as hysterectomy, bladder incontinence procedures, pelvic reconstruction, sterilization, endometrial ablation, advanced robotic surgery, contraceptive management and infertility testing and treatment.

 

The HealthLynked Network- How It Works

 

Our system walks patients through a series of easy to use pages with point and click selections and drop-down menus that allow them to enter their past medical history, past surgical history, allergies, medications, and family medical history. In addition, members can create accounts for children under the age of 18 and keep track of required visits and vaccines. Members select physicians, schools, hospitals and other parties to whom they wish to grant access to their records. This access can be either ongoing, or restricted by time and date, in accordance with the patient’s control settings.

 

Physicians are required to have a claimed active account in order to access patients’ online records and receive referrals for new patients. Once a patient has granted their physician access to their medical charts, office intake paperwork can be downloaded by the physician without the need for the patient to fill out lengthy and repetitive paperwork. Upon completion of the office visit, providers are required to upload the medical record into the online patients’ file within 24 hours via eFax, APIs with select EMRs or through the HealthLynked Portal. Each patient’s account has a unique bar code that when faxed into our system is recognized for that patient, and archived in the patient’s chart, by date and provider. The HealthLynked Network is independent of any EMR system and physicians only require a fax machine or computer to participate, allowing for minimal barriers to participation and broader penetration of the market.

 

In addition to serving as a complete medical record archive, we believe that the HealthLynked Network allows for shorter wait times at doctors’ offices by giving doctors immediate access to patients’ complete medical information, insurance information and required treatment consent forms. Patients only need to verify their treating physician’s access to their files upon or prior to their next doctor’s visit. Patients are also able to coordinate multiple physician visits and keep an updated and complete personal medical record archive. These files may also be shared among a patient’s different specialty physicians, a function that we believe is especially helpful for patients who travel and may need to access their records or obtain physician referrals in multiple localities. We also believe that the HealthLynked Network is especially useful in medical emergencies when patients are unable to provide a medical history on their own because our system allows patients the option to grant healthcare providers, in advance, special access in emergency situations.

 

The HealthLynked Network also provides an online scheduling function for patients to book appointments with participating providers. Healthcare provider profiles feature physicians’ biographies, office locations, hours and available appointment times. In addition, the platform will provide patients with a list of recommended health screenings tailored to each patient’s unique medical history and demographics. Recommended screenings could include, but is not limited to, annual mammograms for women over the age of 40, colonoscopy every 10 years after the age of 50, recommended pap smear screenings, routine blood tests, and prostate exams. This base service will be free for patients. However, we plan to charge additional fees for real-time schedule booking, access to telemedicine service and access to a 24-hour nurse’s hotline and to charge physicians for upgraded physician profiles and SEO marketing.

 

2

 

 

Benefits for Multiple Constituencies

 

We believe that the HealthLynked Network provides numerous benefits for patients and their relatives, medical providers, hospitals, emergency rooms and schools.

 

Benefits for patients:

 

  Base service, which includes all of the below benefits other than telemedicine and the nurse hotline, will be free
     
  Easy online scheduling of appointments
     
  Real-time booking for appointments available within 4 hours
     
  Keep track of co-pays and deductibles on insurance plans
     

 

 

More accurate and detailed personal medical history
  Complete medication lists with dosing and warnings of potential drug interactions
     
  Ability to create accounts for children, and track recommended health screenings and vaccines
     
  When traveling, patients will have the ability to access their medical records online 24 hours a day, 7 days a week even in the case of an emergency
     
  Shortened wait times at physicians’ offices by reducing the need to fill out redundant paper work
     
  Access to a referral network of physicians across the United States who participate in the HealthLynked Network
     
  Patients can access family members’ records in the event of illness or accident
     
  Access to telemedicine for medical consultations and appointments for fee paying members
     
  24 hour nurse hotline available for fee paying members

 

Benefits for physicians and providers:

 

  More accurate patient medical history including past medical records

 

  “EMR Agnostic” and compatible with all electronic medical records systems

 

  A detailed and accurate medications list from patients

 

  Shortened time for patients to complete necessary paperwork translating into improved efficiency, shorter wait times, greater patient satisfaction and higher revenues

 

  Referral source for new patients

 

  Online marketing profiles
     
  Comprehensive Marketing to active and inactive patients

 

  SEO and marketing options

 

  Co-pay and deductible information on patients’ insurance plans will be readily available

 

  Additional revenue stream from signing up new patients

 

  Online and real-time patient scheduling to control gaps in scheduling due to last minute cancelations by existing patients

 

  Low membership fees of $300 - $400 per month per provider during the first year

 

 

Patient Access Hub “PAH” (provisional patent pending) is provided to physician offices free of charge to provide free Wi-Fi for their patients. Patient analytics are provided to physician members.

 

3

 

 

Benefits for hospitals and emergency rooms:

 

  Information on patients who present that are not conscious to provide a complete medical history

 

  Information on traveling patients who present to a hospital in an emergency situation

 

  Online access to patient information 24 hours a day, 7 days a week

 

  “EMR Agnostic” and compatible with all electronic medical records systems

 

  No new equipment required

 

Benefits for schools:

 

  Access by authorized school officials to students’ medical histories

 

  Linked access to students’ primary care physicians

 

  Access to vaccination records

 

  Allergy and medication tracking

 

  Emergency contact information of family members

 

Benefits for parents :

 

  Complete children profiles

 

  Access given to schools in case of medical emergences

 

  List of allergies available to those granted access

 

  Vaccine records available to those granted access

 

  Recommended health screenings

 

  Journal for health log and milestones through news feeds and groups

 

Business Model

 

Our business model is focused on market penetration and recruiting physicians and patients to use our system for archiving patient medical records, comprehensive marketing to active and inactive patients, a way to connect on a regular basis utilizing news feeds and groups, accessing new patients, and for on-line “real-time” scheduling physician appointments.

 

We currently charge physicians $300 - $400 per month to participate in the network. Physicians upload their patients into a secure patient portal to market to their active and inactive patients. They initially send to all their patients an email inviting them to claim their HLYK profile free of charge, update their profiles and bring it with them to their next visit to the physician’s office.

 

We also anticipate charging certain healthcare facilities either an annual or monthly fee that will vary per facility based upon number of professionals per facility. Currently, it is anticipated that hospitals and emergency rooms would be charged a higher fee for our services once our patient network has been expanded.

 

The base services of our network are free for patients, and they may also upgrade their service should they wish to receive telemedicine services and access to a 24-hour nurse hotline.

 

Pursuant to our business strategy, we acquired NWC to begin deployment of the HealthLynked Network and register NWC’s approximately 6,000 active patients and 6,500 inactive patients into the HealthLynked system. While we expect to generate minimal revenues from physician fees related to such deployment in fiscal 2019, we anticipate that establishing the patient database will be a valuable marketing tool for telesales to physician practices. During the second half of 2018, we had one physician who did not renew her contract, one physician who went out on an unexpected disability leave, and another physician who retired. Notwithstanding the unexpected losses of three physicians, with the assistance of the HealthLynked Network in marketing to former patients, we were able to increase practice revenue from 2017 by 7%. By the second quarter of 2019, we expect to have all three physicians replaced, and will then plan to further expand NWC by engaging two to five additional physicians and project, although no assurance can be given, that by 2021 NWC will generate annual aggregate net revenues of between $3,500,000 and $5,000,000. We believe that targeting women’s practices to market HealthLynked is one of the best approaches as women generally make most of the healthcare decisions for their families.

 

4

 

 

Sales Strategy

 

During the fourth quarter of 2018, the Company developed a more efficient strategy regarding the marketing of the HealthLynked Network utilizing its patient access hub technology:

 

  Eliminated the direct sales force, reducing our burn rate by approximately $50,000 per month
     
  Adopted a more efficient telesales model for bringing on physicians “in network” to the HealthLynked Network, including the following:

 

 

o

Starting with physicians claiming their existing base profiles, confirming accuracy, and opting to be an “in network” provider free of charge
     
 

o

Providing Patient Access Hub (“PAH”) offering Wi-Fi to the practice patients free of charge
     
 

o

Providing patient analytics off the PAH to provider members
     
 

o

SEO/SEM campaigns direct to physician practices
     
 

o

Participation in healthcare events that offer CME credits to physicians is another excellent vehicle that we are using to introduce HLYK and our network to physicians. We anticipate one event per quarter as part of our marketing plan.
     
 

o

Focusing on comprehensive marketing to physicians active and inactive patients to improve retention and significantly increase practice revenue
     
 

o

Physicians upload patients in secured HLYK portal and send email for patients to claim their HLYK profile and update it to bring into the office for their next visit.
     
 

o

Use of HealthLynked Network for on-line appointment scheduling for patients

 

  Direct to patient marketing:

 

  o SEO/SEM campaigns direct to patients

 

  Affiliated marketing campaigns

 

  Co-marketing with MedOfficeDirect (a virtual distributor of medical supplies to the general public and to physicians’ offices that is affiliated with our management team)

 

After 1.5 years of direct sales efforts, during the fourth quarter of 2018, we decided to eliminate the entire direct sales force after developing a more efficient and effective strategy for onboarding new in-network providers which eliminating $650,000 of annual cost. During the second quarter of 2019 we are planning to deploy our Patient Access Hub ‘PAH” (provisional patent pending) providing free Wi-Fi to the practice patients at no cost to our in-network physicians. Physician members will receive patient analytics from the PAH and we anticipate by the fourth quarter of 2019 we will be attracting 1,000 physicians and 300,000 patients per quarter utilizing the patient access hub.

 

PAH analytics will include information such as most popular days, most popular times of day, patient wait times per physician, patient mix, and social media footprint, to name a few.

 

Healthcare events that offer continuing medical education (“CME”) credits to Physicians have proven to be an excellent target market for our services and we plan to continue with this strategy of at least one event per quarter going forward.

 

Our projected rapid growth over the next five years is due in large part to our roll out and utilization of the Patient Access Hub in medical practices.

 

Our marketing efforts towards physicians will emphasize how our systems can provide patient analytics, increase practice revenues, improve office efficiencies, and improve the accuracy of recorded patients’ medical histories.

 

5

 

 

Once a physician agrees to become a paying member, they will put all their patients in a secured portal in the cloud, and email them to claim their profile, update it and bring it in for their next office visit. As mentioned above, access to the HealthLynked Network is free for patients. The physicians will then market to their active and inactive patients and it is anticipated that physicians will generate up to $100,000 in incremental annual revenue for an investment of $4,800 per year.

 

In combination with our telesales efforts described above, we intend to also utilize internet based search engine marketing an optimization (SEM/SEO) to increase our presence in certain targeted geographical areas. These campaigns will be focused on both physicians and patients. We believe that direct to consumer marketing through email campaigns will be an effective way to build interest and drive patient and physician demand for our services. We anticipate that we will be able to foster faster market penetration and increase demand for our services by marketing to “both sides”, the consumer and the practitioner once the telesales model is solidified.

 

Our campaigns will direct patients to look for physicians in the HealthLynked Network to ensure that they maintain the accuracy and completeness of their medical records. Our system will further allow patients to search for “in-network” physician providers and schedule online “real-time” appointments via our system. We believe that physicians in the HealthLynked Network will see an increase in new patients as a result of their participation and as more patients claim their profiles from the use of the PAH and the physicians’ initial emails to patients, the value to physicians of joining our network will increase from not only existing patient marketing, but also for acquisition of new patients in the HealthLynked Network.

 

We believe that affiliated marketing campaigns will be very helpful in attracting new users and increasing market awareness. We intend to partner with pharmaceutical companies, medical distributors, insurance companies; medical societies and others to cross market our products.

 

Intellectual Property

 

We have registered “HealthLynked” and our corporate logo as a service mark with the United States Patent and Trademark Office (the “USPTO”). We also filed a provisional patent application for the use of our Patient Access Hub filed on March 6, 2019 with the USPTO. We plan to file other patent applications as needed to protect our technology as soon as the technology is launched, which is currently anticipated to be during the third and fourth quarters of 2019.

 

Research and Development

 

Our research and development efforts consist of building, developing, and enhancing the HealthLynked Network, including comprehensive marketing to active and inactive patients, the real time scheduling of appointments through our new mobile application, regular appointment scheduling, telemedicine appointment scheduling, sharing of secured documents between physicians and patients, and devise independent access mobile, tablet and web browser. Further, we are developing our systems to provide for secured date storage, drug interaction alerts, and the barcoding of documents for retrieval and storage.

 

Professional and General Liability Coverage

 

We maintain professional and general liability insurance policies with third-party insurers generally on a claims-made basis, subject to deductibles, policy aggregates, exclusions, and other restrictions, in accordance with standard industry practice. We believe that our insurance coverage is appropriate based upon our claims experience and the nature and risks of our business. However, no assurance can be given that any pending or future claim against us will not be successful or if successful will not exceed the limits of available insurance coverage. Our business entails an inherent risk of claims of medical malpractice against our affiliated physicians and us. We contract and pay premiums for professional liability insurance that indemnifies us and our affiliated healthcare professionals generally on a claims-made basis for losses incurred related to medical malpractice litigation. Professional liability coverage is required in order for our physicians to maintain hospital privileges.

 

Employees

 

As of March 15, 2019, we had 26 employees. None of our employees are covered by a collective bargaining agreement. We consider our relationship with our employees to be excellent.

 

6

 

 

Competition

 

The markets for our products and services are highly competitive, and are characterized by rapidly evolving technology and product standards, as well as frequent introduction of new products and services. All of our competitors are more established, benefit from greater name recognition, and have substantially greater financial, technical, and marketing resources than we do.

 

Our principal existing competitors include but are not limited to ZocDoc, Inc., AthenaHealth Inc., All-scripts Healthcare Solutions, Inc., Cerner Corporation, Epic Systems Corporation, Teledoc Health Inc. and Veritone Inc. In addition, we expect that major software information systems companies, large information technology consulting service providers, start-up companies, managed care companies and others specializing in the health care industry may offer competitive products and services. 

 

We believe that we differ from our competitors in that we are not practice management software or an EMR provider. Companies like AthenaHealth Inc., All scripts Healthcare Solutions, Inc., Cerner and Epic Systems Corporation offer software solutions to operate and manage a medical practice. Functions of these systems include patient billing, monitoring patient account balances and payments, tracking of appointments and creating encounter visits for each patient seen. HealthLynked works in conjunction with these practice management software systems and does not seek to replace them. Patients’ medical encounters created by these systems are uploaded to the patient’s profile in the HealthLynked Network. The HealthLynked Network can incorporate any physical or digital documents into a patient’s medical record history and thus allow it to be utilized across all healthcare platforms. HealthLynked provides an online appointment scheduling application that is similar to ZocDoc, Inc.’s offering, but in addition offers telemedicine appointments through our own patient interface. 

 

The advantage of having a healthcare network independent of any one practice management or EMR software allows the HealthLynked system to be fully utilized across the entire medical community. Integration and participation by both patients and healthcare providers in a unified platform offers significant advantages in the quality and nature of healthcare delivery in the future. To our knowledge a unified healthcare network like HealthLynked currently does not exist in the market.  

 

Amazon, Google, and Apple have also announced their intention to enter into the digital healthcare space, including in the area of patient health records.

 

Government Regulation  

 

The healthcare industry is governed by a framework of federal and state laws, rules and regulations that are extensive and complex and for which, in many cases, the industry has the benefit of only limited judicial and regulatory interpretation. If we are found to have violated these laws, rules or regulations, our business, financial condition and results of operations could be materially, adversely affected. Moreover, healthcare reform continues to attract significant legislative interest, regulatory activity, new approaches, legal challenges and public attention that create uncertainty and the potential for additional changes. Healthcare reform implementation, additional legislation or regulations, and other changes in government policy or regulation may affect our reimbursement, restrict our existing operations, limit the expansion of our business or impose additional compliance requirements and costs, any of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our common stock. 

 

Licensing and Certification 

 

The state of Florida imposes licensing requirements on individual physicians and clinical professionals, and on facilities operated or utilized by healthcare practices. We may have to obtain regulatory approval, including certificates of need, before establishing certain types of healthcare facilities, offering certain services or expending amounts in excess of statutory thresholds for healthcare equipment, facilities or programs. We are also required to meet applicable Medicaid provider requirements under state laws and regulations and Medicare provider requirements under federal laws, rules and regulations. 

 

Fraud and Abuse Provisions 

 

Existing federal laws, as well as similar state laws, relating to government-sponsored or funded healthcare programs, or “ GHC Programs,” impose a variety of fraud and abuse prohibitions on healthcare companies like us. These laws are interpreted broadly and enforced aggressively by multiple government agencies, including the Office of Inspector General of the Department of Health and Human Services, the Department of Justice (the “DOJ”) and various state agencies. In addition, in the Deficit Reduction Act of 2005, Congress established a Medicaid Integrity Program to enhance federal and state efforts to detect Medicaid fraud, waste and abuse and provide financial incentives for states to enact their own false claims legislation as an additional enforcement tool against Medicaid fraud and abuse. Since then, a growing number of states have enacted or expanded healthcare fraud and abuse laws. 

 

The fraud and abuse provisions include extensive federal and state laws, rules and regulations applicable to us, particularly on the services offered through NWC. In particular, the federal anti-kickback statute has criminal provisions relating to the offer, payment, solicitation or receipt of any remuneration in return for either referring Medicaid, Medicare or other GHC Program business, or purchasing, leasing, ordering, or arranging for or recommending any service or item for which payment may be made by GHC Programs. In addition, the federal physician self-referral law, commonly known as the “Stark Law,” applies to physician ordering of certain designated health services reimbursable by Medicare from an entity with which the physician has a prohibited financial relationship. These laws are broadly worded and have been broadly interpreted by federal courts, and potentially subject many healthcare business arrangements to government investigation and prosecution, which can be costly and time consuming. Violations of these laws are punishable by substantial penalties, including monetary fines, civil penalties, administrative remedies, criminal sanctions (in the case of the anti-kickback statute), exclusion from participation in GHC Programs and forfeiture of amounts collected in violation of such laws, any of which could have an adverse effect on our business and results of operations.  

 

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There are a variety of other types of federal and state fraud and abuse laws, including laws authorizing the imposition of criminal, civil and administrative penalties for filing false or fraudulent claims for reimbursement with government healthcare programs. These laws include the civil False Claims Act (“FCA”), which prohibits the submission of, or causing to be submitted, false claims to GHC Programs, including Medicaid, Medicare, TRICARE (the program for military dependents and retirees), the Federal Employees Health Benefits Program, and insurance plans purchased through the recently established Affordable Care Act exchanges. Substantial civil fines and multiple damages, along with other remedies, can be imposed for violating the FCA. Furthermore, proving a violation of the FCA requires only that the government show that the individual or company that submitted or caused to be submitted an allegedly false claim acted in “reckless disregard” or in “deliberate ignorance” of the truth or falsity of the claim or with “willful disregard,” notwithstanding that there may have been no specific intent to defraud the government program and no actual knowledge that the claim was false (which typically are required to be shown to sustain a criminal conviction). The FCA also applies to the improper retention of known overpayments and includes “whistleblower” provisions that permit private citizens to sue a claimant on behalf of the government and thereby share in the amounts recovered under the law and to receive additional remedies. In recent years, many cases have been brought against healthcare companies by such “whistleblowers,” which have resulted in judgments or, more often, settlements involving substantial payments to the government by the companies involved. It is anticipated that the number of such actions against healthcare companies will continue to increase with the enactment or enhancement of a growing number of state false claims acts, certain amendments to the FCA and enhanced government enforcement.

 

In addition, federal and state agencies that administer healthcare programs have at their disposal statutes, commonly known as “civil money penalty laws,” that authorize substantial administrative fines and exclusion from government programs in cases where an individual or company that filed a false claim, or caused a false claim to be filed, knew or should have known that the claim was false or fraudulent. As under the FCA, it often is not necessary for the agency to show that the claimant had actual knowledge that the claim was false or fraudulent in order to impose these penalties.

 

The civil and administrative false claims statutes are being applied in an increasingly broader range of circumstances. For example, government authorities have asserted that claiming reimbursement for services that fail to meet applicable quality standards may, under certain circumstances, violate these statutes. Government authorities also often take the position, now with support in the FCA, that claims for services that were induced by kickbacks, Stark Law violations or other illicit marketing schemes are fraudulent and, therefore, violate the false claims statutes. Many of the laws and regulations referenced above can be used in conjunction with each other.

 

If we were excluded from participation in any government-sponsored healthcare programs, not only would we be prohibited from submitting claims for reimbursement under such programs, but we also would be unable to contract with other healthcare providers, such as hospitals, to provide services to them. It could also adversely affect our ability to contract with, or to obtain payment from, non-governmental payors.

 

Although we intend to conduct our business in compliance with all applicable federal and state fraud and abuse laws, many of the laws, rules and regulations applicable to us, including those relating to billing and those relating to financial relationships with physicians and hospitals, are broadly worded and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict. Accordingly, we cannot assure you that our arrangements or business practices will not be subject to government scrutiny or be alleged or found to violate applicable fraud and abuse laws. Moreover, the standards of business conduct expected of healthcare companies under these laws and regulations have become more stringent in recent years, even in instances where there has been no change in statutory or regulatory language. If there is a determination by government authorities that we have not complied with any of these laws, rules and regulations, our business, financial condition and results of operations could be materially, adversely affected.

 

Government Reimbursement Requirements

 

In order to participate in the various state Medicaid programs and in the Medicare program, we must comply with stringent and often complex enrollment and reimbursement requirements. Moreover, different states impose differing standards for their Medicaid programs. While we believe that we adhere to the laws, rules and regulations applicable to the government programs in which we participate, any failure to comply with these laws, rules and regulations could negatively affect our business, financial condition and results of operations.

 

In addition, GHC Programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review and new governmental funding restrictions, all of which may materially increase or decrease program payments, as well as affect the cost of providing services and the timing of payments to providers. Moreover, because these programs generally provide for reimbursement on a fee-schedule basis rather than on a charge-related basis, we generally cannot increase our revenue by increasing the amount we charge for our services. To the extent our costs increase, we may not be able to recover our increased costs from these programs, and cost containment measures and market changes in non-governmental insurance plans have generally restricted our ability to recover, or shift to non-governmental payors, these increased costs. In attempts to limit federal and state spending, there have been, and we expect that there will continue to be, a number of proposals to limit or reduce Medicaid and Medicare reimbursement for various services. Our business may be significantly and adversely affected by any such changes in reimbursement policies and other legislative initiatives aimed at reducing healthcare costs associated with Medicaid, Medicare and other government healthcare programs.

 

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Our business also could be adversely affected by reductions in or limitations of reimbursement amounts or rates under these government programs, reductions in funding of these programs or elimination of coverage for certain individuals or treatments under these programs.

 

HIPAA and Other Privacy Laws

 

Numerous federal and state laws, rules and regulations govern the collection, dissemination, use and confidentiality of protected health information, including the HIPAA, and its implementing regulations, violations of which are punishable by monetary fines, civil penalties and, in some cases, criminal sanctions. As part of the HealthLynked Network and our medical record keeping, third-party billing and other services, we collect and maintain protected health information on the patients that we serve.

 

Pursuant to HIPAA, the U.S. Department of Health and Human Services, Office of Civil Rights (“HHS”) has adopted standards to protect the privacy and security of individually identifiable health information, known as the Privacy Standards and Security Standards. HHS’ Privacy Standards apply to medical records and other individually identifiable health information in any form, whether electronic, paper or oral, that is used or disclosed by healthcare providers, hospitals, health plans and healthcare clearinghouses, which are known as “Covered Entities.” We have implemented privacy policies and procedures, including training programs, designed to be compliant with the HIPAA Privacy Standards.

 

HHS’ Security Standards require healthcare providers to implement administrative, physical and technical safeguards to protect the integrity, confidentiality and availability of individually identifiable health information that is electronically received, maintained or transmitted (including between us and our affiliated practices). We have implemented security policies, procedures and systems designed to facilitate compliance with the HIPAA Security Standards.

 

In February 2009, Congress enacted the Health Information Technology for Economic and Clinical Health Act, or “HITECH.” Among other changes to the law governing protected health information, HITECH strengthened and expanded HIPAA, increased penalties for violations, gave patients new rights to restrict uses and disclosures of their health information, and imposed a number of privacy and security requirements directly on third-parties that perform functions or services for us or on our behalf. Specifically, HITECH requires that Covered entities report any unauthorized use or disclosure of protected health information that meets the definition of a breach, to the affected individuals, HHS and, depending on the number of affected individuals, the media for the affected market. In addition, HITECH requires that business associates report breaches to their Covered Entity customers. HITECH also authorizes state Attorneys General to bring civil actions in response to violations of HIPAA that threaten the privacy of state residents. Final regulations implementing the HITECH requirements were issued in January 2013. We have privacy policies and procedures aimed at ensuring compliance with HITECH requirements. In addition to the federal HIPAA and HITECH requirements, numerous other state and certain other federal laws protect the confidentiality of patient information, including state medical privacy laws, state social security number protection laws, state genetic privacy laws, human subjects research laws and federal and state consumer protection laws.

 

Environmental Regulations

 

Our healthcare operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our office-based operations are subject to compliance with various other environmental laws, rules and regulations. Such compliance does not, and we anticipate that such compliance will not, materially affect our capital expenditures, financial position or results of operations.

 

Fair Debt Collection Practices Act

 

Some of our operations may be subject to compliance with certain provisions of the Fair Debt Collection Practices Act and comparable state laws. Under the Fair Debt Collection Practices Act, a third-party collection company is restricted in the methods it uses to contact consumer debtors and elicit payments with respect to placed accounts. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act. Florida’s Consumer Collection Practices Act is broader than the federal legislation, applying the regulations to “creditors” as well as “collectors,” whereas the Fair Debt Collection Practices Act is applicable only to collectors. This prohibits creditors who are attempting to collect their own debts from engaging in behavior prohibited by the Fair Debt Collection Practices Act and Consumer Collection Practices Act. The Consumer Collection Practices Act has very specific guidelines regarding which actions debt collectors and creditors may engage in to collect unpaid debt.

 

Government Investigations

 

We expect that audits, inquiries and investigations from government authorities, agencies, contractors and payors will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our common stock.

 

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Item 1A. Risk Factors

 

Forward-Looking Statements

 

All statements contained in this Annual Report on Form 10-K, other than statements of historical facts, that address future activities, events or developments, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), including, but not limited to, statements containing the word “believe,” “anticipate,” “expect” and word of similar import. These statements are based on certain assumptions and analyses made by the Company in light of its experience and assessment of historical trends, current conditions and expected future developments as well as other factors the Company believes are appropriate under the circumstances. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: established competitors who have substantially greater financial resources and operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.

 

FINANCIAL AND GENERAL BUSINESS RISKS

   

Our subsidiary the Naples Women’s Center, currently our only source of income, has incurred losses in the past and may not be able to achieve profitability in the future.

 

Even though our NWC subsidiary was established in 1996, it is subject to many of the risks inherent in the practice of medicine. We cannot give any assurance that NWC’s operations will continue as currently intended and no assurance can be given that we can continue to receive reimbursement from third party payers. Further, changes in Healthcare regulations in the coming years may negatively impact our operations. NWC realized segment loss from operations for the years ended December 31, 2017 and 2018. During the second half of 2018, we had one physician who did not renew her contract, one leave due to an unexpected disability, and a third leave due to early retirement. Even with these losses, NWC experienced 7% revenue growth in 2018. By the second quarter of 2019, we expect to have all three physicians replaced and then we plan to hire approximately two to five additional new physicians over the next two to five years, which will result in increased costs and expenses, which may result in future operating losses.

 

We may never be able to implement our proposed online personal medical information and archiving system and as such, an investment in us at this stage of our business is extremely risky.

 

The HealthLynked Network was launched in 2018 with positive early results. We have over 200 physicians “in network” and over 475,000 patients. We continually develop additional functionality of the Network. However, we cannot predict the scale of how many physicians and patients will adopt our technology, or even when they do, the timing of such large scale adoption. Further, it is possible that other competitors with greater resources could enter the market and make it more difficult for us to attract or keep customers. Consequently, at this phase of our development, our future is speculative and depends on the proper execution of our business model, including our deployment of the Patient Access Hub.

 

No assurance can be given that we will be able to timely repay the amounts due on convertible notes outstanding.

 

At the present time, no assurance can be given that we will earn sufficient revenues or secure the necessary financing, if needed, to timely pay the amounts owed under convertible notes outstanding. Our convertible notes outstanding issued in 2016 and 2017 with an aggregate face value of $711,000 are secured by substantially all of our assets, including, but not limited to, receivables of NWC, machinery, equipment, contracts rights, and letters of credits. If we fail to timely repay the amounts owed under the these convertible notes, which mature on December 31, 2019, a default may allow the lender under the relevant instruments to accelerate the related debt and to exercise their remedies under these agreements, which will typically include the right to declare the principal amount of that debt, together with accrued and unpaid interest and other related amounts, immediately due and payable, to exercise any remedies the lender may have to foreclose on assets that are subject to liens securing that debt. As of December 31, 2018, we had convertible notes payable with an aggregate face value of $1,394,500 with maturities between July 30, 2019 and December 31, 2019. We expect to repay these obligations from outside funding sources, including but not limited to amounts available upon the exercise of the Put Right granted to us under the Investment Agreement, sales of our equity, loans from related parties and others, or to satisfy convertible notes payable through the issuance of shares upon conversion pursuant to the terms of the respective convertible notes payable. 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 payable before they mature. In order to access cash available under the Investment Agreement or satisfy the convertible notes payable through the issuance of shares upon conversion, 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. If we are unable to meet these requirements, we will not have access to funds under this arrangement.

 

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We have substantial future capital needs and our ability to continue as a going concern depends upon our ability to raise additional capital and achieve profitable operations.

 

We currently anticipate that our available cash resources will be sufficient to meet our presently anticipated working capital requirements through the third quarter of 2019. As of December 31, 2018, we had a working capital deficit of $2,983,926 and accumulated deficit $10,501,055. For the year ended December 31, 2018, we had a net loss of $5,790,835 and net cash used by operating activities of $2,356,186. We anticipate that we will need an additional $3,500,000 in 2019 to properly execute our business and acquisition plan and service debt maturing in 2019 of which most matures December 31, 2019. We may also need to raise additional funds in order to support more rapid expansion, develop new or enhanced services and products, make acquisitions, hire employees, respond to competitive pressures, acquire technologies or respond to unanticipated requirements. Management’s plans include attempting to improve our profitability and our ability to generate sufficient cash flow from operations to meet our operating 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 increase our cash balances. 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 the Company on satisfactory terms and conditions, if at all. If adequate funds are not available on acceptable terms, we may be unable to develop or enhance our services and products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, financial condition and operating results. Further, we may seek to raise additional funds through the issuance of equity securities, in which case, the percentage ownership of our shareholders will be reduced and holders may experience additional dilution in net book value per share.

 

Our future success depends on our ability to execute our business plan by fully developing our online medical records platform and recruiting physicians and patients to adopt and use the system. However, there is no guarantee that we will be able to successfully implement our business plan.

 

Our operations to date have been limited to the medical services provided by the NWC. We have not yet demonstrated our ability to successfully develop or market the online medical records platform we seek to provide through the HealthLynked Network. We have not entered into any agreements with third party doctors or patients to use our system for their medical records and there is no assurance that we will be able to enter into such agreements in the future.

  

We may not be able to effectively control and manage our growth.

 

Our strategy envisions a period of potentially rapid growth in our physician network over the next five years based on aggressively increasing our marketing efforts. We currently maintain a small in house programming, IT, administrative and sales personnel. The capacity to service the online medical records platform and our expected growth, including growth via acquisition, may impose a significant burden on our future planned administrative and operational resources. The growth of our business may require significant investments of capital and increased demands on our management, workforce and facilities. We will be required to substantially expand our administrative and operational resources and attract, train, manage and retain qualified employees, management and other personnel. Failure to do so, or to satisfy such increased demands would interrupt or have a material adverse effect on our business and results of operations.

 

The departure or loss of Dr. Michael Dent could disrupt our business.

 

During 2018, we depended heavily on the continued efforts of Dr. Michael Dent, Chief Executive Officer and Chairman of the Board, who provided us with a total of $101,450 and $338,470 in working capital during the year ended December 31, 2018 and 2017, respectively. Dr. Dent is also essential to our strategic vision and day-to-day operations and would be difficult to replace. While we have entered into a four-year written employment contract with Dr. Dent effective July 1, 2016, we cannot be certain that Dr. Dent will continue with us for any particular period of time. The departure or loss of Dr. Dent, or the inability to hire and retain a qualified replacement, could negatively impact our ability to manage our business.

 

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We recently eliminated our direct sales force and moved to a telesales model, which may not be successful.

 

We eliminated our entire sales force in the fourth quarter of 2018 and adopted a telesales model. Although this change reduced our annual burn rate by an estimated $650,000 annually, there is no assurance that our more cost-efficient telesales model will be effective, and this could have a negative effect on the business and its growth.

 

The healthcare industry is highly regulated, and government authorities may determine that we have failed to comply with applicable laws, rules or regulations.

 

The healthcare industry, healthcare information technology, the online medical records platform services that we provide and the physicians’ medical practices we engage in through NWC are subject to extensive and complex federal, state and local laws, rules and regulations, compliance with which imposes substantial costs on us. Of particular importance are the provisions summarized as follows:

 

  federal laws (including the federal False Claims Act) that prohibit entities and individuals from knowingly or recklessly making claims to Medicaid, Medicare and other government-funded programs that contain false or fraudulent information or from improperly retaining known overpayments;
     
  a provision of the Social Security Act, commonly referred to as the “anti-kickback” statute, that prohibits the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate or other remuneration, in cash or in kind, in return for the referral or recommendation of patients for items and services covered, in whole or in part, by federal healthcare programs, such as Medicaid and Medicare;
     
  a provision of the Social Security Act, commonly referred to as the Stark Law, that, subject to limited exceptions, applies when physicians refer Medicare patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including a compensation arrangement) with the entity;
     
  similar state law provisions pertaining to anti-kickback, fee splitting, self-referral and false claims issues, which typically are not limited to relationships involving government-funded programs;
     
  provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) that prohibit knowingly and willfully executing a scheme or artifice to defraud a healthcare benefit program or falsifying, concealing or covering up a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services;
     
  state laws that prohibit general business corporations from practicing medicine, controlling physicians’ medical decisions or engaging in certain practices, such as splitting fees with physicians;

 

  federal and state healthcare programs may deny our application to become a participating provider that could in turn cause us to not be able to treat those patients or prohibit us from billing for the treatment services provided to such patients;
     
  federal and state laws that prohibit providers from billing and receiving payment from Medicaid or Medicare for services unless the services are medically necessary, adequately and accurately documented and billed using codes that accurately reflect the type and level of services rendered;
     
  federal and state laws pertaining to the provision of services by non-physician practitioners, such as advanced nurse practitioners, physician assistants and other clinical professionals, physician supervision of such services and reimbursement requirements that may be dependent on the manner in which the services are provided and documented; and
     
  federal laws that impose civil administrative sanctions for, among other violations, inappropriate billing of services to federally funded healthcare programs, inappropriately reducing hospital care lengths of stay for such patients, or employing individuals who are excluded from participation in federally funded healthcare programs.

 

In addition, we believe that our business, including the business conducted through NWC, will continue to be subject to increasing regulation, the scope and effect of which we cannot predict.

 

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We may in the future become the subject of regulatory or other investigations or proceedings, and our interpretations of applicable laws, rules and regulations may be challenged. For example, regulatory authorities or other parties may assert that our arrangements with the physicians using the HealthLynked Network constitute fee splitting and seek to invalidate these arrangements, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our common stock. Regulatory authorities or other parties also could assert that our relationships violate the anti-kickback, fee splitting or self-referral laws and regulations. Such investigations, proceedings and challenges could result in substantial defense costs to us and a diversion of management’s time and attention. In addition, violations of these laws are punishable by monetary fines, civil and criminal penalties, exclusion from participation in government-sponsored healthcare programs, and forfeiture of amounts collected in violation of such laws and regulations, any of which could have a material adverse effect on our overall business, financial condition, results of operations, cash flows and the trading price of our common stock.

 

Federal and state laws that protect the privacy and security of protected health information may increase our costs and limit our ability to collect and use that information and subject us to penalties if we are unable to fully comply with such laws.

 

Numerous federal and state laws and regulations govern the collection, dissemination, use, security and confidentiality of individually identifiable health information. These laws include:

 

  Provisions of HIPAA that limit how healthcare providers may use and disclose individually identifiable health information, provide certain rights to individuals with respect to that information and impose certain security requirements;
     
  The Health Information Technology for Economic and Clinical Health Act (“HITECH”), which strengthens and expands the HIPAA Privacy Standards and Security Standards and imposes data breach notification obligations;
     
  Other federal and state laws restricting the use and protecting the privacy and security of protected health information, many of which are not preempted by HIPAA;
     
  Federal and state consumer protection laws; and
     
  Federal and state laws regulating the conduct of research with human subjects.

 

Through the HealthLynked Network, we collect and maintain protected health information in paper and electronic format. New protected health information standards, whether implemented pursuant to HIPAA, HITECH, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare-related data and communicate with third parties, and compliance with these standards could impose significant costs on us, or limit our ability to offer certain services, thereby negatively impacting the business opportunities available to us.

 

In addition, if we do not comply with existing or new laws and regulations related to protected health information, we could be subject to remedies that include monetary fines, civil or administrative penalties, civil damage awards or criminal sanctions.

 

RISKS RELATED TO THE HEALTHLYNKED NETWORK

 

The market for Internet-based personal medical information and record archiving systems may not develop substantially further or develop more slowly than we expect, harming the growth of our business.

 

It is uncertain whether personal medical information and record archiving systems will achieve and sustain the high levels of demand and market acceptance we anticipate. Further, even though we expect NWC patients and physicians to use the HealthLynked Network, our success will depend, to a substantial extent, on the willingness of unaffiliated patients, physicians and hospitals to use our services. Some patients, physicians and hospitals may be reluctant or unwilling to use our services, because they may have concerns regarding the risks associated with the security and reliability, among other things, of the technology model associated with these services. If our target users do not believe our systems are secure and reliable, then the market for these services may not expand as much or develop as quickly as we expect, either of which would significantly adversely affect our business, financial condition, or operating results.

 

If we do not continue to innovate and provide services that are useful to our target users, we may not remain competitive, and our revenues and operating results could suffer.

 

Our success depends on our ability to keep pace with technological developments, satisfy increasingly sophisticated client requirements, and obtain market acceptance. Our competitors are constantly developing products and services that may become more efficient or appealing to our clients and users. As a result, we will be required to invest significant resources in research and development in order to enhance our existing services and introduce new high-quality services that clients and users will want, while offering these services at competitive prices.

 

If we are unable to predict user preferences or industry changes, or if we are unable to modify our services on a timely or cost-effective basis, we may lose clients and target users. Our operating results would also suffer if our innovations are not responsive to the needs of our clients and users, are not appropriately timed with market opportunity, or are not effectively brought to market. As technology continues to develop, our competitors may be able to offer results that are, or that are perceived to be, substantially similar to or better than those generated by our services. This may force us to compete on additional service attributes and to expend significant resources in order to remain competitive.

 

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Failure to manage our rapid growth effectively could increase our expenses, decrease our revenue, and prevent us from implementing our business strategy.

 

To manage our anticipated future growth effectively, we will need to enhance our information technology infrastructure and financial and accounting systems and controls, as well as manage expanded operations in geographically distributed locations. We also must engage and retain a significant number of qualified professional services personnel, software engineers, technical personnel, and management personnel. Failure to manage our rapid growth effectively could lead us to over-invest or under-invest in technology and operations; result in weaknesses in our infrastructure, systems, or controls; give rise to operational mistakes, losses, or loss of productivity or business opportunities; reduce client or user satisfaction; limit our ability to respond to competitive pressures; and could also result in loss of employees and reduced productivity of remaining employees. Our growth could require significant capital expenditures and may divert financial resources and management attention from other projects, such as the development of new or enhanced services. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue could decline or may grow more slowly than expected, and we may be unable to implement our business strategy.

 

We may be unable to adequately protect, and we may incur significant costs in enforcing, our intellectual property and other proprietary rights.

 

Our success depends in part on our ability to enforce our intellectual property and other proprietary rights. We expect to rely upon a combination of copyright, trademark, trade secret, and unfair competition laws, as well as license and access agreements and other contractual provisions, to protect these rights.

 

Our attempts to protect our intellectual property through copyright, patent, and trademark registration may be challenged by others or invalidated through administrative process or litigation. While we have submitted the application for our first provisional patent for our Patient Access Hub and intend to submit other patent applications covering our integrated technology during 2019, the scope of issued patents, if any, may be insufficient to prevent competitors from providing products and services similar to ours, our patents may be successfully challenged, and we may not be able to obtain additional meaningful patent protection in the future. There can be no assurance that our patent registration efforts will be successful.

 

Our expected agreements with clients, users, vendors and strategic partners will limit their use of, and allow us to retain our rights in, our intellectual property and proprietary information. Further, we anticipate that these agreements will grant us ownership of intellectual property created in the performance of those agreements to the extent that it relates to the provision of our services. In addition, we require certain of our employees and consultants to enter into confidentiality, non-competition, and assignment of inventions agreements. We also require certain of our vendors and strategic partners to agree to contract provisions regarding confidentiality and non-competition. However, no assurance can be given that these agreements will not be breached, and we may not have adequate remedies for any such breach. Further, no assurance can be given that these agreements will be effective in preventing the unauthorized access to, or use of, our proprietary information or the reverse engineering of our technology. Agreement terms that address non-competition are difficult to enforce in many jurisdictions and may not be enforceable in any particular case. In any event, these agreements do not prevent our competitors from independently developing technology or authoring clinical information that is substantially equivalent or superior to our technology or the information we distribute.

 

To the extent that our intellectual property and other proprietary rights are not adequately protected, third parties might gain access to our proprietary information, develop and market products or services similar to ours, or use trademarks similar to ours, each of which could materially harm our business. Existing U.S. federal and state intellectual property laws offer only limited protection. In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. Any litigation that may be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results, or financial condition.

 

In addition, our platforms incorporate “open source” software components that are licensed to us under various public domain licenses. While we believe that we have complied with our obligations under the various applicable licenses for open source software that we use, open source license terms are often ambiguous, and there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses. Therefore, the potential impact of such terms on our business is somewhat unknown. For example, some open source licenses require that those using the associated code disclose modifications made to that code and such modifications be licensed to third parties at no cost. We monitor our use of open source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code. However, there can be no assurance that such efforts will be successful, and such use could inadvertently occur.

 

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We may be sued by third parties for alleged infringement of their proprietary rights.

 

The software and Internet industries are characterized by the existence of a large number of patents, trademarks, and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We may receive in the future communications from third parties claiming that we, our technology, or components thereof, infringe on the intellectual property rights of others. We may not be able to withstand such third-party claims against our technology, and we could lose the right to use third-party technologies that are the subject of such claims. Any intellectual property claims, whether with or without merit, could be time-consuming and expensive to resolve, divert management attention from executing our business plan, and require us to pay monetary damages or enter into royalty or licensing agreements. Although we intend that many of our third-party service providers will be obligated to indemnify us if their products infringe the rights of others, such indemnification may not be effective or adequate to protect us or the indemnifying party may be unable to uphold its contractual obligations.

 

Moreover, any settlement or adverse judgment resulting from such a claim could require us to pay substantial amounts of money or obtain a license to continue to use the technology or information that is the subject of the claim, or otherwise restrict or prohibit our use of the technology or information. There can be no assurance that we would be able to obtain a license on commercially reasonable terms, if at all, from third parties asserting an infringement claim; that we would be able to develop alternative technology on a timely basis, if at all; that we would be able to obtain a license to use a suitable alternative technology or information to permit us to continue offering, and our clients to continue using, our affected services; or that we would not need to change our product and design plans, which could require us to redesign affected products or services or delay new offerings. Accordingly, an adverse determination could prevent us from implementing our strategy or offering our services and products, as currently contemplated.

 

We may not be able to properly safeguard the information on the HealthLynked Network.

 

Information security risks have generally increased in recent years because of new technologies and the increased activities of perpetrators of cyber-attacks resulting in the theft of protected health, business or financial information. A failure in, or a breach of our information systems as a result of cyber-attacks could disrupt our business, result in the release or misuse of confidential or proprietary information, damage our reputation, and increase our administrative expenses. Although we plan to have robust information security procedures and other safeguards in place, as cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures or to investigate and remediate any information security vulnerabilities. Any of these disruptions or breaches of security could have a material adverse effect on our business, financial condition and results of operations.

 

Our employees may not take all appropriate measures to secure and protect confidential information in their possession.

 

Each of our employees is advised that they are responsible for the security of the information in our systems and to ensure that private information is kept confidential. Should an employee not follow appropriate security measures, including those that have been put in place to prevent cyber threats or attacks, the improper release of protected health information could result. The release of such information could have a material adverse effect our reputation and our business, financial condition, results of operations and cash flows.

 

RISKS RELATED TO THE PROVISION OF MEDICAL SERVICES BY NWC

 

Any state budgetary constraints could have an adverse effect on our reimbursement from Medicaid programs .

 

As a result of slow economic growth and volatile economic conditions, many states are continuing to collect less revenue than they did in prior years and as a consequence are facing budget shortfalls and underfunded pension and other obligations. Although the shortfalls for the more recent budgetary years have declined, they are still significant by historical standards. The financial condition in Florida or other states in which we may in the future could lead to reduced or delayed funding for Medicaid programs and, in turn, reduced or delayed reimbursement for physician services, which could adversely affect our results of operations, cash flows and financial condition.

 

The Affordable Care Act may have a significant effect on our business.

 

The Affordable Care Act contains a number of provisions that could affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans. Other provisions contain changes to healthcare fraud and abuse laws and expand the scope of the FCA.

 

The Affordable Care Act contains numerous other measures that could affect us. For example, payment modifiers are being developed that will differentiate payments to physicians under federal healthcare programs based on quality and cost of care. In addition, other provisions authorize voluntary demonstration projects relating to the bundling of payments for episodes of hospital care and the sharing of cost savings achieved under the Medicare program.

 

The Centers for Medicare and Medicaid Services (“CMS”) issued a final rule under the Affordable Care Act that is intended to allow physicians, hospitals and other health care providers to coordinate care for Medicare beneficiaries through Accountable Care Organizations (“ACOs”). ACOs are entities consisting of healthcare providers and suppliers organized to deliver services to Medicare beneficiaries and eligible to receive a share of any cost savings the entity can achieve by delivering services to those beneficiaries at a cost below a set baseline and based upon established quality of care standards. We will continue to evaluate the impact of the ACO regulations on our business and operations.

 

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The Affordable Care Act also allows states to expand their Medicaid programs through an increase in the Medicaid eligibility income limit from a state’s current eligibility levels to 133% of the federal poverty level. It remains unclear to what extent states will expand their Medicaid programs by raising the income limit to 133% of the federal poverty level.

 

The Affordable Care Act also remains subject to continuing legislative scrutiny, including efforts by Congress to further amend or repeal a number of its provisions as well as administrative actions delaying the effectiveness of key provisions. As a result, we cannot predict with any assurance the ultimate effect of the Affordable Care Act on our Company, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

Government-funded programs or private insurers may limit, reduce or make retroactive adjustments to reimbursement amounts or rates.

 

A portion of the net patient service revenue derived from services rendered through NWC is from payments made by Medicare and Medicaid and other government-sponsored or funded healthcare programs (the “GHC Programs”) . These government-funded programs, as well as private insurers, have taken and may continue to take steps, including a movement toward increased use of managed care organizations, value-based purchasing, and new patient care models to control the cost, eligibility for, use and delivery of healthcare services as a result of budgetary constraints and cost containment pressures due to unfavorable economic conditions, rising healthcare costs and for other reasons. These government-funded programs and private insurers may attempt other measures to control costs, including bundling of services and denial of, or reduction in, reimbursement for certain services and treatments. As a result, payments from government programs or private payors may decrease significantly. Also, any adjustment in Medicare reimbursement rates may have a detrimental impact on our reimbursement rates not only for Medicare patients, but also because Medicaid and other third-party payors often base their reimbursement rates on a percentage of Medicare rates. Our business may also be materially affected by limitations on, or reductions in, reimbursement amounts or rates or elimination of coverage for certain individuals or treatments. Moreover, because government-funded programs generally provide for reimbursements on a fee-schedule basis rather than on a charge-related basis, we generally cannot increase our revenues from these programs by increasing the amount we charge for services rendered by NWC’s physicians. To the extent our costs increase, we may not be able to recover our increased costs from these programs, and cost containment measures and market changes in non-government-funded insurance plans have generally restricted our ability to recover, or shift to non-governmental payors, these increased costs. In addition, funds we receive from third-party payors are subject to audit with respect to the proper billing for physician and ancillary services and, accordingly, our revenue from these programs may be adjusted retroactively. Any retroactive adjustments to our reimbursement amounts could have a material effect on our financial condition, results of operations, cash flows and the trading price of our common stock.

 

Government-funded programs or private insurers may limit, reduce or make retroactive adjustments to reimbursement amounts or rates.

 

A portion of the net patient service revenue derived from services rendered through NWC is from payments made by Medicare and Medicaid  and other government-sponsored or funded healthcare programs (the “GHC Programs”) . These government-funded programs, as well as private insurers, have taken and may continue to take steps, including a movement toward increased use of managed care organizations, value-based purchasing, and new patient care models to control the cost, eligibility for, use and delivery of healthcare services as a result of budgetary constraints and cost containment pressures due to unfavorable economic conditions, rising healthcare costs and for other reasons. These government-funded programs and private insurers may attempt other measures to control costs, including bundling of services and denial of, or reduction in, reimbursement for certain services and treatments. As a result, payments from government programs or private payors may decrease significantly. Also, any adjustment in Medicare reimbursement rates may have a detrimental impact on our reimbursement rates not only for Medicare patients, but also because Medicaid and other third-party payors often base their reimbursement rates on a percentage of Medicare rates. Our business may also be materially affected by limitations on, or reductions in, reimbursement amounts or rates or elimination of coverage for certain individuals or treatments. Moreover, because government-funded programs generally provide for reimbursements on a fee-schedule basis rather than on a charge-related basis, we generally cannot increase our revenues from these programs by increasing the amount we charge for services rendered by NWC’s physicians. To the extent our costs increase, we may not be able to recover our increased costs from these programs, and cost containment measures and market changes in non-government-funded insurance plans have generally restricted our ability to recover, or shift to non-governmental payors, these increased costs. In addition, funds we receive from third-party payors are subject to audit with respect to the proper billing for physician and ancillary services and, accordingly, our revenue from these programs may be adjusted retroactively. Any retroactive adjustments to our reimbursement amounts could have a material effect on our financial condition, results of operations, cash flows and the trading price of our common stock.

 

We may become subject to billing investigations by federal and state government authorities.

 

Federal and state laws, rules and regulations impose substantial penalties, including criminal and civil fines, exclusion from participation in government healthcare programs and imprisonment, on entities or individuals (including any individual corporate officers or physicians deemed responsible) that fraudulently or wrongfully bill government-funded programs or other third-party payors for healthcare services. CMS issued a final rule requiring states to implement a Medicaid Recovery Audit Contractor (“RAC”) program effective January 1, 2012. States are required to contract with one or more eligible Medicaid RACs to review Medicaid claims for any overpayments or underpayments, and to recoup overpayments from providers on behalf of the state. In addition, federal laws, along with a growing number of state laws, allow a private person to bring a civil action in the name of the government for false billing violations. We believe that audits, inquiries and investigations from government agencies will occur from time to time in the ordinary course of NWC’s operations, which could result in substantial defense costs to us and a diversion of management’s time and attention. We cannot predict whether any future audits, inquiries or investigations, or the public disclosure of such matters, would have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our common stock.

  

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We may not appropriately record or document the services provided by our physicians.

 

We must appropriately record and document the services our doctors provide to seek reimbursement for their services from third-party payors. If our physicians do not appropriately document, or where applicable, code for their services, we could be subjected to administrative, regulatory, civil, or criminal investigations or sanctions and our business, financial condition, results of operations and cash flows could be adversely affected.

 

We may not be able to successfully recruit and retain qualified physicians, who are key to NWC’s revenues and billing .

 

During the second half of 2018, we had one physician who did not renew her contract, one leave due to an unexpected disability, and a third leave due to early retirement. Although, we expect to have these three physicians replaced by the second quarter of 2019, this physician turnover negatively impacted our third and fourth quarter 2018 revenues. As part of our business plan, we may acquire other medical practices as we see fit to further develop, test and deploy the HealthLynked Network into new strategic regional areas throughout the country. We compete with many types of healthcare providers, including teaching, research and government institutions, hospitals and health systems and other practice groups, for the services of qualified doctors. We may not be able to continue to recruit new physicians or renew contracts with existing physicians on acceptable terms. If we do not do so, our ability to service execute our business plan may be adversely affected.

 

A significant number of NWC physicians could leave our practice and we may be unable to enforce the non-competition covenants of departed employees.

 

We have entered into employment agreements with the current NWC physicians. Certain of our employment agreements can be terminated without cause by any party upon prior written notice. In addition, substantially all of our physicians have agreed not to compete with us within a specified geographic area for a certain period after termination of employment. The law governing non-compete agreements and other forms of restrictive covenants varies from state to state. Although we believe that the non-competition and other restrictive covenants applicable to our affiliated physicians are reasonable in scope and duration and therefore enforceable under applicable state law, courts and arbitrators in some states are reluctant to strictly enforce non-compete agreements and restrictive covenants against physicians. Our physicians may leave our practices for a variety of reasons, including providing services for other types of healthcare providers, such as teaching, research and government institutions, hospitals and health systems and other practice groups. If a substantial number of our physicians leave our practices or we are unable to enforce the non-competition covenants in the employment agreements, our business, financial condition, results of operations and cash flows could be materially, and adversely affected. We cannot predict whether a court or arbitration panel would enforce these covenants in any particular case.

 

We may be subject to medical malpractice and other lawsuits not covered by insurance.

 

Our business entails an inherent risk of claims of medical malpractice against our affiliated physicians and us. We may also be subject to other lawsuits which may involve large claims and significant defense costs. Although we currently maintain liability insurance coverage intended to cover professional liability and other claims, there can be no assurance that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us. Liabilities in excess of our insurance coverage, including coverage for professional liability and other claims, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our common stock. See “Professional and General Liability Coverage.”

 

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We may not be able to collect reimbursements for our services from third-party payors in a timely manner.

 

A significant portion of our net patient service revenue is derived from reimbursements from various third-party payors, including GHC Programs , private insurance plans and managed care plans, for services provided by NWC physicians. We are responsible for submitting reimbursement requests to these payors and collecting the reimbursements, and we assume the financial risks relating to uncollectible and delayed reimbursements. In the current healthcare environment, payors continue their efforts to control expenditures for healthcare, including revisions to coverage and reimbursement policies. Due to the nature of our business and our participation in government-funded and private reimbursement programs, we are involved from time to time in inquiries, reviews, audits and investigations by governmental agencies and private payors of our business practices, including assessments of our compliance with coding, billing and documentation requirements. We may be required to repay these agencies or private payors if a finding is made that we were incorrectly reimbursed, or we may be subjected to pre-payment reviews, which can be time-consuming and result in non-payment or delayed payment for the services we provide. We may also experience difficulties in collecting reimbursements because third-party payors may seek to reduce or delay reimbursements to which we are entitled for services that our affiliated physicians have provided. In addition, GHC Programs may deny our application to become a participating provider that could prevent us from providing services to patients or prohibit us from billing for such services. If we are not reimbursed fully and in a timely manner for such services or there is a finding that we were incorrectly reimbursed, our revenue, cash flows and financial condition could be materially, adversely affected.

 

Certain federal and state laws may limit our effectiveness at collecting monies owed to us from patients.

 

We utilize third parties to collect from patients any co-payments and other payments for services that are provided by NWC physicians. The federal Fair Debt Collection Practices Act restricts the methods that third-party collection companies may use to contact and seek payment from consumer debtors regarding past due accounts. State laws vary with respect to debt collection practices, although most state requirements are similar to those under the Fair Debt Collection Practices Act. T he Florida Consumer Collection Practices Act, is broader than the federal legislation, applying the regulations to “creditors” as well as “collectors,” whereas the Fair Debt Collection Practices Act is applicable only to collectors. This prohibits creditors who are attempting to collect their own debts from engaging in behavior prohibited by the Fair Debt Collection Practices Act and Florida Consumer Collection Practices Act. The Act has very specific guidelines regarding which actions debt collectors and creditors may engage in to collect unpaid debt. If our collection practices or those of our collection agencies are inconsistent with these standards, we may be subject to actual damages and penalties. These factors and events could have a material adverse effect on our business, financial condition and results of operations.

 

We may not be able to maintain effective and efficient information systems.

 

The profitability of our business, including the services provided by NWC, is dependent on uninterrupted performance of our information systems. Failure to maintain reliable information systems, disruptions in our existing information systems or the implementation of new systems could cause disruptions in our business operations, including errors and delays in billings and collections, disputes with patients and payors, violations of patient privacy and confidentiality requirements and other regulatory requirements, increased administrative expenses and other adverse consequences.

 

RISKS RELATING TO OUR ORGANIZATION

 

Our articles of incorporation authorize our board to create a new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.

 

Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.

 

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Stockholders’ ability to influence corporate decisions may be limited because Michael Dent, our Chief Executive Officer and Chairman of the Board, currently owns a controlling percentage of our common stock.

 

Currently, Dr. Dent, our Chief Executive Officer and Chairman of the Board, beneficially owns approximately 57.76% of our outstanding common stock. As a result of this stock ownership, Dr. Dent can control all matters submitted to our stockholders for approval, including the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire. In addition, as the interests of Dr. Dent and our minority stockholders may not always be the same, this large concentration of voting power may lead to stockholder votes that are inconsistent with the best interests of our minority stockholders or the best interest of the Company as a whole.

 

Minority stockholders’ ability to influence corporate decisions may be limited because our Board is made up entirely of non-independent officers of the Company.

 

Currently, Dr. Dent, our Chief Executive Officer and Chairman of the Board, and Mr. George O’Leary, our Chief Financial Officer, comprise our Board of Directors. This concentration of non-independent power could delay or prevent an acquisition of our company on terms that stockholders may desire. In addition, as the interests of Dr. Dent, Mr. O’Leary, and our minority stockholders may not always be aligned, this large concentration of corporate power may lead to Board votes that are inconsistent with the best interests of our stockholders or the best interest of the Company as a whole.

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

 

We are required to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act of 2002, which require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. However, we will not be required to make our first assessment of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we will need to implement additional financial and management controls, reporting systems and procedures and hire accounting, finance and legal staff.

 

Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and rules subsequently implemented by the SEC have various requirements with regard to the corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

 

The public market for our common stock is limited.  Failure to develop or maintain a trading market could negatively affect its value and make it difficult or impossible for you to sell your shares.

 

Our common stock has traded on the OTCQB under the symbol “HLYK” since May 10, 2017.  There is a limited public market for our common stock and a more active public market for our common stock may not develop.  Failure to develop or maintain an active trading market could make it difficult to sell shares or recover any part of an investment in our common shares.  Even if a market for our common stock does develop, the market price of our common stock may be highly volatile.  In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.

 

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Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our common stock.  

  

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

  

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction.  Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common Stock.

  

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

Drawdowns under the Investment Agreement may cause dilution to existing shareholders.

 

Iconic Holdings, LLC (“Iconic”), an investor, has committed to purchase up to $3,000,000 worth of shares of our common stock pursuant to the terms of an Investment Agreement entered into by and between the Company and Iconic, dated July 11 2016 (the “Investment Agreement”). From time to time during the term of the Investment Agreement, and at our sole discretion, we may present Iconic with a put notice requiring Iconic to purchase shares of our common stock. The purchase price to be paid by Iconic will 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 adjustments. As a result, our existing shareholders will experience immediate dilution upon the purchase of any of the shares by Iconic. The issue and sale of the shares under the Investment Agreement may also have an adverse effect on the market price of the common shares. Iconic may resell some, if not all, of the shares that we issue to it under the Investment Agreement and such sales could cause the market price of the common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of shares to Iconic in exchange for each dollar of the put amount. Under these circumstances, the existing shareholders of our company will experience greater dilution. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by Iconic, and because our existing stockholders may disagree with a decision to sell shares to Iconic at a time when our stock price is low, and may in response decide to sell additional shares, further decreasing our stock price. If we draw down amounts under the Investment Agreement when our share price is decreasing, we will need to issue more shares to raise the same amount of funding. During the years ended December 31, 2018 and 2017, we issued 2,440,337 and 222,588 shares pursuant to draws under the Investment Agreement, respectively, for gross proceeds of $440,523 and $27,618, respectively.

 

There is no guarantee that we will be able to fully utilize the Investment Agreement, if at all.

 

The purchase price and amount of shares we can sell to Iconic under the Investment Agreement shall depend on our stock price and stock volume, and we cannot guarantee that our stock price and trading volume will be adequate to allow us to raise sufficient funds under the agreement. The purchase price for shares sold to Iconic 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, subject to certain discounts and adjustments. The maximum Put Amount that the Company shall be entitled to put to Iconic per any applicable put notice is an amount of shares of common stock up to or equal to 100% of the average of the daily trading volume for the ten consecutive trading days immediately prior to the applicable put notice date, so long as such amount is at least $5,000 and does not exceed $150,000, as calculated by multiplying the Put Amount by the average daily weighted average price of our common stock for the ten consecutive trading days immediately prior to the applicable put notice date. 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. We must also have complied with our obligations and otherwise not be in material breach or default of the Convertible Notes and warrants issued to Iconic. If we are unable to meet these requirements, we will not have access to funds under this arrangement. There can be no assurances that we will be able to meet these requirements.

 

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Certain restrictions on the extent of puts and the delivery of advance notices may have little, if any, effect on the adverse impact of our issuance of shares in connection with the Investment Agreement and as such, Iconic may sell a large number of shares, resulting in substantial dilution to the value of shares held by existing stockholders.

 

Iconic has agreed, subject to certain exceptions listed in the investment agreement with Iconic, to refrain from holding an amount of shares which would result in Iconic or its affiliates owning more than 9.99% of the then-outstanding shares of our common stock at any one time. These restrictions, however, do not prevent Iconic from selling shares of our common stock received in connection with a put, and then receiving additional shares of our common stock in connection with a subsequent put. In this way, Iconic could sell more than 9.99% of the outstanding common stock in a relatively short time frame while never holding more than 9.99% at one time.

 

We may not be able to refinance, extend or repay our substantial indebtedness, which would have a material adverse effect on our financial condition and ability to continue as a going concern.

 

We anticipate that we will need to raise a significant amount of debt or equity capital in the near future in order to repay our outstanding debt obligations when they mature. As of December 31, 2018, we had convertible notes payable with an aggregate face value of $1,394,500 with maturities between July 30, 2019 and December 31, 2019. If we are unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to repay these obligations or that we will be able to extend the maturity dates or otherwise refinance these obligations. Upon a default, the holder of certain convertible notes payable with aggregate face value of $711,000 would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and, if our senior secured lender exercises its rights and remedies, we would likely be forced to seek bankruptcy protection.

 

As an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave our shareholders without information or rights available to shareholders of more mature companies.

 

For as long as we remain an “emerging growth company” as defined in the JOBS Act, we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to:

 

  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
     
  being permitted to provide only two years of audited financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
     
  taking advantage of an extension of time to comply with new or revised financial accounting standards;
     
  reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
     
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

We expect to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We are also a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act and have elected to follow certain scaled disclosure requirements available to smaller reporting companies.

 

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Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.

 

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. While we are not currently delaying the implementation of any relevant accounting standards, in the future we may avail ourselves of this right, and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

 

Our stockholders are subject to significant dilution upon the occurrence of certain events which could result in a decrease in our stock price.

 

As of March 27, 2019, we had approximately 59,530,295 shares of our common stock reserved or designated for future issuance upon the exercise of outstanding options and warrants, and conversion of outstanding convertible debt. Future sales of substantial amounts of our common stock into the public and the issuance of the shares reserved for future issuance, in payment of our debt, and/or upon exercise of outstanding options and warrants, will be dilutive to our existing stockholders and could result in a decrease in our stock price.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

The Company leases its operating facilities pursuant to three separate lease agreements for properties located 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. Monthly rent is approximately $3,300.

 

Item 3. 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 4. Mine Safety Disclosure

 

Not applicable.

 

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PART II.

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock was initially eligible for quotation and trades on the OTCPink on May 5, 2017 under the symbol “HLYK.” Since May 10, 2017, our common stock has been eligible for quotation and trades on the OTCQB under the symbol “HLYK.” 

 

The following table reflects the high and low sale prices of our common stock for each quarter since our common stock began trading on May 5, 2017. The share prices presented in the table represent prices between broker-dealers and do not include retail mark-ups and markdowns or any commission to the dealer.

 

Quarter Ended   High     Low  
Quarter Ended December 31, 2018   $ 0.32     $ 0.10  
Quarter Ended September 30, 2018   $ 0.62     $ 0.16  
Quarter Ended June 30, 2018   $ 0.65     $ 0.07  
Quarter Ended March 31, 2018   $ 0.19     $ 0.03  
Quarter Ended December 31, 2017   $ 0.23     $ 0.03  
Quarter Ended September 30, 2017   $ 0.56     $ 0.21  
Quarter Ended June 30, 2017 (from May 5, 2017)   $ 0.90     $ 0.30  

 

The last reported sales price of our common stock on the OTCQB on December 31, 2018 was $0.135 and on March 27, 2019, the last reported sales price was $0.29.

 

Holders

 

As of March 27, 2019, we had 87 record holders of our common stock.

 

Dividend Policy

 

We have never declared or paid cash dividends on our common stock, and we do not intend to pay any cash dividends on our common stock in the foreseeable future. Rather, we expect to retain future earnings (if any) to fund the operation and expansion of our business and for general corporate purposes.

 

Equity Compensation Plan Information

 

The following table summarizes the total number of outstanding options and shares available for other future issuances of options under the 2016 Equity Incentive Plan (the “EIP”) as of December 31, 2018. All of the outstanding awards listed below were granted under the EIP.

 

    Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights     Weighted-Average Exercise Price of Outstanding Options,
Warrants and Rights
    Number of Shares Remaining Available for Future Issuance Under the Equity Compensation Plan (Excluding Shares in First Column)  
Equity compensation plans approved by stockholders     ---       ---       ---  
Equity compensation plans not approved by stockholders     4,272,996     $ 0.18       10,056,934  

 

On January 1, 2016, the Company instituted the EIP for the purpose of having equity awards available to allow for equity participation by its employees. The EIP allows for the issuance of up to 15,503,680 shares of the Company’s common stock to employees, which may be issued in the form of stock options, stock appreciation rights, or restricted shares. The EIP is governed by the Company’s board of directors, or a committee that may be appointed by the board of directors in the future. During the years ended December 31, 2018 and 2017, the Company made grants totaling 440,000 and 175,000 shares, respectively, of restricted common stock pursuant to the EIP. The grants are subject to time-based vesting requirements and generally vest a portion upon grant and the balance on a straight-line basis over a period of four years. During the years ended December 31, 2018 and 2017, the Company also made grants pursuant to the EIP totaling 1,383,000 and -0- shares of common stock underlying stock options. Certain of the stock options grants are subject to time-based vesting requirements, generally over a period of 4 years, and certain of the stock options are subject to performance based vesting requirements based on future company revenue and earnings metrics as well as individual performance goals.

 

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Unregistered Sales of Equity Securities

 

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 year ended December 31, 2018:

 

On May 10, 2018, we sold 100,000 shares of common stock in private placement transactions to an investor and received $15,500 in proceeds from the sale. The shares were issued at a share price of $0.155 per share. In connection with the stock sale, we also issued 50,000 five-year warrants to purchase shares of common stock at an exercise price of $0.25 per share.

 

On June 14, 2018, we sold 208,000 shares of common stock in private placement transactions to an investor and received $52,000 in proceeds from the sale. The shares were issued at a share price of $0.25 per share. In connection with the stock sale, we also issued 104,000 five-year warrants to purchase shares of common stock at an exercise price of $0.35 per share.

 

On June 6, 2018, we issued 600,000 five-year warrants with an exercise price of $0.15 to two individuals for consulting services to be performed between June 6 and December 6, 2018.

 

On July 11, 2018, we and the issuer of three previously-issued convertible promissory notes (dated July 7, 2016 with a face value of $550,000, July 7, 2016 with a face value of $50,000 and May 22, 2017 with a face value of $111,000 ) entered into an Amendment agreement related to these notes, pursuant to which the holder agreed to extend the maturity date of the three notes until July 31, 2019 in exchange for (i) a three-year warrant to purchase 200,000 of our common shares at an exercise price of $0.25, and (ii) a three-year warrant to purchase 300,000 of our common shares at an exercise price of $0.50.

 

On July 13, 2018, we and the issuer of three previously-issued convertible promissory notes (dated July 7, 2016 with a face value of $550,000, July 7, 2016 with a face value of $50,000 and May 22, 2017 with a face value of $111,000 ) entered into a second Amendment agreement, pursuant to which the holder agreed to further extend the maturity date of these notes until December 31, 2019 in exchange for (i) three-year warrant to purchase 175,000 of our common shares at an exercise price of $0.25, and (ii) three-year warrant to purchase 75,000 of our common shares at an exercise price of $0.50.

 

On July 18, 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 five-year life, (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 set at 2,745,757 on the Repricing Date) at an exercise price of $0.0001. Net proceeds to we were $1,774,690. We 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 1,360,000 shares of our common stock at an exercise price of $0.0001.

 

On August 7, 2018, we prepaid the balance on a convertible promissory note dated February 2, 2018 with a face value of $112,750 and also issued the holder a 3-year warrant to purchase 100,000 shares of our common stock at an exercise price of $0.25 in connection with the extinguishment.

 

On August 15, 2018, we sold 285,714 shares of common stock in a private placement transaction to an investor and received $100,000 in proceeds from the sale. The shares were issued at a share price of $0.35 per share. In connection with the stock sale, we also issued 142,857 five-year warrants to purchase shares of common stock at an exercise price of $0.45 per share.

 

On August 16, 2018, we prepaid the balance on a convertible promissory note dated February 13, 2018with a face value of $83,000 and also issued the holder a 5-year warrant to purchase 237,143 shares of our common stock at an exercise price of $0.35 in connection with the extinguishment.

 

On August 20, 2018, we issued 400,000 five-year warrants with an exercise price of $0.35 to a consultant for services performed. The fair value of the warrants was $145,861, which was recognized at issuance.

 

During August and October 2018, we issued 384,839 common shares to a convertible note holder upon conversion of outstanding principal and interest by the note holder.

 

On October 2, 2018, the investor in the July 18, 2018 private placement transaction exercised 2,000,001 of the Pre-Funded Warrants. We did not receive any proceeds from the transaction.

 

On November 21, 2018, we issued 35,000 common shares to the holder of a $153,000 convertible promissory note as an inducement to enter into the convertible promissory note transaction. We did not receive any proceeds from the transaction.

 

On January 15, 2019, we issued 28,000 common shares to the holder of a $78,000 convertible promissory note as an inducement to enter into the convertible promissory note transaction. We did not receive any proceeds from the transaction.

 

During February 7, 2019, we issued 2,512,821 common shares to a convertible note holder upon conversion of outstanding principal by the note holder.

 

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On February 13, 2019, the investor in the July 18, 2018 private placement transaction exercised the remaining 2,098,427 of the Pre-Funded Warrants. We did not receive any proceeds from the transaction.

 

On February 21, 2019, we issued 20,000 common shares to a third party consultant as partial compensation for professional services.

 

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, 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 only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

 

Recent Repurchases of Securities.

 

On October 3, 2018, we bought back 100,000 shares of our common stock from a shareholder for a total purchase price of $5,000. The shares were retired. The selling shareholder was the brother of our CEO Dr. Michael Dent.

 

Item 6. Selected Financial Data

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

Item 7. 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 “Item 1A. Risk Factors” included elsewhere in this 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, “us” or “HLYK”) was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles of Incorporation 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 the Share Exchange Agreement with Naples Women’s Center, LLC (“NWC”), a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and general practice located in Naples, Florida, acquiring 100% of the LLC membership interests of NWC in exchange for an aggregate of 50,000,000 shares of the Company’s common stock to the members of NWC.

  

The Company operates 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.

 

The Company was formed for the purpose of acquiring NWC, and eventually developing its own online medical information system business as described above. Prior to the share exchange, NWC was an ongoing operation that had been in existence since 1996. NWC has generated revenues since its inception.

 

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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.

 

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.

 

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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 45% of total billings. Trade accounts receivable are recorded at this net amount.

 

Capital Leases

 

Costs associated with capitalized leases are capitalized and depreciated ratably over the term of the related useful life of the asset and/or the capital lease term.

 

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.

 

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.”

 

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Derivative Financial Instruments

 

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

 

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

 

Fair Value of Assets and Liabilities

 

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

 

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

 

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

 

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

 

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

 

Stock-Based Compensation

 

The Company accounts for our 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.

 

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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 and accrued liabilities 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 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 one operating segment due to business similarities and similar economic characteristics.

 

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. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company is currently evaluating the impact of the new guidance on its financial statements.

 

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine the impact it may have on its financial statements.

 

In August 2016, the FASB issued ASC Update No. 2016-15, (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This ASC update provides specific guidance on the presentation of certain cash flow items where there is currently diversity in practice, including, but not limited to, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively unless impracticable. The Company implemented this guidance effective January 1, 2018. The adoption of ASC Update No. 2016-15 did not have a significant impact on the Company’s statement of cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . The objective of this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalents in the statement of cash flows. For public business entities, this ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented. The Company adopted this standard on January 1, 2018 and such adoption did not have a material impact on the Company’s financial statements.

 

In January 2017, the FASB issued ASC Update No. 2017-01, (Topic 805) Business Combinations – Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities constitute a business. This guidance narrows the definition of a business by providing specific requirements that contribute to the creation of outputs that must be present to be considered a business. The guidance further clarifies the appropriate accounting when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets is that of an acquisition (disposition) of assets, not a business. This framework will reduce the number of transactions that an entity must further evaluate to determine whether transactions are business combinations or asset acquisitions. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a prospective basis. Early adoption is permitted only for transactions that have not been reported in financial statements that have been issued. The Company implemented this guidance effective January 1, 2018. The implementation of this guidance did not have an effect on the Company’s financial position or results of operations.

 

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

 

On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA).  SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.

 

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 is evaluating the impact ASU 2018-09 may have on its consolidated financial statements.

 

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard did not materially impact the Company’s financial statements and related disclosures.

 

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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 is currently evaluating the impact of the new standard on the Company’s Consolidated Financial Statements.

 

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 is evaluating the impact ASU 2018-09 may have on its consolidated financial statements.

 

Results of Operations: Years Ended December 31, 2018 and 2017

 

The following table summarizes the changes in our results of operations for the year ended December 31, 2018 compared with the year ended December 31, 2017:

 

    Years Ended December 31,     Change  
    2018     2017     Increase (Decrease)
in $
    Increase (Decrease)
in %
 
Patient service revenue, net   $ 2,259,002     $ 2,103,579     $ 155,423       7 %
                                 
Salaries and benefits     2,366,582       2,022,445       344,137       17 %
General and administrative     2,840,784       1,848,866       991,918       54 %
Depreciation and amortization     23,782       23,606       176       1 %
Loss from operations     (2,972,146 )     (1,791,338 )     1,180,808       66 %
                                 
Loss on extinguishment of debt     (393,123 )     (290,581 )     102,542       35 %
Change in fair value of debt     (140,789 )     ---       140,789       100 %
Financing cost     (1,221,911 )     (72,956 )     1,148,955       1575 %
Amortization of original issue and debt discounts on notes payable and convertible notes     (763,616 )     (330,435 )     433,181       131 %
Change in fair value of derivative financial instruments     (106,141 )     3,967       110,108       2776 %
Interest expense     (193,109 )     (99,668 )     93,441       94 %
Total other expenses     (2,818,689 )     (789,673 )     2,029,016       257 %
                                 
Net loss   $ (5,790,835 )   $ (2,581,011 )   $ 3,209,824       124 %

 

Patient service revenue increased by $155,423, or 7%, from 2017 to 2018, primarily as a result of a 7% increase in gross billing from existing physicians.

 

Salaries and benefits increased by $344,137, or 17%, in 2018 primarily as a result of increased salary expense associated with medical practice production pay, HLYK’s overhead and hiring of the HLYK sales team that was in place for most of 2018.

 

General and administrative costs increased by $991,918, or 54%, in 2018 primarily due to higher stock- and cash-based consulting and professional costs in 2018, as well as higher information technology, sales and promotional costs associated with the rollout of the HealthLynked Network.

 

Depreciation and amortization increased by $176, or 1%, in 2018 primarily as a result of new property and equipment acquisitions in 2017.

 

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Loss from operations increased by $1,180,808, or 66%, in 2018 primarily as a result of increased HLYK headcount, higher stock- and cash-based consulting fees and professional costs associated with the rollout of the HealthLynked Network, offset by higher revenue from the medical practice.

 

Loss on extinguishment of debt in 2018 arose from an extinguishment loss in the amount of $348,938 related to the extension of debt issued to Dr. Michael Dent, as well as extinguishment losses totaling $335,951 related to the extension of convertible notes, offset by gains of $291,766 related to the write-off of derivative liabilities associated with nine convertible notes repaid during the period. Loss on extinguishment of debt in 2017 arose from warrants issued in connection with the extension of the maturity date of three convertible notes.

 

Change in fair value of debt of $140,789 in 2018 arose from the treatment of the extensions of the $550k Note, the $50k Note, the $111k Note and certain notes issued to Dr. Michael Dent as extinguishment and reissuance transactions, resulting these notes being 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 in 2018 arose from the excess of fair value of derivative instruments over net proceeds received from the July 2018 Private Placement transaction, as well as from the issuance of 16 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. Financing cost in 2017 arose from the issuance of three 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.

 

Amortization of original issue and debt discounts increased by $433,181, or 131%, in 2018 as a result of the amortization of more convertible notes with larger discounts being amortized in 2018.

 

Change in fair value of derivative financial instruments increased by $110,108, or 2,776%, as a result of (i) a loss on the change in fair value of derivative financial instruments in 2018 of $385,856 associated with the revaluation and reclassification to equity of derivatives associated with warrants issued in the July 2018 Private Placement, and (ii) changes in fair value of derivative financial instruments embedded in convertible promissory notes.

 

Interest expense increased by $93,441, or 94%, in 2018 as a result of increased interest on new convertible notes issued in 2018, as well as on new notes issued to Dr. Dent during the second half of 2017 and the first quarter of 2018.

 

Total other expenses increased by $2,029,016, or 257%, in 2018 primarily as a result of financing costs related to the July 2018 Private Placement and convertible notes issued in 2018, higher amortization of discounts on outstanding convertible promissory notes in 2018, a loss on the change in fair value of debt in 2018, and a loss on the change in fair value of derivative financial instruments in 2018 compared to a small gain in 2017.

 

Net loss increased by $3,209,824, or 124%, in 2018 primarily as a result of financing costs, amortization of debt discounts and changes in fair value of debt and derivative financial instruments, as well as increased salaries, benefits and overhead costs associated with preparing for the HealthLynked Network product launch and public company costs. These increases were offset by an increase in revenue of 155,423, or 7%.

 

Liquidity and Capital Resources

 

Going Concern

 

As of December 31, 2018, we had a working capital deficit of $2,983,926 and accumulated deficit $10,501,055. For the year ended December 31, 2018, we had a net loss of $5,790,835 and net cash used by operating activities of $2,356,186. Net cash used in investing activities was $3,002. Net cash provided by financing activities was $2,444,960, resulting principally from $2,632,956 proceeds from the sale of common stock, $1,255,500 net proceeds from the issuance of convertible notes, $101,450 net proceeds from related party loans and $73,500 net proceeds from the issuance of notes payable.

 

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.

 

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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 years ended December 31, 2018 and 2017, we received $440,767 and $27,640, respectively, from the proceeds of the sale of 2,440,337 and 222,588 shares, respectively, pursuant to the Investment Agreement.

 

We intend that the cost of implementing our development and sales efforts related to the HealthLynked Network, as well as maintaining our existing and expanding overhead and administrative costs, will be funded principally by cash received from (i) the July 2018 Private Placement, (ii) the put rights associated with the Investment Agreement, and (iii) 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 $1,394,500 as of December 31, 2018, 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 December 31, 2018, 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 years ended December 31, 2018 and 2017, we received proceeds from the sale of shares pursuant to the Investment Agreement totaling $440,523 (2,440,337 shares) and $27,640 (222,588 shares), respectively.

 

Other Sales of Common Stock

 

During 2017, we sold 5,873,609 shares of common stock in private placement transactions to 18 investors and received $821,000 in proceeds from the sales. The shares were issued at a share price between $0.10 and $0.30 per share.

 

During 2018, we sold 3,534,891 shares of common stock in six separate private placement transactions. We received $417,500 in proceeds from the sales, which were transacted at share prices between $0.085 and $0.35 per share. In connection with these stock sales, we also issued 2,649,798 five-year warrants to purchase shares of common stock at exercise prices between $0.15 and $0.45 per share.

 

33

 

 

Convertible Notes Payable

 

As of December 31, 2018, we had outstanding convertible notes payable with aggregate face value of $1,344,500 maturing between July and December 2019, 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
$171.5k Note - October 2017     171,500       10 %     35 %   December 31, 2019
$103k Note I - October 2018     103,000       10 %     39 %   July 30, 2019
$103k Note II - November 2018     103,000       10 %     39 %   August 30, 2019
$153k Note - November 2018     153,000       10 %     25 %   August 19, 2019
$103k Note III - December 2018     103,000       10 %     39 %   December 3, 2019
    $ 1,344,500                      

 

During the year ended December 31, 2018, we repaid 15 convertible notes payable with aggregate face value of $1,007,500 and one holder converted principal in the amount of $57,750 on another note payable.

 

Plan of operation and future funding requirements

 

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

 

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

 

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 plan 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 January 15, 2019, the Company entered into a definitive agreement to acquire Hughes Center for Functional Medicine, P.A. (“HCFM”) for $750,000 in cash, $750,000 in shares of Company common stock and $500,000 in a three-year performance-based payout. 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.

 

We anticipate that approximately 50% of this amount will be used for sales and marketing related costs and the remainder for executive compensation, IT expenses and legal and accounting expenses related to being a public company. We plan on raising additional capital to fund our recently disclosed 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 $711,000 have been extended until December 31, 2019.

 

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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 the July 2018 Private Placement in addition to the cash received by us from the put rights associated with the Investment Agreement. 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, 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 December 31, 2018, our daily trading volume averaged approximately 97,000 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 capital requirements.

 

Historical Cash Flows

 

    Years Ended December 31,  
    2018     2017  
Net cash (used in) provided by:            
Operating activities   $ (2,356,186 )   $ (1,619,269 )
Investing Activities     (3,002 )     (16,147 )
Financing activities     2,444,960       1,626,706  
Net increase (decrease) in cash   $ 85,772     $ (8,710 )

 

Operating Activities – During the year ended December 31, 2018, we used cash from operating activities of $2,356,186, as compared with $1,619,269 in the same period of 2017. The increased cash usage results from higher losses resulting primarily from increased salaries and benefits, as well an increase in sales, legal, accounting and other overhead costs associated with preparing for product launch and public listing in 2017.

 

Investing Activities – Our business is not capital intensive, and as such cash flows from investing activities are minimal in each period. Capital expenditures of $3,002 in the year ended December 31, 2018 and $16,147 in the year ended December 31, 2017 are comprised solely of computer equipment and furniture.

 

Financing Activities – During the year ended December 31, 2018, we realized $1,255,500 net proceeds from the issuance of convertible notes, $2,632,956 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. We also made repayments of $1,388,560 against convertible notes, $199,067 against notes payable, $9,000 against related party loans and $16,819 on capital lease obligations. During the year ended December 31, 2017, we realized $848,639 proceeds from sales of our common stock, $429,500 from the issuance of convertible notes payable, $338,470 from related party loans, and $148,510 from the issuance of notes payable. We also made repayments on loans from related party loans in the amount of $11,192, paid capital lease obligations of $18,348, and repaid notes payable in the amount of $108,873.

 

Exercise of Warrants and Options

 

There were no proceeds generated from the exercise of warrants or options during the years ended December 31, 2018 or 2017.

 

Other Outstanding Obligations at December 31, 2018

 

Warrants

 

As of December 31, 2018, 46,161,463 shares of our Common Stock are issuable pursuant to the exercise of warrants with exercise prices ranging from $0.0001 to $1.00.

 

Options

As of December 31, 2018, 3,707,996 shares of our Common Stock are issuable pursuant to the exercise of options with exercise prices ranging from $0.08 to $0.31.

 

35

 

 

Off Balance Sheet Arrangements

 

None.

 

Contractual Obligations

 

Our contractual obligations as of December 31, 2018 were as follows:

 

    Operating     Capital     Total  
    Leases     Leases     Commitments  
2019   $ 273,856     $ 19,877     $ 293,733  
2020     162,055       3,058       165,113  
2021     ---       ---       ---  
2022     ---       ---       ---  
2023     ---       ---       ---  
                         
Total   $ 435,911     $ 22,935     $ 458,846  

 

Operating lease commitments relate to three 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. Monthly rent is approximately $3,300.

 

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

  

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Pursuant to Item 305(e) of Regulation S-K (§229.305(e)), 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).

   

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Item 8. Financial Statements and Supplementary Data

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Report of Independent Registered Public Accounting Firm F-1
Consolidated balance sheets at December 31, 2018 and 2017 F-2
Consolidated statements of operations for the years ended December 31, 2018 and 2017 F-3
Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2018 and 2017 F-4
Consolidated statements of cash flows for the years ended December 31, 2018 and 2017 F-5
Notes to consolidated financial statements F-6

 

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Report of Independent Registered Public Accounting Firm

  

To the Board of Directors and Shareholders of

Healthlynked Corporation

  

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Healthlynked Corporation (the “Company”), as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2018 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

The Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company has suffered recurring losses from operations, generated negative cash flows from operating activities, has an accumulated deficit and has stated that substantial doubt exists about Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

  

/s/ RBSM LLP

 

We have served as the Company’s auditor since 2014.

 

New York, New York

April 1, 2019


 

F- 1

 

 

HEALTHLYNKED CORPORATION

CONSOLIDATED BALANCE SHEETS

 

    December 31,  
    2018     2017  
ASSETS            
Current Assets            
Cash   $ 135,778     $ 50,006  
Accounts receivable, net of allowance for doubtful accounts of $13,972 and $-0- as of December 31, 2018 and 2017, respectively     114,884       113,349  
Prepaid expenses     28,542       81,892  
Deferred offering costs     96,022       121,620  
Total Current Assets     375,226       366,867  
               
Property, plant and equipment, net of accumulated depreciation of $752,173 and $728,391 as of December 31, 2018 and 2017, respectively     42,597       63,376  
Deposits     9,540       9,540  
                 
Total Assets   $ 427,363     $ 439,783  
                 
LIABILITIES AND SHAREHOLDERS’ DEFICIT                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 394,333     $ 253,514  
Capital lease, current portion     19,877       18,348  
Due to related party, current portion     429,717       363,845  
Notes payable to related party, current portion     672,471       553,550  
Notes payable, net of original issue discount and debt discount of $-0  and $26,881 as of December 31, 2018 and 2017, respectively     ---       70,186  
Convertible notes payable, net of original issue discount and debt discount of $386,473 and $266,642 as of December 31, 2018 and 2017, respectively     1,042,314       811,858  
Derivative financial instruments     800,440       398,489  
Total Current Liabilities     3,359,152       2,469,790  
                 
Long-Term Liabilities                
Capital leases, long-term portion     3,058       21,406  
                 
Total Liabilities     3,362,210       2,491,196  
                 
Shareholders’ Deficit                
Common stock, par value $0.0001 per share, 500,000,000 shares authorized, 85,178,902 and 72,302,937 shares issued and outstanding as of December 31, 2018 and 2017, respectively     8,518       7,230  
Common stock issuable, $0.0001 par value; 114,080 and 122,101 shares as of December 31, 2018 and 2017, respectively     26,137       8,276  
Additional paid-in capital     7,531,553       2,638,311  
Accumulated deficit     (10,501,055 )     (4,705,230 )
Total Shareholders’ Deficit     (2,934,847 )     (2,051,413 )
                 
Total Liabilities and Shareholders’ Deficit   $ 427,363     $ 439,783  

 

See the accompanying notes to these Consolidated Financial Statements

 

F- 2

 

 

HEALTHLYNKED CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

 

    Years Ended December 31,  
    2018     2017  
Revenue            
Patient service revenue, net   $ 2,259,002     $ 2,103,579  
                 
Operating Expenses                
Salaries and benefits     2,366,582       2,022,445  
General and administrative     2,840,784       1,848,866  
Depreciation and amortization     23,782       23,606  
Total Operating Expenses     5,231,148       3,894,917  
                 
Loss from operations     (2,972,146 )     (1,791,338 )
                 
Other Income (Expenses)                
Loss on extinguishment of debt     (393,123 )     (290,581 )
Change in fair value of debt     (140,789 )     ---  
Financing cost     (1,221,911 )     (72,956 )
Amortization of original issue and debt discounts on notes payable and convertible notes     (763,616 )     (330,435 )
Change in fair value of derivative financial instrument     (106,141 )     3,967  
Interest expense     (193,109 )     (99,668 )
Total other expenses     (2,818,689 )     (789,673 )
                 
Net loss before provision for income taxes     (5,790,835 )     (2,581,011 )
                 
Provision for income taxes     ---       ---  
                 
Net loss   $ (5,790,835 )   $ (2,581,011 )
                 
Net loss per share, basic and diluted:                
Basic   $ (0.07 )   $ (0.04 )
Fully diluted   $ (0.07 )   $ (0.04 )
                 
Weighted average number of common shares:                
Basic     78,816,272       69,560,481  
Fully diluted     78,816,272       69,560,481  

 

See the accompanying notes to these Consolidated Financial Statements

 

F- 3

 

 

HEALTHLYNKED CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ DEFICIT

YEARS ENDED DECEMBER 31, 2018 AND 2017

 

    Number of Shares           Common     Additional           Total  
    Common     Common     Stock     Paid-in     Accumulated     Shareholders’  
    Stock     Stock     Issuable     Capital     Deficit     Deficit  
    (#)     ($)     ($)     ($)     ($)     ($)  
Balance at December 31, 2016     65,753,640       6,575       6,451       1,199,511       (2,124,219 )     (911,682 )
                                                 
Sale of common stock     6,096,197       610       ---       758,654       ---       759,264  
Fair value of warrants allocated to proceeds of common stock     ---       ---       ---       89,376       ---       89,376  
Fair value of warrants allocated to proceeds of convertible notes payable     ---       ---       ---       73,696       ---       73,696  
Fair value of warrants issued pursuant to Amended Investment Agreement     ---       ---       ---       153,625       ---       153,625  
Fair value of warrants issued to extend convertible notes payable     ---       ---       ---       290,581       ---       290,581  
Consultant fees payable with common shares and warrants     276,850       28       1,817       52,083       ---       53,928  
Shares and options issued pursuant to employee equity incentive plan     176,250       17       8       20,785       ---       20,810  
Net loss     ---       ---       ---       ---       (2,581,011 )     (2,581,011 )
                                                 
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     9,875,228       988       ---       2,450,180       ---       2,451,168  
Sale of common stock initially allocated to derivative financial instruments     ---       ---       ---       (1,774,298 )     ---       (1,774,298 )
Fair value of warrants allocated to proceeds of common stock     ---       ---       ---       181,788       ---       181,788  
Fair value of warrants issued to extend related party notes payable     ---       ---       ---       337,466       ---       337,466  
Fair value of warrants issued to extend convertible notes payable     ---       ---       ---       229,900       ---       229,900  
Fair value of warrants issued to retire convertible notes payable     ---       ---       ---       143,014       ---       143,014  
Shares issued with convertible notes payable     35,000       4       ---       5,593       ---       5,597  
Fair value of warrants issued for professional services     ---       ---       ---       296,447       ---       296,447  
Derivative liabilities transferred to additional paid-in capital     ---       ---       ---       2,783,372       ---       2,783,372  
Conversion of convertible notes payable to common stock     384,839       38       ---       42,173       ---       42,211  
Derivative liabilities reclassified into additional paid in capital for convertible notes payable conversion into shares     ---       ---       ---       63,549       ---       63,549  
Consultant fees payable with common shares and warrants     277,147       28       17,869       31,660       ---       49,557  
Shares and options issued pursuant to employee equity incentive plan     403,750       40       (8 )     102,598       ---       102,630  
Exercise of warrants     2,000,001       200       ---       (200 )     ---       ---  
Repurchase and retirement of treasury shares     (100,000 )     (10 )     ---       ---       (4,990 )     (5,000 )
Net loss     ---       ---       ---       ---       (5,790,835 )     (5,790,835 )
                                                 
Balance at December 31, 2018     85,178,902       8,518       26,137       7,531,553       (10,501,055 )     (2,934,847 )

 

See the accompanying notes to these Consolidated Financial Statements

 

F- 4

 

 

HEALTHLYNKED CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

 

    Years Ended December 31,  
    2018     2017  
Cash Flows from Operating Activities            
Net loss   $ (5,790,835 )   $ (2,581,011 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     23,782       23,606  
Stock based compensation, including amortization of prepaid fees     474,231       106,743  
Amortization of original issue discount and debt discount on convertible notes     763,616       330,435  
Financing cost     1,221,911       72,956  
Change in fair value of derivative financial instrument     106,141       (3,967 )
Loss on extinguishment of debt     393,123       290,581  
Change in fair value of debt     140,789       ---  
Changes in operating assets and liabilities:                
Accounts receivable     (1,535 )     33,525  
Prepaid expenses and deposits     53,350       (38,347 )
Accounts payable and accrued expenses     193,400       105,042  
Due to related party, current portion     65,841       41,168  
Net cash used in operating activities     (2,356,186 )     (1,619,269 )
                 
Cash Flows from Investing Activities                
Acquisition of property and equipment     (3,002 )     (16,147 )
Net cash used in investing activities     (3,002 )     (16,147 )
                 
Cash Flows from Financing Activities                
Proceeds from sale of common stock     2,632,956       848,639  
Proceeds from issuance of convertible notes     1,255,500       429,500  
Repayment of convertible notes     (1,388,560 )     ---  
Proceeds from related party loans     101,450       338,470  
Repayment of related party loans     (9,000 )     (11,192 )
Proceeds from notes payable and bank loans     73,500       148,510  
Repayment of notes payable and bank loans     (199,067 )     (108,873 )
Payments on capital leases     (16,819 )     (18,348 )
Repurchase and retirement of treasury stock     (5,000 )     ---  
Net cash provided by financing activities     2,444,960       1,626,706  
                 
Net decrease in cash     85,772       (8,710 )
Cash, beginning of period     50,006       58,716  
                 
Cash, end of period   $ 135,778     $ 50,006  

 

F- 5

 

 

HEALTHLYNKED CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

 

    Years Ended December 31,  
      2018         2017  
             
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest   $ 79,844     $ 1,002  
Cash paid during the period for income tax   $ ---     $ ---  
Schedule of non-cash investing and financing activities:     $           $    
Fair value of warrants issued to extend maturity date of convertible notes payable   $ 229,902     $ 7,506  
Fair value of beneficial conversion feature and original issue discount allocated to proceeds of convertible notes payable   $ 1,848,098     $ 66,190  
Common stock issuable issued during period   $ 13,799     $ 6,451  
Derivative liabilities written off with repayment of convertible notes payable   $ 1,102,882     $ ---  
Derivative liabilities written off at end of warrant repricing period   $ 2,783,372     $ ---  
Fair value of warrants issued to extend related party notes payable   $ 337,466     $ ---  
Fair value of warrants issued to extinguish convertible notes payable   $ 143,014     $ ---  
Fair of warrants issued for professional service   $ 130,306     $ ---  
Fair value of warrants issued pursuant to Amended Investment Agreement   $ ---     $ 153,625  
Derivative liabilities reclassified into additional paid in capital for convertible notes payable conversion into shares   $ 63,549     $ ---  
Conversion of convertible notes payable to common stock   $ 62,036     $ ---  
Fair value of common shares issued with convertible notes payable   $ 5,593     $ ---  
Cashless exercise of warrants   $ 200     $ ---  

   

See the accompanying notes to these Consolidated Financial Statements

 

F- 6

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 1 – BUSINESS AND BUSINESS PRESENTATION

 

HealthLynked Corp., a Nevada corporation (the “Company” or “HLYK”) filed its Articles of Incorporation on August 4, 2014. On September 3, 2014 HLYK filed Amended Articles of Incorporation clarifying that the total authorized shares of 250,000,000 shares are broken up between 230,000,000 common shares and 20,000,000 preferred shares. On February 5, 2018, the Company filed an amendment with the Secretary of State of Nevada to increase the amount of authorized shares of common stock to 500,000,000 shares.

 

On September 5, 2014, HLYK entered into a share exchange agreement (the “Share Exchange Agreement”) with Naples Women’s Center LLC (“NWC”), a Florida Limited Liability Company (“LLC”), acquiring 100% of the LLC membership units of NWC through the issuance of 50,000,000 shares of HLYK common stock to the members of NWC (the “Restructuring”).

 

NWC is a multi-specialty medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice located in Naples, Florida.

 

HLYK operates an online personal medical information and record archive system, the “HealthLynked Network”, which enables patients and doctors to keep track of medical information via the Internet in a cloud based system. Patients complete a detailed online personal medical history including past surgical history, medications, allergies, and family history. Once this information is entered patients and their treating physicians are able to update the information as needed to provide a comprehensive medical history.

 

These consolidated financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the GAAP.

 

All significant intercompany transactions and balances have been eliminated upon consolidation. In addition, certain amounts in the prior periods’ consolidated financial statements have been reclassified to conform to the current period presentation.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

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

 

Basis of Presentation

 

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

 

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

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Significant estimates include assumptions about collection of accounts receivable, the valuation and recognition of stock-based compensation expense, valuation allowance for deferred tax assets and useful life of fixed assets.

 

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.

 

F- 7

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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.

 

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.

 

F- 8

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Accounts Receivable

 

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past collectability of the insurance companies, government agencies, and customers’ accounts receivable during the related period which generally approximates 45% of total billings. Trade accounts receivable are recorded at this net amount. As of December 31, 2018 and 2017, the Company’s gross accounts receivable were $244,956 and $256,446, respectively, and net accounts receivable were $114,884 and $113,349, respectively, based upon net reporting of accounts receivable. As of December 31, 2018 and 2017, the Company’s allowance of doubtful accounts was $13,972 and $-0-, respectively.

 

Capital Leases

 

Costs associated with capitalized leases are capitalized and depreciated ratably over the term of the related useful life of the asset and/or the capital lease term. The related depreciation was $18,348 and $18,348 for the years ended December 31, 2018 and 2017, respectively. Accumulated depreciation of capitalized leases was $322,087 and $303,738 at December 31, 2018 and 2017, respectively.

 

Concentrations of Credit Risk

 

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

 

Property and Equipment

 

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

 

The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. There was no impairment as of December 31, 2018 and December 31, 2017.  

 

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.”

 

F- 9

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Derivative Financial Instruments

 

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

 

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

 

Fair Value of Assets and Liabilities

 

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

 

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

 

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

 

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

 

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

 

Stock-Based Compensation

 

The Company accounts for stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

 

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.

 

F- 10

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes

 

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.

 

Recurring Fair Value Measurements

 

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

 

Net Income (Loss) per Share  

 

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. During the years ended December 31, 2018 and 2017, the Company reported a net loss and excluded all outstanding stock options, warrants and other dilutive securities from the calculation of diluted net loss per common share because inclusion of these securities would have been anti-dilutive. As of December 31, 2018 and 2017, potentially dilutive securities were comprised of (i) 46,161,463 and 20,526,387 warrants outstanding, respectively, (ii) 3,707,996 and 2,349,996 stock options outstanding, respectively, (iii) 15,517,111 and 22,022,021 shares issuable upon conversion of convertible notes, respectively, and (iv) 565,000 and 628,750 unissued shares subject to future vesting requirements granted pursuant to the Company’s Employee Incentive Plan.  

 

Common stock awards

 

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

 

Warrants

 

In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes 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 .

 

F- 11

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 one operating segment due to business similarities and similar economic characteristics.

 

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. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. The Company is currently evaluating the impact of the new guidance on its financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017. The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. The Company is currently evaluating the new guidance to determine the impact it may have on its financial statements.

 

In August 2016, the FASB issued ASC Update No. 2016-15, (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This ASC update provides specific guidance on the presentation of certain cash flow items where there is currently diversity in practice, including, but not limited to, debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied retrospectively unless impracticable. The Company implemented this guidance effective January 1, 2018. The adoption of ASC Update No. 2016-15 did not have a significant impact on the Company’s statement of cash flows.

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash . The objective of this ASU is to eliminate the diversity in practice related to the classification of restricted cash or restricted cash equivalents in the statement of cash flows. For public business entities, this ASU is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented. The Company adopted this standard on January 1, 2018 and the adoption did not have a material impact on the Company’s financial statements.

 

F- 12

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

In January 2017, the FASB issued ASC Update No. 2017-01, (Topic 805) Business Combinations – Clarifying the Definition of a Business. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities constitute a business. This guidance narrows the definition of a business by providing specific requirements that contribute to the creation of outputs that must be present to be considered a business. The guidance further clarifies the appropriate accounting when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets is that of an acquisition (disposition) of assets, not a business. This framework will reduce the number of transactions that an entity must further evaluate to determine whether transactions are business combinations or asset acquisitions. The updated guidance is effective for interim and annual periods beginning after December 15, 2017, and should be applied on a prospective basis. Early adoption is permitted only for transactions that have not been reported in financial statements that have been issued. The Company implemented this guidance effective January 1, 2018. The implementation of this guidance did not have an effect on the Company’s financial position or results of operations.

 

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

 

On December 22, 2017 the SEC staff issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the TCJA).  SAB 118 provides a measurement period that should not extend beyond one year from the enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but for which they are able to determine a reasonable estimate, it must record a provisional amount in the financial statements. Provisional treatment is proper in light of anticipated additional guidance from various taxing authorities, the SEC, the FASB, and even the Joint Committee on Taxation. If a company cannot determine a provisional amount to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA. The Company has applied this guidance to its financial statements.

 

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 is evaluating the impact ASU 2018-09 may have on its consolidated financial statements.

 

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard 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 is currently evaluating the impact of the new standard on the Company’s Consolidated Financial Statements.

 

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 is evaluating the impact ASU 2018-09 may have on its consolidated financial statements.

 

F- 13

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 3 – GOING CONCERN MATTERS AND LIQUIDITY

 

As of December 31, 2018, the Company had a working capital deficit of $2,983,926 and accumulated deficit $10,501,055. For the year ended December 31, 2018, the Company had a net loss of $5,790,835 and net cash used by operating activities of $2,356,186. Net cash used in investing activities was $3,002. Net cash provided by financing activities was $2,444,960, resulting principally from $2,632,956 proceeds from the sale of common stock, $1,255,500 net proceeds from the issuance of convertible notes, $101,450 net proceeds from related party loans and $73,500 net proceeds from the issuance of notes payable

 

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

 

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

 

During July 2016, HLYK entered into an Investment Agreement (the “Investment Agreement”) pursuant to which the investor has agreed to purchase up to $3,000,000 of HLYK common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the investor by the Company pursuant to a specified formula that limits the number of shares able to be put to the investor to the number equal to the average trading volume of the Company’s common shares for the ten consecutive trading days prior to the put notice being issued. During the year ended December 31, 2018, the Company received $440,523 from the proceeds of the sale of 2,440,337 shares pursuant to the Investment Agreement. During July 2018, we also entered into a private placement transaction that generated net proceeds to the Company of $1,774,690. See Note 11.

 

NOTE 4 – DEFERRED OFFERING COSTS AND PREPAID STOCK COMPENSATION

 

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.

 

F- 14

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 4 – DEFERRED OFFERING COSTS AND PREPAID STOCK COMPENSATION (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 years ended December 31, 2018 and 2017, the Company recognized $51,208 and $32,005, respectively, in general and administrative expense related to the cost of the warrants.

 

Prepaid Stock Compensation

 

On June 6, 2018, the Company granted three-year warrants to purchase 600,000 shares at an exercise price of $0.15 per share to two advisors for services to be provided over a six-month period. The fair value of the warrants was calculated using the Black-Scholes pricing model at $94,844, with the following assumptions: risk-free interest rate of 2.65%, expected life of 3 years, volatility of 286.98%, and expected dividend yield of zero. During the years ended December 31, 2018 and 2017, the Company recognized $94,844 and $-0-, respectively, in general and administrative expense related to the cost of these warrants.

 

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 the advisors for services to be provided over an additional 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. During the years ended December 31, 2018 and 2017, the Company recognized $9,850 and $-0-, respectively, in general and administrative expense related to the cost of these warrants.

 

NOTE 5 – PROPERTY, PLANT, AND EQUIPMENT

 

Property, plant and equipment at December 31, 2018 and 2017 are as follows:

 

    December 31,  
    2018     2017  
             
Capital Lease equipment   $ 343,492     $ 343,492  
Telephone equipment     12,308       12,308  
Furniture, Transport and Office equipment     438,970       435,967  
                 
Total Property, plant and equipment     794,770       791,767  
Less: accumulated depreciation     (752,173 )     (728,391 )
                 
Property, plant and equipment, net   $ 42,597     $ 63,376  

 

Depreciation expense during the years ended December 31, 2018 and 2017 was $23,782 and $23,606, respectively.

 

NOTE 6 – DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS

 

Amounts due to related parties as of December 31, 2018 and 2017 were comprised of the following:

 

    December 31,  
    2018     2017  
Due to related party:            
Deferred compensation, Dr. Michael Dent   $ 300,600     $ 300,600  
Accrued interest payable to Dr. Michael Dent     129,117       63,245  
Total due to related party     429,717       363,845  
                 
Notes payable to related party:                
Notes payable to Dr. Michael Dent, current portion     672,471       553,550  

 

F- 15

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 6 – DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED)

 

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 December 31, 2018 and 2017 was $66,859 and $43,963, respectively.

 

The carrying values of notes payable to Dr. Michael Dent as of December 31, 2018 and 2017 were as follows:

 

              Interest     Balance as of December 31,  
Inception Date   Maturity Date   Borrower     Rate     2018     2017  
January 12, 2017   January 13, 2019   HLYK       10 %   $ 40,560 *   $ 35,000  
January 18, 2017   January 19, 2019   HLYK       10 %     23,165 *     20,000  
January 24, 2017   January 15, 2019   HLYK       10 %     57,839 *     50,000  
February 9, 2017   February 10, 2019   HLYK       10 %     34,586 *     30,000  
April 20, 2017   April 21, 2019   HLYK       10 %     11,357 *     10,000  
June 15, 2017   June 16, 2019   HLYK       10 %     36,464 *     32,500  
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       ---  
January 11, 2018   January 12, 2019   HLYK       10 %     9,000       ---  
January 26, 2018   January 27, 2019   HLYK       10 %     17,450       ---  
January 3, 2014   December 31, 2018   NWC       10 %     222,050       231,050  
                                   
                      $ 672,471     $ 553,550  

 

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 and December 31, 2018 and 2017 was $62,258 and $19,350, respectively.

 

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, 2012, 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 was $15,029 in the year ended December 31, 2018 and is included on the statement of operations in “Change in fair value of debt.”

 

F- 16

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 6 – DUE TO RELATED PARTY AND RELATED PARTY TRANSACTIONS (CONTINUED)

 

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 years ended December 31, 2018 and 2017, the Company recognized rent expense to MOD in the amount of $30,457 and $-0-, respectively, pursuant to this agreement including $16,177 recognized in 2018 to write of the balance of a prepayment to MOD to be applied toward future rent.

 

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 years ended December 31, 2018 and 2017, the Company recognized general and administrative expense in the amount of $12,500 and $27,500, respectively, pursuant to this agreement. On July 1, 2018 HLYK and MOD signed a marketing and service agreement where HLYK will include MOD offering as part of its product offering to physicians and HLYK will receive 8% of revenue for new sales related to MOD products sold by the HLYK sales team.

 

Stock Repurchase

 

On October 3, 2018, the Company bought back 100,000 shares of common stock from a shareholder for a total purchase price of $5,000. The shares were retired. The selling shareholder was the brother of our CEO Dr. Michael Dent.

 

NOTE 7 – CAPITAL LEASE

 

Capital lease obligations as of December 31, 2018 and 2017 are comprised of the following:

 

    December 31,  
    2018     2017  
             
Note payable, New Everbank Lease   $ 22,935     $ 39,754  
Less: note payable, New Everbank Lease (Capital leases), current portion     (19,877 )     (18,348 )
                 
Notes payable, bank loans and capital leases, long-term portion   $ 3,058     $ 21,406  

 

In March 2015, the Company entered into a capital equipment finance lease for Ultra Sound equipment with Everbank. There was no interest on this lease. The monthly payment is $1,529 for 60 months ending in March 2020. As of December 31, 2018 and 2017, the Company owed Everbank $22,935 and $39,754, respectively, pursuant to this capital lease. During the years ended December 31, 2018 and 2017, the Company made payments on this capital lease of $16,819 and $18,348, respectively.

 

Future minimum payments to which the Company is obligated pursuant to the capital leases as of December 31, 2018 are as follows:

 

2019   $ 19,877  
2020     3,058  
2021     ---  
2022     ---  
2023     ---  
         
Total   $ 22,935  

 

F- 17

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 8 – NOTES PAYABLE

 

On July 11, 2017, the Company entered into a Merchant Cash Advance Factoring Agreement (“MCA”) with Power Up Lending Group, Ltd. (the “PULG”) pursuant to which the Company received an advance of $26,000 before closing fees (the “July 2017 MCA”). The Company was required to repay the July 2017 MCA, which acted like an ordinary note payable, at the rate of $1,372 per week until the balance of $34,580 was repaid. At inception, the Company recognized a note payable in the amount of $34,580 and a discount against the note payable of $9,550. The discount was being amortized over the life of the instrument. The July 2017 MCA was repaid in full on December 20, 2017. During the year ended December 31, 2017, the Company recognized amortization of the discount in the amount of $9,550, including $1,096 recognized to amortize the remaining discount at retirement.

 

On August 9, 2017, the Company entered into a second MCA with PULG pursuant to which the Company received an advance of $51,000 before closing fees (the “August 2017 MCA”). The Company was required to repay the advance, which acted like an ordinary note payable, at the rate of $2,752 per week until the balance of $69,360 was repaid. At inception, the Company recognized a note payable in the amount of $69,360 and a discount against the note payable of $19,380. The discount was being amortized over the life of the instrument. The August 2017 MCA was repaid in full on December 20, 2017. During the year ended December 31, 2017, the Company recognized amortization of the discount in the amount of $19,380, including $5,161 recognized to amortize the remaining discount at retirement.

 

On December 20, 2017, the Company entered into a third MCA with PULG pursuant to which the Company received an advance of $75,000 before closing fees (the “December 2017 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 was repaid. 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. During the year ended December 31, 2018, the Company made installment payments of $89,048 on the December 2017 MCA. The December 2017 MCA was repaid on June 1, 2018. During the year ended December 31, 2018, the Company recognized amortization of the discount in the amount of $26,881, including $2,267 recognized to amortize the remaining discount at retirement. During the year ended December 31, 2017, the Company recognized amortization of the discount in the amount of $1,619.

 

On June 1, 2018, the Company entered into a fourth MCA with PULG pursuant to which the Company received an advance of $75,000 before closing fees (the “December 2018 MCA”). The Company was required to repay the advance at the rate of $4,048 per week until the balance of $102,000 has been repaid in 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 discount was being amortized over the life of the instrument. During the year ended December 31, 2018, the Company recognized amortization of the discount in the amount of $28,500. The December 2018 MCA was repaid in full in November 2018.

 

F- 18

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable as of December 31, 2018 and 2017 were comprised of the following:

 

    December 31,  
    2018     2017  
             
$550k Note - July 2016   $ 594,813 *   $ 550,000  
$50k Note - July 2016     60,312 *     50,000  
$111k Note - May 2017     125,190 *     111,000  
$53k Note - July 2017     ---       53,000  
$35k Note - September 2017     ---       35,000  
$55k Note - September 2017     ---       55,000  
$53k Note II - October 2017     ---       53,000  
$171.5k Note - October 2017     186,472       171,500  
$103k Note I - October 2018     103,000       ---  
$103k Note II - November 2018     103,000       ---  
$153k Note - November 2018     153,000       ---  
$103k Note III - December 2018     103,000       ---  
      1,428,787       1,078,500  
Less: unamortized discount     (386,473 )     (266,642 )
Convertible notes payable, net of original issue discount and debt discount     1,042,314       811,858  

 

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

 

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, 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. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $-0- and $104,137, respectively. As of December 31, 2018, the unamortized discount was $-0- and the $550k Note was convertible into 6,875,000 of the Company’s common shares.

 

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.” The fair value of this instrument as of December 31, 2018 was $594,813. During the years ended December 31, 2018 and 2017, a change in fair value of debt related to this instrument was recorded in the amount of $96,787 and $-0-, respectively.

 

During the years ended December 31, 2018 and 2017, the Company made no repayments on this instrument. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $33,090 and $33,000, respectively.

 

On July 11, 2018, the Company and the issuer of the $550k Note, the $50k Note and the $111k Note entered into an Amendment agreement related to these notes (the “First Extension”), pursuant to which the holder agreed to extend the maturity date of the three notes until July 31, 2019 in exchange for (i) a three-year warrant to purchase 200,000 Company shares at an exercise price of $0.25, and (ii) a three-year warrant to purchase 300,000 Company shares at an exercise price of $0.50. The fair value of the warrants was $133,019, using the Black/Scholes pricing models with the following assumptions: risk-free interest rate of 2.67%, expected life of 3 years, volatility of 287.57%, and expected dividend yield of zero. In connection with the warrant issuance, the Company recognized a loss on extinguishment of debt in the amount of $90,624 in 2018.

 

F- 19

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

On July 13, 2018, the Company and the issuer entered into a second Amendment agreement, pursuant to which the holder agreed to further extend the maturity date of the Iconic Notes until December 31, 2019 in exchange for an additional (i) three-year warrant to purchase 175,000 Company shares at an exercise price of $0.25, and (ii) three-year warrant to purchase 75,000 Company shares at an exercise price of $0.50. The fair value of the warrants was $60,401, using the Black/Scholes pricing models with the following assumptions: risk-free interest rate of 2.66%, expected life of 3 years, volatility of 287,77%, and expected dividend yield of zero. In connection with the warrant issuance, the Company recognized a loss on extinguishment of debt in the amount of $42,777 in 2018.

 

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. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $-0- and $17,701, respectively. As of December 31, 2018, the $50k Note was convertible into 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.” The fair value of this instrument as of December 31, 2018 was $60,312. During the years ended December 31, 2018 and 2017, a change in fair value of debt related to this instrument was recorded in the amount of $13,257 and $-0-, respectively.

 

During the years ended December 31, 2018 and 2017, the Company made no repayments on this instrument. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $5,014 and $5,000, respectively.

 

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, and is secured by all of the Company’s assets. The Company received $100,000 net proceeds from the note after an $11,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 133,333 shares of the Company’s common stock at an exercise price of $0.75 per share. The fair value of the warrants was calculated using the Black-Scholes pricing model at $42,305, with the following assumptions: risk-free interest rate of 1.80%, expected life of 5 years, volatility of 40%, and expected dividend yield of zero. The net proceeds from the issuance of the $111k Note, being $100,000 after the original issue discount, were then allocated to the warrants and the convertible note instrument based on their relative fair values, of which $27,595 was allocated to the warrants and $72,405 to the convertible note. The intrinsic value of the embedded conversion feature of the $111k note was then calculated as $38,595. The original issue discount, warrants and embedded conversion feature were then allocated and recorded as discounts against the carrying value of the $111k Note. The final allocation of the proceeds at inception was as follows:

 

Original issue discount   $ 11,000  
Warrants     27,595  
Embedded conversion feature     38,595  
Convertible note     33,810  
         
Gross proceeds   $ 111,000  

 

F- 20

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

On March 28, 2018, in exchange for a five-year warrant to purchase 125,000 shares of HLYK 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.” The fair value of this instrument as of December 31, 2018 was $125,190. During the years ended December 31, 2018 and 2017, a change in fair value of debt related to this instrument was recorded in the amount of $10,474 and $-0-, respectively.

 

Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $6,931 and $70,259, respectively. As of December 31, 2018, the unamortized discount was $-0-. As of December 31, 2018, this instrument was convertible into 317,143 of the Company’s common shares.

 

During the years ended December 31, 2018 and 2017, the Company made no repayments on this instrument. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $16,537 and $10,103, respectively.

 

Convertible Notes Payable ($53,000) – July 2017

 

On July 10, 2017, the Company entered into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note”) to PULG. The $53k Note included a $3,000 original issue discount, for net proceeds of $50,000. The $53k Note has an interest rate of 10% and a default interest rate of 22%. The $53k Note may be converted into common stock of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the average of the three (3) lowest closing bid prices during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the Note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the $53k Note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF of the $53k Note was calculated using the Black-Scholes pricing model at $58,154, with the following assumptions: risk-free interest rate of 1.23%, expected life of 0.76 years, volatility of 183.6%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $53k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $58,154 over the net proceeds from the note of $50,000, for a net charge of $8,154. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 58,154  
Original issue discount     3,000  
Financing cost     (8,154 )
Convertible note     ---  
         
Gross proceeds   $ 53,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the $53k Note, which was schedule to mature on April 15, 2018. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $1,520 and $33,054, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $116 and $2,527, respectively.

 

F- 21

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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 year ended December 31, 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. The $35k Note included a $3,000 original issue discount, for net proceeds of $32,000. The $35k Note has an interest rate of 10% and a default interest rate of 20%. The $35k Note may be converted into common stock of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the average of the three (3) lowest closing bid prices during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the $35k Note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the $35k Note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

The fair value of the ECF of the $35k Note was calculated using the Black-Scholes pricing model at $38,338, with the following assumptions: risk-free interest rate of 1.21%, expected life of 0.77 years, volatility of 177.2%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $35k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $38,338 over the net proceeds from the note of $32,000, for a net charge of $6,338. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 38,338  
Original issue discount     3,000  
Financing cost     (6,338 )
Convertible note     ---  
         
Gross proceeds   $ 35,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the $35k Note, which was schedule to mature on June 15, 2018. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $7,972 and $14,324, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $614 and $1,103, respectively.

 

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 year ended December 31, 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  

 

F- 22

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

Convertible Notes Payable ($55,000) – September 2017

 

On September 11, 2017, the Company entered into a securities purchase agreement for the sale of a $55,000 convertible note (the “$55k Note”) to Crown Bridge Partners LLC. The $55k Note included a $7,500 original issue discount, for net proceeds of $47,500. The 55k Note has an interest rate of 10% and a default interest rate of 12%. The $55k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to 60% multiplied by the lowest one (1) trading price for the Common Stock during the twenty (20) trading day period ending on the last complete trading day prior to the date of conversion. If, at any time while the $55k Note is outstanding, the conversion price pursuant to this formula is equal to or lower than $0.10, then an additional ten percent (10%) discount shall be factored into the conversion price until the $55k Note is no longer outstanding. In the event that shares of the Company’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional ten percent (10%) discount shall be factored into the Variable Conversion Price until the $55k Note is no longer outstanding.

 

The fair value of the ECF of the $55k Note was calculated using the Black-Scholes pricing model at $65,332, with the following assumptions: risk-free interest rate of 1.24%, expected life of 1 year, volatility of 175.1%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $55k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $65,332 over the net proceeds from the note of $47,500, for a net charge of $17,832. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 65,332  
Original issue discount     7,500  
Financing cost     (17,832 )
Convertible note     ---  
         
Gross proceeds   $ 55,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the $55k Note, which was schedule to mature on September 11, 2018. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $10,849 and $16,276, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $1,085 and $1,673, respectively.

 

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 year ended December 31, 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  

 

Convertible Notes Payable ($53,000) – October 2017

 

On October 23, 2017, the Company entered into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note II”) to PULG. The $53k Note II included a $3,000 original issue discount, for net proceeds of $50,000. The $53k Note II has an interest rate of 10% and a default interest rate of 20%. The $53k Note II may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to 39% discount to the average of the three (3) lowest closing bid prices during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the Note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the Note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

F- 23

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $53k Note II was calculated using the Black-Scholes pricing model at $57,571, with the following assumptions: risk-free interest rate of 1.42%, expected life of 0.77 years, volatility of 174.46%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $53k Note II, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $57,571 over the net proceeds from the note of $50,000, for a net charge of $7,571. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 57,571  
Original issue discount     3,000  
Financing cost     (7,571 )
Convertible note     ---  
         
Gross proceeds   $ 53,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the $53k Note II, which was schedule to mature on July 30, 2018. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $20,443 and $13,061, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $261 and $1,002, respectively.

 

On April 18, 2018, the Company prepaid the balance on the $53k Note II, including accrued interest, for a one-time cash payment of $75,000. The Company recognized a gain on debt extinguishment in the year ended December 31, 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     55,790  
Accrued interest     2,571  
Less cash repayment     (75,000 )
Less carrying value of debt discount at extinguishment     (19,496 )
         
Gain on extinguishment of debt   $ 16,865  

 

Convertible Notes Payable ($171,500) – October 2017

 

On October 27, 2017, the Company entered into a securities purchase agreement for the sale of a $171,500 convertible note (the “$171.5k Note”) to an individual lender. The $171.5k Note included a $21,500 original issue discount, for net proceeds of $150,000. The $171.5k Note has an interest rate of 10% and a default interest rate of 22% and was originally scheduled to mature on October 26, 2018, as amended and described below. The $171.5k Note may be converted into common stock of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 35% discount to the lowest closing bid price during the twenty (20) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the $171.5k Note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the $171.5k Note, 150% of the outstanding principal and any interest due amount shall be immediately due.

 

F- 24

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $171.5k Note was calculated using the Black-Scholes pricing model at $183,061, with the following assumptions: risk-free interest rate of 1.42%, expected life of 1 year, volatility of 172.67%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $171.5k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $183,061 over the net proceeds from the note of $150,000, for a net charge of $33,061. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:

 

Embedded conversion feature   $ 183,061  
Original issue discount     21,500  
Financing cost     (33,061 )
Convertible note     ---  
         
Gross proceeds   $ 171,500  

 

Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $14,0875 and $30,625, respectively.

 

On October 31, 2018, the holder of the $171.5k Note agreed to extend the maturity date from the original date of October 26, 2018 until December 31, 2019 in exchange for (i) a three-year warrant to purchase 75,000 shares of Company common stock at an exercise price of $0.25 per share, and (ii) a three-year warrant to purchase 25,000 shares of Company common stock at an exercise price of $0.50 per share. The fair value of the warrants using Black/Scholes was $26,282 with the following assumptions: risk-free interest rate of 2.93%, expected life of 3 years, volatility of 291.52%, 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 $171.5k Note is carried at fair value subsequent to the extinguishment date 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.” The fair value of this instrument as of December 31, 2018 was $186,472. During the years ended December 31, 2018 and 2017, a change in fair value of debt related to this instrument was recorded in the amount of $5,241 and $-0-, respectively.

 

During the years ended December 31, 2018 and 2017, the Company made no repayments on this instrument. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $17,150 and $3,054, respectively. As of December 31, 2018, the unamortized discount was $-0- and the note was convertible into 1,954,416 of the Company’s common shares.

 

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 has an interest rate of 10% and a default interest rate of 18% and matures 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 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. 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. Because this the change in terms resulted in a decrease to the value of the ECF, no amounts were recorded to reflect the change in terms. 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.

 

F- 25

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $58k Note was calculated using the Black-Scholes pricing model at $82,652, with the following assumptions: risk-free interest rate of 1.83%, expected life of 1 year, volatility of 264.29%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $58k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $82,652 over the net proceeds from the note of $50,000, for a net charge of $32,652. 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   $ 82,652  
Original issue discount and fees     7,750  
Financing cost     (32,652 )
Convertible note     ---  
         
Gross proceeds   $ 57,750  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the instrument, which was schedule to mature on January 2, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $37,925 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $3,786 and $-0-, respectively.

 

During the year ended December 31, 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.

 

The fair value of the ECF of the $113k Note was calculated using the Black-Scholes pricing model at $161,527, with the following assumptions: risk-free interest rate of 1.88%, expected life of 1 year, volatility of 264.93%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $113k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $161,527 over the net proceeds from the note of $100,000, for a net charge of $61,527. 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   $ 161,527  
Original issue discount and fees     12,750  
Financing cost     (61,527 )
Convertible note     ---  
         
Gross proceeds   $ 112,750  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on February 2, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $57,456 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $5,746 and $-0-, respectively.

 

F- 26

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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 in the year ended December 31, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 112,750  
Carrying value of derivative financial instruments arising from ECF     140,962  
Accrued interest     5,746  
Less cash repayment     (151,536 )
Less fair value of warrant issued in connection with extinguishment     (50,614 )
Less carrying value of debt discount at extinguishment     (55,294 )
         
Gain on extinguishment of debt   $ 2,014  

 

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.

 

The fair value of the ECF of the $83k Note was calculated using the Black-Scholes pricing model at $119,512, with the following assumptions: risk-free interest rate of 1.95%, expected life of 1 year, volatility of 268.44%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $83k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $119,512 over the net proceeds from the note of $75,000, for a net charge of $44,512. 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   $ 119,512  
Original issue discount and fees     8,000  
Financing cost     (44,512 )
Convertible note     ---  
         
Gross proceeds   $ 83,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on February 13, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $41,841 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $4,184 and $-0-, respectively.

 

F- 27

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – 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 in the year ended December 31, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 83,000  
Carrying value of derivative financial instruments arising from ECF     106,720  
Accrued interest     4,184  
Less cash repayment     (111,596 )
Less fair value of warrant issued in connection with extinguishment     (92,400 )
Less carrying value of debt discount at extinguishment     (41,159 )
         
Loss on extinguishment of debt   $ (51,251 )

 

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.

 

The fair value of the ECF of the $105k Note was calculated using the Black-Scholes pricing model at $153,371, with the following assumptions: risk-free interest rate of 2.06%, expected life of 1 year, volatility of 278.96%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $105k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $153,371 over the net proceeds from the note of $100,000, for a net charge of $53,371. 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   $ 153,371  
Original issue discount and fees     5,000  
Financing cost     (53,371 )
Convertible note     ---  
         
Gross proceeds   $ 105,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on March 5, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $51,205 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $5,121 and $-0-, respectively.

 

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 in the year ended December 31, 2018 in connection with the repayment, as follows:

 

Face value of convertible note payable retired   $ 105,000  
Carrying value of derivative financial instruments arising from ECF     136,175  
Accrued interest     5,121  
Less cash repayment     (140,697 )
Less carrying value of debt discount at extinguishment     (53,795 )
         
Gain on extinguishment of debt   $ 51,804  

 

F- 28

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

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”). The transaction closed on April 3, 2018. The $63k Note included $3,000 fees for net proceeds of $60,000. The $63k Note has an interest rate of 10% and a default interest rate of 22% and matures on January 15, 2019. The $63k 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, 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 $63k Note was calculated using the Black-Scholes pricing model at $83,806, with the following assumptions: risk-free interest rate of 2.08%, expected life of 0.79 years, volatility of 260.76%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $83,806 over the net proceeds from the note of $60,000, for a net charge of $23,806. 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   $ 83,806  
Original issue discount and fees     3,000  
Financing cost     (23,806 )
Convertible note     ---  
         
Gross proceeds   $ 63,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on January 15, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $39,594 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $3,124 and $-0-, respectively.

 

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 year ended December 31, 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”). The transaction closed on April 17, 2018. The $57.8k Note II Note included $7,750 fees for net proceeds of $50,000. The $57.8k Note II Note has an interest rate of 10% and a default interest rate of 18% and matures on April 16, 2019. The $57.8k Note II Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 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.

 

F- 29

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $57.8k Note II was calculated using the Black-Scholes pricing model at $83,897, with the following assumptions: risk-free interest rate of 2.12%, expected life of 1 year, volatility of 270.41%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $83,397 over the net proceeds from the note of $50,000, for a net charge of $33,397. 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   $ 83,397  
Original issue discount and fees     7,750  
Financing cost     (33,397 )
Convertible note     ---  
         
Gross proceeds   $ 57,750  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on January 15, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $28,954 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $2,895 and $-0-, respectively.

 

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 year ended December 31, 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  

 

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”). The transaction closed on April 18, 2018. The $90k Note included $4,500 fees for net proceeds of $85,500. The $90k Note has an interest rate of 10% and a default interest rate of 24% and matures on April 18, 2019. The $90k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 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, the Company would incur a penalty of $250 per day beginning on the fourth day after the conversion notice, increasing to $500 per day beginning on the tenth day. 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.

 

F- 30

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $90k Note was calculated using the Black-Scholes pricing model at $130,136, with the following assumptions: risk-free interest rate of 2.17%, expected life of 1 year, volatility of 271.31%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $130,136 over the net proceeds from the note of $85,500, for a net charge of $44,636. 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   $ 130,136  
Original issue discount and fees     4,500  
Financing cost     (44,636 )
Convertible note     ---  
         
Gross proceeds   $ 90,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on July 18, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $31,562 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $3,156 and $-0-, respectively.

 

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 year ended December 31, 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”). The transaction closed on April 23, 2018. The $53k Note III included $3,000 fees for net proceeds of $50,000. The $53k Note III has an interest rate of 10% and a default interest rate of 22% and matures on January 30, 2019. The $53k 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.

 

F- 31

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $53k Note III was calculated using the Black-Scholes pricing model at $71,679, with the following assumptions: risk-free interest rate of 2.17%, expected life of 0.79 years, volatility of 271.31%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $71,679 over the net proceeds from the note of $50,000, for a net charge of $21,679. 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   $ 71,679  
Original issue discount and fees     3,000  
Financing cost     (21,679 )
Convertible note     ---  
         
Gross proceeds   $ 53,000  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on January 30, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $33,794 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $2,657 and $-0-, respectively.

 

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 year ended December 31, 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”). The transaction closed on May 4, 2018. The $68.3k Note included $3,250 fees for net proceeds of $60,000. The $68.3k Note has an interest rate of 10% and a default interest rate of 24% and matures on May 3, 2019. The $68.3k 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 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, the Company would incur a penalty of $250 per day beginning on the fourth day after the conversion notice, increasing to $500 per day beginning on the tenth day. Upon an event of default caused by the Company’s failure to maintain a listing for its common stock, the outstanding principal shall increase by 50%. Upon an event of default caused by the Company’s failure to maintain a bid price for its common stock, the outstanding principal shall increase by 20%.

 

F- 32

 

 

HEALTHLYNKED CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

The fair value of the ECF of the $68.3k Note was calculated using the Black-Scholes pricing model at $99,422, with the following assumptions: risk-free interest rate of 2.24%, expected life of 1 year, volatility of 276.40%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $99,422 over the net proceeds from the note of $65,000, for a net charge of $34,422. 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   $ 99,422  
Original issue discount and fees     3,250  
Financing cost     (34,422 )
Convertible note     ---  
         
Gross proceeds   $ 68,250  

 

The discount resulting from the original issue discount and embedded conversion feature was being amortized over the life of the note, which was schedule to mature on May 3, 2019. Amortization expense related to the discount in the years ended December 31, 2018 and 2017 was $33,566 and $-0-, respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense on this instrument totaling $3,366 and $-0-, respectively.

 

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