UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE

SECURITIES AND EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

Commission file number: 333-206839

HEALTH-RIGHT DISCOVERIES, INC.

(Exact name of registrant as specified in its charter)

Florida	45-3588650
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

18851 NE 29^th Avenue, Suite 700, Aventura, Florida 33180 

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (305) 705-3247

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

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

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

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

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

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

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

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity as of the last business day of the registrant’s most recently completed second fiscal quarter: Not applicable.

The number of shares outstanding of the issuer’s common stock, $0.001 par value, as of March 27, 2020 was 22,869,191 shares.

HEALTH-RIGHT DISCOVERIES, INC. 

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019 

TABLE OF CONTENTS

	Page
PART I	3
Item 1. Business	3
Item 1A. Risk Factors	7
Item 2. Properties	8
Item 3. Legal Proceedings	8
Item 4. Mine Safety Disclosures	8
PART II	8
Item 5. Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6. Selected Financial Data	10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 8. Financial Statements and Supplementary Data	13
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure	13
Item 9A. Controls and Procedures	15
Item 9B. Other Information	15
PART III	15
Item 10. Directors, Executive Officers, and Corporate Governance	15
Item 11. Executive Compensation	16
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
Item 13. Certain Relationships and Related Transactions, and Director Independence	19
Item 14. Principal Accounting Fees and Services	19
PART IV	20
Item 15. Exhibits and Financial Statement Schedules	20
Signatures	22

 2

FORWARD LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Unless the context otherwise requires, references in this report to “HRD,” “Health-Right,” “the Company,” “we,” “our” and “us” refers to Health-Right Discoveries, Inc. and its subsidiaries.

PART I

Item 1 Business.

Historical Background

Health-Right was founded as a natural biotech company that sought to combine science and nutrition to develop branded ingredients, formulations and products that seek to provide a better quality of life for consumers who primarily suffer from stress-induced viruses and diseases. The Company developed a formulation platform by utilizing and scientifically combining various natural ingredients to help positively influence the interrelationship between stress and the immune system. The Company initially applied the formulation platform to Advanced H-Plex Defense Formula 11, its first product (“H-Plex Defense”), an all-natural dietary supplement whose formulation sought to address less than optimal nutrition and nutritional deficiencies to aid persons afflicted with Herpes Simplex Virus 1. Despite test marketing H-Plex Defense through the end of 2014 and positive customer feedback, HRD was unable to raise sufficient capital to complete development of and commercialize H-Plex Defense.

Accordingly, during 2016, the Company shifted its focus to identifying and exploring various opportunities for growth and revenue generation through the acquisition of other products, technologies or companies in the natural biotech, healthcare, nutraceutical and related fields.

Business Overview

On September 29, 2017, pursuant to a Securities Purchase Agreement dated August 17, 2017, the Company acquired (the “Acquisition”) all the outstanding shares of Common Compounds, Inc., n/k/a CCI Billing, Inc. d/b/a Complete Claim Management (“CCI”) and EZPharmaRx, LLC n/k/a Script Connection, LLC (“SCLLC”). HRD, through its subsidiaries, CCI and SCLLC, along with licensed pharmaceutical wholesalers, offer and provide their respective services to physician practices that desire to prescribe and dispense certain pharmaceutical products and medications in the practice’s office to patients receiving treatment for work-related injuries (“In-Office Dispensing Services”).

 3

CCI offers and provides administrative services and billing services to physician practices (each a “Practice” and collectively, the “Practices”) desiring to make certain over-the-counter products, including non-narcotic topical medications, (“OTC Products”) and certain prescription medications (“Prescription Medications”) available to patients in the physician practice’s office. Each participating Practice is responsible for obtaining and maintaining any necessary and appropriate licenses, permits, or other documentation required to order, receive, store, and dispense OTC Products or Prescription Medications in the Practice’s office in accordance with applicable federal and state law. Such services include, but are not limited to, assisting Practices with insurance claim processing, prior authorization, billing and collections, and recordkeeping. CCI offers its fee-based services to Practices participating in the In-Office Dispensing Program. CCI also provides billing and collection services on behalf of SCLLC in connection with SCLLC’s sales and distribution of OTC Products to Practices participating in the OTC Program.

SCLLC offers OTC Products to Practices that desire to make such products available to patients in the Practice’s office through participation in the OTC Program. SCLLC is not a compounding pharmacy, and neither CCI nor SCLLC is involved in creating topicals with compounding pharmacies.

SCLLC also assists the Practices in ordering Prescription Medications directly from licensed pharmaceutical wholesalers and oversees the sale and distribution of Prescription Medications to the Practices. SCLLC does not sell any Prescription Medications to Practices, is not a licensed pharmaceutical wholesaler, and does not profit from the sale of such medications.

Since completion of the Acquisition, the Company has focused on restructuring CCI’s and SCLLC’s business operations and refining their business model to improve efficiency and profitability, as well as expanding those operations.

Potential Effects of the Coronavirus Outbreak

In December 2019, coronavirus (COVID-19) was reported in China, and, in January 2020, the World Health Organization declared it a Public Health Emergency of International Concern. This contagious disease outbreak, subsequently spread to additional countries, including the United States, where the outbreak escalated in March 2020. The adverse public health developments and economic effects of the outbreak in the United States, which have become more severe in the weeks prior to the date of this report, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures and logistics restrictions in connection with the outbreak. More broadly, the outbreak could potentially lead to an economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. The Company cannot accurately predict the effect the Coronavirus outbreak will have on the Company.

The Acquisition

The purchase price for the Acquisition (the “Purchase Price”) consisted of (a) $6,100,000 in cash (the “Cash Purchase Price”); and (b) 1,751,580 “restricted” shares of HRD’s common stock (the “Acquisition Shares”). The Purchase Price was paid at Closing by (a) payment by the Company to the seller of $3,600,000 of the Cash Purchase Price; (b) issuance by the Company to the seller of the Acquisition Shares; and (c) execution and delivery to the seller of a convertible promissory note for the $2,500,000 balance of the Cash Purchase Price (the “Purchase Price Note”).

The Purchase Price Note, which does not bear interest, is payable in five equal annual installments of $500,000 on the first, second, third, fourth and fifth anniversaries of the Closing (each a “Due Date”). Upon each Due Date, the seller, at his sole option, may elect to convert the annual installment then due under the Note, into shares of Health-Right’s common stock (the “HRD Shares”) at a conversion price equal to 50% of “fair market value,” which is defined as the average closing price for the HRD Shares on the principal market on which they are traded during the thirty (30) trading days prior to the applicable Due Date, provided, further, that (a) the conversion price shall not be lower than $2.00 per HRD Share, subject to adjustment for stock splits, stock dividends and similar recapitalization events; and (b) in the event such conversion price as so adjusted is lower than $2.00 per HRD Share, the installment payable upon such Due Date may not be converted into HRD Shares without written agreement between the Company and the seller. The Company is currently disputing payment of the Purchase Price Note in the pending litigation between the seller and HRD described in “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2018.

In order to finance the Acquisition, we also entered into a securities purchase agreement with GPB Debt Holdings II, LLC (“GPB”) at Closing (the “GPB Purchase Agreement”). Pursuant to the GPB Purchase Agreement, we sold and issued to GPB a $5,000,000 principal amount senior secured convertible note (the “GPB Note”), for an aggregate purchase price of $4,900,000 (a 2.0% original issue discount). In addition, Health-Right issued to GPB 3,584,279 HRD Shares (the “GPB Shares”).

The GPB Note, which matures on the third anniversary of Closing (the “Maturity Date”), provides for monthly payments of interest only, which accrues at the rate of 12.75% per annum. In addition, the GPB Note also provides for an annual payment of paid in kind interest at the rate of 3.0% per annum.

 4

The GPB Note (including accrued and unpaid interest) may be prepaid, in whole or in part, so long as a minimum of $500,000 is prepaid each time a repayment is made, at any time prior to the Maturity Date, upon thirty (30) days’ prior written notice; provided, however, that during such notice period, GPB may exercise its conversion rights described below with respect to the portion of the GPB Note to be repaid. Upon a prepayment, in whole or in part, the Company shall pay GPB an additional success fee equal to (a) 2% of any such payment if such payment is paid prior to the first anniversary of Closing; (b) 4% of any such payment if such amount is paid on or after the first anniversary of Closing; and (c) 6% of any such payment if such amount is paid on or after the second anniversary of Closing, but prior to the Maturity Date.

The GPB Note is convertible at any time, in whole or in part, at GPB’s option, into HRD Shares at a conversion price of $0.44 per GPB Share, with customary adjustments for stock splits, stock dividends and other recapitalization events and anti-dilution provisions set forth in the GPB Note, including adjustments in the event the Company sells HRD Shares or HRD Share equivalents at an effective purchase price lower than the conversion price then in effect.

The GPB Note (a) provides for customary affirmative and negative covenants, including restrictions on Health-Right incurring subsequent debt, and (b) contains customary event of default provisions with a default interest rate of the lesser of 17.75% for the cash interest and 8.0% for the paid in-kind interest or the maximum rate permitted by law. Upon the occurrence of an event of default, GPB may require the Company to redeem the GPB Note at 120% of the then outstanding principal balance. The GPB Note is secured by a lien on all of the assets of the Company, including its intellectual property, pursuant to a security agreement entered into between the Company and GPB at Closing.

Corporate Information

The Company was incorporated in the state of Florida on October 11, 2011 under the name “Four Plex Partners, Inc.” and changed its name to “Health-Right Discoveries, Inc.” on March 22, 2012.

Our executive offices are located at 18851 NE 29th Avenue, Suite 700, Aventura, Florida 33180 and our telephone number is (305) 705-3247. Our corporate website is www.health-right.com. Information appearing on our corporate website is not part of this report.

Our Business

Overview

HRD, through its subsidiaries, CCI and SCLLC, along with licensed pharmaceutical wholesalers, offer and provide their respective services to physician practices that desire to prescribe and dispense certain pharmaceutical products and medications in the practice’s office to patients receiving treatment for work-related injuries (“In-Office Dispensing Services”).

CCI offers and provides administrative services and billing services to physician practices (each a “Practice” and collectively, the “Practices”) desiring to make certain over-the-counter products, including non-narcotic topical medications, (“OTC Products”), and certain prescription medications (“Prescription Medications”) available to patients in the physician practice’s office. Each participating Practice is responsible for obtaining and maintaining any necessary and appropriate licenses, permits, or other documentation required to order, receive, store, and dispense OTC Products or certain Prescription Medications in the Practice’s office in accordance with applicable federal and state law. Such services include, but are not limited to, assisting Practices with insurance claim processing, prior authorization, billing and collections, and recordkeeping. CCI offers its fee-based services to Practices participating in the In-Office Dispensing Program. CCI also provides billing and collection services on behalf of SCLLC in connection with SCLLC’s sales and distribution of OTC Products to Practices participating in the OTC Program.

OTC Program

The OTC Program allows Practices to order, prescribe, and dispense OTC Products in the Practice’s office to patients receiving treatment for work-related injuries. Practices participating in the OTC Program may purchase the OTC Products directly from SCLLC in accordance with the terms and conditions of SCLLC’s sales and distribution agreement.

 5

Prescription Medications

Certain Rx Medications can be ordered, prescribed, and dispensed within the Practice’s office for patients receiving treatment for work-related injuries. Participating Practices may order and receive these Prescription Medications directly from licensed pharmaceutical wholesalers. Participation in purchasing Prescription Medications is subject to the terms and conditions of a written agreement between the Practice and the licensed wholesale pharmaceutical distributors.

Program Process

Participating Practices, and their licensed medical practitioners, use their independent professional judgment when: (a) deciding which OTC Products or Prescription Medications will be made available for In-Office Dispensing at any given time or location; and (b) determining whether prescribing and dispensing such medications is medically necessary and appropriate. Each Practice is responsible for ordering, storing, and maintaining the OTC Products and Prescription Medications in compliance with applicable state and federal requirements. Neither SCLLC nor CCI receive or otherwise accept physical possession or title of Prescription Medications ordered, stored, or maintained by the Practices. When a Practice’s physician or other authorized practitioner (each a “Prescriber”) determines, in his or her professional judgment, that a product or medication is medically appropriate for the treatment of a specific patient, the Prescriber writes a prescription for the medication, dispenses the medication to the patient, and submits the necessary and appropriate documentation for billing purposes. Billing documentation may be submitted directly to CCI or through the Company’s electronic service platform. Generally, participating Practices receive reimbursement for In-Office Dispensing pursuant to a fee schedule, in accordance with applicable law and regulations, which is often based on a percentage or multiplier of the average wholesale price (“AWP”) for the drug or ingredient and may include a dispensing fee. For most states with prescription drug fee schedules, the maximum amount reimbursable (“MAR”) generally specified as a multiplier times AWP times the quantity of drugs dispensed, plus a dispensing fee. Multipliers, dispensing fees, and therefore the MAR allowed may vary between and within states according to characteristics of the drug transactions (e.g., brand name vs. generic drugs, pharmacy vs. physician dispensing). AWP multipliers (i.e., the multiple to the AWP) range from 80% to 140%, and dispensing fees generally go from $0 to $12. AWP is the common measure by which third-party payors, governmental or commercial payors, determine pricing for covered drugs or medications.

Each month, the Practice receives the collections for the OTC Products and Prescription Medications dispensed in the Practice’s office, less CCI’s administrative service fee set forth in the applicable billing and collection services agreement. As described above, CCI receives the administrative services fee in exchange for the billing and collection services it provides or performs to, or on behalf of, the Practice.

Sales and Marketing

In CCI’s previous business model, the Company contracted with individuals to serve as regional and state managers as well as individual representatives. The representatives were responsible for distributing information and raising awareness among providers that may be interested and eligible to participate in one or both of the programs. These representatives were compensated for their services in accordance with the terms and conditions of their independent contractor agreements with CCI.

 6

During the second half of 2018, management began to transition from utilizing regional and state sales managers as well as individual representatives to a home office to clinic direct business model. This new model is saving the Company considerable expenses associated with consulting fees and commissions while ensuring a direct relationship with the physician’s office for compliance and other related communication requirements surrounding the adjudication of claims. As of the date of this report, CCI still utilizes the services of a limited number of independent representatives.

Competition

Providing administrative services and billing services to physician practices that desire to make OTC products and Prescription Medications available to patients in the physician practice’s office is considered a niche market. Even though according to industry sources, physician dispensing in 2011 totaled only $230,000,000, this segment is expected to grow to over $1 billion by 2019 but is still considered small in the healthcare industry.

Competitors in this space include a number of firms that have national, regional and local presences, including:

● BTW Solutions

● Doc Rx

● Proficient Rx

● Advanced Rx

● AHCS

Some if not all of these competitors may have longer operating histories and greater financial resources than we do. While we believe that we compete favorably based upon price, product availability and customer service, there can be no assurance given that we will successfully do so. If we fail to successfully compete, our business, results of operations and condition (financial and otherwise) may be materially adversely affected.

Government Regulation

Our business operations must comply with various healthcare laws, rules and regulations at both the federal level and in states where we do business. These laws, rules and regulations include, among others, those pertaining to confidentiality of patient information, prohibitions against kickbacks, limitations on self-referrals of patients, prohibitions on the corporate practice of medicine, legality of physicians providing in-house dispensing services and the requirement that certain medications be sold and distributed by a licensed pharmaceutical wholesaler. The failure to comply with any of these laws, rules or regulations could result in administrative action taken against the Company, which could harm our business, results of operations and condition (financial and otherwise). In addition, there can be no assurance that in the future, the federal and state governments will not modify existing or adopt and implement new laws, rules or regulations relating to the healthcare industry, which could similarly have a material adverse effect on Health-Right.

Each participating Practice is responsible for its own compliance with applicable federal and state law, including obtaining and maintaining any necessary and appropriate licenses, permits, or other documentation required to order, receive, store, and dispense OTC Products or Prescription Medications in the Practice’s office.

Employees

We currently employ 8 persons in administrative and other corporate functions. We currently retain the services of 2 representatives on an independent contractor basis, to market our services.

Item 1A. Risk Factors.

Health-Right is a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act of 1934 (the “Exchange Act”), we are not required to provide the information required by this Item.

 7

Item 2. Properties.

We do not own any real property. We currently maintain an office mailing address at 18851 NE 29^th Avenue, Suite 700, Aventura, Florida 33180 at nominal cost and pay for the utilization of office and conference space at such location on an as needed basis.

We lease additional space for office operations of CCI and SCLLC in Arkansas and South Carolina. Such space is leased from non-affiliated parties at market rates. We believe that this space is adequate for the current operational needs of CCI and SCLLC and if additional space is required, such space can be secured at commercially reasonable cost and without undue interruption of our business operations.

Item 3. Legal Proceedings.

In August 2018, we were served with a complaint (which was amended in September 2018 to include David Hopkins, our CEO, as a defendant), filed in Miami-Dade County, Florida Circuit Court by the seller of CCI and SCLLC. In the complaint, the seller alleges breach of contract and fraud in that we allegedly failed to pay him excess working capital as of the closing of the acquisition of approximately $381,000 and failed to reimburse him for certain credit card expenses. We believe that the seller’s claims are without merit, as his calculation of working capital does not follow the methodology provided for in the Securities Purchase Agreement for the transaction and that in fact, there was a working capital shortfall at closing of approximately $725,000 (for which we demanded payment in June 2018). Moreover, the seller has refused to submit the working capital dispute to the resolution process provided for in the Securities Purchase Agreement. We have answered the complaint denying the seller’s claims and have filed counterclaims against the seller for the sums we believe are do us for the working capital shortfall and for damages arising from seller’s breach of contract, breach of good faith and fair dealing, fraud in the inducement, indemnification obligations under the Securities Purchase Agreement and violation of his non-competition and non-solicitation agreement with the Company.

The parties have engaged in discovery, and we believe that the information obtained thus far supports our claims and refutes the seller’s claims. On November 18, 2019, the seller filed a motion, asking the court to stay the case temporarily because he believed he was the target of a parallel federal criminal investigation related to facts at issue in the case. On December 11, 2019, the court granted his motion and stayed the case for 120 days.

In April 2018, Stephen Andrews, the former CEO of CCI, filed a wrongful termination arbitration claim seeking recovery in the amount in excess of $500,000. In addition to raising defenses, the Company has filed a counterclaim alleging violation of non-disclosure/non-compete agreements by Mr. Andrews as well as claims for breach of a non-solicitation agreement, breach of the employee manual and injunctive relief. The final arbitration hearing was scheduled for January 2020. However, Andrews moved for a stay of the arbitration on November 20, 2019 based on his belief that he is the target of a parallel federal criminal grand jury investigation. The arbitrator granted the stay on December 17, 2019 and the final arbitration hearing was postponed indefinitely.

From time to time, we may become involved in other lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in any such matter may harm our business.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

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

Market Information

There is presently no public market for our common stock and there has never been a market for our common stock. Our common stock has been approved for quotation on the OTCQB tier of the over-the-counter market operated by OTC Market Group, Inc. under the symbol “HRDV.” However, our shares have not as yet commenced trading and there is no assurance that a public market will develop and if developed, be liquid and be sustained.

 8

Holders

As of the date of this report, we had 22,869,191 shares of common stock issued and outstanding and 40 holders of record of our common stock.

Dividends

The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any dividends since our inception and we do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.

Securities Authorized for Issuance under Equity Compensation Plans

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,087,500 shares (1)	$0.35	1,912,500 shares (1)
Equity compensation plans not approved by security holders	0 shares	None issued	0 shares
Total	1,087,500 shares (1)	None issued	1,912,500 shares (1)

⁽¹⁾ Represents shares of common stock underlying options issued as of this report or shares reserved for issuance under our 2015 Incentive Stock Plan.

 9

Item 6. Selected Financial Data.

As a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, we are not required to provide the information required by this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Overview

HRD, through its subsidiaries, CCI and SCLLC, along with licensed wholesale pharmaceutical wholesalers offer and provide their respective services to physician practices that desire to offer In-Office Dispensing Services.

CCI offers and provides administrative services and billing services to physician practices (each a “Practice” and collectively, the “Practices”) desiring to make certain over-the-counter products, including non-narcotic topical medications, (“OTC Products”), and certain prescription medications (“Prescription Medications”) available to patients in the physician practice’s office. Each participating Practice is responsible for obtaining and maintaining any necessary and appropriate licenses, permits, or other documentation required to order, receive, store, and dispense OTC Products or certain Prescription Medications in the Practice’s office in accordance with applicable federal and state law. Such services include, but are not limited to, assisting Practices with insurance claim processing, prior authorization, billing and collections, and recordkeeping. CCI offers its fee-based services to Practices participating in the In-Office Dispensing Program. CCI also provides billing and collection services on behalf of SCLLC in connection with SCLLC’s sales and distribution of OTC Products to Practices participating in the OTC Program.

SCLLC offers OTC Products to Practices that desire to make such products available to patients in the Practice’s office through participation in the OTC Program. SCLLC is not a compounding pharmacy, and neither CCI nor SCLLC is involved in creating topicals with compounding pharmacies.

SCLLC also assists the Practices in ordering Prescription Medications directly from licensed pharmaceutical wholesalers and oversees the sale and distribution of Prescription Medications to the Practices. SCLLC does not sell any Prescription Medications to Practices, is not a licensed pharmaceutical wholesaler, and does not profit from the sale of such medications.

Potential Effects of the Coronavirus Outbreak

In December 2019, coronavirus (COVID-19) was reported in China, and, in January 2020, the World Health Organization declared it a Public Health Emergency of International Concern. This contagious disease outbreak, subsequently spread to additional countries, including the United States, where the outbreak escalated in March 2020. The adverse public health developments and economic effects of the outbreak in the United States, which have become more severe in the weeks prior to the date of this report, could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures and logistics restrictions in connection with the outbreak. More broadly, the outbreak could potentially lead to an economic downturn, which would likely decrease spending, adversely affect demand for our products and services and harm our business, results of operations and financial condition. The Company cannot accurately predict the effect the Coronavirus outbreak will have on the Company.

Year Ended December 31, 2019 compared to Year Ended December 31, 2018

For the year ended December 31, 2019, we had revenues of $3,467,661, as compared to $6,283,923 for the year ended December 31, 2018. Cost of revenue was $488,384 for 2019, as compared to $1,026,423 for 2018. The decline in revenues and cost of revenue from 2018 to 2019 reflects the restructuring by the Company of CCI’s and SCLLC’s business operations and refinement of their business model to improve efficiency and profitability and allow for operational expansion.

General and administrative costs were $1,972,980 for the year ended December 31, 2019, as compared to $3,571,295 for the year ended December 31, 2018, with the decrease similarly attributable to the restructuring and refinement of business operations. Interest expense for 2019 decreased approximately 17.9% to $1,483,314 from $1,807,808 for 2018. Interest in both periods largely reflects interest on the issuance of notes to the seller and the lender on September 29, 2017, in connection with completing and financing the Acquisition. Interest expense in 2018 included a one-time write off of the unamortized discount on the CCI Note, upon its technical default on September 30, 2018, as a result of the litigation between the seller and the Company.

During the year ended December 31, 2019, the Company incurred amortization and depreciation of $462,693 related to its intangible assets and property and equipment and an impairment loss of $1,061,200 as a result of reducing the value of its customer list. This compares with amortization and depreciation of $476,722 and no impairment loss during 2018.

 10

Income tax benefit for the year ended December 31, 2019 was $540,246, as compared to income tax provision of $68,669 for the year ended December 31, 2018.

The Company had a net loss for the year ended December 31, 2019 of $1,460,664, as compared to a net loss of $666,994 for the year ended December 31, 2018. The increase in net loss from 2018 to 2019, was attributable in large part to the impairment loss recognized in 2019 and reduced revenues and expenses resulting from the diversion of time, effort and financial resources to address the outstanding litigation with the Company’s former owner and its former Chief Executive Officer.

Liquidity and Capital Resources

As of December 31, 2019, total assets were $7,911,682, as compared to $9,428,573 on December 31, 2018, with the decrease being attributable to the amortization and impairment of intangible assets, offset in part by additional cash on hand from operations. Total current liabilities as of December 31, 2019 were $9,077,709, as compared to $3,730,005 as of December 31, 2018. As of December 31, 2019 and December 31, 2018, the Company had long-term liabilities of $381,666 and $5,767,343 respectively.

After closing of the acquisition in September 2017, a dispute arose between the seller of CCI and SCLLC and the Company, (which is the subject of pending litigation). Such dispute relates to amounts the Company believes are due it from the seller (a) as a result of a shortfall in working capital at closing of the Acquisition; and (b) pursuant to seller’s indemnification obligations under the Securities Purchase Agreement and violation of his non-competition agreement with the Company. We are seeking to set off certain of the sums we believe are due us against principal and interest payments under the CCI Note, and as such may be deemed to be technically in default thereunder, resulting in a reclassification of certain long-term liabilities to current liabilities effective December 31, 2018, pending resolution of the dispute.

Net cash provided by operating activities was to $92,275 for the year ended December 31, 2019, as compared to net cash provided by operating activities of $758,047 for 2018, reflecting the restructuring and refinement of our operations.

Net cash used in investing activities was $-0- for year ended December 31, 2019, as compared to $33,739 for the year ended December 31, 2018, reflecting purchases of property and equipment in 2018.

Net cash used in financing activities was $-0- for the year ended December 31, 2019, as compared to $33,512 for the year ended December 31, 2018, representing the repayment of shareholder loans by the Company during the 2018 period.

The Company believes that its existing capital resources when combined with anticipated cash flow from operations, will allow it to fund its operations for 2020, assuming, however, that the Company is able to refinance or otherwise extend and/or modify the GPB Note prior to its maturity in September 2020. There can be no assurance that we will be able to do so or secure alternative or if required, additional financing on commercially reasonable terms. Any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, when needed, could substantially harm the Company, its business, results of operations and financial condition.

Critical Accounting Policies

Revenue Recognition

As of January 1, 2018, the Company adopted ASU 2014-09 and all subsequent ASUs that modified ASC 606. As part of the implementation process the Company performed an analysis to identify accounting policies that needed to change and additional disclosures that are required. The Company considered factors such as customer contracts with unique revenue recognition considerations, the nature and type of goods and services offered, the degree to which contracts include multiple performance obligations or variable consideration, and the pattern in which revenue is currently recognized, among other things. All of the Company’s revenue streams were evaluated, and similar performance obligations resulted under the new standard. In addition, the Company considered recognition under the new standard and concluded the timing of the Company’s revenue recognition will remain the same. The Company has also evaluated the changes in controls and processes that are necessary to implement the new standard, and no material changes were required.

 11

CCI’s revenue predominantly represents consulting services agreements, which included providing services to physicians for billing insurance companies. The amounts reported as revenue are net of amounts remitted.

SCLLC’s revenue from the sale of products are recognized when the sale is consummated, and title is transferred. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, and the assignment of rights and warranties from the Company to the customer. Management has identified the promise in the sale contract to be the transfer of ownership of the asset. Management believes the asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. As such, management has identified the transfer of the asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of assets) and is explicitly stated in each contract. Sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer to be the date the customer obtains control and title over the asset and the date which revenue is to be recognized and payment is due. As such, there is no impact to the timing and amounts of revenue recognized for equipment sales related to the implementation of ASC 606.

Intangible Assets

Intangible assets consist primarily of the Tradenames, IP Technologies, Customer list, and a Non-compete agreement resulting from the acquisition referred to in Note 3. These intangible assets have finite lives and are amortized over the periods in which they provide benefit. The Company assesses the impairment of long-lived assets, including identifiable intangible assets subject to amortization, whenever significant events or significant changes in circumstances indicate the carrying value may not be recoverable. Intangible assets with indefinite lives, are subject to impairment testing in accordance with accounting standards governing such on an annual basis, or more frequently if an event or change in circumstances indicates that the fair value of a reporting unit has been reduced below its carrying value. See Note 5 to the consolidated financial statements for disclosure on intangible assets.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates included deferred revenue, costs incurred related to deferred revenue, the useful lives of property and equipment, the useful lives of intangible assets and accounting for the business combination.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 12

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 8. Financial Statements and Supplementary Data.

See the Index to the Consolidated Financial Statements beginning on page F-1 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Disclosure Controls and Procedures

Our President and Chief Executive Officer, as our principal Executive, Financial and Accounting Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2019, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer, as our Principal Executive, Financial and Accounting Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our President and Chief Executive Officer, as our principal Executive, Financial and Accounting Officer, has concluded that as of December 31, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A(b) of this report.

Our President and Chief Executive Officer, as our principal Executive, Financial and Accounting Officer, does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b) Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our President and Chief Executive Officer, as our Principal Executive, Financial and Accounting Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our Company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.

 13

Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our President and Chief Executive Officer, as our Principal Executive, Financial and Accounting Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on this assessment, Our President and Chief Executive Officer (our Principal Executive, Financial and Accounting Officer) identified the following two material weaknesses that have caused management to conclude that, as of December 31, 2019, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level in that:

(1) We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

(2) We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Our President and Chief Executive Officer, as our Principal Executive, Financial and Accounting Officer, evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the consolidated financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. The report by our President and Chief Executive Officer, as our Principal Executive, Financial and Accounting Officer, was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only our such report in this report.

(c) Remediation of Material Weaknesses

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

 14

(d) Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our directors and executive officers and their respective ages and titles are as follows:

Name	Age	Position(s) and Office(s) Held
David Hopkins	52	President, Chief Executive Officer and Director
James Pande	61	Director

Set forth below is a brief description of the background and business experience of our directors and executive officers.

David Hopkins founded Health-Right in 2011, has served as President and a director since that time and assumed the additional position of Chief Executive Officer in January 2018. From November 2009 until he founded the Company, Mr. Hopkins was a founder and managing member of Envirocare Solutions, LLC, a privately-held technology-driven manufacturer and wholesale distributor of products designed to deliver cold air micro-mist diffusion safely into the environment. In addition, since 2001, Mr. Hopkins has been a principal of Hopkins & Associates, a consulting firm providing turnaround and business development services to various private and public held companies engaged in a variety of industries, ranging from the production and distribution of soft drinks to biotechnology and environmental products. Mr. Hopkins holds a B.S. degree from Carroll University in Wisconsin.

James Pande has served as a director of the Company since its inception in 2011. From 2010 until its sale in 2017, he served as Vice President of Marketing and Sales Aldora Aluminum and Glass Products, based in Miramar, Florida. Prior thereto, he owned Smith Mountain Impact Systems in Miami, Florida, which he built into a respected manufacturer of hurricane impact windows and entrance doors. Mr. Pande holds a bachelor’s degree from the Cornell School of Hotel and Restaurant Management.

As soon as practicable, we intend to seek to expand our board of directors to include additional members, including “independent” directors.

Terms of Office

Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.

Board Committees

Our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the future.

 15

Code of Ethics

We do not currently have a Code of Ethics that applies to employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We plan to adopt a Code of Ethics in the future.

Item 11. Executive Compensation.

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our President and Chief Executive Officer, who was our sole executive officer for the years ended December 31, 2019, 2018 and 2017, including amounts accrued but not paid.

SUMMARY COMPENSATION TABLE

Name and principal position	Year		Salary ($)			Bonus ($)		Stock Awards (#)		Option Awards (#)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)			Total ($)
David Hopkins, President and CEO(1)		2019 2018 2017		295,545 311,481 82,750	(5) (2) (4)		0 0 0		0 0 0		0 525,000 0		0 0 0		0 0 0		7,200 7,200 7,200	(3) (3) (3)		302,745 318,681 89,950
																				0

⁽¹⁾ Mr. Hopkins assumed the additional position of Chief Executive Officer in January 2018.

⁽²⁾ Includes $132,000 in previously accrued salary paid to Mr. Hopkins in 2018.

⁽³⁾ Represents a $600 monthly car allowance for Mr. Hopkins.

⁽⁴⁾ Includes $13,000 in accrued but unpaid 2017 salary for Mr. Hopkins.

⁽⁵⁾ Includes $50,000 in previously accrued salary paid to Mr. Hopkins in 2019. 

Employment Agreement

In consideration for David Hopkins, the Company’s Chief Executive Officer and President, assuming the additional duties of President of the Company’s two subsidiaries, CCI Billing, Inc. d/b/a Complete Claim Management and Script Connection, LLC (collectively, the “Subsidiaries”), on May 31, 2019, the Company entered into an amended and restated employment agreement with Mr. Hopkins, effective as of April 15, 2019 (the “Effective Date”), which superseded the January 2018 employment agreement between the Company and Mr. Hopkins. The amended and restated employment agreement is for an initial term of three (3) years from the Effective Date and automatically renews for additional three (3) year periods, provided that the Subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the Subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,000,000 for any calendar year during the initial term and any renewal term.

The amended and restated employment agreement provides for an initial base salary of $250,000. In the event in any calendar year during the initial term or any renewal term, the Subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the Subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,000,000, Mr. Hopkins’ annual base salary shall automatically increase to $300,000 and in the event in any calendar year during the initial term or any renewal term, the Subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the Subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,500,000, his annual base salary shall automatically increase to $350,000. Mr. Hopkins will also receive a $600 per month car allowance while the amended and restated employment agreement is in effect.

The amended and restated employment agreement also contains customary confidentiality, non-competition and change in control provisions.

 16

Outstanding Equity Awards at Fiscal Year-End Table

The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for our President and Chief Executive Officer, our sole executive officer, outstanding as of December 31, 2019.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS

STOCK AWARDS

Name

Number of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Options (#) Unexercisable

Equity Incentive Plan Awards: Number of Securities Underlying  Unexercised Unearned Options (#)

Option Exercise Price ($)

Option  Expiration  Date

Number of Shares or Shares of Stock That Have Not Vested (#)

Market Value of Shares or  Shares of Stock That Have Not Vested ($)

Equity Incentive Plan Awards: Number  of Unearned Shares, Shares or Other Rights That Have Not  Vested (#)

Equity  Incentive  Plan  Awards:  Market or  Payout Value of Unearned Shares, Shares or Other  Rights  That  Have Not  Vested (#)

David Hopkins

350,000

175,000

0

0.35

12/31/2027

0

0

0

0

Compensation of Directors Table

The table below summarizes all compensation paid to our directors for our last completed fiscal year.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)		Stock  Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation  ($)		Non-Qualified  Deferred  Compensation  Earnings  ($)		All Other  Compensation ($)		Total ($)
David Hopkins		0		0		0		0		0		0		0
James Pande		0		0		0		0		0		0		0

Narrative Disclosure to the Director Compensation Table

We currently do not compensate our non-employee directors. When we expand our board, we will intend to compensate them with a combination of cash and stock option awards, depending on our financial resources at that time.

2015 Incentive Stock Plan

Our 2015 Incentive Stock Plan provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2015 Incentive Stock Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2015 Incentive Stock Plan is administered by the board of directors. 3,000,000 shares of our common stock are reserved for issuance pursuant to the exercise of awards under the 2015 Incentive Stock Plan. The number of shares so reserved automatically adjusts upward on January 1 of each year, so that the number of shares covered by the 2015 Incentive Stock Plan is equal to 15% of our issued and outstanding common stock. As of the date of this report, options to purchase 1,087,500 shares at an exercise price of $0.35 per share have been granted and are outstanding.

 17

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of the date of this report, the beneficial ownership of our common stock by each director and executive officer, by each person known by us to beneficially own 5% or more of our common stock and by directors and executive officers as a group. Unless otherwise stated, the address of the persons set forth in the table is c/o the Company, 18851 NE 29^th Avenue, Suite 700, Aventura, Florida 33180.

Names and addresses of beneficial owners	Number of shares of common stock*			Percentage of class (%)
Directors and executive officers:
David Hopkins		5,913,510	(1)		25.9	%
James Pande		5,966,666			26.1	%
All directors and executive officers as a group (two (2) persons)		11,880,176	(1)		51.9	%
Other 5% or greater shareholders:
Burroughs & Partners LLC 50 Buckingham Drive Rogers, AR 72758		1,751,580			7.7	%
GPB Debt Holdings, LLC 535 W. 24th Street, 4th Floor New York, New York 10011		14,947,916	(2)		65.4	%

^*Includes shares issuable within sixty (60) days of the date of this report pursuant to the exercise of options or conversion of notes.

⁽¹⁾ Includes 350,000 shares issuable upon exercise of options held by Mr. Hopkins under our 2015 Incentive Stock Plan.

⁽²⁾ Includes 11,363,637 shares issuable upon conversion of the GPB Note.

The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security.

 18

Securities Authorized for Issuance under Equity Compensation Plans

land category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,087,500 shares (1)	$0.35	1,912,500 shares (1)
Equity compensation plans not approved by security holders	0 shares	None issued	0 shares
Total	1,087,500 shares (1)	None issued	1,912,500 shares (1)

⁽¹⁾ Represents shares of common stock underlying options issued as of the date of this report or shares reserved for issuance under our 2015 Incentive Stock Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Related Party Transactions

Prior to the Acquisition, the Company’s board of directors had authorized payment of a salary to Mr. Hopkins in the amount of $52,000 per annum plus a car allowance of $600 per month. As of October 1, 2017, Mr. Hopkin’s salary was increased to $175,000 per annum. Given the Company’s limited financial resources prior to completion of the Acquisition, a substantial portion of Mr. Hopkins’ salary was accrued, which accrued amount aggregated $182,000 as of December 31, 2017. The board of directors authorized the payment of such accrued amount to Mr. Hopkins in quarterly installments of $25,000, commencing with the fourth quarter of 2017. As a result, the accrued amount owed to Mr. Hopkins was reduced to $50,000 as of December 31, 2018 and was paid in full in the first quarter of 2019.

Review, Approval and Ratification of Related Party Transactions

Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant shareholders. However, we intend that such transactions will, on a going-forward basis, be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof.

Item 14. Principal Accounting Fees and Services.

Prager Metis CPAs LLC (“Prager”) was our current independent registered public accounting firm for the years ended December 31, 2019 and December 31, 2018.

Audit Fees

Aggregate audit fees billed by Prager for the years ended December 31, 2019 and December 31, 2018 were $50,500 and $43,000, respectively.

Audit-Related Fees

There were no audit-related fees billed by Prager for the years ended December 31, 2019 and December 31, 2018.

 19

Tax Fees

There were no tax fees billed by Prager for the years ended December 31, 2019 and December 31, 2018.

Pre-Approval Policy

We do not currently have a standing audit committee. Provision of the above services was approved by our board of directors.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

(1) Financial Statements. The following financial statements and the reports of our independent registered public accounting firms, are filed as “Item 8. Financial Statements and Supplementary Data” of this report:

Report of Independent Registered Public Accounting Firms	F-2
Consolidated Balance Sheets at December 31, 2019 and 2018	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018	F-4
Consolidated Statements of Stockholders’ Deficiency for the Years Ended December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7

(2) Financial Statement Schedules.

Financial Statement Schedules are omitted because the information required is not applicable or the required information is shown in the financial statements or notes thereto.

 20

(3) Exhibits.

Exhibit Number	Description
3.1(i)	Amended and Restated Articles of Incorporation(1)
3.2	By-Laws(1)
10.1	2015 Stock Incentive Plan(1)*
10.2	Securities Purchase Agreement (2)
10.3	CCI Note(3)
10.4	GPB Purchase Agreement(3)
10.5	GPB Note(3)
10.6	Amended and Restated Employment Agreement with David Hopkins(4)*
31.1	Section 302 Certification(5)
32.1	Section 906 Certification(5)

⁽¹⁾ Filed as an Exhibit to the registrant’s Registration Statement on Form S-1 (File No. 333-206839) and incorporated herein by reference.

⁽²⁾ Filed as An Exhibit to the registrant’s Current Report on Form 8-K dated September 5, 2017 and incorporated herein by reference.

⁽³⁾ Filed as an Exhibit to the registrant’s Current Report on Form 8-K dated September 29, 2017 and incorporated herein by reference.

⁽⁴⁾ Filed as an Exhibit to the registrant’s Current Report on Form 8-K dated June 3, 2019 and incorporated herein by reference.

⁽⁵⁾ Filed herewith.

*Management incentive or compensation plan.

 21

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HEALTH-RIGHT DISCOVERIES, INC.
Dated: March 30, 2020	By:	/s/ David Hopkins
		David Hopkins, President
		(Principal Executive, Financial and Accounting Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures		Title(s)	Date
By:	/s/ David Hopkins	President, Chief Executive Officer and Director	March 30, 2020
	David Hopkins	(Principal Executive, Financial and Accounting Officer)
By:	/s/ James Pande	Director	March 30, 2020
	James Pande

 22

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firms	F-2
Consolidated Balance Sheets at December 31, 2019 and 2018	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018	F-4
Consolidated Statements of Stockholders’ Deficiency for the Years Ended December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018	F-6
Notes to Consolidated Financial Statements	F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Health-Right Discoveries, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Health-Right Discoveries, Inc. and Subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

/s/ Prager Metis CPA’s, LLC

We have served as the Company’s auditor since 2018.

Hackensack, NJ

March 30, 2020

F-2

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

DECEMBER 31,

	2019			2018
ASSETS
CURRENT ASSETS:
Cash	$	2,242,013		$	2,149,738
Accounts receivable, net		52,281			148,225
Inventories		10,735			44,431
Prepaid and other assets		14,433			4,000
Total Current Assets		2,319,462			2,346,394
Property and equipment, net		23,871			37,369
Right of use asset		25,001			—
Intangible assets, net		2,230,122			3,731,584
Goodwill		3,313,226			3,313,226
TOTAL ASSETS	$	7,911,682		$	9,428,573
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,388,505		$	1,100,005
Income tax payable		—			80,000
Salaries payable - related party		—			50,000
Current portion of right of use liability		8,040			—
Current Portion-notes payable		2,500,000			2,500,000
Current portion - notes payable,  related party net of discounts of $123,336 and $0 December 31, 2019 and 2018, respectively		5,181,164			—
Total Current Liabilities		9,077,709			3,730,005
LONG-TERM LIABILITIES:
Right of use liability, net of current portion		16,784			—
Notes payable, related party net of discounts of $0 and $287,785 December 31, 2019 and 2018, respectively		—			4,862,215
Deferred tax liability		364,882			905,128
Total Long-term Liabilities		381,666			5,767,343
Total Liabilities	$	9,459,375		$	9,497,348
STOCKHOLDERS' DEFICIENCY
Preferred Stock, .001 par value, 5,000,000 shares authorized No shares issued and outstanding December 31, 2019 and 2018		—			—
Common Stock, .001 par value, 100,000,000 shares authorized 22,869,191 shares issued and outstanding December 31, 2019 and 2018, respectively		22,869			22,869
Additional Paid in Capital		1,117,967			1,117,967
Accumulated Deficit		(2,688,529	)		(1,209,611	)
Total Stockholders' Deficiency		(1,547,693	)		(68,775	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	7,911,682		$	9,428,573

The accompanying notes are an integral part of these consolidated financial statements

F-3 

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,

	2019			2018
Revenue	$	3,467,661		$	6,283,923
Cost of Revenue		488,384			1,026,423
Gross Profit		2,979,277			5,257,500
Operating Expenses
General and administrative		1,972,980			3,571,295
Amortization and depreciation		462,693			476,722
Impairment loss		1,061,200			—
Total operating expenses		3,496,873			4,048,017
Income (loss) from operations		(517,596	)		1,209,483
Other Expenses
Interest expenses		1,483,314			1,807,808
Total other expenses		1,483,314			1,807,808
Loss before income tax (provision) benefit		(2,000,910	)		(598,325	)
Income tax (provision) benefit		540,246			(68,669	)
NET LOSS	$	(1,460,664	)	$	(666,994	)
Loss per common share		(0.06	)		(0.03	)
Weighted average common shares outstanding -  basic and diluted		22,869,191			22,869,191

The accompanying notes are an integral part of these consolidated financial statements.

F-4 

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

					Additional
	------COMMON STOCK------				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total
BALANCE – December 31, 2017		22,869,191	$	22,869	$	1,117,967	$	(542,617	)	$	598,219
Net (loss)		—		—		—		(666,994	)		(666,994	)
BALANCE – December 31, 2018		22,869,191	$	22,869	$	1,117,967	$	(1,209,611	)	$	(68,775	)
Adoption of ASU 2016-02		—		—		—		(18,254	)		(18,254	)
Net (loss)		—		—		—		(1,460,664	)		(1,460,664	)
BALANCE – December 31, 2019		22,869,191	$	22,869	$	1,117,967	$	(2,688,529	)	$	(1,547,693	)

The accompanying notes are an integral part of these consolidated financial statements.

F-5 

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

FOR THE YEARS ENDED DECEMBER 31,

	2019			2018
OPERATING ACTIVITIES:
Net loss	$	(1,460,664	)	$	(666,994	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		10,792			6,962
Abandonment of property and equipment		2,707			—
Amortization expenses		440,261			465,133
Impairment loss		1,061,200			—
Right of use liability amortization		(18,431	)		—
Bad debt		2,146			40,966
Non-cash interest		318,949			1,165,054
Deferred income tax (benefit)		(540,246	)		(75,084	)
Changes in operating assets and liabilities:
Accounts receivable		93,798			281,921
Inventories		33,696			(11,851	)
Prepaid and other assets		(10,433	)		(4,000	)
Accounts payable and accrued expenses		288,500			(392,060	)
Income tax payable		(80,000	)		80,000
Accrued salary to related party		(50,000	)		(132,000	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		92,275			758,047
INVESTING ACTIVITIES:
Purchase of property and equipment		—			(33,739	)
NET CASH USED IN INVESTING ACTIVITIES		—			(33,739	)
FINANCING ACTIVITIES:
Proceeds of (repayment of) loan from related parties		—			(33,512	)
NET CASH USED IN FINANCING ACTIVITIES		—			(33,512	)
INCREASE IN CASH		92,275			690,796
CASH - BEGINNING OF YEAR		2,149,738			1,458,942
CASH - END OF YEAR	$	2,242,013		$	2,149,738
Noncash investing and financing activities:
Accrued interest converted to note payable	$	154,500		$	—
Supplemental disclosures of cash flow information:
Cash paid for interest	$	668,582		$	649,700
Cash paid for income taxes	$	—		$	63,753

The accompanying notes are an integral part of these consolidated financial statements.

F-6 

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Business

Health-Right Discoveries, Inc. (“the Company”) was formed under the laws of the State of Florida on October 12, 2011 under the name Four Plex Partners, Inc. and subsequently changed its name to Health-Right Discoveries, Inc. on March 22, 2012. The Company’s primary business was to develop and market an innovative portfolio of both prescription nutritional, OTC monograph and natural products that primarily focus on factors relating to stress-induced conditions and diseases.

On September 29, 2017, pursuant to a Securities Purchase Agreement dated August 17, 2017, the Company acquired (the “Acquisition”) all the outstanding shares of Common Compounds, Inc., n/k/a CCI Billing, Inc. d/b/a Complete Claim Management (“CCI”) and EZPharmaRx, LLC n/k/a Script Connection, LLC (“SCLLC”). HRD, through its subsidiaries, CCI and SCLLC, along with licensed pharmaceutical wholesalers, offer and provide their respective services to physician practices that desire to prescribe and dispense certain pharmaceutical products and medications in the practice’s office to patients receiving treatment for work-related injuries (“In-Office Dispensing Program”).

CCI offers and provides administrative services and billing services to physician practices (each a “Practice” and collectively, the “Practices”) desiring to make certain over-the-counter products, including non-narcotic topical medications, (“OTC Products”), and certain prescription medications (“Prescription Medications”) available to patients in the physician practice’s office. Each participating Practice is responsible for obtaining and maintaining any necessary and appropriate licenses, permits, or other documentation required to order, receive, store, and dispense OTC Products or certain Prescription Medications in the Practice’s office in accordance with applicable federal and state law. Such services include, but are not limited to, assisting Practices with insurance claim processing, prior authorization, billing and collections, and recordkeeping. CCI offers its fee-based services to Practices participating in the In-Office Dispensing Program. CCI also provides billing and collection services on behalf of SCLLC in connection with SCLLC’s sales and distribution of OTC Products to Practices participating in the OTC Program.

SCLLC offers OTC Products to Practices that desire to make such products available to patients in the Practice’s office through participation in the OTC Program. SCLLC is not a compounding pharmacy, and neither CCI nor SCLLC is involved in creating topicals with compounding pharmacies.

SCLLC also assists the Practices in ordering Prescription Medications directly from licensed pharmaceutical wholesalers and oversees the sale and distribution of Prescription Medications to the Practices. SCLLC does not sell any Prescription Medications to Practices, is not a licensed pharmaceutical wholesaler, and does not profit from the sale of such medications.

NOTE 2 – Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and include the Company and its wholly-owned subsidiary.  All significant inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of the Company’s estimates could be affected by external conditions, including those unique to its industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from its estimates.

F-7 

Cash and cash equivalents

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

Concentration of Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains its principal cash balances in various financial institutions. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At December 31, 2019 and 2018, $1,289,897 and $1,453,132 were in excess of the FDIC insured limit, respectively.

Accounts Receivable

Accounts receivable are stated at the amount the Company expects to collect from customers. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management has rewarded an allowance for doubtful accounts in the amounts of $5,040 and $0 at December 31, 2019 and 2018 respectively. During 2019, the Company recorded bad debt expense in the amount of $2,146. Management has written off a one-time bad debt customer receivables in the amount of $40,996 during the year ending December 31, 2018. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company’s customers was to deteriorate and adversely affecting their ability to make payments, additional allowances would be required.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU and all subsequently issued clarifying ASUs replaced most existing revenue recognition guidance in U.S. GAAP. The ASU also required expanded disclosures relating to the nature amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new standard effective January 1, 2018, the first day of the Company’s fiscal year. For these reasons, the adoption of this ASU did not have a significant impact on the Company’s financial statements.

Effective January 1, 2018, the Company adopted guidance issued by the FASB regarding recognizing revenue from contracts with customers. The revenue recognition policies as enumerated below reflect the Company's accounting policies effective January 1, 2018, which did not have a materially different financial statement result than what the results would have been under the previous accounting policies for revenue recognition.

CCI’s revenue results from the consulting services agreements, which included providing services to physicians for billing insurance companies. The Company has determined the performance obligations in these consulting service agreements relate to the satisfaction of billing the insurance company on behalf of the physicians. CCI remits billings to insurance companies on behalf of the physicians, collect the proceeds and remits an agreed upon percentage amount to the physician. The amounts reported as revenue are recorded net of amounts remitted. The Company follows Staff Accounting Bulletin (“SAB”) No. 104, which states that the revenue is not earned until the company has been paid by the insurance company at which time it becomes realized or realizable.

SCLLC’s revenue from the sale of products are recognized when the sale is consummated, and title is transferred. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, and the assignment of rights and warranties from the Company to the customer. Management has identified the promise in the sale contract to be the transfer of ownership of the asset. Management believes the asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. The transaction price is set at a fixed dollar amount per fixed quantity (number of assets) and is explicitly stated in each contract. Sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation in its entirety. The Company has determined the date of transfer to the customer to be the date the customer obtains control and title over the asset and the date which revenue is to be recognized and payment is due. As such, there is no impact to the timing and amounts of revenue recognized for equipment sales related to the implementation of ASC 606.

F-8 

The following tables disaggregate revenue by major source for the years ended December 31, 2019 and 2018:

Year Ended December 31, 2019		Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales		$	—	$	674,853	$	—	$	674,853
Consulting Services			2,792,808		—		—		2,792,808
	Total Revenue	$	2,792,808	$	674,853	$	—	$	3,467,661
Year Ended December 31, 2018		Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales		$	—	$	1,353,571	$	—	$	1,353,571
Consulting Services			4,930,352		—		—		4,930,352
	Total Revenue	$	4,930,352	$	1,353,571	$	—	$	6,283,923

(1) The Company's corporate group is non-revenue generating and supports our two reportable segments Ancillary Program and Prescription.

Inventories

Inventories, which consist of the Company’s product held for resale, are stated at the lower of cost, determined using the first-in, first-out, or net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their net realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company’s statements of operations. During the year ended December 31, 2019 and 2018, the Company recorded no loss due to management’s estimate of obsolete inventory, respectively.

Property and Equipment

Property and equipment are stated at cost. Expenditures for additions are capitalized, repairs and maintenance are expensed as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are as follows:

	December 31,
	2019			2018
Machinery and equipment – 7 years	$	44,497		$	52,934
Accumulated depreciation		(20,626	)		(15,565	)
Total property and equipment	$	23,871		$	37,369

Intangible Assets

Intangible assets continue to be subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment,” intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined

F-9 

Intangible assets are tested annually for impairment and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair value. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.

The Company calculates fair value of our intangible assets as the present value of estimated future cash flows the Company expects to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, The Company uses estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).

During the third quarter 2019, the Company reviewed its customer lists and impaired approximately 50% of its value, or $1,061,200.

Goodwill

Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired, and liabilities assumed in a business acquisition. In accordance with ASC 350, “Intangibles—Goodwill and Other,” goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.

In January 2017, the FASB issued ASU 2017-04 that eliminates “step 2” from the goodwill impairment test. The Company made the election to early adopt ASU 2017-04 as of January 1, 2018 and the standard was applied on a prospective basis, as required. In accordance with ASC 350-25-35-3, “An entity may first assess qualitative factors, as described in paragraphs 350-20-35-3A through 35-3G, to determine whether it is necessary to perform the quantitative goodwill impairment test.” Management reviewed the following qualitative factors around its goodwill and believes that the fair value of its investment in the Company exceeds its carrying amount at December 31, 2019. 

The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of December 31 and whenever events or changes in circumstances indicate carrying amount may not be recoverable. When assessing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company performs a two-step impairment test. If the Company concludes otherwise, then no further action is taken. The Company also has the option to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step impairment test. In the two-step impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit.

In assessing the qualitative factors, the Company assesses relevant events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances, and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include the identification of macroeconomic conditions, industry, and market considerations, cost factors, overall financial performance and share price trends, and making the assessment as to whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.

F-10 

The carrying amount of each reporting unit is determined based upon the assignment of our assets and liabilities, including existing goodwill and other intangible assets, to the identified reporting units. Where an acquisition benefits only one reporting unit, the Company allocates, as of the acquisition date, all goodwill for that acquisition to the reporting unit that will benefit. Where the Company has had an acquisition that benefited more than one reporting unit, The Company has assigned the goodwill to our reporting units as of the acquisition date such that the goodwill assigned to a reporting unit is the excess of the fair value of the acquired business, or portion thereof, to be included in that reporting unit over the fair value of the individual assets acquired and liabilities assumed that are assigned to the reporting unit.

If the carrying amount of a reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform the second step of the impairment analysis to measure the amount of the impairment loss, by allocating the reporting unit’s fair value to its assets and liabilities other than goodwill, comparing the carrying amount of the goodwill to the resulting implied fair value of the goodwill, and recording an impairment charge for any excess.

Stock-based compensation

The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, the fair value of the award is calculated on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for common shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, the fair value of the award on the date of grant is calculated in the same manner as employee awards. However, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised.

Advertising

Advertising and marketing expenses are charged to operations as incurred. For the years ended December 31, 2019 and 2018, advertising costs and marketing expenses were $18,727 and $31,166, respectively.

Income Taxes

The company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

F-11 

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding, noted above.

Accounting for Business Combinations

In accordance with ASC Topic 805, “Business Combinations,” when accounting for business combinations we are required to recognize the assets acquired, liabilities assumed, contractual contingencies, noncontrolling interests and contingent consideration at their fair value as of the acquisition date. These items are recorded on our consolidated balance sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of acquired businesses are included in the consolidated statements of operations since their respective acquisition dates.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets, estimated contingent consideration payments and/or pre-acquisition contingencies, all of which ultimately affect the fair value of goodwill established as of the acquisition date. Goodwill acquired in business combinations is assigned to the reporting unit(s) expected to benefit from the combination as of the acquisition date and is then subsequently tested for impairment at least annually. If the fair value of the net assets acquired exceeds the purchase price consideration, we record a gain on bargain purchase. However, in such a case, before the measurement period closes we perform a reassessment to reconfirm whether we have correctly identified all of the assets acquired and all of the liabilities assumed as of the acquisition date.

As part of our accounting for business combinations we are required to estimate the useful lives of identifiable intangible assets recognized separately from goodwill. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the acquired business. An intangible asset with a finite useful life shall be amortized; an intangible asset with an indefinite useful life shall not be amortized. We base the estimate of the useful life of an intangible asset on an analysis of all pertinent factors, in particular, all of the following factors with no one factor being more presumptive than the other:

● The expected use of the asset.

● The expected useful life of another asset or a group of assets to which the useful life of the intangible asset may relate.

● Any legal, regulatory, or contractual provisions that may limit the useful life.

● Our own historical experience in renewing or extending similar arrangements, consistent with our intended use of the asset, regardless of whether those arrangements have explicit renewal or extension provisions.

● The effects of obsolescence, demand, competition, and other economic factors.

● The level of maintenance expenditures required to obtain the expected future cash flows from the asset.

If no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of an intangible asset to the reporting entity, the useful life of the asset shall be considered to be indefinite. The term indefinite does not mean the same as infinite or indeterminate. The useful life of an intangible asset is indefinite if that life extends beyond the foreseeable horizon—that is, there is no foreseeable limit on the period of time over which it is expected to contribute to the cash flows of the acquired business.

F-12 

Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired entity and are inherently uncertain. Examples of critical estimates in accounting for acquisitions include but are not limited to:

● future expected cash flows from sales of products and services and related contracts and agreements;

● discount and long-term growth rates; and

● the estimated fair value of the acquisition-related contingent consideration, which is performed using a probability-weighted income approach based upon the forecasted achievement of post-acquisition pre-determined targets;

Recent Accounting Pronouncements

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 that simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test. Under the new standard, goodwill impairment should be recognized based on the amount by which the carrying amount of a reporting unit exceeds its fair value, but should not exceed the total amount of goodwill allocated to the reporting unit. The amendments in this accounting standard update are to be applied prospectively and are effective for interim or annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company made the election to early adopt ASU 2017-04 as of January 1, 2018 and the standard was applied on a prospective basis, as required.

Compensation—Stock Compensation

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” that provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The new guidance became effective for the Company on January 1, 2018 and was applied on a prospective basis, as required. The adoption of this standard did not have an impact on our consolidated financial statements or the related disclosures.

Income Statement – Reporting Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” to address stakeholder concerns about the guidance in current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “2017 Act”). The ASU must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 Act is recognized. The Company made the election to early adopt ASU 2018-02 as of January 1, 2018, the standard did not have an impact on our consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASC 842”) that amends the accounting guidance on leases for both lessees and lessors. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting. The amendments in this accounting standard update are effective for the Company on January 1, 2019, with early adoption permitted. The Company will adopt this accounting standard update effective January 1, 2019.

F-13 

The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with ASC Topic 840 if the optional transition method is elected. The Company plans to adopt the standard using the optional transition method with no restatement of comparative periods and a cumulative effect adjustment, if any, recognized as of the date of adoption. The Company does not expect that this standard to have a material effect on its consolidated financial statements due to the recognition of new ROU assets and lease liabilities for lessee activities.

As part of the implementation process, the Company assessed its lease arrangements and evaluated practical expedient and accounting policy elections to meet the reporting requirements of this standard. The Company has also evaluated the changes in controls and processes that are necessary to implement the new standard, and no material changes were required. The new standard provides a number of optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’ which permits us not to reassess under the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. Consequently, on adoption, the Company expected to recognize additional operating liabilities ranging from $100,000 to $200,000, with corresponding ROU assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. On July 29, 2019, the Company terminated its Arkansas lease effect October 31, 2019 in accordance with Section 8 of their First Amendment. On October 6, 2019, the Company entered into a new one-year lease in Arkansas beginning on November 1, 2019 with monthly rent in the amount of $1,210 per month.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently expects to elect the short-term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, including for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for the majority of its leases as both lessee and lessor.

NOTE 3 – Acquisitions

Health-Right Discoveries, Inc. modified its business plan from building a platform of products in the nutraceutical and dietary supplement space to seeking acquisitions in the healthcare field. HRD identified two target companies for sale that fit their plan going forward of acquiring small, profitable, privately held companies in the healthcare space that generate at least $5 million in revenue and $1 million in EBITDA.

On September 29, 2017, the Company closed a securities purchase agreement with CCI and SCLLC to purchase 100% of their outstanding interests for $6.1 million plus 1,751,580 shares of its common stock. The $6.1 million purchase price consists of $3.6 million cash and a $2.5 million 5-year non-interest bearing note, payable at $500,000 per year. Interest on the non-interest bearing note has been imputed using 12.75% interest rate (see Note 5).

In accordance with the acquisition method of accounting, the Company allocated the consideration to the net tangible and identifiable intangible assets based on their estimated fair values which were determined by an independent valuation performed by a third party.

F-14 

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.

The following table presents the consideration of net assets purchased:

Cash	$	3,600,000
1,751,580 shares of common stock issued		175,158
Note payable		2,500,000
Imputed interest		(763,558	)
Total Purchase Price	$	5,511,600

The assets acquired and liabilities assumed as part of our acquisition were recognized at their fair values as of the effective acquisition date, September 29, 2017, based upon an appraisal from a third party. The following table summarizes the fair values assigned to the assets acquired and liabilities assumed.

Cash	$	81,359
Current assets		759,710
Other non-current assets		11,167
Intangible assets		4,313,000
Goodwill		3,313,226
Current liabilities		(1,343,880	)
Deferred tax liability		(1,622,982	)
Net assets acquired	$	5,511,600

Acquisition costs of $410,000 were incurred and expensed for the year December 31, 2017. As part of the acquisition the company recognized deferred tax liabilities of $1,622,982 related to the unamortized identifiable intangible assets acquired in the amount of $4,313,000 using a blended 37.63% tax rate.

NOTE 4 – Leases

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted ASC 842, Leases, using a modified retrospective method applied to all contracts as of January 1, 2019. Therefore, for reporting periods beginning after December 31, 2018, the financial statements are prepared in accordance with the current lease standard and the financial statements for all periods prior to January 1, 2019 are presented under the previous lease standard ("ASC 840").

The Company determines if an arrangement is a lease, or contains a lease, when a contract is signed. The Company determines if a lease is an operating or financing lease and records a lease asset and a lease liability upon lease commencement,

The Company has operating leases for office space in Arkansas and South Carolina. The Company has no finance leases as of December 31, 2019. For office space, the Company has elected to combine the fixed payments to lease the asset and any fixed non-lease payments (such as maintenance or utility charges) when calculating the lease asset and lease liability.

The Company recognizes lease expense on a straight-line basis over the lease term. Certain of our lease agreements include rent payments which are adjusted periodically for inflation. Any change in payments due to changes in inflation rates are recognized as variable lease expense as they are incurred. Variable lease expense also includes costs for property taxes, insurance and services provided by the lessor which are charged based on usage or performance.

Some leases have one or more options to renew, with renewal terms that can initially extend the lease term for various periods up to 2 years. The exercise of renewal options for office space and data centers is at the Company’s discretion and are included if they are reasonably certain to be exercised. As of December 31, 2019, the Company’s weighted-average remaining lease term for all leases was approximately 2.83 years.

F-15 

On July 29, 2019, the Company terminated its Arkansas lease effect October 31, 2019 in accordance with Section 8 of their First Amendment. On October 6, 2019, the Company entered into a new one year lease in Arkansas beginning on November 1, 2019 with monthly rent in the amount of $1,210 per month. The Company has a lease in Florida with a monthly rent of $80.

When the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as its discount rate to determine the present value of its lease payments. The incremental borrowing rates approximate the rate the Company would pay to borrow in the currency of the lease payments on a collateralized basis for the weighted-average life of the lease. As of December 31, 2019, the Company’s weighted-average discount rate was approximately 5.0%.

The Company recognized the following related to leases in its Consolidated Balance Sheet at December 31, 2019.

Leases	Classification in Consolidated Balance Sheet	December 31, 2019
Operating lease assets	Right of use asset	$	25,001
Lease Liabilities:
Current capital lease liabilities	Right of use liability	$	8,040
Long-term capital lease liabilities	Right of use liability		16,784
Total capital lease liabilities		$	24,824

As of December 31, 2019, the operating lease liabilities will mature over the following periods: 

2020	$	9,100
2021		9,600
2022		8,000
Total remaining lease payments	$	26,700
Less: Imputed interest		(1,876	)
Total capital lease liabilities	$	24,824

At December 31, 2018, future minimum lease payments for operating leases having an initial term in excess of one year under ASC 840 were as follows: 

2019	$	65,444
2020		67,238
2021		59,253
2022		9,600
2023		1,600
Thereafter		—
Total minimum lease payments	$	203,135

The Company recognized the following related to operating leases in its Consolidated Statement of Operations:

		Year Ended
	Classification in	December 31,
Leases	Consolidated Statement of Operations	2019
Lease expense	General and administrative and Information technology	$	53,321
Total lease expense		$	53,321

F-16 

Supplemental cash flow information related to capital leases are as follows: 

	Year Ended December 31,
Leases	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from capital leases	$	53,321
Right-of-use assets obtained in exchange for lease obligations:
Capital Leases	$	—

"Operating lease amortization" presented in the operating activities section of the Consolidated Statement of Cash Flows reflects the portion of the capital lease expense that amortized the capital lease asset.

NOTE 5 – Intangible Assets

Amortizing Intangible Assets	Estimates Useful Life		Gross Carrying Amount December 31, 2019			Gross Carrying Amount December 31, 2018
Customer Lists		8/10 years	$	1,326,500		$	2,653,000
Tradenames		15 years		377,000			377,000
IP Technologies		10 years		819,000			819,000
Non-compete		5 years		464,000			464,000
				2,986,500			4,313,000
Less: Accumulated Amortization				(756,378	)		(581,416	)
			$	2,230,122		$	3,731,584

The amortization expense related to the intangible assets was $440,261 and $465,133 as of December 31, 2019 and 2018, respectively. During the third quarter 2019, the Company reviewed its customer lists and impaired approximately 50% of its value, or $1,061,200.

The valuation of the assets acquired and liabilities assumed in connection with this acquisition was based on fair values at the acquisition date. The assets purchased and liabilities assumed for these acquisitions have been reflected in the accompanying consolidated balance sheets.

NOTE 6 – Notes payable

The Company obtained a secured convertible note with a lender for $5 million, interest is payable monthly, at 12.75% per annum, the note matures on September 29, 2020. The note can be converted at any time in whole or in part at $0.44 per share. In addition, the lender received 3,584,279 shares of common stock valued at $0.10 per share along with a 2% original issue discount. The total amount of the discount is $493,345. The Company had incurred $34,917 in loan costs. Both the discount and loan costs are presented as a discount to the note payable. The Company recorded $154,500 and $150,000 of payment-in-kind interest which was added to the note as of December 31, 2019 and 2018, respectively. The note is collateralized by substantially all the assets of the Company.

The Company, as part of consideration for the purchase of CCI and SCLLC, issued a $2.5 million promissory note to the seller. The note is non-interest bearing with five annual payments of $500,000 (subject to adjustment to $377,400 if the business of CCI and SCLLC does not meet certain financial targets in 2017 and 2018) and matures on September 30, 2022. Interest has been imputed at 12.75% per annum. The note is in default as of September 30, 2018 due to the Company not making the required principal payment (see Note 12).

F-17 

The Company has expensed the unamortized discount of $470,054 and has accrued default interest for the years ended December 31, 2019 and 2018 in the amount of $425,000 and $107,123 (17% per annum), respectively. Upon each annual payment date (each, a “Due Date”), the holder may elect to convert the annual installment of the principal amount due into shares of common stock at a conversion price equal to 50% of “fair market value,” which is defined as the average closing price for the shares on the principal market on which they are traded during the thirty (30) trading days prior to the applicable Due Date, provided, further, that (a) the conversion price shall not be lower than $2.00 per share, subject to adjustment for stock splits, stock dividends and similar recapitalization events; and (b) in the event such conversion price as so adjusted is lower than $2.00 per share, the installment payable upon such Due Date may not be converted into shares without written agreement between the Company and the seller.

	December 31,
	2019			2018
Note payable – monthly interest, 12.75% per annum, matures on September 29, 2020	$	5,304,500		$	5,150,000
Less discounts		(123,336	)		(287,785	)
Note payable – monthly interest, 12.75% per annum, matures on September 30, 2022 (The loan is currently in default and currently payable.)		2,500,000			2,500,000
Less discounts		—			—
Subtotal		7,681,164			7,362,215
Less: current portion		7,681,164			2,500,000
Long- term portion	$	—		$	4,862,215

Principal payments on the above notes mature as follows:                

Year ending December 31:
	2020	$	8,334,508
	2021		—
	2022		—
	2023		—
	2024		—
	Thereafter	$	8,334,508

NOTE 7 – Related Party

As of December 31, 2019 and 2018, the Company has unpaid and accrued salary to its President in the amount of $0 and $50,000, respectively.

On January 10, 2018, the Company entered into employment agreement with David Hopkins, its President, effective as of January 1, 2018. Pursuant to the employment agreement, Mr. Hopkins assumed the additional position of Chief Executive Officer of the Company. The employment agreement is for an initial term of three (3) and automatically renews for additional three (3) year periods, provided that the Company achieves Adjusted EBITDA (as defined) of $3,500,000 for any calendar year during the initial term and any renewal term.

The employment agreement provides for an initial base salary of $175,000. In the event in any calendar year during the initial term or any renewal term, HRD achieves Adjusted EBITDA of $3,500,000, Mr. Hopkins’ annual base salary shall automatically increase to $250,000 and in the event in any calendar year during the initial term or any renewal term, the Company achieves Adjusted EBITDA of $5,000,000, his annual base salary shall automatically increase to $325,000. Mr. Hopkins will also receive a $600 per month car allowance while the employment agreement is in effect.

F-18 

In addition to the foregoing, pursuant to the employment agreement, Mr. Hopkins was granted an option to purchase 525,000 shares of HRD common stock under the Company’s 2015 Stock Incentive Plan at an exercise price of $0.35 per share. The option vests in six equal semi-annual installments commencing June 30, 2018, expires ten (10) years from the date of grant and is otherwise subject to the terms of the Incentive Plan.

In consideration for David Hopkins, the Company’s Chief Executive Officer and President, assuming the additional duties of President of the Company’s two subsidiaries, CCI and SCLLC, on May 31, 2019, the Company entered into an amended and restated employment agreement with Mr. Hopkins, effective as of April 15, 2019 (the “Effective Date”), which superseded the January 2018 employment agreement between the Company and Mr. Hopkins. The amended and restated employment agreement is for an initial term of three (3) years from the Effective Date and automatically renews for additional three (3) year periods, provided that the subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,000,000 for any calendar year during the initial term and any renewal term.

The amended and restated employment agreement provides for an initial base salary of $250,000. In the event in any calendar year during the initial term or any renewal term, the Subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,000,000, Mr. Hopkins’ annual base salary shall automatically increase to $300,000 and in the event in any calendar year during the initial term or any renewal term, the subsidiaries achieve combined Adjusted EBITDA (as determined by the Company’s accountants from the subsidiaries’ financial statements used in preparing the Company’s audited consolidated financial statements) of $3,500,000, his annual base salary shall automatically increase to $350,000. Mr. Hopkins will also receive a $600 per month car allowance while the amended and restated employment agreement is in effect.

The Company has a secured convertible note with a lender for $5 million (See Note 6).

NOTE 8 – Stockholders’ Deficit

The Company has authorized 100,000,000 shares of common stock $.001 par value and 5,000,000 shares of preferred stock $.001 par value.

NOTE 9 – 2015 Incentive Stock Plan

Our 2015 Incentive Stock Plan (the “Incentive Plan”) provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the Incentive Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The Incentive Plan is administered by the board of directors. 3,000,000 shares of our common stock are reserved for issuance pursuant to the exercise of awards under the Incentive Plan. The number of shares so reserved automatically adjusts upward on January 1 of each year, so that the number of shares covered by the Incentive Plan is equal to 15% of our issued and outstanding common stock. As of December 31, 2019, options to purchase 1,087,500 shares at an exercise price of $0.35 per share have been granted and are outstanding under the Incentive Plan.

NOTE 10 – Income Taxes

Income tax (provision) benefit for the year ended December 31, 2019 and 2018 was $540,246 and ($68,669), respectively. The effective tax rates for the periods were 27%,   respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017 (the “Act”) which made significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017.

As of December 31, 2019, the Company has approximately $878,000 of federal and state net operating loss carryovers (“NOLs”) which carry forward indefinitely.  

F-19 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

The Company files U.S. federal and state of Florida and Arkansas tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2013. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

The components of income before income taxes and the effect of adjustments to tax computed at the federal statutory rate for the years ended December 31, 2019 and 2018 were as follows:

	2019			2018
Income (loss) before income taxes	$	(2,000,910	)	$	(598,325	)
Computed tax at federal statutory rate of 21%	$	(420,191	)	$	(125,621	)
State taxes at 6%, net of federal benefit		(94,844	)		(28,361	)
Other state taxes		(25,211	)		172,114
Timing differences		—			56,833
Adjustment to valuation allowance		—			—
Other items, net		—			(6,269	)
Provision (benefit) from income taxes	$	(540,246)		$	68,669

The provision (benefit) from income taxes in the consolidated statements of operations consists of the following:

Year ended December 31,	2019			2018
Current:
Federal	$	—		$	—
State	—			143,753
Deferred:
Federal	$	(420,191	)	$	(58,399	)
State		(120,055	)		(16,685	)
Adjustment to valuation allowance		—			—
Provision (benefit) from income taxes	$	(540,246)		$	68,669

As of December 31, 2019 and 2018, the components of the deferred tax assets and liabilities are as follows:

	As of December 31,
	2019 Deferred tax			2018 Deferred tax
		Assets (Liabilities)			Assets (Liabilities)
Net operating loss carry forward	$	237,251		$	102,400
Intangible assets		(602,133	)		(1,007,528	)
Valuation allowance		—			—
Totals	$	(364,882	)	$	(905,128	)

F-20 

NOTE 11 – Business Segment Information

The Company has two reportable segments (billing services and OTC and prescription medication) supported by a corporate group which conducts activities that are non-segment specific. The following table present selected financial information about the Company's reportable segments for the year ended December 31, 2019 and 2018.

For the year  ended December 31, 2019	Consolidated			Billing Services		OTC and Prescription Medication		Corporate
Revenues	$	3,467,661		$	2,792,808	$	674,853	$	—
Cost of Revenue		488,384			—		488,384		—
Long-lived assets		5,592,220			5,034,689		557,531		—
Income (loss) before income tax		(2,000,910	)		1,836,703		159,048		(3,996,661	)
Identifiable assets		2,278,994			1,721,463		557,531		—
Depreciation and amortization		462,693			347,020		115,673		—
Impairment loss		1,061,200			795,900		265,300		—

For the year  ended December 31, 2018	Consolidated			Billing Services		OTC and Prescription Medication		Corporate
Revenues	$	6,283,923		$	4,930,352	$	1,353,571	$	—
Cost of Revenue		1,026,423			—		1,026,423		—
Long-lived assets		7,082,179			6,149,283		932,896		—
Income (loss) before income tax		(598,325	)		2,345,950		221,004		(3,165,279	)
Identifiable assets		3,768,953			2,836,057		932,896		—
Depreciation and amortization		483,684			364,504		119,180		—
Impairment loss		—			—		—		—

The Company has two reportable segments for the year ended December 31, 2019 and 2018. 

NOTE 12 – Litigation

In August 2018, we were served with a complaint (which was amended in September 2018 to include David Hopkins, our CEO, as a defendant), filed in Miami-Dade County, Florida Circuit Court by the seller of CCI and SCLLC. In the complaint, the seller alleges breach of contract and fraud in that we allegedly failed to pay him excess working capital as of the closing of the acquisition of approximately $381,000 and failed to reimburse him for certain credit card expenses. We believe that the seller’s claims are without merit, as his calculation of working capital does not follow the methodology provided for in the Securities Purchase Agreement for the transaction and that in fact, there was a working capital shortfall at closing of approximately $725,000 (for which we demanded payment in June 2018). Moreover, the seller has refused to submit the working capital dispute to the resolution process provided for in the Securities Purchase Agreement. We have answered the complaint denying the seller’s claims and have filed counterclaims against the seller for the sums we believe are do us for the working capital shortfall and for damages arising from seller’s breach of contract, breach of good faith and fair dealing, fraud in the inducement, indemnification obligations under the Securities Purchase Agreement and violation of his non-competition and non-solicitation agreement with the Company.

F-21 

The parties have engaged in discovery, and we believe that the information obtained thus far supports our claims and refutes the seller's claims.  On November 18, 2019, the seller filed a motion, asking the court to stay the case temporarily because he believed he was the target of a parallel federal criminal investigation related to facts at issue in the case.  On December 11, 2019, the court granted his motion and stayed the case for 120 days.

In April 2018, Stephen Andrews, the former CEO of CCI, filed a wrongful termination arbitration claim seeking recovery in the amount in excess of $500,000. In addition to raising defenses, the Company has filed a counterclaim alleging violation of non-disclosure/non-compete agreements by Mr. Andrews as well as claims for breach of a non-solicitation agreement, breach of the employee manual and injunctive relief. The final arbitration hearing was scheduled for January 2020.  However, Andrews moved for a stay of the arbitration on November 20, 2019 based on his belief that he is the target of a parallel federal criminal grand jury investigation.  The arbitrator granted the stay on December 17, 2019 and the final arbitration hearing was postponed indefinitely.

NOTE 13 – Concentration

The Company offers physicians and medical clinics an ancillary program to treat their patients with topical prescription medicine to manage pain. The program is designed for patients with work related injuries managed under worker compensation claims. The program both delivers the topical medicine to the care provider for sale to the patient, as well as providing the care provider with insurance claim processing services on behalf of the patient.

Accounts Receivable Concentration

	At December 31, 2019	At December 31, 2018
Number of customers over 10%	6	2
Percentage of accounts receivable	10%, 12%, 13%, 13%, 15%, 18%	10% and 13%

We have two vendors who both represent 100% of purchased products that are sold for 2019 and 2018.

 NOTE 14 – Commitments, Contingencies, Guarantees and Indemnities

On October 6, 2019, the Company entered into a new one year lease in Arkansas beginning on November 1, 2019 with monthly rent in the amount of $1,210 per month. The Company has a lease in Florida with a monthly rent of $80.

Future minimum payments under operating lease agreements are as follows:

Years Ending December 31,
2020	$	13,060
2021	—
2022	—
2023	—
2024	—
Thereafter	—
Total	$	13,060

NOTE 15 – Subsequent Events

The Company has evaluated subsequent events through the date that the financial statements were issued and determined that there were no subsequent events requiring adjustment to or disclosure in the financial statements.

F-22