Notes Payable Including Convertible Notes

3 Months Ended

Mar. 31, 2017

Notes Payable Including Convertible Notes [Abstract]

NOTES PAYABLE INCLUDING CONVERTIBLE NOTES

NOTE 7 – NOTES PAYABLE INCLUDING CONVERTIBLE NOTES

Notes payable as of March 31, 2017 and December 31, 2016 are comprised of the following:

	March 31,			December 31,
	2017			2016
				(audited)
Convertible notes payable	$	550,206		$	485,668
Note payable, New Everbank Lease (Capital leases)		53,515			58,102
Total notes payable		603,721			543,770
Less: convertible notes payable, current portion		(550,206	)		(485,668	)
Less: note payable, New Everbank Lease (Capital leases), current portion		(18,348	)		(18,348	)
Notes payable, bank loans and capital leases, long-term portion	$	35,167		$	39,754

Convertible Note Payable

On July 7, 2016, the Company entered into a 6% fixed convertible secured promissory note with an investor with a face value of $550,000 (the “$550k Note”). The $550k Note was originally schedule to mature on April 11, 2017. During February 2017, the holder of the $550k Note agreed to extend the maturity date until July 7, 2017 in exchange for a five-year warrant to purchase 500,000 shares of HLKD common stock at an exercise price of $0.15 per share. The $550k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.08 per share, and is secured by all of the Company’s assets. The Company received $500,000 net proceeds from the note after a $50,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 6,111,111 shares of the Company’s common stock at an exercise price of $0.09 per share. The fair value of the warrants was calculated using the Black-Scholes pricing model at $157,812, with the following assumptions: risk-free interest rate of 0.97%, expected life of 5 years, volatility of 40%, and expected dividend yield of zero. The net proceeds from the issuance of the $550k Note, being $500,000 after the original issue discount, were then allocated to the warrants and the convertible note instrument based on their relative fair values, of which $111,479 was allocated to the warrants and $388,521 to the convertible note. The intrinsic value of the embedded conversion feature of the $550k note was then calculated as $161,479. The original issue discount, warrants and embedded conversion feature were recorded as discounts against the carrying value of the $550k Note. 

The allocation of the proceeds at inception was as follows:

Original issue discount	$	50,000
Warrants		111,479
Embedded conversion feature		161,479
Convertible note		227,042
Face value of convertible note	$	550,000

The discounts resulting from the original issue discount, warrants and embedded conversion feature are being amortized over the life of the $550k Note. Amortization expense related to these discounts in the three months ended March 31, 2017 and 2016 was $72,044 and $-0-, respectively. As of March 31, 2017, the unamortized discount was $49,794. As of March 31, 2017, the $550k note was convertible into 6,875,000 of the Company’s common shares.

On July 7, 2016, the Company entered into a 10% fixed convertible commitment fee promissory note with an investor with a face value of $50,000 maturing on July 11, 2017 (the “$50k Note”). The $50k note was issued as a commitment fee payable to the ELOC investor in exchange for the investor’s commitment to enter into the ELOC, subject to registration of the shares underlying the ELOC. The $50k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.10 per share. The embedded conversion feature did not have any intrinsic value at issuance. Accordingly, the full face value of $50,000 was allocated to the convertible note instrument. As of March 31, 2017, the $50k Note was convertible into 500,000 of the Company’s common shares.

During the three months ended March 31, 2017 and 2016, the Company made no repayments on convertible notes. During the three months ended March 31, 2017 and 2016, the Company recorded interest expense on the above convertible notes totaling $9,370 and $-0-, respectively.

Note Extension and Warrants Granted

In February 2017, the holder of the $550k Note agreed to extend the maturity date of the $550k Note until July 7, 2017 in exchange for a new five-year warrant to purchase 500,000 shares of common stock at an exercise price of $0.15 per share. The warrant has a “cashless” exercise provision and a 9.99% beneficial ownership limitation. The fair value of the warrant was calculated using the Black-Scholes pricing model at $7,506, with the following assumptions: risk-free interest rate of 1.89%, expected life of 5 years, volatility of 40%, and expected dividend yield of zero. The issuance of the warrants in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments.”

Note Payable – Capital Leases

In March 2015, the Company entered into a capital equipment finance lease for Ultra Sound equipment with Everbank. There was no interest on this lease. The monthly payment is $1,529 for 60 months ending in March 2020. As of March 31, 2017, the Company owed Everbank $53,515 pursuant to this capital lease.

During the three months ended March 31, 2017 and 2016, the Company made payments on capital leases of $4,587 and $4,587, respectively.

Future minimum payments to which the Company is obligated pursuant to the capital leases as of December 31, 2016 are as follows:

2017 (April to December)	$	13,761
2018		18,348
2019		18,348
2020		3,058
2021		---
Total	$	53,515