UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

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 29th Avenue, Suite 700, Aventura, Florida 33180

(Address of Principal Executive Offices)

(305) 705-3247

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically 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 ☐

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None

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

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 17, 2020 was 22,869,191 shares.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)	1

	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)	2

	Consolidated Statements of Stockholders’ Deficiency for the three and nine months ended September 30, 2020 and 2019 (unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	4

	Notes to Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20

Item 3.	Quantitative Disclosures About Market Risk.	25

Item 4.	Controls and Procedures.	25

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	26

Item 1A.	Risk Factors.	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26

Item 4.	Mine Safety Disclosures.	26

Item 5.	Other information.	26

Item 6.	Exhibits.	26

SIGNATURES		26

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2020			December 31, 2019

ASSETS

CURRENT ASSETS:
Cash	$	1,769,460		$	2,242,013
Accounts receivable, net		66,858			52,281
Inventories		31,042			10,735
Prepaid and other assets		3,530			14,433
Total Current Assets		1,870,890			2,319,462

Property and equipment, net		20,129			23,871
Deferred tax asset		89,171			—
Right of use asset		—			25,001
Intangible assets, net		1,955,887			2,230,122
Goodwill		3,313,226			3,313,226

TOTAL ASSETS	$	7,249,303		$	7,911,682

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,572,324		$	1,388,505
Current portion of right of use liability		—			8,040
Current portion - notes payable - PPP loans		71,936			—
Current portion - notes payable		2,500,000			2,500,000
Current portion - notes payable, net of discounts of $-0- and $123,336 as of September 30, 2020 and December 31, 2019, respectively		5,834,508			5,181,164
Total Current Liabilities		9,978,768			9,077,709

LONG-TERM LIABILITIES:
Right of use liability, net of current portion		—			16,784
Notes payable - PPP loans, net of current portion		45,777			—
Deferred tax liability		—			364,882
Total Long-term Liabilities		45,777			381,666

Total Liabilities	$	10,024,545		$	9,459,375

STOCKHOLDERS’ DEFICIENCY
Preferred Stock, .001 par value, 5,000,000 shares authorized No shares issued and outstanding September 30, 2020 and December 31, 2019, respectively		—			—
Common Stock, .001 par value, 100,000,000 shares authorized 22,869,191 shares issued and outstanding September 30, 2020 and December 31, 2019, respectively		22,869			22,869
Additional Paid in Capital		1,117,967			1,117,967
Accumulated Deficit		(3,916,078	)		(2,688,529	)
Total Stockholders’ Deficiency		(2,775,242	)		(1,547,693	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	7,249,303		$	7,911,682

See accompanying notes to unaudited consolidated financial statements.

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	FOR THE THREE MONTHS ENDED						FOR THE NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2020			2019			2020			2019


Revenue	$	343,492		$	828,302		$	1,099,213		$	2,789,562

Cost of Revenue		64,547			127,661			174,458			431,102

Gross Profit		278,945			700,641			924,755			2,358,460

Operating Expenses
General and administrative		321,308			479,650			1,016,408			1,595,710
Amortization and depreciation		95,556			121,100			286,706			363,356
Impairment loss		—			1,061,200			—			1,061,200
Total operating expenses		416,864			1,661,950			1,303,114			3,020,266

Loss from operations		(137,919	)		(961,309	)		(378,359	)		(661,806	)

Other Expenses
Interest expenses		434,299			352,419			1,303,243			1,048,710
Total other expenses		434,299			352,419			1,303,243			1,048,710

Loss before income tax benefit		(572,218	)		(1,313,728	)		(1,681,602	)		(1,710,516	)

Income tax benefit		154,519			354,707			454,053			461,840

NET LOSS	$	(417,699	)	$	(959,021	)	$	(1,227,549	)	$	(1,248,676	)


Loss per common share		(0.02	)		(0.04	)		(0.05	)		(0.05	)

Weighted average common shares outstanding - basic and diluted		22,869,191			22,869,191			22,869,191			22,869,191

See accompanying notes to unaudited consolidated financial statements.

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

					Additional
	------COMMON STOCK------				Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total

BALANCE – December 31, 2019		22,869,191	$	22,869	$	1,117,967	$	(2,688,529	)	$	(1,547,693	)

Net loss for the three months ended March 31, 2020		—		—		—		(410,963	)		(410,963	)

BALANCE – March 31, 2020		22,869,191		22,869		1,117,967		(3,099,492	)		(1,958,656	)

Net loss for the three months ended June 30, 2020		—		—		—		(398,887	)		(398,887	)

BALANCE – June 30, 2020		22,869,191		22,869		1,117,967		(3,498,379	)		(2,357,543	)

Net loss for the three months ended September 30, 2020		—		—		—		(417,699	)		(417,699	)

BALANCE – September 30, 2020		22,869,191	$	22,869	$	1,117,967	$	(3,916,078	)	$	(2,775,242	)



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 for the three months ended March 31, 2019		—		—		—		(32,167	)		(32,167	)

BALANCE – March 31, 2019		22,869,191		22,869		1,117,967		(1,260,032	)		(119,196	)

Net loss for the three months ended June 30, 2019		—		—		—		(257,488	)		(257,488	)

BALANCE – June 30, 2019		22,869,191		22,869		1,117,967		(1,517,520	)		(376,684	)

Net loss for the three months ended September 30, 2019		—		—		—		(959,021	)		(959,021	)

BALANCE – September 30, 2019		22,869,191	$	22,869	$	1,117,967	$	(2,476,541	)	$	(1,335,705	)

See accompanying notes to unaudited consolidated financial statements.

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

	2020			2019

OPERATING ACTIVITIES:
Net loss	$	(1,227,549	)	$	(1,248,676	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense		3,742			5,776
Amortization expense		274,235			348,850
Impairment loss		—			1,061,200
Right of use liability amortization		177			(2,323	)
Non-cash interest		123,336			123,337
Deferred income tax benefit		(454,053	)		(461,840	)
Changes in operating assets and liabilities:
Accounts receivable		(14,577	)		78,671
Inventories		(20,307	)		11,211
Prepaid and other assets		10,903			(15,609	)
Accounts payable and accrued expenses		713,827			539,663
Accrued salary to related party		—			(50,000	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(590,266	)		390,260

FINANCING ACTIVITIES:
Proceeds of notes payable		117,713			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		117,713			—

(DECREASE) INCREASE IN CASH		(472,553	)		390,260

CASH - BEGINNING OF PERIOD		2,242,013			2,149,738

CASH - END OF PERIOD	$	1,769,460		$	2,539,998

Noncash investing and financing activities:
Accrued interest converted to note payable	$	530,008		$	154,500

Supplemental disclosures of cash flow information:
Cash paid for interest	$	516,636		$	499,765

Cash paid for income taxes	$	—		$	80,000

See accompanying notes to unaudited consolidated financial statements.

HEALTH-RIGHT DISCOVERIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – Summary of Significant Accounting Policies

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 and does not profit from the sale of such medications.

The significant accounting policies of the Company were described in Note 2 to the audited consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K. There have been no significant changes in the Company’s significant accounting policies for the nine months ended September 30, 2020.

Basis of Presentation

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Therefore, they do not include all information and footnotes normally included in annual consolidated financial statements and should be read in conjunction with the consolidated financial statement and notes thereto included in the 2019 Form 10-K for the year ended December 31, 2019. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period. Certain prior period amounts have been reclassified to conform to the current presentation.

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.

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 September 30, 2020 and December 31, 2019, $1,180,322 and $1,289,897 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 recorded an allowance for doubtful accounts in the amounts of $4,660 and $5,040 at September 30, 2020 and December 31, 2019 respectively. 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.

The following tables disaggregate revenue by major source for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, 2020	Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales	$	—	$	92,546	$	—	$	92,546
Consulting Services		250,946		—		—		250,946
Total Revenue	$	250,946	$	93,087	$	—	$	343,492

Three Months Ended September 30, 2019	Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales	$	—	$	169,332	$	—	$	169,332
Consulting Services		658,970		—		—		658,970
Total Revenue	$	658,970	$	169,332	$	—	$	828,302

Nine Months Ended September 30, 2020	Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales	$	—	$	254,569	$	—	$	254,569
Consulting Services		844,644		—		—		844,644
Total Revenue	$	844,644	$	254,569	$	—	$	1,099,213

Nine Months Ended September 30, 2019	Ancillary Program		OTC and Prescription Medication		Corporate (1)		Total
Product Sales	$	—	$	585,148	$	—	$	585,148
Consulting Services		2,204,414		—		—		2,204,414
Total Revenue	$	2,204,414	$	585,148	$	—	$	2,789,562

(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. Based on management’s estimate, there was no obsolete inventory at September 30, 2020 and December 31, 2019.

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:

	September 30, 2020			December 31, 2019
Machinery and equipment – 7 years	$	44,497		$	44,497
Accumulated depreciation		(24,368	)		(20,626	)
Total property and equipment	$	20,129		$	23,871

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.

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 September 30, 2020 and 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.

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.

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.

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, non-controlling interests and contingent consideration at their fair value as of the acquisition date. These items are recorded on our unaudited 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 unaudited 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.

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;

NOTE 2 – Going Concern

The accompanying unaudited financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has been incurring losses and with the ongoing COVID-19 outbreak, finds an ongoing lack of revenues sufficient to cover its operating costs and is dependent on refinancing debt, which matured on September 29, 2020 to fund its operations (see Note 13). Management of the Company is making efforts to refinance its debts with its lender. Management of the Company believes, there can be no assurance that the Company will be able to raise additional equity capital or be successful in increasing revenues enough to sustain its operating expenses. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. The accompanying unaudited financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES act was enacted as a response to the COVID-19 outbreak discussed above and is meant to provide companies with economic relief. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

NOTE 3 – 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 had operating leases for office space in Arkansas and South Carolina. The Company has no finance leases as of September 30, 2020. 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. 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. As of October 1, 2020, the Company renewed the lease (See Note 13). The Company has a lease in Florida with a monthly rent of $80.

On July 28, 2020, the Company entered into a lease termination with Ana maid, LLC, the October 30, 2018 lease was terminated effective July 31, 2020, for a payment of $4,650 and the deposit. As a result, the Company closed its South Carolina office.

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.

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.

The Company recognized the following related to leases in its Unaudited Consolidated Balance Sheets at September 30, 2020 and December 31, 2019.

Leases	Classification in Consolidated Balance Sheets	September 30, 2020		December 31, 2019
Operating lease assets	Right of use asset	$	—	$	25,001
Lease Liabilities:
Current operating lease liabilities	Right of use liability	$	—	$	8,040
Long-term operating lease liabilities	Right of use liability		—		16,784
Total operating lease liabilities		$	—	$	24,824

The Company recognized the following related to operating leases in its Unaudited Consolidated Statements of Operations for three and nine months ended September 30, 2020 and 2019:

		Three Months		Nine Months
	Classification in Unaudited	Ended September		Ended September
Leases	Consolidated Statements of Operations	30, 2020		30, 2020
Lease expense	General and administrative and Information technology	$	—	$	4,744
Total lease expense		$	—	$	4,744

		Three Months		Nine Months
	Classification in Unaudited	Ended September		Ended September
Leases	Consolidated Statements of Operations	30, 2019		30, 2019
Lease expense	General and administrative and Information technology	$	15,522	$	46,566
Total lease expense		$	15,522	$	46,566

Supplemental cash flow information related to operating leases for the three and nine months as of September 30, 2020 and 2019 are as follows:

	Three Months		Nine Months
	Ended September 30,		Ended September 30,
Leases	2020		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	—	$	4,744
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases	$	—	$	—

	Three Months		Nine Months
	Ended September 30,		Ended September 30,
Leases	2019		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	15,522	$	46,566
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases	$	—	$	—

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

NOTE 4 – Intangible Assets

Amortizing Intangible Assets	Estimates Useful Life	Gross Carrying Amount September 30, 2020			Gross Carrying Amount December 31, 2019

Customer Lists	8 years	$	1,326,500		$	1,326,500
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			2,986,500
Less: Accumulated Amortization			(1,030,613	)		(756,378	)

		$	1,955,887		$	2,230,122

The amortization expense related to the intangible assets was $91,412 and $274,235 for the three and nine months ended September 30, 2020 and $116,283 and $348,850 for the three and nine months ended September 30, 2019. 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 5 – Notes payable

The Company obtained a secured convertible note with a lender for $5 million, interest was payable monthly, at 12.75% per annum, the note matured on September 29, 2020 (see Note 13). 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 were presented as a discount to the note payable. The Company recorded $477,405 and $154,500 of payment-in-kind interest which was added to the note as of September 30, 2020 and December 31, 2019, respectively. The note is collateralized by substantially all the assets of the Company. During November 2020, the Company renegotiated its note (see Note 13).

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 11).

The Company has expensed default interest (17% per annum) in the amounts of $107,123 and $319,041 as of three and nine months September 30, 2020 and 2019, 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.

On April 17, 2020, the Company obtained two Notes under the Paycheck Protection Program (PPP) in the amount of $57,965 and $59,748 with Iberia Bank. The interest rates on these Notes will be at a fixed rate of 1%, per annum, however no interest will be due during the first six months after the loan was disbursed. After the six-month deferral period and taking into account any loan forgiveness as approved by the SBA, the remaining principal and accrued interest will be payable monthly. The Notes will mature on April 17, 2022.

	September 30, 2020		December 31, 2019

Note payable – monthly interest, 12.75% per annum, matured on September 29, 2020 (see Note 13)	$	5,834,508	$	5,304,500
Less discounts		—		(123,336	)
Notes payable – PPP, 1% per annum, matures on April 17, 2022		117,713		—
Note payable – monthly interest, 17.00% 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		8,452,221		7,681,164
Less: current portion		8,406,444		7,681,164
Long-term portion	$	45,777	$	—

Principal payments on the above notes mature as follows:

2020	$	8,347,587
2021		78,475
2022		26,159
2023		—
2024		—
Thereafter	$	8,452,221

NOTE 6 – Related Party

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.

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 September 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 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 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 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 had a secured convertible note with a lender for $5 million (see Note 5 and 13).

NOTE 7 – Stockholders’ Deficiency

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 8 – 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 September 30, 2020 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 9 – Income Taxes

Income tax benefit for the three months ended September 30, 2020 and 2019 was $154,519 and $354,707, respectively. Income tax benefit for the nine months ended September 30, 2020 and 2019 was $454,053 and $461,840, 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 September 30, 2020, the Company has approximately $2,285,367 of federal and state net operating loss carryovers (“NOLs”) which carry forward indefinitely.

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 $0 valuation allowance against the deferred tax asset relating to NOLs because it is more likely than not that all of the deferred tax asset will 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, 2016. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

NOTE 10 – 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 three and nine months ended September 30, 2020 and 2019.

For the three months ended September 30, 2020	Consolidated			Billing Services		OTC and Prescription Medication		Corporate

Revenues	$	343,492		$	250,405	$	93,087	$	—
Cost of Revenue		64,547			—		64,547		—
Long-lived assets		5,289,242			4,800,270		488,972		—
Income (loss) before income tax		(572,218	)		171,861		29,850		(773,929	)
Identifiable assets		1,976,016			1,487,044		488,972		—
Depreciation and amortization		95,556			71,667		23,889		—

For the nine months ended September 30, 2020	Consolidated			Billing Services		OTC and Prescription Medication		Corporate

Revenues	$	1,099,213		$	844,644	$	254,569	$	—
Cost of Revenue		174,458			—		174,458		—
Long-lived assets		5,289,242			4,800,270		488,972		—
Income (loss) before income tax		(1,681,602	)		531,966		79,308		(2,292,876	)
Identifiable assets		1,976,016			1,487,044		488,972		—
Depreciation and amortization		286,706			215,030		71,676		—

For the three months ended September 30, 2019	Consolidated			Billing Services		OTC and Prescription Medication		Corporate

Revenues	$	828,302		$	658,970	$	169,332	$	—
Cost of Revenue		127,661			—		127,661		—
Long-lived assets		5,815,666			5,235,282		580,384		—
Income (loss) before income tax		(1,313,728	)		406,299		31,556		(1,751,583	)
Identifiable assets		2,502,440			1,922,056		580,384		—
Depreciation and amortization		121,100			90,825		30,275		—
Impairment loss		1,061,200			—		—		1,061,200

For the nine months ended September 30, 2019	Consolidated			Billing Services		OTC and Prescription Medication		Corporate

Revenues	$	2,789,562		$	2,204,414	$	585,148	$	—
Cost of Revenue		431,102			—		431,102		—
Long-lived assets		5,815,666			5,235,282		580,384		—
Income (loss) before income tax		(1,710,516	)		1,368,109		116,891		(3,195,516	)
Identifiable assets		2,502,440			1,922,056		580,384		—
Depreciation and amortization		363,356			272,517		90,839		—
Impairment loss		1,061,200			—		—		1,061,200

NOTE 11 – 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 September 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.

The stay issued by the court on December 11, 2019 expired on April 13, 2020. The seller then moved to stay the case for a second time, again claiming that the instant proceedings overlap with an ongoing federal criminal investigation in which he believes he is a target. Health-Right and Mr. Hopkins opposed Burroughs’ second motion to stay, and the court subsequently denied the seller’s motion. On April 23, 2020, Health-Right filed an amended counterclaim to add claims against the seller for tortious interference with business relationships and breach of the non-compete and non-solicitation provisions of the Securities Purchase Agreement. The seller has since filed his answer and affirmative defenses to Health-Right’s amended counterclaim. Also, on April 23, 2020, the seller filed a second amended complaint against Health-Right and Mr. Hopkins, which Health-Right and Mr. Hopkins moved to dismiss as legally insufficient. On July 15, 2020, the court granted the motion in part and denied the motion in part. The court granted the motion, in part, by dismissing with prejudice the seller’s claims against Health-Right and Mr. Hopkins for fraudulent misrepresentation and negligent misrepresentation. Accordingly, Mr. Hopkins is no longer a party to the case, and only seller’s contract-based claims against Health-Right remain.

The parties continued engaging in discovery. Specifically, the seller produced additional documents responsive to Health-Right's request for production and sat for a second deposition on September 23, 2020. Health-Right discovered that the seller attempted to perpetrate a fraud upon the court by, among other things, doctoring several critical emails. At the seller's second deposition, Health-Right confronted the seller about the doctored emails. In response, the seller invoked his Fifth Amendment Privilege against self-incrimination. The seller's counsel subsequently withdrew from representing the seller. Health-Right has moved to strike the seller's pleadings and for the entry of a default judgment against the seller for his actions. Health-Right's motion is pending.

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 12 – 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 September 30, 2020		At December 31, 2019

Number of customers over 10%		5		6
Percentage of accounts receivable		12%, 13%, 16%, 26%, 27%		10%, 12%, 13%, 13%, 15%, 18	%

We have two vendors who represent 100% of purchased products that are sold for nine months 2020 and 2019.

For the three months ended September 30, 2020, the Company had two clinics that represented 12%, and 17% of total revenue. For the three months ended September 30, 2019, the Company had no clinics that represented more than 10% of total revenue.

For the nine months ended September 30, 2020, the Company had three clinics that represented 11%, 12%, and 17% of total revenue. For the nine months ended September 30, 2019, the Company had no clinics that represented more than 10% of total revenue.

NOTE 13 – Subsequent Events

The Company has evaluated subsequent events through the date that the financial statements were issued and determined that there were the following subsequent events requiring adjustment to or disclosure in the financial statements.

On October 1, 2020, the Company entered into a one year lease in Arkansas beginning on November 1, 2020 with monthly rent in the amount of $1,210 per month.

On November 16, 2020, effective retroactive to October 1, 2020. the Company restructured the $5,000,000 principal amount senior secured convertible note (the “Original GPB Note”) that the Company had issued to GPB Debt Holdings II, LLC (“GPB”) on September 29, 2017 in connection with financing the Acquisition. The Original GPB Note came due on September 29, 2020.

In connection with the restructuring, the Company entered into an Exchange Agreement with GPB (the “Exchange Agreement”). Pursuant to the Exchange Agreement, (a) the Company made a principal payment of $1,000,000 on the Original GPB Note; (b) issued a new $3,500,00 principal amount senior secured convertible note to GPB; and (c) issued to GPB an additional 3,206,525 shares of the Company’s common stock(“HRD Shares”).

The New GPB Note, which matures on September 30, 2023 (the “Maturity Date”), provides for cash interest at the rate of 8% per annum, which accrues and is payable monthly commencing April 1, 2021. In addition, the New GPB Note also provides for an annual payment of paid in kind interest at the rate of 11.5% for the period from October 1, 2020 through March 31, 2021, and at the rate of 3.0% per annum thereafter.

The New GPB Note (including accrued and unpaid interest) may be prepaid, in whole or in part, at the option of the Company at any time prior to the Maturity Date, so long as a minimum of $200,000 is prepaid each time a repayment is made, 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 New GPB Note proposed to be prepaid. No success fee or other premium will be due in connection with an optional prepayment.

In addition to optional prepayment, if on the last day of each calendar quarter prior to the Maturity Date or earlier repayment of the New GPB Note in full, available cash held by the Company in its and its subsidiaries’ bank accounts exceeds $1,000,000, after giving effect to all accruals and expenses accounted for in that calendar quarter, the Company shall make a mandatory prepayment to GPB of $200,000, which shall be applied to reduction of the outstanding principal amount of the New GPB Note.

The New 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.

The New GPB Note (a) provides for customary affirmative and negative covenants, including restrictions on the Company incurring subsequent debt; (b) contains customary event of default provisions; and (c) is secured by a lien on all of the assets of the Company, including its intellectual property, pursuant to an amended and restated security agreement entered into between the Company and GPB.

Item 2.

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

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.

Forward-Looking Statements

Certain statements made in this report 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. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Historical Background

Business Overview

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

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.

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.

Effects of the COVID-19 Pandemic

The adverse public health developments and economic effects of the COVID-19 pandemic have and will likely continue to adversely affect the Company’s business as a result of the significant decline in visits to Practices for non-essential medical treatment and hence has decreased the dispensing of OTC Products from and the need for the Company’s billing services by Practices. In addition, the outbreak could potentially lead to an extended economic downturn, which would likely further 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 long-term effect the COVID-19 pandemic will have on the Company.

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.

Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

For the three months ended September 30, 2020 we had revenues of $343,492, as compared to $828,302 for the three months ended September 30, 2019. Cost of revenue was $64,547 for the 2020 quarter, as compared to $127.661 for the 2019 quarter. The decline in revenues and cost of revenue from 2019 to 2020 is largely due to the loss of revenue from a key state from which CCI previously generated significant business and the adverse effects of the COVID-19 pandemic on the Company’s business sector, as outlined above. Management is closely assessing operations as the country continues to reopen and the pandemic progresses.

General and administrative costs were $321,308 for the three months ended September 30, 2020, as compared to $479,650 for the three months ended September 30, 2019, with the decrease similarly attributable to the adverse effects of the COVID-19 pandemic on the Company’s business sector and a reduction in legal fees as a result of the stay orders in effect with respect to pending litigation. Interest expense for the 2020 quarter increased approximately 23% to $434,299 from $352,419 for the 2019 quarter. 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. As a result of the technical default under such notes as a result of the dispute between the seller and the Company, such notes now accrue interest for financial statement purposes at the higher default rate.

During the three months ended September 30, 2020, the Company incurred amortization and depreciation of $95,556 related to its intangible assets and property and equipment, as compared to amortization and depreciation of $121,100 for the three months ended September 30, 2019.

During the three months ended September 30, 2019, the Company had an impairment loss of $1,061,200 related to its intangible assets, which was not present in the 2020 quarter.

Income tax benefit for the three months ended September 30, 2020 was $154,519, as compared to income tax benefit of $354,707 for the three months ended September 30, 2019.

The Company had a net loss for the three months ended September 30, 2020 of $417,699, as compared to a net loss of $959,021 for the three months ended September 30, 2019. The decrease in net loss from 2019 to 2020, was largely attributable to the absence of the impairment loss in the 2020quarter, offset in part by the 2020 loss of revenue from a key state from which CCI previously generated significant business and the adverse effects of the COVID-19 pandemic on the Company’s business sector, as outlined above. Management is closely assessing operations as the country continues to reopen and the pandemic progresses.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

For the nine months ended September 30, 2020 we had revenues of $1,099,213, as compared to $2,789,562 for the nine months ended September 30, 2019. Cost of revenue was $174,458 for the 2020 period, as compared to $431,102 for the 2019 period. The decline in revenues and cost of revenue from 2019 to 2020 is largely due to the loss of revenue from a key state from which CCI previously generated significant business and the adverse effects of the COVID-19 pandemic on the Company’s business sector, as outlined above. Management is closely assessing operations as the country begins to reopen and the pandemic progresses.

General and administrative costs were $1,016,408 for the nine months ended September 30, 2020, as compared to $1,595,710 for the nine months ended September 30, 2019, with the decrease similarly attributable to the adverse effects of the COVID-19 pandemic on the Company’s business sector and a reduction in legal fees as a result of the stay orders in effect with respect to pending litigation. Interest expense for the 2020 period increased approximately 24% to $1,303,243 from $1,048,710 for the 2019 period. 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. As a result of the technical default under such notes as a result of the dispute between the seller and the Company, such notes now accrue interest for financial statement purposes at the higher default rate.

During the nine months ended September 30, 2020, the Company incurred amortization and depreciation of $286,706 related to its intangible assets and property and equipment, as compared to amortization and depreciation of $363,356 for the nine months ended September 30, 2019.

During the nine months ended September 30, 2019, the Company had an impairment loss of $1,061,200 related to its intangible assets, which was not present in the 2020 period.

Income tax benefit for the nine months ended September 30, 2020 was $454,053, as compared to income tax benefit of $461,840 for the nine months ended September 30, 2019.

The Company had a net loss for the nine months ended September 30, 2020 of $1,227,549, as compared to a net loss of $1,248,676 for the nine months ended September 30, 2019. The decrease in net loss from 2019 to 2020, was largely attributable to the absence of the impairment loss in the 2020 period, offset in part by the 2020 loss of revenue from a key state from which CCI previously generated significant business and the adverse effects of the COVID-19 pandemic on the Company’s business sector, as outlined above. Management is closely assessing operations as the country continues to reopen and the pandemic progresses.

Liquidity and Capital Resources

As of September 30, 2020, total assets were $7,249,303, as compared to $7,911,682 on December 31, 2019, with the decrease being attributable to the amortization of intangible assets and by a decrease in additional cash on hand from operations. Total current liabilities as of September 30, 2020 were $9,978,768, as compared to $9,077,709 as of December 31, 2019. As of September 30, 2020 and December 31, 2019, the Company had long-term liabilities of $45,777 and $381,666, 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 used in operating activities was $590,266 for the nine months ended September 30, 2020, as compared to net cash provided by operating activities of $390,260 for the nine months ended Sept 30, 2019, primarily, reflecting the reduction in operations.

Net cash provided by financing activities was $117,713 for the nine months ended as September 30, 2020 compared to $0 for the nine months ended September 30, 2019, reflecting the company obtain loans under the Paycheck Protection Program with Iberia Bank.

The above descriptions of the Exchange Agreement, the New GPB Note and the A & R Security Agreement are qualified in their entirety by reference to the copies of the Exchange Agreement, the New GPB Note and the A & R Security Agreement filed as Exhibits 10.1, 10.2 and 10.3 to this report.

The Company believes that given the restructuring of its debt, the Company’s existing capital resources when combined with anticipated cash flow from operations, will allow it to fund its operations for the next twelve (12) months.. There can be no assurance that we will be able to do so or secure financing, when required, 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. These factors among others, raise substantial doubt regarding the Company’s ability to continue as a going concern.

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.

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.

Accounting for 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 twelve (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 adopted this accounting standard update effective January 1, 2019.

Intangible Assets

Intangible assets consist primarily of the Tradenames, IP Technologies, Customer list, and a Non-compete agreement resulting from an acquisition. 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 4 to the unaudited 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.

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 3.

Quantitative Disclosures About Market Risks.

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 4.

Controls and Procedures.

Management’s Report on 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 (the “Exchange Act”), as amended, as of September 30, 2020, 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 adopted by 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, 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 has concluded that as of September 30, 2020, 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 our Annual Report on Form 10-K for the year ended December 31, 2019.

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.

Changes in Internal Controls Over Financial Reporting

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

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

In addition, to matters previously reported in our periodic reports filed with the SEC under the Securities Exchange Act of 1934, as amended, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.

None.

Item 1A.

Risk Factors.

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

On November 16, 2020, in connection with the restructuring of its debt to GPB Debt Holdings II, LLC (“GPB”), the Company issued to GPB 3,206,525 shares of its common stock. Such shares were issued to GPB pursuant to the exemption from registration afforded by Section 4(2)(a) under the Securities Act of 1933, as amended.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

Exhibit Number		Description of Exhibit
10.1		Exchange Agreement dated as of November 16, 2020, by and between the Company and
10.2		GPB Senior Secured Promissory Note dated as of October 1, 2020
10.3		Amended and Restated Security Agreement dated as of November 16. 2020
31.1		Section 302 Certification
32.1		Section 906 Certification
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

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

	HEALTH-RIGHT DISCOVERIES, INC.

Dated: November 18, 2020	By:	/s/ David Hopkins
		David Hopkins, President and Chief Executive Officer
		(Principal Executive, Financial and Accounting Officer)

Health-Right Discoveries, Inc. 10-Q