UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

For the quarterly period ended September 30, 2016

 

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

 

For the transition period from ______________ to _______________

 

Commission file number 000-52408

 

LIFESTYLE MEDICAL NETWORK INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		13-1026995
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

 

424 E. Central Blvd., Orlando, FL		32801
(Address of principal executive offices)		(Zip Code)

 

(407) 514-1230

(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐  No ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check One):

 

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated filer  ☐	Smaller reporting company   ☒

(Do not check if a smaller reporting 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 issuer's common stock, $0.001 par value per share, was 33,958,257 as of November 18, 2016.

 

 

 

LIFESTYLE MEDICAL NETWORK, INC.

 

INDEX

 

		Page
Part I.	Financial Information	1
Item 1.	Financial Statements.	1
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (unaudited)	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	15
Item 4.	Controls and Procedures.	15
Part II.	Other Information	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	16
Item 6.	Exhibits.	17
Signatures		18

 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The following unaudited consolidated financial statements should be read in conjunction with the year-end restated consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2015.

 

The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results for the entire fiscal year or for any other period.   

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		September 30,				December 31,
		2016				2015
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	150,869			$	49,719
Accounts receivable-related party			572,850				516,868
Accounts receivable			5,733				-
Loan receivable-related party			677,560				100,000
Prepaid expenses			311,336				53,107
Total Current Assets			1,718,348				719,694
Property, plant and equipment - net			353,213				134,296
Other assets			242,525				-
Intangible assets - net			79,174				83,338
TOTAL ASSETS		$	2,393,260			$	937,328
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	266,515			$	197,877
Notes payable			525,000				250,000
Convertible notes payable,net of $257,055 and $105,935 debt discount			858,465				644,065
Total Current Liabilities			1,649,980				1,091,942
LONG-TERM LIABILITIES:
Convertible notes payable,net of $7,488 debt discount			42,512				-
Total Liabilities			1,692,492				1,091,942
Commitments and Contingencies			-				-
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.001 par value, 200,000,000 shares  authorized; 33,958,257 and 33,658,257 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively			33,959				33,659
Additional paid-in-capital			10,194,495				9,172,696
Accumulated deficit			(9,527,686	)			(9,360,969	)
Total Stockholders' Equity (Deficiency)			700,768				(154,614	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)		$	2,393,260			$	937,328

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2016				2015				2016				2015
Revenues:
Management fees-related party		$	367,500			$	216,000			$	935,250			$	379,500
Management fees			195,339				-				195,339				-
Rental income-related party			112,500				103,500				326,250				206,983
Total revenues			675,339				319,500				1,456,839				586,483
Costs and expenses:
Cost of revenue related to management fees			202,613				108,251				507,220				138,035
Cost of revenue related to rental income			67,894				67,894				203,682				135,914
Selling, general and administrative expenses			135,509				161,658				465,023				372,810
Amortization of warrants			(32,611	)			58,000				47,389				625,335
Total Costs and expenses			373,405				395,803				1,223,314				1,272,094
Income (loss) from operations			301,934				(76,303	)			233,525				(685,611	)
Other income (expense):
Loss on extinguishment of debt			-				-				(61,697	)			-
Other income			-				-				25,000				-
Interest expense			(161,072	)			(32,082	)			(363,545	)			(64,532	)
Total Other income (expense)			(161,072	)			(32,082	)			(400,242	)			(64,532	)
Income (loss) from operations before provision for income taxes			140,862				(108,385	)			(166,717	)			(750,143	)
Provision for income taxes			-				-				-				-
Net income (loss)		$	140,862			$	(108,385	)		$	(166,717	)		$	(750,143	)
Income (loss) per common share-basic		$	0.00			$	(0.00	)		$	(0.01	)		$	(0.02	)
Income (loss) per common share- diluted		$	0.00			$	(0.00	)		$	(0.01	)		$	(0.02	)
Weighted average common shares outstanding - basic			33,958,257				33,506,609				33,775,410				32,849,658
Weighted average common shares outstanding - diluted			45,441,075				33,506,609				33,775,410				32,849,658

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For The Nine Months Ended
		September 30,
		2016				2015
Cash flows from operating activities:
Net loss		$	(166,717	)		$	(750,143	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets			4,164				18,534
Depreciation			56,083				17,632
Loss on extinguishment of debt			61,697
Stock-based compensation			24,000				116,000
Amortization of debt discount			254,095				625,335
Changes in operating assets and liabilities:
Accounts receivable			(61,715	)			(310,000	)
Prepaid expenses			79,247				(84,150	)
Accounts payable and accrued expenses			127,856				20,901
Net Cash Provided by (used in) Operating Activities			378,710				(345,891	)
Cash flows from investing activities:
Refund of deposit			-				100,000
Advances to related party			(842,560	)			(135,000	)
Repayments by related party			265,000				80,000
Purchase of equipment			-				(145,448	)
Net Cash Used In Investing Activities			(577,560	)			(100,448	)
Cash flows from financing activities:
Proceeds from related parties			-				42,351
Repayment of related party debt			-				(142,351	)
Repayment of short-term debt			(30,000	)			-
Proceeds from short-term debt			330,000				600,000
Net Cash Provided by Financing Activities			300,000				500,000
Net change in cash			101,150				53,661
Cash and cash equivalents - Beginning of period			49,719				163
Cash and cash equivalents - End of period		$	150,869			$	53,824
Supplementary information:
Cash paid for:
Interest		$	-			$	28,750
Income taxes		$	-			$	-
Non-cash Investing and Financing Activities
Conversion of debt and interest for common stock		$	-			$	999,180
Equipment purchased with notes payable		$	275,000			$	-
Issuance of common stock for services		$	-			$	116,000
Beneficial conversion feature		$	418,099			$	40,000
Issuance of warrants for prepaid services		$	580,000			$	-

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

 

1.	DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated balance sheet as of September 30, 2016 and the consolidated statements of operations, stockholders' deficiency and cash flows for the periods presented have been prepared by Lifestyle Medical Network, Inc. and Subsidiaries (the "Company" or "Lifestyle") and are unaudited. The consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods, and consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' deficiency and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2015 was derived from audited financial statements of the Company.

 

Organization

 

Lifestyle Medical Network Inc. and Subsidiaries (the “Company” or “Lifestyle”) was incorporated in the State of Nevada.  The Company directs its operations through its subsidiaries.  The Company, through its consulting subsidiaries, plans to continue to identify and enter into management and professional consulting services agreements, and to license medical and health technologies, to medical and health clinic operating companies. The Company also intends to open, operate and acquire medical and health clinics, if financing is available and the profile of the clinics’ is favorable.

 

Material Agreements

 

The Company entered management agreements, and have commenced recognizing revenues thereunder, with two medical professional associations located in Houston, Texas, MED-Cure Primary Care Physicians, P.A. and MED-CURE Anti-Aging and Skin Care, P.A. (the “MED-CURE Companies”), effective April 1, 2015, which were purchased by Dr. Ronald Moomaw, a director of the Company. The MED-CURE Companies between them operate six medical clinics in Houston, of which four are primary care clinics and two are skin care clinics. Under management agreements with the MED-CURE Companies, the Company, through its subsidiary LifeStyle Texas Medical Management, LLC (“LifeStyle Management”), provides organizational development, accounting, human resources, computer technical support compliance, scheduling, marketing and advertising, office space, equipment supplies and other management services and receives an agreed percentage of the gross revenues of the practice group, with adjustments designed to ensure that management fees do not exceed an agreed cap, or that the monthly payments do not result in an event of default under the acquisition financing documents for the MED-CURE Companies. The leasing arrangements for the properties leased for the MED-CURE Companies’ clinics’ offices were restructured, with our real estate subsidiary, LifeStyle Texas Real Estate. LLC leasing the properties and then subleasing the properties back to the MED-CURE Companies.

 

Through our subsidiary, Regional Professional Alliance, Inc. , a physician’s professional consulting company that provides professional medical consulting services to medical management companies related to matters affecting professional licensure and medical clinic compliance matters for the benefit of clinics managed by Lifestyle Management, we have entered into an agreement with Dr. Moomaw to provide services through Regional Professional Alliance for the benefit of LifeStyle Management related to oversight and professional medical services coordination of the managed clinics which have entered into management services agreements with LifeStyle Management. Through LifeStyle Texas Licensing, LLC (“LifeStyle Licensing”), the Company plans to sublicense to the MED-CURE Companies the non-exclusive right to use, and to sublicense the use of, certain patents, trademarks, trade names, logos, slogans, trade dress, commercial symbols, operational systems, and other intellectual property rights, in connection with operating and managing medical clinics that provide medical services and/or products of a character and quality, in particular relating to men’s health and weight management.

 

Going Concern

 

The consolidated financial statements for the period ended September 30, 2016 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations and is a development stage company. The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue to support its cost structure. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

 

The Company has entered into Management agreements with six medical clinics in Houston, Texas. The Company will provide services to the clinic and will receive an agreed percentage of gross revenues of the practice group. Management intends to make further acquisitions of other medical clinics during 2016.

 

Management believes these acquisitions will be profitable and the cash flows from these operations will enable the Company to fund the operations of the consolidated group over the next twelve months. Therefore, the annual financial statements continue to be prepared on a going concern basis.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. There were no significant changes to these accounting policies during the nine months ended September 30, 2016 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

2.

INTANGIBLES

 

The MPL License Agreement

 

The MPL License Agreement, under which the Company's wholly-owned subsidiary, Elite, is the licensee pursuant to the Assignment from WMA, provides for the license of medical services, operational systems, manuals, certain names and logo designs and other intellectual property in connection with the operation of medical clinics that provide services related to men’s health within the territory of the continental United States (the “Licensed Rights”). The License Agreement provides for a fee of 6% of gross receipts of Licensee, payable quarterly. The term of the License Agreement is for twenty (20) years from the effective date, May 9, 2011. The Company plans to establish new medical clinics or acquire existing clinics, as well as to provide consulting services to medical clinics utilizing the Licensed Rights.

 

Intangibles are the value of the MPL license. Amounts assigned to this intangible were determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. The intangibles are being amortized over 19.5 years, the life of the license.

 

The components of intangible assets are as follows:

 

	License Agreements
	Balance January 1, 2015		$	88,893
	Amortization for the year ended December 31, 2015			(5,555	)
	Balance December 31, 2015			83,338
	Amortization for the nine months ended September 30, 2016			(4,164	)
	Balance September 30, 2016		$	79,174

 

Amortization expense for the nine months ended September 30, 2016 and 2015 amounted to $4,164 and $4,165, respectively.

 

 

Estimated amortization expense for intangible assets for the next five years is as follows:

 

	Year Ending		Amortization
	December 31,		Expense
	2016			1,391
	2017			5,555
	2018			5,555
	2019			5,555
	2020			5,555

 

3.

LOAN RECEIVABLE-RELATED PARTY

 

The Company advanced operating funds on a short-term basis to the MedCure Companies during the year ended December 31, 2015. The Company advanced the MedCure Companies $180,000 and received repayments of $80,000. During the nine months ended September 30, 2016, the Company advanced an additional $842,560 and received repayments of $265,000. As of September 30, 2016 and December 31, 2015, the MedCure Companies owed the Company $677,560 and $100,000, respectively.

 

4	PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

			September 30,				December 31,
			2016				2015
	Equipment		$	432,152			$	157,152
	Accumulated depreciation			78,939				22,856
			$	353,213			$	134,296

 

Depreciation expense for the nine months ended September 30, 2016 and 2015 was $56,083 and $16,632, respectively.

 

 

5.

DEBT

 

Short-term debt as of September 30, 2016 and December 31, 2015 were as follows:

 

			September 30,				December 31,
			2016				2015
	Short-term Debt
	Secured promissory note, interest @ 12% per annum, due June 30, 2016		$	150,000			$	150,000
	Unsecured promissory note, interest @ 10%, due June 30, 2016			75,000				75,000
	Convertible promissory note, interest @ 10% per annum, due April 2, 2016			100,000				100,000
	Convertible promissory note, interest @ 12% per annum, due April 28, 2017 and June 8, 2017 (2)			358,465				431,465
	Convertible promissory note, interest @ 12% per annum, due December 17, 2016			100,000				100,000
	Convertible promissory note, interest @ 10% per annum, due September 23, 2016			50,000				12,600
	Unsecured promissory note, interest @ 10% per annum, due November 1, 2016			25,000				25,000
	Secured promissory note, interest @ 6% per annum due April 1, 2017 (4)			275,000				-
	Convertible promissory note, interest @ 12% per annum, due June 13, 2017 (3)			250,000				-
	Convertible promissory note, interest @ 12% per annum, due August 24, 2018 (5)			42,512				-
				1,425,977				894,065
	Less: Current portion			1,383,465				894,065
	Long-term debt		$	42,512			$	-

 

(1)

On February 18, 2016, the Company executed an unsecured promissory note with Gail Keats and received $30,000. The promissory note is interest-free and is payable on or before August 15, 2016. The Company repaid the note in full in July 2016.

 

(2)

On May 16, 2016, the Company amended its loan agreements with Roy Meadows (“Meadows”). The Company agreed to pay Meadows a renewal fee of $28,000 and $27,956 on its two outstanding loans with Meadows and extend the maturity dates of the loans to April 28, 2017 and June 8, 2017, respectively. The new outstanding balances of the loans including interest and the renewal fees amounted to $308,000 and $307,520, respectively.

 

The Company also agreed to amend the conversion price of the loans into the Company’s common stock to $0.10 per share. At any time, the holder of the notes, at his option, shall have the right to convert the outstanding principal balance or any portion of the principal amount hereof, and any accrued interest into shares of common stock of the Company. The fair value of the common stock at the date of issuance of the advance was $0.13, which created a Beneficial Conversion Feature of $409,766, the Beneficial Conversion Feature was recorded as a debt discount over the life of the notes. The debt discount as of September 30, 2016 was $257,055.

 

 

The Company performed an analysis under ASC 470-50 criteria to determine if the note extension agreement falls under debt modification or debt extinguishment criteria. The Company revalued the warrants issued and agreed the additional consideration, extended maturity dates and interest to the extended agreement. The Company deems that based on the analysis performed, debt extinguishment does exist and recorded loss on debt extinguishment in the amount of $61,697.

 

(3)

On June 13, 2016, the Company issued a convertible promissory note to Meadows and received proceeds of $250,000.The promissory note bears interest @ 12% per annum and matures one year from the date of issuance. On October 13, 2016, the promissory note was amended increasing the principal amount to $500,000 under the same terms and conditions of the promissory note for funds received in a second loan advance. At any time, the holder of the note, at his sole option, shall have the right to convert the outstanding principal amount of this note, or any portion of the principal hereof, and any accrued interest into shares of common stock of the Company, at a conversion price of $0.15 per share.

 

(4)

On April 1, 2016, the Company issued a secured promissory note to Emile Fares, M,D, (the “Payee”) and promised to the Payee $275,000 in exchange for all the medical equipment owned by RMC Totalcare Medical PA.. The secured promissory note bears interest @ 6% per annum and matures one year from the date issuance. A payment of $75,000 is due October 1, 2016 and the balance due on the maturity date. The note is secured by all collections received by LifeStyle Texas Medical Management LLC pursuant to a Management Agreement with RMC Totoalcare Medical PA.

 

(5)

On August 24, 2016, the Company issued a convertible note to Daniel Hagen and received proceeds of $50,000. The promissory note bears interest @ 10% per annum and matures on August 24, 2018. At any time, the holder of the note, at his sole option, shall have the right to convert the outstanding principal amount of this note, or any portion hereof, and any accrued interest into shares of common stock of the Company, at a conversion price of $0.06 per share. The fair value of the common stock at the date of issuance of the advance was $0.07, which created a Beneficial Conversion Feature of $8,333, the Beneficial Conversion Feature was recorded as a debt discount over the life of the note. The debt discount as of September 30, 2016 was $7,488.

 

Interest expense for the nine months ended September 30, 2016 and 2015 amounted to $107,484 and $64,532, respectively.

 

6.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

			September 30,				December 31,
			2016				2015
	Interest		$	118,477			$	68,807
	Salaries - Officer			-				1,125
	Professional fees			98,221				64,306
	Consulting			33,515				48,000
	Other			16,302				15,639
			$	266,515			$	197,877

 

7.	BASIC AND DILUTED EARNINGS PER SHARE

 

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the weighted-average number of common shares and dilutive potential common shares outstanding during the period. At September 30, 2016, there were 11,622,521 potential common shares. Because of the net loss, the effect of these potential common shares is anti-dilutive.

 

8.

WARRANTS

 

During September 2016, the Company issued warrants to four consultants to purchase 6,500,000 shares of the Company’s common stock at exercise prices of $0.07 and $0.08 per share. The warrants were issued in connection with services to be provided to the Company over the next two years. The fair value of the warrants were $500,000, of which $7,499 was expensed during the nine months ended September 30, 2016 and the balance of $492,501 is included in Prepaid expenses as of September 30, 2016.

 

 

On April 1, 2016, the Company issued a warrant to Harcharan Narang M.D, to purchase 800,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The warrant was issued in connection with services provided to the Company. The fair value of the warrant was $80,000, of which $39,890 was expensed during the nine months ended September 30, 2016 and the balance of $40,110 is included in prepaid expenses at September 30, 2016.

 

On May 16, 2016, the Company issued a warrant to Roy Meadows to purchase 1,059,564 shares of the Company’s common stock at an exercise price of $0.025 per share. The purchase warrant consist of a bonus warrant of 500,000 shares and a renewal warrant of 559,564 shares issued in connection with the extension of two Meadows’ notes. The fair value of the warrants amounted to $112,555. This amount has been included with the debt discount against the Roy Meadows noteand will be amortized over the life of the note.

 

On June 13, 2016, the Company issued a warrant to Roy Meadows to purchase 250,000 shares of the Company’s common stock at an exercise price of $0.025 per share. The warrant was issued in connection with a financing provided to the Company. The fair value of the warrant was $17,500, of which $5,104 was expensed during the nine months ended September 30, 2016.

 

The estimated value of the warrants was determined using the Black Scholes pricing model using the following assumptions: expected term of 5 to 7 years, a risk free interest rate between 1.39% and 1.56%, a dividend yield of -0- and volatility between 202% and 424%. The fair value of the warrants amounted to $708,910.

  

The following table summarizes the changes in warrants outstanding and the related price of the shares of the Company's common stock issued to non-employees of the Company. The warrants were granted in lieu of cash compensation for services performed.

 

							Exercise				Remaining		Intrinsic
			Shares				Price				Life		Value
	Outstanding, January 1, 2016			8,000,000			$	0.13			4.6
	Granted			8,609,564				0.08			5.0
	Expired/Cancelled			-				-
	Exercised			-				-
	Outstanding-period ending September 30, 2016			16,609,564			$	0.12			4.8 years		$	81,430
	Exercisable-period ending September 30, 2016			16,609,564			$	0.12			4.8 years		$	81,430

 

9.

RELATED PARTY TRANSACTIONS

 

a) Dr. Ronald Moomaw (“Moomaw”), a director of the Company, is the sole owner of the MED-CURE Companies. The Company received a majority of its revenue for the nine months ended September 30, 2016 from the MED-Cure Companies.

 

In connection with the management of the Med-Cure Companies, Moomaw was issued a warrant for the purchase of 5,000,000 shares of the Company?s common stock valued @ $465,000, the fair value at the time of issuance, April 17, 2015.  

 

Moomaw also received consulting fees of $114,800 and $39,600 for the nine months ended September 30, 2016 and 2015, respectively, as part of his management compensation.  

 

b) The Company advanced operating funds on a short-term basis to the MED-CURE Companies and received payments during the nine months ended September 30, 2016 and the year ended December 31, 2015. As of September 30, 2016 and December 31, 2015, the MED-CURE Companies owe the Company $677,560 and $100,000, respectively.

 

10.	COMMON STOCK

 

On June 15, 2016, the Company issued 100,000 shares of the Company’s common stock to LKB Partners LLC in connection with a service agreement with the Company. The fair value of the common stock issued was $8,000, of which $6,000 was expensed during the nine months ended September 30, 2016.

 

On June 15, 2016, the Company issued 200,000 shares of the Company’s common stock to Harcharan Narang M.D. in connection with a service agreement with the Company. The fair value of the common stock issued was $16,000, all of which was expensed during the nine months ended September 30, 2016.

 

 

11.

MAJOR CUSTOMERS

 

87% of the revenues for the nine months ended September 30, 2016, was received from companies owned 100% by Dr. Ronald Moomaw, a director of the Company.

 

12.

COMMITMENTS AND CONTINGENCIES

 

Consulting Agreements

 

a)

During 2015 and 2014, Lifestyle entered into various consulting agreements with third parties in connection with business advisory services. For the nine months ended September 30, 2016 and 2015, consulting services amounted to $190,579 and $111,187, respectively.

 

b)

On July 1, 2012, Lifestyle entered into an employment agreement with Christopher Smith("Smith"), the Company's Chief Executive Officer. The term of the agreement is for five years. Effective August 1, 2015, the monthly salary for Smith was increased to $12,500. Smith will also receive a performance bonus based on a percentage of the Company's net operating profit before income taxes. For the nine months ended September 30, 2016, and 2015, payroll-officer amounted to $112,500 and $60,000, respectively.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and the other financial information included elsewhere in this report.  Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks and uncertainties.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

 

Organization

 

The Company was incorporated in the State of Nevada on September 3, 2003, under the name Beverly Hills Film Studios, Inc. and changed its name to Emerging Media Holdings, Inc. on September 28, 2006. On September 30, 2006, we acquired IM “Media Alianta” SRL, the 100% owner of SA “Analiticmedia-Grup”, both Moldovan companies ("AMG"), and on May 2, 2008 “TNT-Bravo” channel-ICS “Media Top Prim” SRL, the exclusive operator in Moldova of Russian channel TNT programs owned by Gazprom Media.

 

We changed the focus of our business and disposed of three of our Moldova media subsidiaries on February 10, 2011. On December 29, 2011, we completed the sale of our remaining Moldova media subsidiaries and acquired rights to technologies and practices pursuant to an October 5, 2010 License Agreement for operating technologies and processes services related to men’s health within the territory of the continental United States. On February 2, 2012, we acquired the full assignment of rights to this License Agreement. Effective July 31, 2012, the name of our Company was changed from Emerging Media Holdings, Inc. to Lifestyle Medical Network Inc.  

 

Recent Developments

 

Dr. Ronald Moomaw, a director of the Company and a licensed physician in the State of Texas, who had been assisting the Company in evaluating the acquisition by the Company of two medical practices in Houston, Texas, purchased the two medical professional associations (the “MED-CURE Companies”), effective April 1, 2015, for a purchase price of $2,500,000, utilizing local bank financing. The MED-CURE Companies between them operate six medical clinics in Houston, of which four are primary care clinics and two are skin care clinics. The MED-CURE Companies agreed, effective April 1, 2015, to enter into management agreements with the Company, pursuant to which the Company, through its subsidiary Lifestyle Texas Medical Management, LLC (“Lifestyle Management”), has provided organizational development, accounting, human resources, computer technical support compliance, scheduling, marketing and advertising, office space, equipment supplies and other management services and receives an agreed percentage of the gross revenues of the practice group, with adjustments designed to ensure that management fees do not exceed an agreed cap, or that monthly payments do not result in an event of default under the acquisition financing documents for the MED-CURE Companies. The leasing arrangements for the properties leased for the MED-CURE Companies’ clinics’ offices were restructured, with our real estate subsidiary, Lifestyle Texas Real Estate, LLC, leasing the properties and then subleasing the properties back to the Med-Cure Companies.

 

 

Dr. Moomaw on April 21, 2016, acquired an additional clinic in Houston, Texas, which clinic is now operated under the name RCM Total Care Medical PA, PLLC. The Total Care Clinic is managed by Lifestyle Management, pursuant to management agreements between the Lifestyle Management and the clinics for the provision of administrative and business services by the Management Company for the physician practices of the clinics. The clinics will enter into license agreements with Lifestyle Licensing, for the license of specified protocols and procedures for application in their respective medical practices.

 

Through our subsidiary, Regional Professional Alliance, Inc., a physician’s professional consulting company that provides professional medical consulting services to medical management companies related to matters affecting professional licensure and medical clinic compliance matters for the benefit of clinics managed by Lifestyle Management, we have entered into an agreement with Dr. Moomaw to provide services through Regional Professional Alliance for the benefit of Lifestyle Management related to oversight and professional medical services coordination of the managed clinics which have entered into management services agreements with Lifestyle Management. Through Lifestyle Texas Licensing, LLC (“Lifestyle Licensing”), the Company plans to sublicense to the MED-CURE Companies and RCM Total Care the non-exclusive right to use, and to sublicense the use of, certain patents, trademarks, trade names, service marks, logos, slogans, trade dress, commercial symbols, operational systems, and other intellectual property rights, in connection with operating and managing medical clinics that provide medical services and/or products of a distinctive character and quality, in particular relating to men’s health and weight management.

 

Throughout this Form 10-Q, the terms "we," "us," "our," "LMN" and the "Company" refer to Lifestyle Medical Network Inc., a Nevada corporation, and unless the context indicates otherwise, includes our subsidiaries.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our plan of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect our reported results of operations and the amount of reported assets and liabilities.

 

Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements.

 

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.  There were no significant changes to these accounting policies during the nine months ended September 30, 2016, and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

PLAN OF OPERATION

 

Through our consulting subsidiaries, we plan to contract to provide management, marketing and professional consulting services, and to license medical and health technologies, to medical and health clinic operating companies. We are evaluating opening and operating a MSO in the near future, assuming the business outlook would be favorable. We also intend to open, operate and acquire men’s medical and health clinics, if financing is available and the profile of the clinics’ services is consistent with the types of medical businesses we view as favorable for acquisition.

 

 

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2015

 

During the three months ended September 30, 2016, we had revenues of $675,339, as compared with revenues of $319,500 in the three months ended September 30, 2015, and we recorded a net profit of $140,882 in 2016, as compared with a net loss of $108,385 for 2015. The net profit in 2016 was principally due to an increase in revenues during 2016 offset by an increase in interest expense in 2016. In 2016, cost of revenue related to management fees was $202,613 and of cost of revenue related to rental income was $67,894, for which the 2015 amounts were $108,251and $67,894, respectively, and amortization of warrant expense in 2016 was $32,616, compared to $58,000 in 2015. Interest expense incurred in 2016 was $161,072 and general and administrative expense was $135,509, as compared with interest expense of $32,082 and $161,588 in general and administrative expense in 2015. The increase in cost of revenue in 2016 was due to commencement of medical consulting operations in Houston in April 2015.

 

NINE MONTHS ENDED SEPTEMBER 30, 2016 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2015

 

During the nine months ended September 30, 2016, we had revenues of $1,456,839, as compared with revenues of $586,483 in the nine months ended September 30, 2015, and we incurred a net loss of $166,767 in 2016, as compared with a net loss of $750,413 for 2015. The higher net loss in 2015 was principally due to an increase in revenues during 2016 offset by an increase in interest expenses in 2016. Total costs remain constant as increase in operating costs in 2016 were offset by a decrease in the amortization of warrants in 2016. In 2016, cost of revenue related to management fees was $507,220 and of cost of revenue related to rental income was $203,682, for which the 2015 amounts were $138,035 and $135,914, respectively, and amortization of warrant expense in 2016 was $47,389 compared to $625,335 in 2015. Interest expense incurred in 2016 was $363,545 and general and administrative expense was $465,023, as compared with interest expense of $64,532 and $ 372,810 in general and administrative expense in 2015. The increase in cost of revenue and general and administrative expense in 2016 was due to commencement of medical consulting operations in Houston in April 2015.

 

LIQUIDITY AND FINANCIAL RESOURCES

 

At October 31, 2016, we had total assets of $2,393,260 compared to total assets of $937,328 at December 31, 2015. Net cash provided by operating activities in the nine months ended October 31, 2016 was $378,710, as compared with net cash used in operating activities of $345,891 in 2015; net cash used in investing activities was $577,560 in 2016 and $100,448 in 2015; and net cash generated from financing activities was $300,000 in 2016 and $500,000 in 2015.  

 

At October 31, 2016, we had working capital of $68,368. At October 31, 2016, we had total assets of $2,393,260, including cash of $150,869. In 2016 we had revenues of $1,456,839, and incurred a net loss of $166,717. There is no assurance that we will operate profitably in the future.

 

The Company has financed its operations in 2016 in part with issuances of convertible debt to private investors.

 

On February 18, 2016, the Company executed an unsecured promissory note with Gail Keats and received $30,000. The promissory note bears interest at 10% per annum and both principal and interest are payable on or before August 15, 2016. The Company repaid the note in full in July 2016.

 

On April 1, 2016, the Company issued a secured promissory note to Emile Fares, M,D, (the “Payee”) and promised to the Payee $275,000 in exchange for all the medical equipment owned by RMC Totalcare Medical PA.. The secured promissory note bears interest at 6% per annum and matures one year from the date issuance. A payment of $75,000 is due October 1, 2016 and the balance due on the maturity date. The note is secured by all collections received by Lifestyle Texas Medical Management LLC pursuant to a Management Agreement with RMC Totalcare Medical PA.

 

On May 16, 2016, the Company amended its loan agreements with Roy Meadows (“Meadows”). The Company agreed to pay Meadows a renewal fee of $28,000 and $27,956 on its two outstanding loans with Meadows and extend the maturity dates of the loans to April 28, 2017 and June 8, 2017, respectively. The new outstanding balances of the loans including interest and the renewal fees amounted to $308,000 and $307,520, respectively.

 

The Company also agreed to amend the conversion price of the loans into the Company’s common stock to $0.10 per share. At any time, the holder of the notes, at his option, shall have the right to convert the outstanding principal balance or any portion of the principal amount hereof, and any accrued interest into shares of common stock of the Company. The fair value of the common stock at the date of issuance of the advance was $0.13, which created a beneficial conversion feature of $409,766. The beneficial conversion feature was recorded as a debt discount over the life of the notes. The debt discount as of September 30, 2016 was $257,056.

 

 

On June 13, 2016, the Company issued a convertible promissory note to Meadows and received proceeds of $250,000. The promissory note bears interest at 12% per annum and matures one year from the date of issuance. At any time, the holder of the note, at his sole option, shall have the right to convert the outstanding principal amount of this note, or any portion of the principal hereof, and any accrued interest into shares of common stock of the Company, at a conversion price of $0.15 per share. 

 

On August 24, 2016, the Company borrowed $50,000 from Daniel Hagen. The loan is at an interest rate of 8%, is due August 24, 2018, and is convertible into common stock at an exercise price of $.06 per share. The fair value of the Company’s common stock on the date of funding of the loan resulted in a beneficial conversion feature of $8,333, which was recorded as a debt discount over the life of the loan. The debt discount as of September 30,2016 was $7,488.

 

There is no assurance that we will be able to obtain sufficient capital to implement our business plans. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  These conditions and uncertainties raise substantial doubt about the Company's ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

Off Balance Sheet Arrangements

 

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(c) of Regulation S-B.

 

Inflation

 

To date inflation has not had a material impact on our operations.

 

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

ITEM 4.  Controls and Procedures.

 

As of September 30, 2016, the end of the period covered by this quarterly report, the Chief Executive and Chief Financial Officer of the Company (the “Certifying Officer”) conducted an evaluation of the Company’s disclosure controls and procedures.  As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officer, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, the Certifying Officer has concluded that the Company’s disclosure controls and procedures were not effective for the quarter ended September 30, 2016, to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis to comply with the Company’s disclosure obligations under the Exchange Act, and the rules and regulations promulgated there under.

 

Further, there were no changes in the Company’s internal control over financial reporting during the third fiscal quarter of our 2016 fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II

 

Other Information

 

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

 

The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.

 

Date			Title and Amount(1)		Purchaser		Principal Underwriter		Total Offering Price/ Underwriting Discounts
August 24,2016			8% loan in the principal amount of $50,000, due August 24, 2018, convertible into common stock at an exercise price of $.06 per share.		Private Investor.		NA		$	50,000/NA
September 16, 2016			Five-year common stock purchase warrant, expiring October 1, 2021, to purchase 2,000,000 shares of common stock of the Company, at an exercise price of $.08 per share.		Marketing consultant.		NA		$	-0-/NA
September 16, 2016			Five-year common stock purchase warrant, expiring October 1, 2021, to purchase 2,000,000 shares of common stock of the Company, at an exercise price of $.08 per share.		Marketing consultant.		NA		$	-0-/NA
September 16, 2016			Five-year common stock purchase warrant, expiring October 1, 2021, to purchase 500,000 shares of common stock of the Company, at an exercise price of $.08 per share.		Marketing consultant.		NA		$	-0-/NA
September 30, 2016			Five-year common stock purchase warrant, expiring October 15, 2021, to purchase 2,000,000 shares of common stock of the Company, at an exercise price of $.08 per share.		Marketing consultant.		NA		$	-0-/NA

 

 

(1)

The Company believes that the issuance of the warrants and the convertible loan above are transactions exempt from registration as provided by Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The sale of the convertible loan did not involve a public offering and was made without general solicitation or general advertising to a holder who qualifies as an “accredited investor” under Rule 501 under the Securities Act. Each of the holders acquired the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof. Neither the warrants or convertible loan, nor the underlying shares of common stock issuable upon the exercise or conversion thereof have been registered under the Securities Act and none may be offered or sold in the United States absent registration under the Securities Act or an exemption from such registration requirements.

 

Item 6. Exhibits.

 

31		Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)
32		Certification of Chief Executive Officer and Principal Financial Officer  pursuant to 18 U.S.C. Section 1350

  

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

 

SEC Ref. No.		Title of Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

 

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

  

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

	LIFESTYLE MEDICAL NETWORK INC.  (Registrant)
Date:   November 21, 2016	By:	/s/ Christopher Smith
		Christopher Smith, Chief Executive Officer and Principal Financial Officer

 

 

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