HealthLynked Corp. (the “Company”)
was incorporated in the State of Nevada on August 4, 2014. On September 2, 2014, the Company filed Amended and Restated Articles
of Incorporation with the Secretary of State of Nevada setting the total number of authorized shares at 250,000,000 shares, which
included up to 230,000,000 shares of common stock and 20,000,000 shares of “blank check” preferred stock. On February
5, 2018, the Company filed an Amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of Nevada
to increase the number of authorized shares of common stock to 500,000,000 shares.
On September 5, 2014, the Company entered
into a share exchange agreement (the “Share Exchange Agreement”) with Naples Women’s Center LLC (“NWC”),
a Florida Limited Liability Company (“LLC”), acquiring 100% of the LLC membership units of NWC through the issuance
of 50,000,000 shares of Company common stock to the members of NWC (the “Restructuring”). NWC is a multi-specialty
medical group including OB/GYN (both Obstetrics and Gynecology), and General Practice located in Naples, Florida.
On June 28, 2018, the Company formed wholly-owned
subsidiary HLYK FL LLC (“Merger Sub”) to act as the acquiring entity in the acquisition of Hughes Center for Functional
Medicine, P.A. (the “HCFM”). The acquisition of HCFM was completed on April 12, 2019. At the time of the acquisition,
HCFM was renamed and rebranded as Naples Center for Functional Medicine (“NCFM”). See “Note 4 – Acquisition.”
NCFM is a Functional Medical Practice located in Naples, Florida and is engaged in improving the health of its patients through
individualized and integrative health care. NWC and NCFM comprise the Company’s “Health Services” segment.
The Company also develops and operates
an online personal medical information and record archive system, the “HealthLynked Network,” which enables patients
and doctors to keep track of medical information via the Internet in a cloud-based system. Patients complete a detailed online
personal medical history including past surgical history, medications, allergies, and family history. Once this information is
entered patients and their treating physicians are able to update the information as needed to provide a comprehensive medical
history. Business activities surrounding the HealthLynked Network comprise the Company’s “Digital Healthcare”
segment.
These unaudited condensed consolidated
financial statements reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are
necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). These unaudited condensed
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and
notes thereto for the years ended December 31, 2018 and 2017, respectively, which are included in the Company’s Form 10-K,
filed with the United States Securities and Exchange Commission on April 1, 2019. The Company assumes that the users of the interim
financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period,
and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of
operations for the three and nine months ended September 30, 2019 are not necessarily indicative of results for the entire year
ending December 31, 2019.
All significant intercompany transactions
and balances have been eliminated upon consolidation. In addition, certain amounts in the prior periods’ consolidated financial
statements have been reclassified to conform to the current period presentation.
A summary of the significant accounting
policies applied in the presentation of the accompanying consolidated financial statements follows:
The accompanying consolidated financial
statements have been prepared in conformity with GAAP.
All amounts referred to in the notes to
the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The preparation of the condensed consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ
from those estimates. Significant estimates include assumptions about collection of accounts receivable, the valuation and recognition
of stock-based compensation expense, valuation allowance for deferred tax assets, borrowing rate consideration for right-of-use
(“ROU”) lease assets including related lease liability and useful life of fixed assets.
Effective January 1, 2019, the Company
adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) using the required
modified retrospective approach. ASU 2016-02 requires lessees to record most leases on their balance sheets but recognize expenses
on their income statements in a manner similar to current accounting. See discussion below under the caption “Leases”
in this Note 2 and in Note 9 for more detail on the Company’s accounting policy with respect to lease accounting.
Effective January 1, 2019, the Company
adopted ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.
ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees
and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The
adoption of this guidance did not materially impact the Company’s financial statements and related disclosures.
Patient service revenue 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:
Laws and regulations concerning government
programs, including Medicare and Medicaid, are complex and subject to varying interpretation. As a result of investigations by
governmental agencies, various health care organizations have received requests for information and notices regarding alleged noncompliance
with those laws and regulations, which, in some instances, have resulted in organizations entering into significant settlement
agreements. Compliance with such laws and regulations may also be subject to future government review and interpretation as well
as significant regulatory action, including fines, penalties, and potential exclusion from the related programs. There can be no
assurance that regulatory authorities will not challenge the Company’s compliance with these laws and regulations, and it
is not possible to determine the impact, if any, such claims or penalties would have upon the Company. In addition, the contracts
the Company has with commercial payors also provide for retroactive audit and review of claims.
Settlements with third-party payors for
retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the
determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms
of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity,
including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements
are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews,
and investigations.
The Company also provides services to uninsured
patients, and offers those uninsured patients a discount, either by policy or law, from standard charges. The Company estimates
the transaction price for patients with deductibles and coinsurance and from those who are uninsured based on historical experience
and current market conditions. The initial estimate of the transaction price is determined by reducing the standard charge by any
contractual adjustments, discounts, and implicit price concessions. Subsequent changes to the estimate of the transaction price
are generally recorded as adjustments to patient service revenue in the period of the change. Patient services provided by NCFM
are provided on a cash basis and not submitted through third party insurance providers.
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.
Trade receivables are carried at their
estimated collectible amounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest.
Trade accounts receivable are periodically evaluated for collectability based on past collectability of the insurance companies,
government agencies, and customers’ accounts receivable during the related period which generally approximates 47% of total
billings. Trade accounts receivable are recorded at this net amount. As of September 30, 2019 and December 31, 2018, the Company’s
gross accounts receivable were $254,625 and $244,956, respectively, and net accounts receivable were $119,928 and $114,884, respectively,
based upon net reporting of accounts receivable. As of September 30, 2019 and December 31, 2018, the Company’s allowance
of doubtful accounts was $13,972 and $13,972, respectively.
Upon transition under ASU 2016-02, the
Company elected the suite of practical expedients as a package applied to all of its leases, including (i) not reassessing whether
any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing
leases, and (iii) not reassessing initial direct costs for any existing leases. For new leases, the Company will determine if an
arrangement is or contains a lease at inception. Leases are included as ROU assets within other assets and ROU liabilities within
accrued expenses and other liabilities and within other long-term liabilities on the Company’s condensed consolidated balance
sheets.
ROU assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide
an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining
the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. Lease expense
for lease payments is recognized on a straight-line basis over the lease term. Adoption of ASU 2016-02 had an impact of $353,565
and $358,506 on the Company’s assets and liabilities, respectively, and had no material impact on cash provided by or used in operating,
investing or financing activities on the Company’s unaudited condensed consolidated statements of cash flows.
Inventory consisting of supplements, is
stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Outdated inventory is
directly charged to cost of goods sold.
Goodwill is recognized as the excess cost of an acquired entity
over the net amount assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but rather tested for impairment
on an annual basis and more often if circumstances require. Impairment losses are recognized whenever the implied fair value of
goodwill is less than its
The Company recognizes an acquired intangible
apart from goodwill whenever the intangible arises from contractual or other legal rights, or whenever it can be separated or divided
from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related
contract, asset or liability. Such intangibles are amortized over their estimated useful lives unless the estimated useful life
is determined to be indefinite. Amortizable intangible assets are being amortized primarily over useful lives of five years. The
straight-line method of amortization is used as it has been determined to approximate the use pattern of the assets. Impairment
losses are recognized if the carrying amount of an intangible that is subject to amortization is not recoverable from expected
future cash flows and its carrying amount exceeds its fair value.
The Company also maintains intangible assets
with indefinite lives, which are not amortized. These intangibles are tested for impairment on an annual basis and more often if
circumstances require. Impairment losses are recognized whenever the implied fair value of these assets is less than their carrying
value. No impairment charges were recognized in the three and nine months ended September 30, 2019 or 2018.
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 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 September 30, 2019 and December 31, 2018.
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.”
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.
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.
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.
The Company follows Accounting Standards
Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax
assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled.
Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes
in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes
may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities
to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified
as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered
immaterial. No Income Tax has been provided for the three or nine months ended September 30, 2019, since the Company has sustained
a loss for the period. Due to the uncertainty of the utilization and recoverability of the loss carry-forwards (including the three
and nine months ended September 30, 2019) and other deferred tax assets, management has determined a full valuation allowance
for the deferred tax assets, since it is more likely than not that the deferred tax assets will not be realizable.
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.
Basic net income (loss) per common share
is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.
During the three and nine months ended September 30, 2019 and 2018, the Company reported a net loss and excluded all outstanding
stock options, warrants and other dilutive securities from the calculation of diluted net loss per common share because inclusion
of these securities would have been anti-dilutive. As of September 30, 2019 and December 31, 2018, potentially dilutive securities
were comprised of (i) 43,867,208 and 46,161,463 warrants outstanding, respectively, (ii) 4,036,750 and 3,707,996 stock options
outstanding, respectively, (iii) 22,323,327 and 15,517,111 shares issuable upon conversion of convertible notes, respectively,
and (iv) 363,750 and 540,000 unissued shares subject to future vesting requirements granted pursuant to the Company’s Employee
Incentive Plan.
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.
In connection
with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common
stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are
classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as
of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value
as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense
over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection
with ongoing arrangements are more fully described in Note 13, Shareholders’ Deficit.
The Company uses the “management
approach” to identify its reportable segments. The management approach designates the internal organization used by management
for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments.
Using the management approach, the Company determined that it has two operating segments: Health Services (multi-specialty medical
group including the NWC OB/GYN practice and the NCFM practice acquired in April 2019) and Digital Healthcare (develops and markets
the “HealthLynked Network,” an online personal medical information and record archive system).
As of September 30, 2019, the Company had
a working capital deficit of $4,558,902 and accumulated deficit $13,566,626. For the nine months ended September 30, 2019, the
Company had a net loss of $3,065,571 and net cash used by operating activities of $1,728,934. Net cash used in investing activities
was $475,056, comprised principally of the cash portion of paid for the acquisition of NCFM totaling $465,000 (net of cash acquired).
Net cash provided by financing activities was $2,170,624, resulting principally from $1,540,000 net proceeds from the issuance
of convertible notes and $1,240,616 proceeds from the sale of common stock.
The Company’s cash balance and revenues
generated are not currently sufficient and cannot be projected to cover its operating expenses for the next twelve months from
the date of this report. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans include attempting to improve its business profitability and its ability to generate sufficient cash flow
from its operations to meet its needs on a timely basis, obtaining additional working capital funds through equity and debt financing
arrangements, and restructuring on-going operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated
cash requirements for the next twelve months from the date of this report. However, there can be no assurance that these plans
and arrangements will be sufficient to fund the Company’s ongoing capital expenditures, working capital, and other requirements.
Management intends to make every effort to identify and develop sources of funds. The outcome of these matters cannot be predicted
at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and
conditions, if at all.
The ability of the Company to continue
as a going concern is dependent upon its ability to raise additional capital and achieve profitable operations. The accompanying
consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying
amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
During July 2016, the Company entered into
an Investment Agreement (the “Investment Agreement”) pursuant to which the investor has agreed to purchase up to $3,000,000
of Company common stock over a three-year period starting upon registration of the underlying shares, with such shares put to the
investor by the Company pursuant to a specified formula that limits the number of shares able to be put to the investor to the
number equal to the average trading volume of the Company’s common shares for the ten consecutive trading days prior to the
put notice being issued. During the nine months ended September 30, 2019, the Company received $825,616 from the proceeds of the
sale of 4,273,779 shares pursuant to the Investment Agreement.
On April 12, 2019 the Company acquired
a 100% interest in HCFM, a medical practice engaged in improving the health of its patients through individualized and integrative
health care. Under the terms of acquisition, the Company paid HCFM shareholders $500,000 in cash, issued 3,968,254 shares of the
Company’s common stock and agreed to an earn-out provision of $500,000 that may be earned based on the performance of HCFM
in fiscal years ended December 31, 2019, 2020, and 2021. The total consideration represents a transaction value of $2,000,000.
The Company accounted for the transaction as an acquisition of a business pursuant to ASC 805, “Business Combinations”
(“ASC 805”).
Following the acquisition, HCFM was rebranded
as NCFM and was combined with NWC to form the Company’s Health Services segment. As a result of the acquisition, the Company
is expected to be a leading provider of Functional Medicine in Southwest Florida. The Company also expects to reduce costs in its
Health Services segment through economies of scale.
The following table summarizes the consideration
paid for HCFM and the value of assets acquired that were recognized at the acquisition date. There were no liabilities assumed
in the acquisition of HCFM.
The fair value of the 3,968,254 common
shares issued as part of the acquisition consideration was determined using the intraday volume weighted average price of the Company’s
common shares on the acquisition date. The terms of the earn out require the Company to pay the former owner of HCFM up to $100,000,
$200,000 and $200,000 on the first, second and third anniversary, respectively, based on achievement by NCFM of revenue of at least
$3,100,000 (50% weighting) and EBITDA of at least $550,000 (50% weighting) in the year preceding each anniversary date.
The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed at the acquisition date.
Goodwill of $71,866 arising from the acquisition
consists of value associated with the legacy name. None of the goodwill recognized is expected to be deductible for income tax
purposes. The fair value of the website of $41,000 was determined based upon the cost to reconstruct and put into use applying
current market rates.
The fair value of the Patient Management
Platform Database of $1,230,000 was estimated by applying the income approach. Under the income approach, the expected future cash
flows generated by the Patient Management Platform Database are estimated and discounted to their net present value at an appropriate
risk-adjusted rate of return. Significant factors considered in the calculation of the rate of return are the weighted average
cost of capital and return on assets, as well as the risks inherent in the business. Cash flows were estimated based on EBITDA
using forecasted revenue and costs. The measure is based on significant inputs that are not observable in the market (i.e. Level
3 inputs). Key assumptions include (i) a capitalization rate of 11.75% (ii) sustainable growth of 5% and (iii) a benefit stream
using EBITDA cash flow.
The amounts of revenue and net income of
HCFM included in the Company’s consolidated income statement from the acquisition date to the period ending September 30,
2019 are as follows:
The following represents the pro forma consolidated income statement
as if HCFM had been included in the consolidated results of the Company for the entire nine-month periods ending September 30,
2019 and 2018:
These amounts have been calculated after
applying the Company’s accounting policies and adjusting the results of HCFM to reflect (i) the additional depreciation and
amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets
had been applied on January 1, 2019 and 2018, respectively, and (ii) financing charges related directly to the acquisition of HCFM
that would have been incurred in 2018 if the acquisition had been completed on January 1, 2018.
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.
This fair value of the warrants described
above was recorded as a deferred offering cost and is being amortized over the period during which the Company can access the financing,
which begins the day after a registration statement registering shares underlying the Investment Agreement is declared effective
by the United States Securities and Exchange Commission (the “SEC”), and ends 3 years from that date. On May 15, 2017,
the SEC declared effective a registration statement registering shares underlying the Investment Agreement. During the three months
ended September 30, 2019 and 2018, the Company recognized $12,802 and $12,802, respectively, in general and administrative expense
related to the cost of the warrants. During the nine months ended September 30, 2019 and 2018, the Company recognized $38,406 and
$38,406, respectively, in general and administrative expense related to the cost of the 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 two advisors for services
to be provided over a three-month period. The fair value of the warrants was calculated using the Black-Scholes pricing model at
$35,462, with the following assumptions: risk-free interest rate of 2.76%, expected life of 3 years, volatility of 285.22%, and
expected dividend yield of zero. The Company recognized no expense in the three months ended September 30, 2019 and 2018 and $25,611
and $-0- in the nine months ended September 30, 2019 and 2018, respectively, to general and administrative expense related to the
cost of the warrants.
Depreciation expense during the three months
ended September 30, 2019 and 2018 was $22,913 and $5,744, respectively. Depreciation expense during the nine months ended September
30, 2019 and 2018 was $44,503 and $17,802, respectively.
Goodwill and intangible assets arose from
the acquisition of NCFM in April 2019. The medical database is assumed to have an indefinite life and is not amortized. The website
is being amortized on a straight-line basis over its estimated useful life of five years. Goodwill represents the excess of consideration
transferred over the fair value of the net identifiable assets acquired related to the acquisition of NCFM.
Amortization expense in the three and nine
months ended September 30, 2019 was $2,067 and $3,842, respectively. No amortization expense was recognized in the three and nine
months ended September 30, 2018. No impairment charges were recognized related to goodwill and intangible assets in the nine months
ended September 30, 2019 or 2018.
NOTE 8 – NOTES PAYABLE AND OTHER
AMOUNTS DUE TO RELATED PARTY
Amounts due to related parties as of September
30, 2019 and December 31, 2018 were comprised of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Due to related party:
|
|
|
|
|
|
|
Deferred compensation, Dr. Michael Dent
|
|
$
|
300,600
|
|
|
$
|
300,600
|
|
Accrued interest payable to Dr. Michael Dent
|
|
|
178,339
|
|
|
|
129,117
|
|
Total due to related party
|
|
|
478,939
|
|
|
|
429,717
|
|
|
|
|
|
|
|
|
|
|
Notes payable to related party:
|
|
|
|
|
|
|
|
|
Notes payable to Dr. Michael Dent, current portion
|
|
$
|
690,572
|
|
|
$
|
672,471
|
|
Notes Payable to Dr. Michael Dent
Prior to August 2014, NWC was owned and
controlled by the Company’s Chief Executive Officer, Dr. Michael Dent (“DMD”). DMD first provided an up to $175,000
unsecured note payable to the Company with a 0% interest rate. During 2013 the limit on the unsecured Note Payable was increased
up to $500,000 and during 2014 it was increased to $750,000 with a maturity date of December 31, 2017. All principal and interest
is due at maturity of the $750k DMD Note on December 31, 2019. Interest accrued on the $750k DMD Note as of September 30, 2019
and December 31, 2018 was $83,467 and $66,859, respectively.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 8 – NOTES PAYABLE AND OTHER
AMOUNTS DUE TO RELATED PARTY (CONTINUED)
The carrying values of notes payable to
Dr. Michael Dent as of September 30, 2019 and December 31, 2018 were as follows:
|
|
|
|
Interest
|
|
|
September 30,
|
|
|
December 31,
|
|
Inception Date
|
|
Maturity Date
|
|
Rate
|
|
|
2019
|
|
|
2018
|
|
January 12, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
$
|
44,186
|
*
|
|
$
|
40,560
|
*
|
January 18, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
25,217
|
*
|
|
|
23,165
|
*
|
January 24, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
62,962
|
*
|
|
|
57,839
|
*
|
February 9, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
37,650
|
*
|
|
|
34,586
|
*
|
April 20, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
12,363
|
*
|
|
|
11,357
|
*
|
June 15, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
39,694
|
*
|
|
|
36,464
|
*
|
August 17, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
20,000
|
|
|
|
20,000
|
|
August 24, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
37,500
|
|
|
|
37,500
|
|
September 7, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
35,000
|
|
|
|
35,000
|
|
September 21, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
26,500
|
|
|
|
26,500
|
|
September 29, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
12,000
|
|
|
|
12,000
|
|
December 21, 2017
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
14,000
|
|
|
|
14,000
|
|
January 8, 2018
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
75,000
|
|
|
|
75,000
|
|
January 11, 2018
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
9,000
|
|
|
|
9,000
|
|
January 26, 2018
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
17,450
|
|
|
|
17,450
|
|
January 3, 2014
|
|
December 31, 2019
|
|
|
10%
|
|
|
|
222,050
|
|
|
|
222,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
690,572
|
|
|
$
|
672,471
|
|
* Denotes that
note payable is carried at fair value
On July 18, 2018, in connection with a
$2,000,000 private placement by a third-party investor, Dr. Dent agreed to extend the maturity date on all of the above notes until
December 31, 2019. Interest accrued on the above unsecured promissory notes as of September 30, 2019 and December 31, 2018 was
$94,902 and $62,258, 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, 2018, DMD agreed to extend the maturity dates of promissory notes with an aggregate face value
of $177,500, which were originally scheduled to mature before September 30, 2018, by one year from the original maturity date.
Because the fair value of the warrants was greater than 10% of the present value of the remaining cash flows under the modified
promissory notes, the transaction was treated as a debt extinguishment and reissuance of new debt instruments pursuant to the guidance
of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). A loss on debt extinguishment
was recorded in the amount of $348,938, equal to the fair value of the warrants of $337,466, plus the excess of $11,472 of the
fair value of the reissued debt instruments over the carrying value of the existing debt instruments. The change in fair value
of the reissued debt instruments subsequent to the reissuance date, which is included on the statement of operations in “Change
in fair value of debt,” was $5,986 and $821 in the three months ended September 30, 2019 and 2018, respectively, and $18,070
and $8,802 in the nine months ended September 30, 2019 and 2018, respectively,
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 8 – NOTES PAYABLE AND OTHER
AMOUNTS DUE TO RELATED PARTY (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 three months ended September 30, 2019 and 2018, the Company recognized rent expense to
MOD in the amount of $-0- and $6,120, respectively, pursuant to this agreement. During the nine months ended September 30, 2019
and 2018, the Company recognized rent expense to MOD in the amount of $-0- and $18,360, respectively, pursuant to this agreement.
During 2017, the Company entered into a
separate Marketing Agreement with MOD pursuant to which MOD agreed to market the HealthLynked Network to its physician practice
clients, in exchange for a semi-annual fee of $25,000. This agreement was terminated effective April 1, 2018. During the nine months
ended September 30, 2019 and 2018, the Company recognized general and administrative expense in the amount of $-0- and $12,500,
respectively, pursuant to this agreement. No expense was recognized during the three months ended September 30, 2019 and 2018.
On July 1, 2018 the Company and MOD signed a marketing and service agreement pursuant to which the Company will include MOD offering
as part of its product offering to physicians and the Company will receive 8% of revenue for new sales related to MOD products
sold through the HealthLynked Network.
NOTE 9 – LEASES
The Company has two operating leases for
office space and equipment that expire in July 2020 and a separate operating lease for office space that expires in May 2022. The
Company’s weighted-average remaining lease term relating to its operating leases is 1.5 years, with a weighted-average
discount rate of 17.96%.
The Company is also lessee in a capital
equipment finance lease for medical equipment entered into in March 2015 and expiring in March 2020. The Company’s weighted-average
remaining lease term relating to its financing lease is 0.5 years, with a weighted-average discount rate of 9.38%.
The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing
rate is determined based on information available at lease commencement date for purposes of determining the present value of lease
payments.
The table below summarizes the Company’s
lease-related assets and liabilities as of September 30, 2019:
|
|
As of September 30, 2019
|
|
|
|
Operating
|
|
|
Financing
|
|
|
Total
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Leases
|
|
Lease assets
|
|
$
|
344,704
|
|
|
$
|
8,861
|
|
|
$
|
353,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities (short term)
|
|
$
|
257,649
|
|
|
$
|
8,861
|
|
|
$
|
266,510
|
|
Lease liabilities (long term)
|
|
|
91,996
|
|
|
|
0
|
|
|
|
91,996
|
|
Total lease liabilities
|
|
$
|
349,645
|
|
|
$
|
8,861
|
|
|
$
|
358,506
|
|
The Company incurred lease expense of $90,160
for the three months ended September 30, 2019, of which $85,573 related to operating leases and $4,587 related to financing leases.
The Company incurred lease expense of $253,735 for the nine months ended September 30, 2019, of which $239,974 related to
operating leases and $13,761 related to financing leases.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 9 – LEASES (CONTINUED)
Maturities of operating and capital lease
liabilities were as follows as of September 30, 2019:
|
|
Operating
|
|
|
Capital
|
|
|
Total
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Commitments
|
|
2019 (October through December)
|
|
$
|
87,328
|
|
|
$
|
4,587
|
|
|
$
|
91,915
|
|
2020
|
|
|
234,892
|
|
|
|
4,587
|
|
|
|
239,479
|
|
2021
|
|
|
75,019
|
|
|
|
---
|
|
|
|
75,019
|
|
2022
|
|
|
28,443
|
|
|
|
---
|
|
|
|
28,443
|
|
2023
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Total lease payments
|
|
|
425,682
|
|
|
|
9,174
|
|
|
|
434,856
|
|
Less interest
|
|
|
(76,037
|
)
|
|
|
(313
|
)
|
|
|
(76,350
|
)
|
Present value of lease liabilities
|
|
$
|
349,645
|
|
|
$
|
8,861
|
|
|
$
|
358,506
|
|
NOTE 10 – NOTES PAYABLE
On December 20, 2017, the Company entered
into a Merchant Cash Advance Factoring Agreement (“MCA”) with Power Up Lending Group, Ltd. (the “PULG”)
pursuant to which the Company received an advance of $75,000 before closing fees (the “December MCA”). The Company
was required to repay the advance, which acts like an ordinary note payable, at the rate of $4,048 per week until the balance of
$102,000, which was scheduled for June 2018. At inception, the Company recognized a note payable in the amount of $102,000 and
a discount against the note payable of $28,500. The discount was being amortized over the life of the instrument. The December
MCA was repaid on June 1, 2018. The Company made installment payments of $-0- and $-0-, respectively, during the three months ended
September 30, 2019 and 2018 and $-0- and $89,048, respectively, during the nine months ended September 30, 2019 and 2018. The Company
recognized amortization of the discount in the amount of $-0- and $-0- in the three months ended September 30, 2019 and 2018, respectively
and $-0- and $26,881 in the nine months ended September 30, 2019 and 2018, respectively, including $2,267 recognized to amortize
the remaining discount at retirement in June 2018.
On June 1, 2018, the Company entered into
a new MCA with PULG pursuant to which the Company received an advance of $75,000 before closing fees. The Company was required
to repay the advance at the rate of $4,048 per week until the balance of $102,000 was repaid, which was scheduled for November
2018. At inception, the Company recognized a note payable in the amount of $102,000 and a discount against the note payable of
$28,500. The December 2018 MCA was repaid in full in November 2018. During the three and nine months ended September 30, 2018,
the Company recognized amortization of the discount in the amount of $14,820 and $19,380, respectively.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable as of September 30, 2019 and December
31, 2018 are comprised of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
647,520
|
*
|
|
$
|
594,813
|
|
$50k Note - July 2016
|
|
|
65,655
|
*
|
|
|
60,312
|
|
$111k Note - May 2017
|
|
|
136,280
|
*
|
|
|
125,190
|
|
$171.5k Note - October 2017
|
|
|
---
|
|
|
|
186,472
|
|
$103k Note I - October 2018
|
|
|
---
|
|
|
|
103,000
|
|
$103k Note II - November 2018
|
|
|
---
|
|
|
|
103,000
|
|
$153k Note - November 2018
|
|
|
---
|
|
|
|
153,000
|
|
$103k Note III - December 2018
|
|
|
---
|
|
|
|
103,000
|
|
$103k Note III - April 2019
|
|
|
103,000
|
|
|
|
---
|
|
$209k Notes - April 2019
|
|
|
209,000
|
|
|
|
---
|
|
$357.5k Note - April 2019
|
|
|
357,500
|
|
|
|
---
|
|
$103k Note IV - May 2019
|
|
|
103,000
|
|
|
|
---
|
|
$154k Note - June 2019
|
|
|
154,000
|
|
|
|
---
|
|
$136k Notes - July 2019
|
|
|
135,850
|
|
|
|
---
|
|
$78k Note III - July 2019
|
|
|
78,000
|
|
|
|
---
|
|
$230k Note - July 2019
|
|
|
230,000
|
|
|
|
---
|
|
$108.9k Note - August 2019
|
|
|
108,947
|
|
|
|
---
|
|
|
|
|
2,328,752
|
|
|
|
1,428,787
|
|
Less: unamortized discount
|
|
|
(803,316
|
)
|
|
|
(386,473
|
)
|
Convertible notes payable, net of original issue discount and debt discount
|
|
$
|
1,525,436
|
|
|
$
|
1,042,314
|
|
* - Denotes that convertible
note payable is carried at fair value
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Amortization expense recognized on each
convertible note outstanding during the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
Amortization of Debt Discount
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$111k Note - May 2017
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
6,931
|
|
$53k Note - July 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,520
|
|
$35k Note - September 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
7,972
|
|
$55k Note - September 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
10,849
|
|
$53k Note II - October 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
20,443
|
|
$171.5k Note - October 2017
|
|
|
---
|
|
|
|
43,345
|
|
|
|
---
|
|
|
|
128,625
|
|
$57.8k Note - January 2018
|
|
|
---
|
|
|
|
8,914
|
|
|
|
---
|
|
|
|
37,235
|
|
$112.8k Note - February 2018
|
|
|
---
|
|
|
|
11,738
|
|
|
|
---
|
|
|
|
57,456
|
|
$83k Note - February 2018
|
|
|
---
|
|
|
|
10,688
|
|
|
|
---
|
|
|
|
41,841
|
|
$105k Note - March 2018
|
|
|
---
|
|
|
|
17,548
|
|
|
|
---
|
|
|
|
51,205
|
|
$63k Note I - April 2018
|
|
|
---
|
|
|
|
20,125
|
|
|
|
---
|
|
|
|
39,594
|
|
$57.8k Note II - April 2018
|
|
|
---
|
|
|
|
14,556
|
|
|
|
---
|
|
|
|
26,423
|
|
$90k Note - April 2018
|
|
|
---
|
|
|
|
13,562
|
|
|
|
---
|
|
|
|
31,562
|
|
$53k Note III - April 2018
|
|
|
---
|
|
|
|
16,990
|
|
|
|
---
|
|
|
|
30,470
|
|
$68.3k Note - May 2018
|
|
|
---
|
|
|
|
17,156
|
|
|
|
---
|
|
|
|
27,971
|
|
$37k Note - May 2018
|
|
|
---
|
|
|
|
9,326
|
|
|
|
---
|
|
|
|
14,800
|
|
$63k Note II - May 2018
|
|
|
---
|
|
|
|
15,967
|
|
|
|
---
|
|
|
|
24,992
|
|
$78.8k Note - May 2018
|
|
|
---
|
|
|
|
19,849
|
|
|
|
---
|
|
|
|
27,832
|
|
$103k Note I - October 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
33,972
|
|
|
|
---
|
|
$103k Note II - November 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
44,952
|
|
|
|
---
|
|
$153k Note - November 2018
|
|
|
1,733
|
|
|
|
---
|
|
|
|
91,451
|
|
|
|
---
|
|
$103k Note III - December 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
42,611
|
|
|
|
---
|
|
$78k Note I - January 2019
|
|
|
4,286
|
|
|
|
---
|
|
|
|
52,000
|
|
|
|
---
|
|
$78k Note II - January 2019
|
|
|
6,346
|
|
|
|
---
|
|
|
|
47,858
|
|
|
|
---
|
|
$103k Note III - April 2019
|
|
|
28,628
|
|
|
|
---
|
|
|
|
56,012
|
|
|
|
---
|
|
$104.5k Note - April 2019
|
|
|
52,536
|
|
|
|
---
|
|
|
|
98,219
|
|
|
|
---
|
|
$357.5k Note - April 2019
|
|
|
91,230
|
|
|
|
---
|
|
|
|
166,593
|
|
|
|
---
|
|
$103k Note IV - May 2019
|
|
|
31,906
|
|
|
|
---
|
|
|
|
50,633
|
|
|
|
---
|
|
$154k Note - June 2019
|
|
|
38,710
|
|
|
|
---
|
|
|
|
50,071
|
|
|
|
---
|
|
$67.9k Note - July 2019
|
|
|
32,554
|
|
|
|
---
|
|
|
|
32,554
|
|
|
|
---
|
|
$78k Note III - July 2019
|
|
|
20,512
|
|
|
|
---
|
|
|
|
20,512
|
|
|
|
---
|
|
$230k Note - July 2019
|
|
|
46,502
|
|
|
|
---
|
|
|
|
46,503
|
|
|
|
---
|
|
$108.9k Note - August 2019
|
|
|
7,784
|
|
|
|
---
|
|
|
|
7,784
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
362,727
|
|
|
$
|
219,764
|
|
|
$
|
841,725
|
|
|
$
|
587,721
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Unamortized debt discount on outstanding
convertible notes payable as of September 30, 2019 and December 31, 2018 are comprised of the following:
|
|
Unamortized Discount as of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
$103k Note I - October 2018
|
|
$
|
---
|
|
|
$
|
76,256
|
|
$103k Note II - November 2018
|
|
|
---
|
|
|
|
85,656
|
|
$153k Note - November 2018
|
|
|
---
|
|
|
|
129,462
|
|
$103k Note III - December 2018
|
|
|
---
|
|
|
|
95,099
|
|
$103k Note III - April 2019
|
|
|
46,988
|
|
|
|
---
|
|
$104.5k Note - April 2019
|
|
|
110,781
|
|
|
|
---
|
|
$357.5k Note - April 2019
|
|
|
91,230
|
|
|
|
---
|
|
$103k Note IV - May 2019
|
|
|
52,367
|
|
|
|
---
|
|
$154k Note - June 2019
|
|
|
103,929
|
|
|
|
---
|
|
$67.9k Note - July 2019
|
|
|
77,970
|
|
|
|
---
|
|
$78k Note III - July 2019
|
|
|
57,488
|
|
|
|
---
|
|
$230k Note - July 2019
|
|
|
183,497
|
|
|
|
---
|
|
$108.9k Note - August 2019
|
|
|
79,066
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
803,316
|
|
|
$
|
386,473
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Interest expense recognized on each convertible
note outstanding during the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
Interest Expense
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
8,318
|
|
|
$
|
8,318
|
|
|
$
|
24,682
|
|
|
$
|
24,773
|
|
$50k Note - July 2016
|
|
|
1,260
|
|
|
|
1,260
|
|
|
|
3,740
|
|
|
|
3,753
|
|
$111k Note - May 2017
|
|
|
4,168
|
|
|
|
4,168
|
|
|
|
12,369
|
|
|
|
12,367
|
|
$53k Note - July 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
116
|
|
$35k Note - September 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
614
|
|
$55k Note - September 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,085
|
|
$53k Note II - October 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,568
|
|
$171.5k Note - October 2017
|
|
|
---
|
|
|
|
4,323
|
|
|
|
1,785
|
|
|
|
12,827
|
|
$57.8k Note - January 2018
|
|
|
---
|
|
|
|
895
|
|
|
|
---
|
|
|
|
3,727
|
|
$112.8k Note - February 2018
|
|
|
---
|
|
|
|
1,174
|
|
|
|
---
|
|
|
|
5,746
|
|
$83k Note - February 2018
|
|
|
---
|
|
|
|
1,069
|
|
|
|
---
|
|
|
|
4,184
|
|
$105k Note - March 2018
|
|
|
---
|
|
|
|
1,755
|
|
|
|
---
|
|
|
|
5,121
|
|
$63k Note I - April 2018
|
|
|
---
|
|
|
|
1,588
|
|
|
|
---
|
|
|
|
3,124
|
|
$57.8k Note II - April 2018
|
|
|
---
|
|
|
|
1,456
|
|
|
|
---
|
|
|
|
2,642
|
|
$90k Note - April 2018
|
|
|
---
|
|
|
|
1,356
|
|
|
|
---
|
|
|
|
3,156
|
|
$53k Note III - April 2018
|
|
|
---
|
|
|
|
1,336
|
|
|
|
---
|
|
|
|
2,396
|
|
$68.3k Note - May 2018
|
|
|
---
|
|
|
|
1,720
|
|
|
|
---
|
|
|
|
2,805
|
|
$37k Note - May 2018
|
|
|
---
|
|
|
|
933
|
|
|
|
---
|
|
|
|
1,480
|
|
$63k Note II - May 2018
|
|
|
---
|
|
|
|
1,588
|
|
|
|
---
|
|
|
|
2,485
|
|
$78.8k Note - May 2018
|
|
|
---
|
|
|
|
1,985
|
|
|
|
---
|
|
|
|
2,783
|
|
$103k Note I - October 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
2,653
|
|
|
|
---
|
|
$103k Note II - November 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
3,584
|
|
|
|
---
|
|
$153k Note - November 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
6,710
|
|
|
|
---
|
|
$103k Note III - December 2018
|
|
|
---
|
|
|
|
---
|
|
|
|
4,261
|
|
|
|
---
|
|
$78k Note I - January 2019
|
|
|
321
|
|
|
|
---
|
|
|
|
3,889
|
|
|
|
---
|
|
$78k Note II - January 2019
|
|
|
513
|
|
|
|
---
|
|
|
|
3,868
|
|
|
|
---
|
|
$103k Note III - April 2019
|
|
|
2,596
|
|
|
|
---
|
|
|
|
5,079
|
|
|
|
---
|
|
$104.5k Note - April 2019
|
|
|
5,268
|
|
|
|
---
|
|
|
|
9,848
|
|
|
|
---
|
|
$357.5k Note - April 2019
|
|
|
12,650
|
|
|
|
---
|
|
|
|
23,100
|
|
|
|
---
|
|
$103k Note IV - May 2019
|
|
|
2,596
|
|
|
|
---
|
|
|
|
4,120
|
|
|
|
---
|
|
$154k Note - June 2019
|
|
|
3,882
|
|
|
|
---
|
|
|
|
5,021
|
|
|
|
---
|
|
$67.9k Note - July 2019
|
|
|
3,014
|
|
|
|
---
|
|
|
|
3,014
|
|
|
|
---
|
|
$78k Note III - July 2019
|
|
|
1,624
|
|
|
|
---
|
|
|
|
1,624
|
|
|
|
---
|
|
$230k Note - July 2019
|
|
|
4,663
|
|
|
|
---
|
|
|
|
4,663
|
|
|
|
---
|
|
$108.9k Note - August 2019
|
|
|
992
|
|
|
|
---
|
|
|
|
992
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,865
|
|
|
$
|
34,924
|
|
|
$
|
125,002
|
|
|
$
|
96,752
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Certain of our convertible notes payable
are also carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations
under “Change in Fair Value of Debt.” The changes in fair value during the three and nine months ended September 30,
2019 and 2018 on such instruments were as follows:
|
|
Change in Fair Value of Debt
|
|
|
Change in Fair Value of Debt
|
|
|
Fair Value of Debt as of
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$550k Note - July 2016
|
|
$
|
17,455
|
|
|
$
|
(35,754
|
)
|
|
$
|
52,708
|
|
|
$
|
26,654
|
|
|
$
|
647,520
|
|
|
$
|
594,813
|
|
$50k Note - July 2016
|
|
|
1,770
|
|
|
|
(1,300
|
)
|
|
|
5,343
|
|
|
|
8,471
|
|
|
|
65,655
|
|
|
|
60,312
|
|
$111k Note - May 2017
|
|
|
3,674
|
|
|
|
(1,685
|
)
|
|
|
11,089
|
|
|
|
10,368
|
|
|
|
136,280
|
|
|
|
125,190
|
|
$171.5k Note - October 2017
|
|
|
---
|
|
|
|
---
|
|
|
|
1,781
|
|
|
|
---
|
|
|
|
---
|
|
|
|
186,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,899
|
|
|
$
|
(38,739
|
)
|
|
$
|
70,921
|
|
|
$
|
45,493
|
|
|
$
|
849,455
|
|
|
$
|
966,787
|
|
Convertible Notes Payable ($550,000)
– July 2016
On July 7, 2016, the Company entered into
a 6% fixed convertible secured promissory note with an investor with a face value of $550,000 (the “$550k Note”). The
$550k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price
of $0.08 per share, or 6,875,000 of the Company’s common shares, and is secured by all of the Company’s assets. The
Company received $500,000 net proceeds from the note after a $50,000 original issue discount. The $550k Note was originally scheduled
to mature on April 11, 2017, but the maturity date was extended to July 7, 2018 during August 2017 and to December 31, 2019 during
July 2018. The discount from the original issue discount, warrants and embedded conversion feature (“ECF”) associated
with the $550k Note was amortized over the original life of the note. The $550k Note is carried at fair value due to an extinguishment
and reissuance recorded in 2017 and is revalued at each period end, with changes to fair value recorded to the statement of operations
under “Change in Fair Value of Debt.”
Convertible Notes Payable ($50,000)
– July 2016
On July 7, 2016, the Company entered into
a 10% fixed convertible commitment fee promissory note with an investor with a face value of $50,000 (the “$50k Note”).
The $50k Note was originally scheduled to mature on April 11, 2017, but the maturity date was extended to July 11, 2018 during
August 2017 and to December 31, 2019 during July 2018. The $50k note was issued as a commitment fee payable to the Investment Agreement
investor in exchange for the investor’s commitment to enter into the Investment Agreement, subject to registration of the
shares underlying the Investment Agreement. The $50k Note is convertible into shares of the Company’s common stock at the
discretion of the note holder at a fixed price of $0.10 per share, or 500,000 of the Company’s common shares. The $50k Note
is carried at fair value due to an extinguishment and reissuance recorded in 2017 and is revalued at each period end, with changes
to fair value recorded to the statement of operations under “Change in Fair Value of Debt.”
Convertible Notes Payable ($111,000)
– May 2017
On May 22, 2017, the Company entered into
a 10% fixed convertible secured promissory note with an investor with a face value of $111,000 (the “$111k Note”).
The $111k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price
of $0.35 per share, or 317,143 of the Company’s common shares, and is secured by all of the Company’s assets. The Company
received $100,000 net proceeds from the note after an $11,000 original issue discount. At inception, the investors were also granted
a five-year warrant to purchase 133,333 shares of the Company’s common stock at an exercise price of $0.75 per share.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
On March 28, 2018, in exchange for a five-year
warrant to purchase 125,000 shares of the Company’s common stock at an exercise price of $0.05 per share, the holder of the
$111k Note agreed to extend the maturity date from the original date of January 22, 2018 until July 11, 2018. The fair value of
the warrants using Black/Scholes was $10,199 with the following assumptions: risk-free interest rate of 2.59%, expected life of
5 years, volatility of 578.45%, and expected dividend yield of zero. The issuance of the warrants in exchange for the maturity
extension was treated as an extinguishment and reissuance of existing debt pursuant to the guidance of ASC 470-50. Accordingly,
the $111k Note is carried at fair value and is revalued at each period end, with changes to fair value recorded to the statement
of operations under “Change in Fair Value of Debt.” During July 2018, the maturity date of the $111k Note was further
extended until December 31, 2019.
Convertible Notes Payable ($53,000)
– July 2017
On July 10, 2017, the Company entered into
a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note”) to PULG. On January 8,
2018, the Company prepaid the balance on the $53k Note, including accrued interest, for a one-time cash payment of $74,922. The
Company recognized a gain on debt extinguishment in the nine months ended September 30, 2018 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
53,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
53,893
|
|
Accrued interest
|
|
|
2,644
|
|
Less cash repayment
|
|
|
(74,922
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(18,427
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
16,188
|
|
Convertible Notes Payable ($35,000)
– September 2017
On September 7, 2017, the Company entered
into a securities purchase agreement for the sale of a $35,000 convertible note (the “$35k Note”) to PULG. On March
5, 2018, the Company prepaid the balance on the $35k Note, including accrued interest, for a one-time cash payment of $49,502.
The Company recognized a gain on debt extinguishment in the nine months ended September 30, 2018 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
35,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
37,269
|
|
Accrued interest
|
|
|
1,716
|
|
Less cash repayment
|
|
|
(49,502
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(12,705
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
11,778
|
|
Convertible Notes Payable ($55,000)
– September 2017
On September 11, 2017, the Company entered
into a securities purchase agreement for the sale of a $55,000 convertible note (the “$55k Note”) to Crown Bridge Partners
LLC. On March 13, 2018, the Company prepaid the balance on the $55k Note, including accrued interest, for a one-time cash payment
of $85,258. The Company recognized a gain on debt extinguishment in the nine months ended September 30, 2018 in connection with
the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
55,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
69,687
|
|
Accrued interest
|
|
|
2,759
|
|
Less cash repayment
|
|
|
(85,258
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(27,425
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
14,763
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
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. 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 had an interest
rate of 10% and a default interest rate of 22% and matures on October 26, 2018. The $171.5k Note was convertible into common stock
of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 35% discount to the lowest closing bid price during the twenty (20) trading days prior
to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant
to the terms of the $171.5k Note, 300% of the outstanding principal and any interest due amount was immediately due. Upon an event
of default caused by the Company’s breach of any other events of default specified in the $171.5k Note, 150% of the outstanding
principal and any interest due amount was immediately due. On February 7, 2019, the holder of the $171.5k Note converted the entire
principal balance of $171,500 into 2,512,821 shares of Company common stock.
Convertible Notes Payable ($57,750)
– January 2018
On January 2, 2018, the Company entered
into a securities purchase agreement for the sale of a $57,750 convertible note (the “$58k Note”). The transaction
closed on January 3, 2018. The $58k Note included a $5,250 original issue discount and $2,500 fee for net proceeds of $50,000.
The $58k Note had an interest rate of 10% and a default interest rate of 18% and was scheduled to mature on January 2, 2019. The
$58k Note was convertible into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99%
beneficial ownership limitation, at a conversion price per share equal to 28% discount to the lowest bid or trading price of the
Company’s common stock during the twenty (20) trading days prior to the conversion date. On June 26, 2018, the holder agreed,
without consideration, to reduce the discount to 28% of the volume weighted average price of the Company’s common stock for
the 10 days prior to the conversion date. During third and fourth quarter of 2018, the holder of the $58k Note converted the entire
principal balance of $57,750, as well as accrued interest in the amount of $3,786, into 384,839 shares of Company common stock.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
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”). 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”). 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”). 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
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – 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”). On September 28, 2018,
the Company prepaid the balance on the $63k Note, including accrued interest, for a one-time cash payment of $89,198. The Company
recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
63,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
72,336
|
|
Accrued interest
|
|
|
3,124
|
|
Less cash repayment
|
|
|
(89,198
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(23,406
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
25,856
|
|
Convertible Notes Payable ($57,750)
– April 2018
On April 16, 2018, the Company entered
into a securities purchase agreement for the sale of a $57,750 convertible note (the “$57.8k Note II”). On October
16, 2018, the Company prepaid the balance on the $57.8k Note II, including accrued interest, for a one-time cash payment of $81,850.
The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
57,750
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
74,428
|
|
Accrued interest
|
|
|
2,895
|
|
Less cash repayment
|
|
|
(81,850
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(28,796
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
24,427
|
|
Convertible Notes Payable ($90,000)
– April 2018
On April 18, 2018, the Company entered
into a securities purchase agreement for the sale of a $90,000 convertible note (the “$90k Note”). On August 24, 2018,
the Company prepaid the balance on the $90k Note, including accrued interest, for a one-time cash payment of $119,240. The Company
recognized a gain on debt extinguishment in the third quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
90,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
123,030
|
|
Accrued interest
|
|
|
3,156
|
|
Less cash repayment
|
|
|
(119,240
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(58,438
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
38,508
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($53,000)
– April 2018
On April 18, 2018, the Company entered
into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note III”). On October 18,
2018, the Company prepaid the balance on the $53k Note III, including accrued interest, for a one-time cash payment of $75,039.
The Company recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
53,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
59,533
|
|
Accrued interest
|
|
|
2,657
|
|
Less cash repayment
|
|
|
(75,039
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(19,206
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
20,945
|
|
Convertible Notes Payable ($68,250)
– May 2018
On May 3, 2018, the Company entered into
a securities purchase agreement for the sale of a $68,250 convertible note (the “$68.3k Note”). On October 30, 2018,
the Company prepaid the balance on the $68.3k Note, including accrued interest, for a one-time cash payment of $91,644. The Company
recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
68,250
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
91,132
|
|
Accrued interest
|
|
|
3,366
|
|
Less cash repayment
|
|
|
(91,644
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(34,684
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
36,420
|
|
Convertible Notes Payable ($37,000)
– May 2018
On May 7, 2018, the Company entered into
a securities purchase agreement for the sale of a $37,000 convertible note (the “$37k Note”). On November 2, 2018,
the Company prepaid the balance on the $37k Note, including accrued interest, for a one-time cash payment of $49,144. The Company
recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
37,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
47,763
|
|
Accrued interest
|
|
|
1,815
|
|
Less cash repayment
|
|
|
(49,144
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(18,855
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
18,579
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($63,000)
– May 2018
On May 9, 2018, the Company entered into
a securities purchase agreement for the sale of a $63,000 convertible note (the “$63k Note II”). On November 5, 2018,
the Company prepaid the balance on the $63k Note II, including accrued interest, for a one-time cash payment of $89,198. The Company
recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
63,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
81,017
|
|
Accrued interest
|
|
|
3,107
|
|
Less cash repayment
|
|
|
(89,198
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(31,760
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
26,166
|
|
Convertible Notes Payable ($78,750)
– May 2018
On May 24, 2018, the Company entered into
a securities purchase agreement for the sale of a $78,750 convertible note (the “$78.8k Note”). On November 20, 2018,
the Company prepaid the balance on the $78.8k Note, including accrued interest, for a one-time cash payment of $104,738. The Company
recognized a gain on debt extinguishment in the fourth quarter of 2018 in connection with the repayment, as follows:
Face value of convertible note payable retired
|
|
$
|
78,750
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
100,669
|
|
Accrued interest
|
|
|
3,938
|
|
Less cash repayment
|
|
|
(104,738
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(39,914
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
38,705
|
|
Convertible Notes Payable ($103,000)
– October 2018
On October 18, 2018, the Company entered
into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note I”). On April 4,
2019, the Company prepaid the balance on the $103k Note I, including accrued interest, for a one-time cash payment of $134,500.
The Company recognized a gain on debt extinguishment in the nine months ended September 30, 2019 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
103,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
97,212
|
|
Accrued interest
|
|
|
4,741
|
|
Less cash repayment
|
|
|
(134,500
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(42,284
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
28,169
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($103,000)
– November 2018
On November 12, 2018, the Company entered
into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note II”). On May 7, 2019,
the Company prepaid the balance on the $103k Note II, including accrued interest, for a one-time cash payment of $134,888. The
Company recognized a gain on debt extinguishment in the nine months ended September 30, 2019 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
103,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
91,446
|
|
Accrued interest
|
|
|
4,967
|
|
Less cash repayment
|
|
|
(134,888
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(40,704
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
23,821
|
|
Convertible Notes Payable ($153,000)
– November 2018
On November 19, 2018, the Company entered
into a securities purchase agreement for the sale of a $153,000 convertible note (the “$153k Note”). The $153k Note
included $3,000 fees for net proceeds of $150,000. The $153k Note has an interest rate of 10% and a default interest rate of 22%
and matures on August 19, 2019. The $153k Note may be converted into common stock of the Company by the holder at any time after
the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share
equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the ten (10) trading days
prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion
pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon
an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding
principal and any interest due amount shall be immediately due. During nine months ended September 30, 2019, the holder of the
$153k Note converted the full principal in the amount of $153,000 and $8,768 of accrued interest into 1,070,894 shares of Company
common stock.
Convertible Notes Payable ($103,000)
– December 2018
On December 3, 2018, the Company entered
into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note III”). On May 31,
2019, the Company prepaid the balance on the $103k Note III, including accrued interest, for a one-time cash payment of $135,029.
The Company recognized a gain on debt extinguishment in the nine months ended September 30, 2019 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
103,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
99,911
|
|
Accrued interest
|
|
|
5,051
|
|
Less cash repayment
|
|
|
(135,029
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(52,488
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
20,445
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($78,000)
– January 2019
On January 14, 2019, the Company entered
into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note”). On July 15, 2019,
the Company prepaid the balance on the $78k Note, including accrued interest, for a one-time cash payment of $102,321. The Company
recognized a loss on debt extinguishment in the three and nine months ended September 30, 2019 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
78,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
40,174
|
|
Accrued interest
|
|
|
3,889
|
|
Less cash repayment
|
|
|
(102,321
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(26,000
|
)
|
|
|
|
|
|
Gain (loss) on extinguishment of debt
|
|
$
|
(6,258
|
)
|
Convertible Notes Payable ($78,000)
– January 2019
On January 24, 2019, the Company entered
into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note II”). On July 24, 2019,
the Company prepaid the balance on the $78k Note II, including accrued interest, for a one-time cash payment of $102,255. The Company
recognized a gain on debt extinguishment in the three and nine months ended September 30, 2019 in connection with the repayment,
as follows:
Face value of convertible note payable retired
|
|
$
|
78,000
|
|
Carrying value of derivative financial instruments arising from ECF
|
|
|
61,691
|
|
Accrued interest
|
|
|
3,868
|
|
Less cash repayment
|
|
|
(102,255
|
)
|
Less carrying value of debt discount at extinguishment
|
|
|
(30,142
|
)
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
$
|
11,162
|
|
Convertible Notes Payable ($103,000)
– April 2019
On April 3, 2019, the Company entered into
a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note III”). The $103k Note
III included $3,000 fees for net proceeds of $100,000. The $103k Note III has an interest rate of 10% and a default interest rate
of 22% and matures on February 28, 2020. The $103k Note III may be converted into common stock of the Company by the holder at
any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion
price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen
(15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares
upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately
due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of
the outstanding principal and any interest due amount shall be immediately due.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
The fair value of the ECF of the $103k
Note III was calculated using the Black-Scholes pricing model at $126,313 with the following assumptions: risk-free interest rate
of 2.41%, expected life of 0.91 years, volatility of 203.70%, and expected dividend yield of zero. Because the fair value of the
ECF exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value
of the fair value of the ECF of $126,313 over the net proceeds from the note of $100,000, for a net charge of $26,313. The ECF
qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation
of the proceeds at inception was as follows:
Embedded conversion feature
|
|
$
|
126,313
|
|
Original issue discount and fees
|
|
|
3,000
|
|
Financing cost
|
|
|
(26,313
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
103,000
|
|
Convertible Notes Payable ($209,000)
– April 2019
On April 11, 2019, the Company entered
into securities purchase agreements for the sale of two identical convertible notes with an aggregate face value of $209,000 (the
“$209k Notes”). The $209k Notes included $9,000 fees for net proceeds of $200,000. The $209k Notes have an interest
rate of 10% and a default interest rate of 22%, mature on April 11, 2020, and may be converted into common stock of the Company
by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock
during the ten (10) trading days prior to the conversion date. In connection with the $209k Notes, the Company also issued to the
holder 25,000 shares of Company common stock valued at $6,250, which was recorded to equity. Upon an event of default caused by
the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal
and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other
events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.
The fair value of the ECF of the $209k
Notes was calculated using the Black-Scholes pricing model at $205,516, with the following assumptions: risk-free interest rate
of 2.44%, expected life of 1 year, volatility of 203.29%, and expected dividend yield of zero. In connection with the $209k Notes,
the Company also issued to the holders 50,000 shares of Company common stock valued at $12,500, which was recorded to equity. Because
the fair value of the ECF exceeded the net proceeds from the $209k Notes, a charge was recorded to “Financing cost”
for the excess of the fair value of the fair value of the ECF of $205,516 and the common shares issued of $12,500 over the net
proceeds from the note of $200,000, for a net charge of $18,016. The ECF qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows:
Embedded conversion feature
|
|
$
|
205,516
|
|
Original issue discount and fees
|
|
|
9,000
|
|
Fair value of shares recorded to equity
|
|
|
12,500
|
|
Financing cost
|
|
|
(18,016
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
209,000
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Note Payable ($357,500)
– April 2019
On April 15, 2019, the Company issued a
fixed convertible note with a face value of $357,500 (the “$357.5k Note”). The $357.5k Note included $32,500 fees for
net proceeds of $325,000. The $357.5k Note has an interest rate of 10%, matures on December 31, 2019, and may be converted into
common stock of the Company by the holder at any time, subject to a 9.99% beneficial ownership limitation, at a fixed conversion
price per share of $0.20, or 1,787,500 shares. At inception, the investors were also granted a five-year warrant to purchase 600,000
shares of the Company’s common stock at an exercise price of $0.25 per share. Upon an event of default, 140% of the outstanding
principal and any interest due amount shall be immediately due and the conversion price resets to a 40% discount to the lowest
bid or trading price of the Company’s common stock during the twenty (20) trading days prior to the conversion date.
The fair value of the warrants was calculated
using the Black-Scholes pricing model at $150,782, with the following assumptions: risk-free interest rate of 2.37%, expected life
of 5 years, volatility of 191.68%, and expected dividend yield of zero. The net proceeds from the issuance of the $357.5k Note,
being $325,000 after the original issue discount, were then allocated to the warrants and the convertible note instrument based
on their relative fair values, of which $96,411 was allocated to the warrants and $228,589 to the convertible note. The intrinsic
value of the embedded conversion feature of the $357.5k Note was then calculated as $128,911. The original issue discount, warrants
and embedded conversion feature were then allocated and recorded as discounts against the carrying value of the $357.5k Note. The
final allocation of the proceeds at inception was as follows:
Original issue discount
|
|
$
|
32,500
|
|
Warrants
|
|
|
96,411
|
|
Embedded conversion feature
|
|
|
128,911
|
|
Convertible note
|
|
|
99,678
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
357,500
|
|
Convertible Notes Payable ($103,000)
– April 2019
On May 7, 2019, the Company entered into
a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note IV”). The $103k Note IV
included $3,000 fees for net proceeds of $100,000. The $103k Note IV has an interest rate of 10% and a default interest rate of
22% and matures on February 28, 2020. The $103k Note IV may be converted into common stock of the Company by the holder at any
time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price
per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15)
trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon
a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately
due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of
the outstanding principal and any interest due amount shall be immediately due.
The fair value of the ECF of the $103k
Note IV was calculated using the Black-Scholes pricing model at $115,729 with the following assumptions: risk-free interest rate
of 2.37%, expected life of 0.81 years, volatility of 180.30%, and expected dividend yield of zero. Because the fair value of the
ECF exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value
of the fair value of the ECF of $115,729 over the net proceeds from the note of $100,000, for a net charge of $15,729. The ECF
qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation
of the proceeds at inception was as follows:
Embedded conversion feature
|
|
$
|
115,729
|
|
Original issue discount and fees
|
|
|
3,000
|
|
Financing cost
|
|
|
(15,729
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
103,000
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($154,000)
– June 2019
On June 3, 2019, the Company entered into
a securities purchase agreement for the sale of a $154,000 convertible note (the “$154k Note”). The $154k Note included
$4,000 fees for net proceeds of $150,000. The $154k Note has an interest rate of 10% and a default interest rate of 22% and matures
on February 28, 2020. The $154k Note may be converted into common stock of the Company by the holder at any time after the 6-month
anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to
a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior
to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant
to the terms of the Note, 200% of the outstanding principal and any interest due amount shall be immediately due. Upon an event
of default caused by the Company’s breach of any other events of default specified in the Note, 150% of the outstanding principal
and any interest due amount shall be immediately due.
Embedded conversion feature
|
|
$
|
177,273
|
|
Original issue discount and fees
|
|
|
4,000
|
|
Financing cost
|
|
|
(27,273
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
154,000
|
|
Convertible Notes Payable ($136,000)
– July 2019
On July 11, 2019, the Company entered into
securities purchase agreements for the sale of two identical convertible notes with an aggregate face value of $135,850 (the “$136k
Notes”). The $136k Notes included $5,850 fees for net proceeds to the Company of $130,000. The $136k Notes have an interest
rate of 10% and a default interest rate of 22%, mature on April 11, 2020, and may be converted into common stock of the Company
by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock
during the thirteen (13) trading days prior to the conversion date. In connection with the $136k Notes, the Company also issued
to the holder 32,500 shares of Company common stock. Upon an event of default caused by the Company’s failure to deliver
shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall
be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the
note, 150% of the outstanding principal and any interest due amount shall be immediately due.
The fair value of the ECF was calculated
using the Black-Scholes pricing model at $97,732 with the following assumptions: risk-free interest rate of 1.97%, expected life
of 0.75 years, volatility of 140.57%, and expected dividend yield of zero. In connection with the $136k Notes, the Company also
issued to the holders 32,500 shares of Company common stock valued at $6,942, which was recorded to equity. 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
|
|
$
|
97,732
|
|
Original issue discount and fees
|
|
|
5,850
|
|
Fair value of shares recorded to equity
|
|
|
6,942
|
|
Convertible note
|
|
|
25,326
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
135,850
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($78,000)
– July 2019
On July 16, 2019, the Company entered into
a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note III”). The $78k Note II
included $3,000 fees for net proceeds of $75,000. The $78k Note III has an interest rate of 10% and a default interest rate of
22% and matures on April 30, 2020. The $78k Note III may be converted into common stock of the Company by the holder at any time
after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per
share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading
days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion
pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon
an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding
principal and any interest due amount shall be immediately due.
The fair value of the ECF of the $78k Note
III was calculated using the Black-Scholes pricing model at $76,763 with the following assumptions: risk-free interest rate of
2.00%, expected life of 0.79 years, volatility of 140.36%, and expected dividend yield of zero. Because the fair value of the ECF
exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value
of the fair value of the ECF of $76,763 over the net proceeds from the note of $75,000, for a net charge of $1,763. 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
|
|
$
|
76,763
|
|
Original issue discount and fees
|
|
|
3,000
|
|
Financing cost
|
|
|
(1,763
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
78,000
|
|
Convertible Notes Payable ($230,000)
– July 2019
On July 18, 2019, the Company entered into
securities purchase agreements for the sale of a convertible note with a face value of $230,000 (the “$230k Note”).
The $230k Note included $20,000 fees and discounts for net proceeds to the Company of $210,000. The $230k Note has an interest
rate of 10% and a default interest rate of 24%, matures on July 18, 2020, and may be converted into common stock of the Company
by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 35% discount to the lowest bid or trading price of the Company’s common stock
during the fifteen (15) trading days prior to the conversion date. Upon an event of default, the amount of principal shall increase
by between 10 and 50% depending on the nature of the default.
The fair value of the ECF of the $230k
Note was calculated using the Black-Scholes pricing model at $220,246 with the following assumptions: risk-free interest rate of
1.90%, expected life of 1.00 year, volatility of 140.13%, and expected dividend yield of zero. Because the fair value of the ECF
exceeded the net proceeds from the note, a charge was recorded to “Financing cost” for the excess of the fair value
of the fair value of the ECF of $220,246 over the net proceeds from the note of $210,000, for a net charge of $10,246. 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
|
|
$
|
220,246
|
|
Original issue discount and fees
|
|
|
20,000
|
|
Financing cost
|
|
|
(10,246
|
)
|
Convertible note
|
|
|
---
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
230,000
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 11 – CONVERTIBLE NOTES PAYABLE
(CONTINUED)
Convertible Notes Payable ($108,947)
– August 2019
On August 26, 2019, the Company entered
into securities purchase agreements for the sale of a convertible note with a face value of $108,947 (the “$108.9k Note”).
The $108.9k Note included $8,947 fees and discounts for net proceeds to the Company of $100,000. The $108.9k Note has an interest
rate of 10% and a default interest rate of 22%, matures on August 26, 2020, and may be converted into common stock of the Company
by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock
during the thirteen (13) trading days prior to the conversion date. 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 $108.9k
Note was calculated using the Black-Scholes pricing model at $77,904 with the following assumptions: risk-free interest rate of
1.75%, expected life of 1.00 year, volatility of 130.74%, and expected dividend yield of zero. 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
|
|
$
|
82,004
|
|
Original issue discount and fees
|
|
|
8,947
|
|
Convertible note
|
|
|
17,996
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
108,947
|
|
NOTE 12 – DERIVATIVE FINANCIAL
INSTRUMENTS
Derivative financial instruments are comprised
of the fair value of conversion features embedded in convertible promissory notes for which the conversion rate is not fixed, but
instead is adjusted based on a discount to the market price of the Company’s common stock. The fair market value of the derivative
liabilities was calculated at inception of each convertible promissory notes for which the conversion rate is not fixed and allocated
to the respective convertible notes, with any excess recorded as a charge to “Financing cost.” The derivative financial
instruments are then revalued at the end of each period, with the change in value recorded to “Change in fair value of on
derivative financial instruments.”
Derivative financial instruments and changes
thereto recorded in the three and nine months ended September 30, 2019 and 2018 include the following:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
632,605
|
|
|
$
|
1,389,689
|
|
|
$
|
800,440
|
|
|
$
|
398,489
|
|
Inception of derivative financial instruments
|
|
|
472,644
|
|
|
|
2,397,516
|
|
|
|
1,276,703
|
|
|
|
3,643,520
|
|
Change in fair value of derivative financial instruments
|
|
|
(158,691
|
)
|
|
|
238,330
|
|
|
|
(574,205
|
)
|
|
|
200,165
|
|
Conversion or extinguishment of derivative financial instruments
|
|
|
(119,898
|
)
|
|
|
(3,416,784
|
)
|
|
|
(676,278
|
)
|
|
|
(3,633,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
826,660
|
|
|
$
|
608,751
|
|
|
$
|
826,660
|
|
|
$
|
608,751
|
|
During the three months ended September
30, 2019, the holder of one convertible note converted principal of $43,000 and accrued interest of $8,768 into 330,892 common
shares. During the nine months ended September 30, 2019, the holders of two convertible notes converted principal of $324,500 and
accrued interest of $8,768 into 3,583,715 common shares. There were no conversions during the three or nine months ended September
30, 2018.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 12 – DERIVATIVE FINANCIAL
INSTRUMENTS (CONTINUED)
During the nine months ended September
30, 2018, five convertible notes were repaid in full for cash. Accordingly, the derivative financial instruments associated with
the ECFs of these convertible notes were written off in connection with the extinguishment of each convertible note.
Fair market value of the derivative financial
instruments is measured using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.75%
to 2.73%, expected life of .011 to 1.00 years, volatility of 119.04% to 293.97% and expected dividend yield of zero. The entire
amount of derivative instrument liabilities is classified as current due to the fact that settlement of the derivative instruments
could be required within twelve months of the balance sheet date.
NOTE 13 – SHAREHOLDERS’
DEFICIT
July 2018 Private Placement
On July 16, 2018, the Company entered into
a Securities Purchase Agreement with certain accredited investors pursuant to which the Company sold the following securities (the
“July 2018 Private Placement”): (1) an aggregate of 3,900,000 shares of the Company’s common stock, par value
$0.0001 per share, (2) Pre-Funded Warrants to purchase an aggregate of 4,100,000 shares of Company common stock with an exercise
price of $0.0001 and a five-year life, (3) Series A Warrants to purchase 8,000,000 shares of Company common stock with an exercise
price of $0.25 per share, subject to anti-dilution and other adjustment as described below, and a term of five years, and (4) Series
B Warrants to purchase up to a maximum of 17,000,000 shares of Company common stock, subject to adjustment as described below,
at a fixed exercise price of $0.0001. On July 18, 2018, the Company and the investors consummated the transaction. The Company
received gross proceeds of $1,999,590. After investor legal fees of $15,000 and placement agent fees of $209,900, 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 1,360,000 shares of Company common
stock at an exercise price of $0.0001.
The warrants issued in the transaction
were treated as follows at inception: (1) because the Series A Warrants were not settled at a fixed price, these instruments did
not qualify for equity classification and were recorded as derivative financial instruments with an inception date fair value of
$1,984,722, (2) because the Series B Warrants were not settled into a fixed number of shares, these instruments did not qualify
for equity classification and were recorded as derivative financial instruments with an inception date fair value of $412,794,
(3) the Pre-Funded Warrants were settled into a fixed number of shares at a fixed price and were classified as equity with an inception
date fair value of $942,988. The fair value of all warrants at inception was calculated using the Black-Scholes option pricing
model with an assumed risk-free interest rate of 2.77%, expected life of 5 years, volatility of 288.0%, and expected dividend yield
of zero. At inception, the net proceeds of $1,774,690 were classified first to common stock for the par value of common shares
issued and second to derivative liabilities using the fair value of such instruments, with the excess amount of $623,216 recorded
as “Financing cost” on the statement of operations.
In connection with the transaction, the
Company also entered into a Registration Rights Agreement with the investors, pursuant to which the Company was required to (i)
file a registration statement on Form S-1 covering the resale of the securities issued in the transaction with thirty (30) days
of the closing, and (ii) use its best efforts to have the registration statement declared effective by the U.S. Securities and
Exchange Commission (the “SEC”) as soon as practicable, but in no event later than the earlier of: (x) (i) in the event
that the registration statement is not subject to a full review by the SEC, ninety (90) calendar days after the closing or (ii)
in the event that the registration statement is subject to a full review by the SEC, one hundred twenty (120) calendar days after
the closing; and (y) the fifth (5th) Business Day (as such term is defined in the Registration Rights Agreement) after
the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such registration statement will
not be reviewed or will not be subject to further review. If the Company fails to (i) file the registration statement when required,
(ii) have the registration statement declared effective when required or (iii) maintain the effectiveness of the registration statement,
the Company will be required to pay certain liquidated damages to the Investors.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 13 – SHAREHOLDERS’
DEFICIT (CONTINUED)
The Company filed a registration statement
on August 16, 2018 that was declared effective by the SEC on August 22, 2018. Based on the price of the Company’s common
stock during the repricing period that began following the effectiveness of the registration statement and ended on September 21,
2018 (the “Repricing Date”), the following adjustments were made to the securities issued in the transaction: (1) the
exercise price of the Series A Warrants issued to the investors and the placement agent was reduced from $0.25 to $0.2233, and
(2) the number of Series B Warrants issuable was set at 2,745,757 for the investors and 219,660 for the placement agent. At the
Repricing Date, the exercise price of the Series A Warrants and the number of shares issuable pursuant to the Series B Warrants
was fixed. Accordingly, the derivative liabilities related to the Series A and Series B Warrants were revalued as of the Repricing
Date at $2,071,680 and $711,692, respectively, using the Black-Scholes option pricing model with an assumed risk-free interest
rate of 2.95%, expected life of 4.82 years, volatility of 298.82%, and expected dividend yield of zero, and reclassified to equity.
The Company recognized a loss on change in fair value of derivative liabilities related to the Series A and Series B Warrants of
$385,856 between the closing date and the Repricing Date.
Other Sales of Common Stock
During the nine months ended September
30, 2018, the Company sold 3,534,891 shares of common stock in eight separate private placement transactions and received $417,500
in proceeds from the sales. In connection with the stock sales, the Company also issued 2,649 warrants to purchase shares of common
stock with exercise prices between $0.15 and $0.45.
During the nine months ended September
30, 2019, the Company sold 1,550,001 shares of common stock in three separate private placement transactions and received $415,000
in proceeds from the sales. In connection with the stock sales, the Company also issued 1,025,001 warrants to purchase shares of
common stock with exercise prices between $0.25 and $0.50.
During nine months ended September 30,
2019 and 2018, the Company issued 4,273,779 and 1,856,480 common shares, respectively, pursuant to draws made by the Company under
the Investment Agreement and received an aggregate of $825,616 and $328,003, respectively, in net proceeds from the draws.
Common Stock Issuable
As of September 30, 2019 and December 31,
2018, the Company was obligated to issue 429,737 and 114,080 shares of common stock, respectively, in exchange for professional
services provided by two third party consultants. During the nine months ended September 30, 2019 and 2018, the Company recognized
expense related to shares earned by the consultants of $65,666 and $37,961, respectively.
As of September 30, 2019 and December 31, 2018, the Company was obligated to issue 166,667 and -0- shares
of common stock, respectively, for a stock subscription received in September 2019 for which shares were issued in October 2019.
Stock Warrants
Transactions involving our stock warrants
during the nine months ended September 30, 2019 and 2018 are summarized as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
Outstanding at beginning of the period
|
|
|
46,161,463
|
|
|
$
|
0.18
|
|
|
|
20,526,387
|
|
|
$
|
0.23
|
|
Granted during the period
|
|
|
1,805,001
|
|
|
$
|
0.35
|
|
|
|
9,960,403
|
|
|
$
|
0.10
|
|
Exercised during the period
|
|
|
(4,099,256
|
)
|
|
$
|
0.00
|
|
|
|
---
|
|
|
$
|
---
|
|
Terminated during the period
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Outstanding at end of the period
|
|
|
43,867,208
|
|
|
$
|
0.20
|
|
|
|
30,486,790
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of the period
|
|
|
43,867,208
|
|
|
$
|
0.20
|
|
|
|
30,486,790
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining life
|
|
|
3.0 years
|
|
|
|
4.0 years
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 13 – SHAREHOLDERS’
DEFICIT (CONTINUED)
The following table summarizes information
about the Company’s stock warrants outstanding as of September 30, 2019:
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
Life (years)
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
$
|
0.0001 to 0.09
|
|
16,157,768
|
|
3.0
|
|
$
|
0.07
|
|
16,157,768
|
|
$
|
0.07
|
$
|
0.10 to 0.24
|
|
14,520,441
|
|
3.3
|
|
$
|
0.19
|
|
14,520,441
|
|
$
|
0.19
|
$
|
0.25 to 0.49
|
|
9,248,999
|
|
3.0
|
|
$
|
0.29
|
|
9,248,999
|
|
$
|
0.29
|
$
|
0.50 to 1.00
|
|
3,940,000
|
|
2.4
|
|
$
|
0.64
|
|
3,940,000
|
|
$
|
0.64
|
$
|
0.05 to 1.00
|
|
43,867,208
|
|
3.0
|
|
$
|
0.21
|
|
43,867,208
|
|
$
|
0.21
|
During the nine months ended September
30, 2019, the Company issued 1,805,001 warrants. The fair value of the warrants was calculated using the Black-Scholes pricing
model with the following assumptions: risk-free interest rate of 1.66% to 2.52%, expected life of 3.00 to 5.00 years, volatility
of 119.34% to 212.98%, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the nine
months ended September 30, 2019 was $477,097.
During the nine months ended September
30, 2018, the Company issued 27,537,107 warrants. The fair value of the warrants was calculated at inception using the Black-Scholes
pricing model with the following assumptions: risk-free interest rate of 2.32% to 2.83%, expected life of 3-5 years, volatility
of 261.18% to 308.60%, and expected dividend yield of zero. The aggregate grant date fair value of warrants issued during the nine
months ended September 30, 2018 was $4,659,141.
Employee Equity Incentive Plan
On January 1, 2016, the Company instituted
the Employee Equity Incentive Plan (the “EIP”) for the purpose of having equity awards available to allow for equity
participation by its employees. The EIP allows for the issuance of up to 15,503,680 shares of the Company’s common stock
to employees, which may be issued in the form of stock options, stock appreciation rights, or restricted shares. The EIP is governed
by the Company’s board, or a committee that may be appointed by the board in the future.
The following table summarizes the status of shares issued and
outstanding under the EIP outstanding as of and for the nine months ended September 30, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Outstanding at beginning of the period
|
|
|
1,738,750
|
|
|
|
1,498,750
|
|
Granted during the period
|
|
|
135,313
|
|
|
|
---
|
|
Terminated during the period
|
|
|
---
|
|
|
|
---
|
|
Outstanding at end of the period
|
|
|
1,874,063
|
|
|
|
1,498,750
|
|
|
|
|
|
|
|
|
|
|
Shares vested at period-end
|
|
|
1,510,313
|
|
|
|
1,058,750
|
|
Weighted average grant date fair value of shares granted during the period
|
|
$
|
0.26
|
|
|
$
|
---
|
|
Aggregate grant date fair value of shares granted during the period
|
|
$
|
12,805
|
|
|
$
|
---
|
|
Shares available for grant pursuant to EIP at period-end
|
|
|
9,592,868
|
|
|
|
11,496,934
|
|
Total stock-based compensation recognized
for grants under the EIP was $10,534 and $11,369 during the three months ended September 30, 2019 and 2018, respectively, and $69,128
and $17,814 during the nine months ended September 30, 2019 and 2018. Total unrecognized stock compensation related to these grants
was $71,850 as of September 30, 2019.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 13 – SHAREHOLDERS’
DEFICIT (CONTINUED)
A summary of the status of non-vested shares
issued pursuant to the EIP as of and for the nine months ended September 30, 2019 and 2018 is presented below:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at beginning of period
|
|
|
540,000
|
|
|
$
|
0.16
|
|
|
|
628,750
|
|
|
$
|
0.05
|
|
Granted
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Vested
|
|
|
(176,250
|
)
|
|
$
|
0.16
|
|
|
|
(188,750
|
)
|
|
$
|
0.04
|
|
Forfeited
|
|
|
---
|
|
|
$
|
---
|
|
|
|
---
|
|
|
$
|
---
|
|
Nonvested at end of period
|
|
|
363,750
|
|
|
$
|
0.16
|
|
|
|
440,000
|
|
|
$
|
0.05
|
|
Employee Stock Options
The following table summarizes the status of options outstanding
as of and for the nine months ended September 30, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number
|
|
|
Price
|
|
|
Number
|
|
|
Price
|
|
Outstanding at beginning of the period
|
|
|
3,707,996
|
|
|
$
|
0.18
|
|
|
|
2,349,996
|
|
|
$
|
0.12
|
|
Granted during the period
|
|
|
1,078,750
|
|
|
$
|
0.26
|
|
|
|
158,000
|
|
|
$
|
0.11
|
|
Exercised during the period
|
|
|
(154,166
|
)
|
|
$
|
0.20
|
|
|
|
---
|
|
|
$
|
---
|
|
Forfeited during the period
|
|
|
(595,830
|
)
|
|
$
|
0.20
|
|
|
|
---
|
|
|
$
|
---
|
|
Outstanding at end of the period
|
|
|
4,036,750
|
|
|
$
|
0.20
|
|
|
|
2,507,996
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at period-end
|
|
|
1,486,000
|
|
|
|
|
|
|
|
836,000
|
|
|
|
|
|
Weighted average remaining life (in years)
|
|
|
7.9
|
|
|
|
|
|
|
|
7.9
|
|
|
|
|
|
Weighted average grant date fair value of options granted during the period
|
|
$
|
0.20
|
|
|
|
|
|
|
$
|
0.09
|
|
|
|
|
|
Options available for grant at period-end
|
|
|
9,592,868
|
|
|
|
|
|
|
|
11,496,934
|
|
|
|
|
|
The following table summarizes information
about the Company’s stock options outstanding as of September 30, 2019:
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
Contractual
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
Outstanding
|
|
Life (years)
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
$
|
--- to 0.10
|
|
1,733,000
|
|
6.3
|
|
$
|
0.08
|
|
1,220,500
|
|
|
0.08
|
$
|
0.11 to 0.31
|
|
2,303,750
|
|
9.1
|
|
$
|
0.29
|
|
265,500
|
|
|
0.31
|
$
|
0.08 to 0.31
|
|
4,036,750
|
|
7.9
|
|
$
|
0.20
|
|
1,486,000
|
|
$
|
0.12
|
Total stock-based compensation recognized
related to option grants was $24,017 and $28,362 during the three months ended September 30, 2019 and 2018, respectively, and $86,054
and $33,524 during the nine months ended September 30, 2019 and 2018, respectively.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 13 – SHAREHOLDERS’
DEFICIT (CONTINUED)
A summary of the status of non-vested options
issued pursuant to the EIP as of and for the nine months ended September 30, 2019 and 2018 is presented below:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at beginning of period
|
|
|
2,332,413
|
|
|
$
|
0.13
|
|
|
|
1,774,996
|
|
|
$
|
0.03
|
|
Granted
|
|
|
1,078,750
|
|
|
$
|
0.20
|
|
|
|
158,000
|
|
|
$
|
0.09
|
|
Vested
|
|
|
(264,583
|
)
|
|
$
|
0.18
|
|
|
|
(261,000
|
)
|
|
$
|
0.02
|
|
Forfeited
|
|
|
(595,830
|
)
|
|
$
|
0.02
|
|
|
|
---
|
|
|
$
|
---
|
|
Nonvested at end of period
|
|
|
2,550,750
|
|
|
$
|
0.18
|
|
|
|
1,671,996
|
|
|
$
|
0.03
|
|
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Service contracts
The Company carries various service contracts
on its office buildings & certain copier equipment for repairs, maintenance and inspections. All contracts are short term and
can be cancelled.
Litigation
From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not
aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our
business, financial condition or operating results.
Leases
Maturities of lease liabilities were as follows as of September
30, 2019:
|
|
Operating
|
|
|
Capital
|
|
|
Total
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Commitments
|
|
2019 (October through December)
|
|
$
|
87,328
|
|
|
$
|
4,587
|
|
|
$
|
91,915
|
|
2020
|
|
|
234,892
|
|
|
|
4,587
|
|
|
|
239,479
|
|
2021
|
|
|
75,019
|
|
|
|
---
|
|
|
|
75,019
|
|
2022
|
|
|
28,443
|
|
|
|
---
|
|
|
|
28,443
|
|
2023
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Total lease payments
|
|
|
425,682
|
|
|
|
9,174
|
|
|
|
434,856
|
|
Less interest
|
|
|
(76,037
|
)
|
|
|
(313
|
)
|
|
|
(76,350
|
)
|
Present value of lease liabilities
|
|
$
|
349,645
|
|
|
$
|
8,861
|
|
|
$
|
358,506
|
|
Employment/Consulting Agreements
The Company has employment agreements with
each of its four physicians. The agreements generally call for a fixed salary at the beginning of the contract with a transaction
to performance-based pay later in the contract. The contracts expire at various times through 2019, with early termination available
upon a notice period of 30-90 days during which compensation is paid to the physician but the Company has no further severance
obligation.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 14 – COMMITMENTS AND CONTINGENCIES
(CONTINUED)
On July 1, 2016, the Company entered into
an employment agreement with Dr. Michael Dent, Chief Executive Officer and a member of the Board of Directors. Dr. Dent’s
employment agreement continues until terminated by Dr. Dent or the Company. If Dr. Dent’s employment is terminated by the
Company (unless such termination is “For Cause” as defined in his employment agreement), then upon signing a general
waiver and release, Dr. Dent will be entitled to severance in an amount equal to 12 months of his then-current annual base salary,
as well as the pro-rata portion of any bonus that would be due and payable to him. In the event that Dr. Dent terminates the employment
agreement, he shall be entitled to any accrued but unpaid salary and other benefits up to and including the date of termination,
and the pro-rata portion of any unvested time-based options up until the date of termination.
On July 1, 2016, the Company entered into
an agreement with Mr. George O’Leary, the Company’s Chief Financial Officer and a member of the Board of Directors,
extending his prior agreement with the Company. Mr. O’Leary’s employment agreement continues until terminated by Mr.
O’Leary or the Company. If Mr. O’Leary employment is terminated by the Company (unless such termination is “For
Cause” as defined in his employment agreement), then upon signing a general waiver and release, Mr. O’Leary will be
entitled to receive his base salary and the Company shall maintain his employee benefits for a period of twelve (12) months beginning
on the date of termination. In the event that Mr. O’Leary terminates the agreement, he shall be entitled to any accrued by
unpaid salary and other benefits up to and including the date of termination. On July 1, 2018, the Company and Mr. O’Leary
entered into an Extension Letter Agreement pursuant to which Mr. O’Leary was increased to full time employment (previously
half-time) and agreed to extend the term of his employment to September 30, 2022. In addition to a base salary, the extension provides
Mr. O’Leary with certain performance-based cash bonuses, stock grants, and stock option grants.
NOTE 15 – SEGMENT REPORTING
The Company has two reportable segments:
Health Services and Digital Healthcare. Health Services is comprised of the operations of (i) NWC, a multi-specialty medical group
including OB/GYN (both Obstetrics and Gynecology), and General Practice, and (ii) NCFM, a Functional Medical Practice acquired
in April 2019 that is engaged in improving the health of its patients through individualized and integrative health care. The Company’s
Digital Healthcare segment develops and plans to operate an online personal medical information and record archive system, the
“HealthLynked Network,” which will enable patients and doctors to keep track of medical information via the Internet
in a cloud-based system.
The Company evaluates performance and allocates
resources based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 15 – SEGMENT REPORTING (CONTINUED)
Segment information for the three months
ended September 30, 2019 and 2018 was as follows:
|
|
Three Months Ended
September 30, 2019
|
|
|
Three Months Ended
September 30, 2018
|
|
|
|
Health Services
|
|
|
Digital Healthcare
|
|
|
Total
|
|
|
Health Services
|
|
|
Digital Healthcare
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue, net
|
|
$
|
1,172,561
|
|
|
$
|
---
|
|
|
$
|
1,172,561
|
|
|
$
|
539,625
|
|
|
$
|
---
|
|
|
$
|
539,625
|
|
Cost of services
|
|
|
287,274
|
|
|
|
---
|
|
|
|
287,274
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Gross profit
|
|
|
885,287
|
|
|
|
---
|
|
|
|
885,287
|
|
|
|
539,625
|
|
|
|
---
|
|
|
|
539,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
627,992
|
|
|
|
159,385
|
|
|
|
787,377
|
|
|
|
347,346
|
|
|
|
256,164
|
|
|
|
603,510
|
|
General and administrative
|
|
|
313,481
|
|
|
|
575,140
|
|
|
|
888,621
|
|
|
|
214,442
|
|
|
|
682,312
|
|
|
|
896,754
|
|
Depreciation and amortization
|
|
|
24,385
|
|
|
|
595
|
|
|
|
24,980
|
|
|
|
5,289
|
|
|
|
455
|
|
|
|
5,744
|
|
Total Operating Expenses
|
|
|
965,858
|
|
|
|
735,120
|
|
|
|
1,700,978
|
|
|
|
567,077
|
|
|
|
938,931
|
|
|
|
1,506,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(80,571
|
)
|
|
$
|
(735,120
|
)
|
|
$
|
(815,691
|
)
|
|
$
|
(27,452
|
)
|
|
$
|
(938,931
|
)
|
|
$
|
(966,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
5,165
|
|
|
$
|
64,397
|
|
|
$
|
69,562
|
|
|
$
|
5,596
|
|
|
|
53,059
|
|
|
|
58,655
|
|
Loss on extinguishment of debt
|
|
$
|
---
|
|
|
$
|
(4,904
|
)
|
|
$
|
(4,904
|
)
|
|
$
|
---
|
|
|
|
66,469
|
|
|
|
66,469
|
|
Financing cost
|
|
$
|
---
|
|
|
$
|
12,009
|
|
|
$
|
12,009
|
|
|
$
|
---
|
|
|
|
623,216
|
|
|
|
623,216
|
|
Amortization of original issue and debt discounts on convertible notes
|
|
$
|
---
|
|
|
$
|
362,728
|
|
|
$
|
362,728
|
|
|
$
|
---
|
|
|
|
234,584
|
|
|
|
234,584
|
|
Change in fair value of debt
|
|
|
---
|
|
|
$
|
28,885
|
|
|
$
|
28,885
|
|
|
|
---
|
|
|
|
22,101
|
|
|
|
22,101
|
|
Change in fair value of derivative financial instruments
|
|
$
|
---
|
|
|
$
|
(158,691
|
)
|
|
$
|
(158,691
|
)
|
|
$
|
---
|
|
|
|
238,330
|
|
|
|
238,330
|
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 15 – SEGMENT REPORTING (CONTINUED)
Segment information for the nine months
ended September 30, 2019 and 2018 was as follows:
|
|
Nine Months Ended
September
30, 2019
|
|
|
Nine Months Ended
September
30, 2018
|
|
|
|
Health Services
|
|
|
Digital Healthcare
|
|
|
Total
|
|
|
Health Services
|
|
|
Digital Healthcare
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient service revenue, net
|
|
$
|
2,845,941
|
|
|
$
|
---
|
|
|
$
|
2,845,941
|
|
|
$
|
1,751,584
|
|
|
$
|
---
|
|
|
$
|
1,751,584
|
|
Cost of services
|
|
|
608,877
|
|
|
|
---
|
|
|
|
608,877
|
|
|
|
---
|
|
|
|
---
|
|
|
|
---
|
|
Gross profit
|
|
|
2,237,064
|
|
|
|
---
|
|
|
|
2,237,064
|
|
|
|
1,751,584
|
|
|
|
---
|
|
|
|
1,751,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
1,573,278
|
|
|
|
511,142
|
|
|
|
2,084,420
|
|
|
|
1,099,356
|
|
|
|
683,153
|
|
|
|
1,782,509
|
|
General and administrative
|
|
|
862,864
|
|
|
|
1,578,563
|
|
|
|
2,441,427
|
|
|
|
630,901
|
|
|
|
1,393,264
|
|
|
|
2,024,165
|
|
Depreciation and amortization
|
|
|
46,561
|
|
|
|
1,784
|
|
|
|
48,345
|
|
|
|
16,438
|
|
|
|
1,364
|
|
|
|
17,802
|
|
Total Operating Expenses
|
|
|
2,482,703
|
|
|
|
2,091,489
|
|
|
|
4,574,192
|
|
|
|
1,746,695
|
|
|
|
2,077,781
|
|
|
|
3,824,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(245,639
|
)
|
|
$
|
(2,091,489
|
)
|
|
$
|
(2,337,128
|
)
|
|
$
|
4,889
|
|
|
$
|
(2,077,781
|
)
|
|
$
|
(2,072,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
17,010
|
|
|
$
|
159,219
|
|
|
$
|
176,229
|
|
|
$
|
17,298
|
|
|
$
|
132,710
|
|
|
$
|
150,008
|
|
Loss on extinguishment of debt
|
|
$
|
---
|
|
|
$
|
62,459
|
|
|
$
|
62,459
|
|
|
$
|
---
|
|
|
$
|
374,828
|
|
|
$
|
374,828
|
|
Financing cost
|
|
$
|
---
|
|
|
$
|
133,244
|
|
|
$
|
133,244
|
|
|
$
|
---
|
|
|
$
|
1,063,721
|
|
|
$
|
1,063,721
|
|
Amortization of original issue and debt discounts on convertible notes
|
|
$
|
---
|
|
|
$
|
841,725
|
|
|
$
|
841,725
|
|
|
$
|
---
|
|
|
$
|
633,982
|
|
|
$
|
633,982
|
|
Change in fair value of debt
|
|
$
|
---
|
|
|
$
|
88,991
|
|
|
$
|
88,991
|
|
|
$
|
---
|
|
|
$
|
105,499
|
|
|
$
|
105,499
|
|
Change in fair value of derivative financial instruments
|
|
$
|
---
|
|
|
$
|
(574,205
|
)
|
|
$
|
(574,205
|
)
|
|
$
|
---
|
|
|
$
|
200,165
|
|
|
$
|
200,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
December 31, 2018
|
|
Identifiable assets
|
|
$
|
2,579,744
|
|
|
$
|
81,099
|
|
|
$
|
2,660,843
|
|
|
$
|
184,912
|
|
|
$
|
242,451
|
|
|
$
|
427,363
|
|
Goodwill
|
|
$
|
71,866
|
|
|
$
|
---
|
|
|
$
|
71,866
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
---
|
|
The Digital Healthcare segment recognized
revenue of $1,164 and $6,888 in the three months ended September 30, 2019 and 2018, respectively, and $5,075 and $13,776 in the
nine months ended September 30, 2019 and 2018, respectively, related to subscription revenue billed to and paid for by the Company’s
physicians for access to the HealthLynked Network. The revenue for Digital Healthcare and related expense for Health Services were
eliminated on consolidation.
NOTE 16 – FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying amounts of certain financial
instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values
due to the short-term nature of such instruments.
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 16 – FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)
The Company measures certain financial
instruments at fair value on a recurring basis, including certain convertible notes payable and related party loans which were
extinguished and reissued and are therefore subject to fair value measurement, as well as derivative financial instruments arising
from conversion features embedded in convertible promissory notes for which the conversion rate is not fixed. All financial instruments
carried at fair value fall within Level 3 of the fair value hierarchy as their value is based on unobservable inputs. The Company
evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate
level in which to classify them for each reporting period. This determination requires significant judgments to be made.
The following table summarizes the conclusions
reached regarding fair value measurements as of September 30, 2019 and December 31, 2018:
|
|
As of September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Convertible notes payable
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
849,455
|
|
|
$
|
849,455
|
|
Notes payable to related party
|
|
|
---
|
|
|
|
---
|
|
|
|
216,086
|
|
|
|
216,086
|
|
Derivative financial instruments
|
|
|
---
|
|
|
|
---
|
|
|
|
826,660
|
|
|
|
826,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
1,892,201
|
|
|
$
|
1,892,201
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Convertible notes payable
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
780,315
|
|
|
$
|
780,315
|
|
Notes payable to related party
|
|
|
---
|
|
|
|
---
|
|
|
|
203,971
|
|
|
|
203,971
|
|
Derivative financial instruments
|
|
|
---
|
|
|
|
---
|
|
|
|
800,440
|
|
|
|
800,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
1,784,726
|
|
|
$
|
1,784,726
|
|
The changes in Level 3 financial instruments that are measured
at fair value on a recurring basis during the three and nine months ended September 30, 2019 and 2018 were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable
|
|
$
|
(22,899
|
)
|
|
$
|
(21,280
|
)
|
|
$
|
(70,921
|
)
|
|
$
|
(96,698
|
)
|
Notes payable to related party
|
|
|
(5,986
|
)
|
|
|
(821
|
)
|
|
|
(18,070
|
)
|
|
|
(8,801
|
)
|
Derivative financial instruments
|
|
|
158,691
|
|
|
|
(238,330
|
)
|
|
|
574,205
|
|
|
|
(200,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129,806
|
|
|
$
|
(260,431
|
)
|
|
$
|
485,214
|
|
|
$
|
(305,664
|
)
|
HEALTHLYNKED CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2019
(UNAUDITED)
NOTE 17 – SUBSEQUENT EVENTS
On October 1, 2019, the Company entered
into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note V”). The $103k Note
V included $3,000 fees for net proceeds of $100,000. The $103k Note V has an interest rate of 10% and a default interest rate of
22% and matures on August 15, 2020. The $103k Note V may be converted into common stock of the Company by the holder at any time
after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per
share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading
days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion
pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon
an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding
principal and any interest due amount shall be immediately due.
On October 1, 2019, the Company entered
into a securities purchase agreement for the sale of a $142,500 convertible note (the “$142.5k Note”). The $142.5k
Note included $7,500 fees for net proceeds of $135,000. The $142.5k Note has an interest rate of 10% and a default interest rate
of 20% and matures on October 1, 2020. The $142.5k 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, 125% of the outstanding principal and any interest due amount
shall be immediately due and the conversion price resets to a 49% 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 October 1, 2019, the Company repaid
the $103k Note III, including accrued interest, for a total payment of $135,099.
On October 8, 2019, the Company issued
745,757 shares to the investor in the July 2018 Private Placement upon exercise of the same number of Series B Warrants held by
the investor. The Company received cash proceeds of $75.
On October 14, 2019, the holders of the
$209k Notes agreed to forbear their right to convert such notes until October 31, 2019. The conversion right became effective as
of October 11, 2019. In exchange for the conversion forbearance, the Company incurred fees of $65,550, which were added to the
principal of the $209k Notes that are scheduled to mature on April 11, 2020.
On October 22, 2019 and November 1, 2019,
the holder of one of the $209k Notes with a principal of $104,500 converted principal of $104,500 and accrued interest of $5,768
in exchange for a total of 1,176,189 shares of Company common stock.
On October 29, 2019, the Company received
$62,294 from a put under the Investment Agreement in exchange for the issuance of 411,565 shares.
On October 30, 2019, the Company entered
into a securities purchase agreement for the sale of a $108,947 convertible note (the “$108.9k Note II”). The $108.9k
Note II included $8,947 fees and discounts for net proceeds to the Company of $100,000. The $108.9k Note II has an interest rate
of 10% and a default interest rate of 22%, matures on October 30, 2020, and may be converted into common stock of the Company by
the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation,
at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock
during the thirteen (13) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure
to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount
shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified
in the note, 150% of the outstanding principal and any interest due amount shall be immediately due.
On October 30, 2019, the Company entered
into a securities purchase agreement for the sale of a $128,500 convertible note (the “$128.5k Note”). The $128.5k
Note included $3,500 fees for net proceeds of $125,000. The $128.5k Note has an interest rate of 10% and a default interest rate
of 18% and matures on October 30, 2020. The $128.5k Note may be converted into common stock of the Company by the holder at any
time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price
per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15)
trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon
a conversion pursuant to the terms of the Note, 200% of the outstanding principal and any interest due amount shall be immediately
due. Upon an event of default caused by the Company’s breach of any other events of default specified in the Note, 150% of
the outstanding principal and any interest due amount shall be immediately due.
On October 31, 2019, the Company repaid
in full one of the $209k Notes with a principal of $104,500, plus accrued interest and forbearance fees, for a total payment of
$142,500.
On November 5, 2019, the Company repaid
the $103k Note IV, including accrued interest, for a total payment of $133,900.
On November 6, 2019, the Company entered
into a securities purchase agreement for the sale of a $103,000 convertible note (the “$103k Note VI”). The $103k Note
VI included $3,000 fees for net proceeds of $100,000. The $103k Note VI has an interest rate of 10% and a default interest rate
of 22% and matures on August 15, 2020. The $103k Note VI 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.