UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

þ

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2014

 

Or

 

o

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from __________ to __________

 

Millennium Healthcare Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		000-55009		11-3229358
(State of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

  

400 Garden City Plaza, Suite 440, Garden City, New York 11530

(Address of principal executive offices) (Zip code)

 

516-628-5500

(Registrant's telephone number, including area code)

 

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 requirement for the past 90 days.  Yes þ   No o

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o   No þ

 

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

 

Large accelerated filer          o	Accelerated filer                     o
Non-accelerated filer            o  (Do not check if a smaller reporting company)	Smaller reporting company    þ

 

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

 

The number of shares of common stock, par value $0.0001 per share of Millennium Healthcare Inc. outstanding as of the close of business on August 7, 2014 were 77,787,172.

 

 

MILLENNIUM HEALTHCARE INC.

 

TABLE OF CONTENTS

 

	Page
PART I - FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements	1
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.    Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.    Controls and Procedures	28
PART II - OTHER INFORMATION
Item 1.    Legal Proceedings	29
Item 1A. Risk Factors	29
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.    Defaults Upon Senior Securities	29
Item 4.    Mine Safety Disclosures	29
Item 5.    Other Information	29
Item 6.    Exhibits and Reports on Form 8-K	30
SIGNATURES	31

  

 

PART I FINANCIAL INFORMATION

 

ITEM 1          FINANCIAL STATEMENTS

 

MILLENNIUM HEALTHCARE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		JUNE 30,				DECEMBER 31,
		2014				2013
		(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash		$	522,610			$	115,645
Accounts receivable, net of allowance for doubtful accounts of $1,200,000			1,516,645				861,414
Inventory			1,448,601				820,963
Prepaid expenses			108,007				347,863
Total current assets			3,595,863				2,145,885
Fixed assets, net			78,767				98,660
OTHER ASSETS
Security deposits			374,764				79,263
Intangible assets, net			68,542				82,250
Total other assets			443,306				161,513
TOTAL ASSETS		$	4,117,936			$	2,406,058
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	741,819			$	748,068
Preferred stock dividends payable			26,452				25,936
Current portion of notes payable, net of debt discounts and original issue discounts			793,000				2,227,735
Derivative liability			3,238,651				1,877,547
Liability for common stock to be issued			3,802,550				902,952
Liability for preferred stock to be issued			2,269,900				882,500
Total current liabilities			10,872,372				6,664,738
Preferred stock			337,500				337,500
Notes payable, net of debt discounts of $233,321 and $384,563, and original issue discounts of $123,530 and $91,122, net of current portion			466,679				-
TOTAL LIABILITIES			11,676,551				7,002,238
STOCKHOLDERS' (DEFICIT)
Preferred stock, $0.0001 par value, 15,000,000 shares authorized
Series A Preferred stock, $0.0001 par value, 500,000 shares issued and outstanding			50				50
Series B Preferred stock, $0.0001 par value, 0 shares issued and outstanding respectively			-				-
Series D Preferred stock, $0.0001 par value, 0 shares issued and outstanding respectively			-				-
Series E Preferred stock, $0.0001 par value, 200,000 shares authorized, 132,258 shares issued and outstanding			13				13
Series F Preferred stock, $0.0001 par value, 3,000,000 shares authorized, 550,000 shares issued and outstanding			-				-
Series G Preferred stock, $0.0001 par value, 100,000 shares authorized, 0 shares issued and outstanding respectively			-				-
Common stock, $0.0001 par value, 200,000,000 shares authorized, 76,137,172 and 63,237,172 shares issued and outstanding, respectively			7,614				6,324
Additional paid in capital			54,590,321				47,936,049
Deferred compensation			(1,004,776	)			(645,964	)
Accumulated deficit			(61,151,837	)			(51,892,652	)
Total stockholders' (deficit)			(7,558,615	)			(4,596,180	)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)		$	4,117,936			$	2,406,058

  

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

 

  

MILLENNIUM HEALTHCARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED) 

 

		SIX MONTHS				SIX MONTHS				THREE MONTHS				THREE MONTHS
		ENDED				ENDED				ENDED				ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2014				JUNE 30, 2013
REVENUE		$	1,060,562			$	994,148			$	522,116			$	506,315
OPERATING EXPENSES
Payroll, consulting and professional fees			7,820,297				1,677,546				4,302,790				1,076,201
Rent			182,106				106,625				104,048				61,132
General and administrative			637,775				576,752				341,773				361,074
Depreciation and amortization			33,602				384,137				16,801				192,068
Total operating expenses			8,673,780				2,745,060				4,765,412				1,690,475
NET LOSS BEFORE OTHER INCOME (EXPENSE) AND PREFERRED STOCK DIVIDENDS			(7,613,218	)			(1,750,912	)			(4,243,296	)			(1,184,160	)
OTHER INCOME (EXPENSE)
Interest income (expense)			(465,280	)			(1,371,471	)			(5,297	)			(182,996	)
Gain (loss) on change in fair value of derivative liability			(1,127,784	)			1,723,579				2,941,270				1,448,571
Total other income (expense)			(1,593,064	)			352,108				2,935,973				1,265,575
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS			(9,206,282	)			(1,398,804	)			(1,307,323	)			81,415
Preferred stock dividends			(52,903	)			(66,058	)			(26,451	)			(33,058	)
NET INCOME (LOSS)		$	(9,259,185	)		$	(1,464,862	)		$	(1,333,774	)		$	48,357
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC & DILUTED			71,421,743				40,092,173				73,372,450				43,318,790
NET INCOME (LOSS) PER SHARE - BASIC & DILUTED		$	(0.13	)		$	(0.04	)		$	(0.02	)		$	0.00

  

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

 

  

MILLENNIUM HEALTHCARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) 

 

		SIX MONTHS				SIX MONTHS
		ENDED				ENDED
		JUNE 30, 2014				JUNE 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)		$	(9,259,185	)		$	(1,464,862	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
Depreciation and amortization			33,602				384,137
Non-cash interest			384,563				566,510
Loss (gain) on change in fair value of derivative liability			1,127,784				(2,180,312	)
Derivative liability on warrants							1,359,652
Beneficial conversion feature on debt							(137,478	)
Preferred stock dividend			52,903				66,058
Amortization of deferred compensation			729,188				544,688
Shares issued and liability for common shares to be issued for services rendered			5,437,415				401,000
Change in assets and liabilities
Decrease in prepaid expenses			239,856				(302,940	)
Increase in accounts receivable			(655,231	)			(444,831	)
Increase in inventory			(627,638	)			-
Increase in security deposits			(295,501	)			-
Decrease in accounts payable and accrued expenses			(6,250	)			202,884
Increase in preferred stock dividends payable			516
Total adjustments			6,421,207				459,369
Net cash (used in) operating activities			(2,837,978	)			(1,005,493	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets			-				-
Net cash (used in) investing activities			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred and common stock for cash (including liability for shares to be issued)			4,212,562				-
Proceeds received from purchase of warrants			-				5,000
Proceeds received from notes payable			915,801				1,003,000
Repayments of notes payable			(1,883,420	)			(128,000	)
Net cash provided by financing activities			3,244,943				880,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			406,965				(125,493	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD			115,645				127,149
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	522,610			$	1,656
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for subscriptions receivable		$	-			$	-
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	88,413			$	16,537
Taxes		$	-			$	-
NON-CASH SUPPLEMENTAL INFORMATION:
Issuance of common stock for liability of stock to be issued		$	303,000			$	5,970,500
Issuance of preferred stock for liability of stock to be issued		$	-			$	-
Valuation of warrants for prepaid services		$	-			$	91,934
Conversion of Series D preferred stock for Series E preferred stock						$	817,000
Derivative liability issued for debt discount		$	233,321
Deferred compensation paid through issuance of common stock and liability to issue common stock		$	1,088,000

  

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

 

 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

NOTE 1-

ORGANIZATION AND BUSINESS DESCRIPTION

 

Millennium Healthcare Inc. (the “Company”), was formed in the State of Delaware on July 28, 1994 as Kirlin Holding Corp., changed its name to Zen Holding Corp. in July, 2008 and to Millennium Healthcare, Inc. on June 16, 2011.

  

The Company is a healthcare medical device and healthcare support and services company. The Company, through its wholly-owned subsidiaries markets and distributes new, quality and revolutionary medical devices and equipment focused primarily on preventative care through early detection. The Company also provides physician practice administration and support with a current focus on physician practices specializing in cardiovascular and vascular procedures and provides support and services specializing in medical procedure billing and collections, medical procedure coding, call and message management, and emergency dispatch.

 

Going Concern

 

These consolidated financial statements are presented on the basis that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred operating losses for the past several years, has a working capital deficiency of $7,276,509 and a stockholders’ deficit of $7,558,615 as of June 30, 2014. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

The Company is currently launching its medical equipment and device business in 2014, in which the Company has entered into various agreements to become the nationwide distributor for various medical devices mainly focused on preventative and diagnostic testing and care including an oral diagnostic biopsy test, a heart health test and assessment device, and a medical testing device in the area of breast cancer.

 

Segment Information

 

The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. As of June 30, 2014 and for the six months ended June 30, 2014 and 2013, the Company operated in three segments as well as separately identifying the corporate overhead costs. The segments are as follows: Coding – this includes the coding, billing and telecommunications services of the Company; Vascular – this includes all vascular physician practice administration and support services; and Devices – this includes all services related to the medical device and equipment segment. 

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The Company’s chief financial officer reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues by product type and certain information about geographic regions where appropriate for purposes of making operating decisions and assessing financial performance.

 

Six Months Ended
June 30, 2014		Coding				Device				Vascular				Corporate				Total
Segmented Operating Revenues		$	2,298			$	54,599			$	1,003,665			$	-			$	1,060,562
Total Operating Expenses Before Depreciation and Amortization, and Other (Income) Expense			3,843				125,920				591,977				7,918,438				8,640,178
Depreciation and Amortization			-				-				17,980				15,622				33,602
Other (Income) Expense			-				-				-				1,593,064				1,593,064
Net Income (Loss) Applicable to Common Shares		$	(1,545	)		$	(71,321	)		$	393,708			$	(9,527,124	)		$	(9,206,282	)
Segmented Fixed Assets
Fixed Assets		$	-			$	-			$	31,421			$	47,346			$	78,767
Intangible Assets			-				-				68,542				-				68,542
Total Fixed Assets		$	-			$	-			$	99,963			$	47,346			$	147,309

 

June 30, 2013		Coding				Device				Vascular				Corporate				Total
Segmented Operating Revenues		$	76,448			$	-			$	917,700			$	-			$	994,148
Total Operating Expenses Before Depreciation and Amortization, and Other (Income) Expense			38,718				136,845				642,546				1,542,814				2,360,923
Depreciation and Amortization			155,677				-				2,192				226,268				384,137
Other (Income) Expense			-								1,196				(353,304	)			(352,108	)
Net Income (Loss) Applicable to Common Shares		$	(117,947	)		$	(136,845	)		$	271,766			$	(1,415,778	)		$	(1,398,804	)
Segmented Fixed Assets
Fixed Assets		$	362,321			$	-			$	19,170			$	78,702			$	460,193
Intangible Assets			280,500				-				-				638,022				918,522
Goodwill			267,141				-				4,700				2,860,352				3,132,193
Total Fixed Assets		$	909,962			$	-			$	23,870			$	3,577,076			$	4,510,908

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

Generally, any item not related to one of our other segments would be included in the Corporate Column. This includes corporate overhead costs such as consulting fees, legal fees, and other professional fees including all common stock issued for services; and interest expenses, including all fair value measurements of warrants and fair value adjustments related to our derivative liability that have been charged to interest. The Company has determined it would be more appropriate to include a corporate column rather than develop an allocation to our other divisions as the Company has not determined allocation percentages.

 

Reclassifications

 

Certain amounts included in the December 31, 2013 balance sheet have been reclassified to conform with 2014 presentation.

 

Recently Issued Accounting Standards

 

The Financial Accounting Standards Board and the Securities Exchange commission have issued certain accounting standards updates and regulations that will become effective in subsequent periods. Management does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect in 2014 and 2013, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective.

   

NOTE 2-

ACQUISITION

 

Effective November 4, 2013, the Company’s acquired the call answering service accounts of Bellringer Communications Inc. (“Bellringer”) for an aggregate consideration of $82,500 payable $17,500 in cash and the issuance of 175,000 shares of common stock to be issued. Based on the fair values at the effective date of acquisition the purchase price was allocated to customer lists and is being amortized over its estimated useful life of five years.

 

Unaudited proforma results of operations for all periods presented as if the acquisition of Bellringer had been consummated as of the beginning of each period presented are not presented as the effects on the financial statements would not be material.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

NOTE 3-

LINE OF CREDIT/PREFERRED STOCK - SERIES B, SERIES D, SERIES E, SERIES F AND SERIES G

 

On June 1, 2013, the Company amended the certificate of designation to authorize a Series E Preferred Stock. The Series E Preferred Stock is convertible without consideration into 65 shares of common stock for each preferred share at any time after June 1, 2014 and convert automatically on May 31, 2018, as well as providing for an annual dividend of $0.80 per share per year. Concurrent with the designation of the Series E Preferred Stock, the Company exchanged the 126,280 shares of Series D Preferred Stock into Series E Preferred Stock. Additionally, the Company accrued dividends on the Series E Preferred Stock. The Company issued 3,384 additional shares of Series E Preferred Stock to holders as payment of $33,843 in accrued dividends during the year. Accrued dividends through December 31, 2013 were $25,936. In February 2014, the Company issued 2,594 shares of Series E Preferred Stock to holders as payment of the $25,936 in accrued dividends through December 31, 2013. Accrued dividends for the Series E Preferred Stock through June 30, 2014 were $26,452.

 

The Company raised $1,950,000 under a private placement during 2013 and $1,050,000 through March 31, 2014 for a total of $3,000,000 raised for this private placement. As a result, 3,000,000 shares of Series F were to be issued, in which 550,000 shares were issued during 2013 and 2,450,000 shares valued at $1,356,500 were recorded as a liability for stock to be issued. This private placement is closed and will have no future participation.

 

The Company raised $3,510,000 under a private placement during 2014. As a result, 3,510 shares of Series G are to be issued, which were valued at $913,400 and recorded as a liability for stock to be issued.

 

NOTE 4-

NOTES PAYABLE

 

Demand Notes

 

One of the notes, original amount borrowed of $111,000 bears interest at the rate of 18% per annum. The Company repaid $81,000 of this note through December 31, 2013. The entire balance due of $30,000 is reflected in the current portion of notes payable. This demand note has been fully repaid and satisfied January 2014.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The Company borrowed $210,000 from an entity at various times during 2012.The notes, which do not bear interest, are short-term in nature and are to be repaid upon future financings. The Company was to issue shares of common stock to the lender until the notes were fully repaid, however the parties agreed to have repayment done upon completion of a larger funding to the Company. The Company issued 30,000 shares of common stock to pay $42,000 (value of $1.40 per share) of interest for the remaining outstanding balance due for the life of the notes. In addition, the Company repaid $80,000 during 2012. The remaining balance outstanding as of June 30, 2014 is $130,000. 

 

The Company borrowed an aggregate of $107,500 from an individual during 2013 which bears interest at 5% per annum. This demand note has been fully repaid and satisfied February 2014.

 

The Company borrowed $76,000 from various entities during 2013 which bear interest at 5% per annum. These demand notes have been fully repaid and satisfied February 2014.

 

Promissory Notes

 

The Company entered into a $375,000 Promissory Note with an unrelated third party on September 24, 2012. The note was scheduled to mature September 24, 2013 and bears interest at the rate of 12% per annum. The Company, in accordance with the payment schedule, was to make two payments of interest only and then ten payments of $39,593 including interest with the final payment being made on September 24, 2013.

 

The Company made the two required interest payments in October and November 2012, however, the first payment of $39,593 to be made in December 2012 was not made until February 2013, and no further payments have been made. As a result of the Company’s non-payment of the monthly amount in a timely fashion, a default was triggered. The default interest rate is 18% per annum which is charged from the default date through June 6, 2013, the date in which the default was cured when the Company paid the entire overdue amount and the note holder issued notice that the Company was current.

 

In addition, at the time the note was considered to be in default, the promissory note became a convertible note into common stock at a price equal to: (i) the conversion amount divided by (ii) 85% of the lowest daily volume weighted average price of the Company’s common stock during the five trading days immediately prior to the conversion date. In accordance with the agreements, the Company had previously recognized a beneficial conversion feature of $137,478 as of December 31, 2012, which was reduced to $102,941 as of March 31, 2013, and reduced to $0 as of June 30, 2013.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

As stated, the Company cured the default on June 6, 2013 with a payment of $99,829, of which $10,672 represented past due and accrued interest, and $89,157 represented principal. The payment brought the Promissory Note balance to $250,000, which was the balance due at June 30, 2013. Additionally, the Company entered into a Replacement, Amended and Restated Promissory Note (“Amended Note”) with the holder for the $250,000 on July 9, 2013. This Amended Note matured on December 15, 2013, and reflects revised payment terms, and an interest rate at 12% per annum, along with default rates should the Company have an event that results in an event of default under this Amended Note. The $10,672 payment of interest represented the full interest due and no interest is accrued as of June 30, 2013. Interest will commence again effective July 9, 2013 when the Amended Note is in effect.

 

Concurrent with the Amended Note, the Company issued to the noteholder 415,800 shares of common stock as part of the settlement resulting in the Amended Note. The value of the stock at July 9, 2013 was $0.50 per share or $207,900. This note has been settled and fully satisfied April 2014.

 

The Company borrowed an aggregate of $375,000 from unrelated third parties during 2013 which bear interest at 10% to 18.2% per annum. These promissory notes have been fully repaid and satisfied February 2014.

 

Promissory Note - Convertible

 

The Company and an entity entered into a convertible promissory note on February 7, 2014 for $353,000. The note has a term of six months and accrues interest at 18% per annum. At any time during the term, the holder may convert the outstanding balance into common shares at a fixed conversion price of $1.00 per share.

 

Promissory Notes – Original Issue Discounts

 

During the year ended December 31, 2013 the Company entered into various agreements pursuant to which it borrowed an aggregate of $1,681,500, net of original issue discounts. In connection therewith, the Company issued 1,565,000 series A warrants and 1,565,000 series B warrants, both of which have a five year term. The Company valued each component separately and considered the warrants a derivative liability since they contained rachet provisions. As a result, the Company recognized a full discount in which such amount will be amortized over the life of the notes.

 

Original Issue Discount Promissory Notes have been fully repaid and satisfied as they became due between January and May 2014.

 

Other short term notes outstanding at June 30, 2014 aggregate $60,000.

 

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

Promissory Notes – Original Issue Discount Convertible

  

The Company issued original issue discount convertible notes (the “OID Notes”) with an aggregate principal amount of $700,000 with warrants to acquire up to 466,667 shares of Common Stock at $1.00 per share as described below.  The OID Notes mature in 13 months and were issued at an original issue discount of $123,530.  No regularly scheduled interest payments shall be made on the OID Notes.  The OID Notes may be converted by the investors into the Company’s common stock at the lower of (i) $0.75 or (ii) 80% of the per share price of the Company’s equity securities sold in a future public offering.  The warrants give each investor, for five years from the date of issuance, the right to purchase the Company’s common stock at (i) $1.00 or (ii) 80% of the lowest per share price of the Company’s common stock sold by the Company in any future public offering, during the period that the investor’s OID Note is outstanding. The OID Notes and related warrants contain anti-dilution provisions. In addition, the Company agreed to pay to the placement agent a fee of 10% of the gross proceeds received by the Company and a warrant equal to 10% of the aggregate number of shares issuable upon conversion of the Notes at an exercise price equal to 110% of the warrant exercise price. 

 

Preferred Stock

 

The Company has amended its certificates of designation to authorize the issuance of 6 separate series of preferred stock.

 

June 30, 2014

 

Preferred Stock

Authorized Date

Issue Date

Number of Shares Issued and Outstanding

Par Value

Conversion to Common Stock

Series “A" (1)

June 14, 2011

June 2011

500,000

$

.0001

N/A

Series “B" (2)

October 2011

October 2011

0

$

.0001

1.50:1

Series “D” (3)

March 30, 2012

April 2012

0

$

.0001

30:1

Series “E” (4)

June 1, 2013

June 2013

132,258

$

.0001

65:1

Series “F” (5)

December 2, 2013

December 2013

550,000

$

.0001

N/A

Series “G” (6)

March 7, 2014

March 2014

0

$

.0001

N/A

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

(1) Issued 100,000 shares to the principal owners of Millennium Healthcare Solutions Inc. upon acquisition of the net assets of that company; and issued 400,000 to the officers of Millennium Healthcare Inc. 

(2) Issued in conversion of the Line of Credit. There are no shares issued as of December 31, 2012.

(3) Issued in conversion of the Series B Preferred Stock and additional funds provided.

(4) Issued in conversion of the Series D Preferred Stock.

(5) Issued to investors as part of a private offering.

(6) Issued to investors as part of a private offering.

 

On December 17, 2012, the Company increased their authorized preferred stock from 1,000,000 shares to 5,000,000 shares.

 

On December 19, 2013, the Company increased their authorized preferred stock from 5,000,000 shares to 15,000,000 shares.

 

Series A Preferred Stock. These shares are non-convertible, and have super voting rights of 200 to 1 versus the Common Stock. In April 2013, the Company issued 100,000 shares and in December 2013, the Company issued 400,000 shares of Series A Preferred Stock to senior management of the Company. Each share of this preferred has 200 votes in matters where shareholder votes are required. These shares are not convertible and are not transferable and, accordingly, management has attributed a nominal value to these shares.

  

There were zero shares of Series B Preferred Stock issued and outstanding at December 31, 2013. These had a value of $415,000 ($1.50 per share), which represented the proceeds received. In addition, there was $185,000 of proceeds received in 2011 that were recorded as a liability for preferred stock to be issued. These were to be in the form of Series C Preferred Stock which was to be convertible into common stock anytime after January 1, 2013 at the rate of 30 common shares for each preferred share (Series C). If the Company files a Registration Statement for any reason, piggy-back registration rights will be attached to the underlying common stock at no cost to the shareholder.

 

The Series C Preferred Stock was never designated, and the Company further filed a Certificate of Designation for Series D Preferred Stock.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

From the period January 1, 2012 through March 31, 2012, the party invested an additional $477,500. Those proceeds along with the accrued interest of $22,500 on what was to be the issued Series C Preferred Stock, which ended up as liability for Preferred Stock to be issued, now brings the total invested proceeds to $1,100,000. As a result of the additional proceeds, the Company amended the certificate of designation to authorize a Series D Preferred Stock.

 

The Series D Preferred Stock has the same terms of what was to be the Series C Preferred Stock, and the Company issued 110,000 shares of the Series D Preferred Stock on March 30, 2012. Additionally, the $185,000 liability for preferred stock to be issued was also satisfied upon the issuance of the Series D Preferred Stock.

 

The only addition was that for each Series D Preferred Share, the Company issued a detachable cashless warrant that will give the holder the right to purchase on a cashless basis 30 common shares (a total of 3,300,000 common stock warrants) at $0.50 per preferred share expiring in 2 years (April 1, 2014). The warrant has been valued at $3,825,000 and recorded as additional paid in capital. In addition, the Company is to pay a quarterly dividend in the amount of $33,000 ($0.30 per share per quarter) commencing April 1, 2012. No dividends had been paid through March 31, 2013, therefore the Company accrued $132,000 as of March 31, 2013. Dividends can be paid in the form of additional shares of Series D Preferred Stock or cash. In April 2013, the Company issued 13,200 shares of Series D Preferred Stock as payment for accrued dividends of $132,000 (through March 31, 2013). These accrued dividends have been paid through the issuance of 13,200 shares of Series D Preferred Stock in April 2013. In addition, 3,080 shares of Series D Preferred Stock were issued as payment for accrued dividends for April and May 2013 of $24,640. The total of 126,280 shares of Series D Preferred Stock was exchanged for 126,280 shares of Series E Preferred Stock.

 

The Series D Preferred Stock was redeemable at $11.50 per share at any time after September 1, 2012 by either party provided the Company has achieved any one of the following: a) accumulated pre-tax profits in excess of $2,000,000 on or after April 1, 2012; b) Company raising in excess of $2,000,000 equity capital on a cumulative basis on or after April 1, 2012; and c) Company reporting quarterly revenue in any quarter on or after April 1, 2012 in excess of $5,000,000. None of these conditions had been satisfied through the period ended May 31, 2013, just prior to the cancellation of these shares and re-issuance as Series E Preferred Stock.

 

On June 1, 2013, the Company amended the certificate of designation to authorize a Series E Preferred Stock. The Series E Preferred Stock is convertible into 65 shares of common stock for each preferred share at any time after June 1, 2014 and convert automatically on May 31, 2018, as well as providing for an annual dividend of $0.80 per share per year. Concurrent with the designation of the Series E Preferred Stock, the Company exchanged the 126,280 shares of Series D Preferred Stock into Series E Preferred Stock. In December 2013, the Company issued 3,384 shares of Series E Preferred Stock to holders as payment of $33,843 in accrued dividends through September 30, 2013. In February 2014, the Company issued 2,594 shares of Series E Preferred Stock to holders as payment of $25,936 in accrued dividends through December 31, 2013. Accrued dividends for the Series E Preferred Stock through June 30, 2014 were $26,452.

  

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The Series E Preferred Stock has a stated value at $10.00 per share and rank: (i) junior to the Company’s Series A Preferred Stock, and any class or series of capital stock created after June 1, 2013 created specifically ranking by its terms senior to the Series E Preferred Stock; (ii) senior to all of the Company’s common stock; (iii) senior to any class or series of capital stock created after June 1, 2013 that does not specifically rank by its terms senior to or on parity with the Series E Preferred Stock; and (iv) on parity with any class or series of capital stock of the Company specifically ranking by its terms on parity with the Series E Preferred Stock in each case as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

 

The Company amended its certificate of designation in December 2013 to authorize a Series F Preferred Stock (“Series F”) which provides for a quarterly dividend of 10% of the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA") and is payable on a quarterly basis, beginning after two quarters following the issue date. Holders are not entitled to receive any dividend from the Company after they have received an aggregate of $1.20 per share. Once holders receive an aggregate of $1.20 for each share held, all Series F shall expire and/or be redeemable for $1.

 

Series F is: (i) junior to any class or series of capital stock of the Company specifically ranking by its terms senior to any Series F Preferred Stock of whatever subdivision; (ii) prior to any class or series of capital stock of the Company hereafter created not specifically ranking by its terms senior to or on parity with any Series F of whatever subdivision; and (iii) on parity with any class or series of capital stock of the Company hereafter created specifically ranking by its terms on parity with the Series F Preferred Stock in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

 

The Company sold 1,950,000 units and raised $1,950,000 under a private placement during 2013. The Company sold 1,050,000 units and raised $1,050,000 through March 31, 2014 for a total of 3,000,000 units sold and $3,000,000 raised for this private placement. Each unit consisted of one share of common stock and one share of Series F. As a result, 3,000,000 shares of Series F were to be issued, in which 550,000 shares were issued during 2013 and 2,450,000 shares valued at $1,356,500 were recorded as a liability for stock to be issued. Due to the redeemable nature of the Series F, the unit price was allocated between the Common stock and Series F and the Series F is recorded as a preferred stock liability in the accompanying consolidated financial statements for the Series F shares that have been issued. This private placement is closed and will have no future participation.

  

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

In March 2014, the Company amended the certificate of designation to authorize a Series G Preferred Stock. Holders of Series G Preferred Stock shall be entitled to receive, along with the Series F Holders, an aggregate quarterly dividend of 10% of the Corporation’s earnings before interest, taxes depreciation and amortization (“EBITDA”) computed under the generally accepted accounting principles (“GAAP”). For purposes of allocating the 10% dividend proportionally to the Series F and G Preferred Holders, G Preferred Shares will be weighted and valued at 1,000 times that of Series F. Dividends on Series G Preferred Stock shall be payable on a quarterly basis, beginning after two quarters following the original issue date (“Issuance Date”). Holders of Series G Preferred Stock shall not be entitled to receive any dividend from the Corporation once they have received an aggregate of $1,200 for every share of Series G Preferred Stock they hold. As of June 30, 2014, no shares of Series G Preferred stock have been issued and any proceeds received are included in preferred stock to be issued.

 

Series G Preferred Stock shall rank: (i) junior to any class or series of capital stock of the Corporation specifically ranking by its terms senior to any Series G Preferred Stock of whatever subdivision (collectively, “Senior Securities”); (ii) prior to any class or series of capital stock of the Corporation hereafter created not specifically ranking by its terms senior to or on parity with any Series G Preferred Stock of whatever subdivision (collectively, “Junior Securities”); and (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series G Preferred Stock (“Parity Securities”) in each case as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as “Distributions”).

 

The Company sold 3,510 units and raised $3,510,000 under a private placement through June 30, 2014. Each unit for this private placement consisted of one thousand shares of common stock and one share of Series G. As a result, 3,510 shares of Series G were to be issued, were valued at $913,400 and recorded as a liability for stock to be issued.

 

Common Stock

 

The Company issued 12,100,000 shares of common stock for consulting and other services during the six months ended June 30, 2014.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The Company issued 575,000 shares of common stock for settlement and full satisfaction of a promissory note during the six months ended June 30, 2014.

 

The Company raised $6,510,000 under private placements through June 30, 2014. As a result, 6,510,000 shares of common stock were to be issued, in which 550,000 shares were issued during 2013, 225,000 shares were issued during 2014 and 5,735,000 shares valued at $3,802,550 were recorded as a liability for stock to be issued.

 

Warrants

 

During the years ended December 31, 2012 and 2013, the Company issued 9,760,000 warrants at exercise prices ranging from $.50 to $1.00 per share. All of the warrants are vested and remain outstanding. The warrants have a weighted average price of $0.65.

  

Consultant warrants provided for services to be rendered over a one-year period of time. These 200,000 warrants vest evenly over a one-year period by month. The Company has recorded this as a prepaid expense and will amortize through the conclusion of the contract.

 

The Company issued 466,667 warrants at an exercise price of $1.00 per share to certain convertible note holders. The Company agreed to pay the placement agent a commission of warrants equal to 10% of the aggregate number of shares issuable upon conversion of these convertible notes at an exercise price equal to 110% of the warrant exercise price.

  

The Company used the black-scholes method to value the warrants, with the following inputs: volatility 368.48%; quarterly dividend percentage 0%; and discount rate of 0.95%.

 

NOTE 5-

INCOME TAXES

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the years ended six months ended June 30, 2014 and 2013 to the Company’s effective tax rate is as follows:

 

		Six Months  Ended
		June 30, 2014				June 30, 2013
U.S. federal statutory rate			-34.0	%			-34.0	%
State income tax, net of federal benefit			-6.0	%			-6.0	%
Permanent differences			-0.8	%			11.2	%
Change in valuation allowance			40.8	%			28.8	%
Income Tax provision (benefit)			0	%			0.0	%

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax liability as of June 30, 2014 and December 31, 2013 are as follows:

 

		June 30, 2014				December 31, 2013
Deferred Tax Assets
Net operating losses		$	5,856,404			$	1,531,081
Deferred Tax Liabilities
Impairment		$	1,618,400			$	-
Allowance for doubtful accounts			480,000				-
			2,098,400				-
Net deferred tax asset			3,758,004				1,531,081
Less: Valuation allowance			(3,758,004	)			(1,531,081	)
		$	-			$	-

 

As of June 30, 2014 and 2013, the Company had approximately $14,730,000 of federal and state net operating loss carryovers (“NOLs”) which begin to expire in 2030. Utilization of the NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under regulations.

 

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

 

The Company files U.S. federal and state of New York tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2010. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

NOTE 6-

FAIR VALUE MEASUREMENTS

 

The Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

 

Level 1 inputs: Quoted prices for identical instruments in active markets.

 

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 inputs: Instruments with primarily unobservable value drivers.

 

The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2014:

 

		Level 1				Level 2				Level 3				Total
Cash		$	522,610			$	-			$	-			$	522,610
Total assets		$	522,610			$	-			$	-			$	522,610
Notes payable, net of debt discount and OID		$	-			$	-			$	1,259,679			$	1,259,679
Embedded conversion feature and derivative liability		$	-			$	-			$	3,238,651			$	3,238,651
Total liabilities		$	-			$	-			$	4,498,330			$	4,498,330

  

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013:

 

		Level 1				Level 2				Level 3				Total
Cash		$	115,645			$	-			$	-			$	115,645
Total assets		$	115,645			$	-			$	-			$	115,645
Notes payable, net of debt discount and OID		$	-			$	-			$	2,227,735			$	2,227,735
Embedded conversion feature and derivative liability		$	-			$	-			$	1,877,546			$	1,877,546
Total liabilities		$	-			$	-			$	4,105,281			$	4,105,281

 

		For the Six Months Ending				For the Six Months Ending
		2014				2013
Total gain/(loss) from revaluation of derivatives included in earnings:		$	(1,127,784	)		$	2,180,312

 

The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

We calculated the fair value of the embedded conversion feature and derivative liability using the Black-Scholes option-pricing model with the following assumptions: Fair value of stock $0.48; exercise price $0.50 to $1.00; risk free interest rate 0.95%, term of 5 years; volatility rate of 368.48%; dividend yield of 0%.

 

The following tables provide reconciliations of beginning and ending balances at June 30, 2014 and December 31, 2013:  

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Notes Payable				Embedded conversion feature and derivative liability				Total
June 30, 2014
Beginning balance			2,227,735				1,877,547				4,105,282
Transfers into Level 3			-				-				-
Transfers out of Level 3			-				-				-
Total gains or losses			-				-				-
included in earnings (or changes in net assets)			-				1,127,784				1,127,784
included in other comprehensive income			-				-				-
Purchases, issuances, sales, and settlements			-				-				-
Purchases			-				-				-
Issuances			915,801				233,320				1,149,121
Sales			-				-				-
Settlements			(1,883,857	)			-				(1,883,857	)
Ending balance			1,259,679				3,238,651				4,498,330
December 31, 2013
Beginning balance			397,404				2,528,317				2,925,721
Transfers into Level 3			201,000				-				201,000
Transfers out of Level 3			-				-				-
Total gains or losses			-				-				-
included in earnings (or changes in net assets)			-				(3,109,679	)			(3,109,679	)
included in other comprehensive income			-				-				-
Purchases, issuances, sales, and settlements			-				-				-
Purchases			-				-				-
Issuances			2,213,267				2,458,909				4,672,176
Sales			-				-				-
Settlements			(583,936	)			-				(583,936	)
Ending balance			2,227,735				1,877,547				4,105,282

 

  

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

NOTE 7-

COMMITMENTS

 

In April 2014, the Company entered into a new lease agreement in New York City, New York for executive offices of the Company. The lease requires an annual payment of $282,984 for the first year and increases 3% per year subsequent thereto. In addition, the Company must pay any increases in real estate taxes over the base year, as defined. The lease commenced May 1, 2014 and runs through June 30, 2019 (5 years 2 months). Rent commences July 1, 2014 and the Company paid a security deposit of $259,402.  

 

In April 2014, the Company entered into a new lease agreement in Boynton Beach, Florida for the development of a new state-of-the-art distribution facility.  The 30,000 plus square foot facility will be used to manage inventory and distribution for the Company’s regional operations and house local management and training facilities. The lease provides for first year rent of $102,861 plus operating expenses of $98,160 plus annual increase. The lease commenced upon delivery of the premises, May 13, 2014 and runs through May 12, 2019 (5 years 0 months). Rent commences May 13, 2014 and the Company paid a security deposit of $36,099. 

 

NOTE 8-

CREDIT RISK AND OTHER CONCENTRATIONS

  

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables. The Company places its cash with high credit quality financial institutions. At times, such cash and cash equivalents may exceed the FDIC insured limit of $250,000.

 

Accounts receivable, net of allowance, from two customers were $1,454,915 and $826,829, which accounted for approximately 96% of the total receivables at June 30, 2014 and December 31, 2013, respectively.

 

Revenue from one customer was $900,000 each period, which accounted for approximately 85% and 90% of the total revenues for the six months ended June 30, 2014 and 2013, respectively.

  

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013 (UNAUDITED)

 

NOTE 9-

SUBSEQUENT EVENTS

 

Common Stock

 

In July 2014, the Company is to issue 50,000 shares of common stock as a result of a private placement. These shares have been valued at $18,500 and were recorded as a liability for common stock to be issued.

 

In July 2014, the Company issued 1,500,000 shares of common stock to a consultant for services rendered. These shares have been valued at $600,000.

 

Preferred Stock

 

In July 2014, the Company is to issue 50 shares of Series G preferred stock as a result of private placements. These shares have been valued at $31,500 and were recorded as a liability for preferred stock to be issued.

 

Promissory Notes – Original Issue Discount Convertible

  

During July 2014, the Company issued original issue discount convertible notes with an aggregate principal amount of $349,935 with warrants to acquire up to 233,290 shares of Common Stock. These notes mature in 13 months and were issued at an original issue discount of $61,753. 

 

Contingencies

 

On August 11, 2014, LMark Holding LLC (“LMark”) and Cypress Drive Partners LLC (“Cypress”) (“Cypress and LMARK are collectively referred to as the “Members”) filed a summons’s and complaint in the United States District Court Eastern District of New York against the Company. The complaint (among other allegations) alleges that the Members sought to convert their respective Series E Shares Preferred Shares and the Company refused to honor their requests. The complaint asks that the court order the Company to issue 1,950,000 unrestricted shares of its common stock to the Members. The Complaint asserts claims for breach of contract and alleges that the Members were injured in an amount to be determined at trial but not less than $1,000,000. The Company denies these allegations and intends to vigorously defend itself in this action.

 

On August 12, 2014, Aquafina Design LLC whose purported members are Cypress and LMARK, filed a summons and complaint with the Supreme Court of the State of New York, county of Nassau asserting that it provided the Company with certain loans, and was issued (among other securities) 110,000 detachable warrants, with each warrant giving it the right to purchase 30 common shares, for a total of 3,300,000 common shares.  The complaint further asserts that Aquafina exercised all of its warrants on a cashless basis on March 5, 2014 and was entitled to receive 1,312,048 unrestricted common shares and that the Company has not issued such shares.  The complaint seeks compensatory damages for breach of contract in favor of Aquafina in an amount to be determined at trial, but not less than $1,088,990.  The Company denies these allegations and intends to vigorously defend itself in this related action as well. 

 

  

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

Some of the statements contained in this Form 10-Q that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-Q, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

 

·

Our ability to raise capital when needed and on acceptable terms and conditions;

·

our future operating results;

·

our business prospects;

·

any contractual arrangements and relationships with third parties;

·

the dependence of our future success on the general economy; and

·

the adequacy of our cash resources and working capital.

 

All written and oral forward-looking statements made in connection with this Form 10-Q are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements. Except as may be required under applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result more information, future events or occurrences.

 

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

 

Company Overview

 

The Company is a medical device and healthcare support and services company. The Company purchases, supplies and distributes revolutionary medical devices and equipment focused primarily on preventative care through early detection. The Company also provides physician practice administration with a current focus on physician practices specializing in cardiovascular procedures. In addition, the Company provides support and services specializing in medical procedure billing and collections, medical procedure coding, call and message management, and emergency dispatch. The marketplace for the Company’s products and services continues to be high quality physician offices, practices and facility locations with competent and caring doctors and staff.

 

Current Operations and Recent Developments

 

The Company is currently launching its medical equipment and device business. This business focuses on strategic alliances and partnerships with medical device companies that provide innovative medical devices that utilize cutting edge technology, are cost effective, and FDA cleared. Devices the Company elects to distribute are focused on preventative and diagnostic testing and care with the anticipation of detecting potential medical issues in their early stages yielding positive medical outcomes for patients. All of the products that the Company distributes have obtained necessary approvals and certifications and are reimbursable under current medical procedure billing codes. As the Company continues to launch and grow this business, it continues to secured network selling agreements with US based healthcare organization for the use of its medical devices within these organizations’ managed locations. These network agreements include average monthly minimum usage requirements for managed locations. The Company continues to procure and take delivery of device inventory for distribution in fulfilling these agreements during launch and rollout. The Company has also secured office space in New York City, New York, which will contain executive offices, and warehousing space in Boynton Beach, Florida, which will house regional inventory, distribution, local management and training facilities. The Company has also entered into at-will employment agreements to facilitate the regional roll out of the Company’s medical device business.

 

The Company is currently re-focusing and streamlining its physician practice administration and support business. This business offers physician practice development, support and administration services for physician facilities and practices with a focus on vascular disorders. This group assists the physician and his practice in creating environments in which essential vascular access care is provided effectively and efficiently, with optimal outcomes for both the physician and the patient.

 

Results of Operations

 

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

 

Revenue

 

For the six months ended June 30, 2014, the Company had total revenue of $1,060,562 as compared to revenue of $994,148 for the six months ended June 30, 2013. Revenue increased by $66,414 or 6.7% over prior period due to the acquisition of call answering service customers and the initial distribution and placement of medical devices. 2014 revenue consisted of $900,000 in revenue from physician practice administration and support, $105,963 in revenue from medical coding and billing and call answering and emergency dispatch services performed and $54,599 in revenues from the distribution and placement of medical devices.

 

 

For the six months ended June 30, 2013, the Company had total revenue of $994,148. 2013 revenue consisted of $917,700 in revenue from physician practice administration and support and $76,448 in revenue from medical coding and billing and call answering and emergency dispatch services performed. The changes in our operating expenses from June 30, 2014 to June 30, 2013 are as follows:

 

Payroll, consulting, and professional fees

 

Payroll, consulting, and professional fees aggregated $7,820,297 for the six months ended June 30, 2014 compared to $1,677,546 for the six months ended June 30, 2013, an increase of $6,142,751 or 366.2%. The increase is primarily attributed to an increase in the value of common stock issued for professional services of $5,001,135 from $953,359 to $5,954,494, due to the issuance of shares to consultants and professionals for services rendered for investor and public relations, marketing, capital raising efforts and employment agreements and professional fees which increased $828,432 to $1,341,880 from $513,448 in 2013 resulting from consulting fees related to the launching of the medical device business, investor and public relations initiatives and capital raising efforts. In addition, payroll and related tax expenses for the six months ended June 30, 2014 increased $143,747 to $289,824 compared to $146,077 for the six months ended June 30, 2013. The increase is the result of rate increases along with added management personnel for the launching of the medical device business. Also, legal and accounting fees combined for the six months ended June 30, 2014 increased $169,438 to $234,100 compared to $64,662 for the six months ended June 30, 2013 due to the Company utilizing additional legal and accounting services for compliance with SEC requirements to become fully reporting in accordance with those regulations.

 

Rent

 

Rent expense for the six months ended June 30, 2014 was $182,106 compared to $106,625 for the six months ended June 30, 2013, an increase of $75,481 or 70.8%. The increase was the result of the expenses related to the corporate headquarters in Garden City, NY and related escalations, expenses related to new executive office space in New York, New York as well as additional usage days for physician practice management services.

 

General and administrative

 

General and administrative expenses aggregated $637,775 for the six months ended June 30, 2014 compared to $576,752 for the six months ended June 30, 2013, an increase of $61,023 or 10.6%. The increase is primarily attributable to $106,952 in insurance expense for the six months ended June 30, 2014 compared to $75,392 for the six months ended June 30, 2013, an increase of $31,560 or 41.9%. The increase was due to expanding coverage for our device division as well as physician practice management division for vascular services, increased overall business policy coverage and rate increases; $34,385 in telephone and telecommunication expense for the six months ended June 30, 2014 compared to $43,190 for the six months ended June 30, 2013, a decrease of $8,805 or 20.4%. These costs decreased primarily due to one-time and setup expenses for voice, data, software and hosting usage along with related repairs/maintenance and expansion of such services and equipment during 2013 as the Company began building the infrastructure to develop and launch its device business; $57,147 in travel, entertainment, meals and related expenses for the six months ended June 30, 2014 compared to $18,558 for the six months ended June 30, 2013, an increase of $38,589 or 207.9%, The increase is due to the launching of the medical device business and an increase in the Company’s capital raise and investor and public relations efforts; and $439,280 in medical supplies, office and information technology expense for the six months ended June 30, 2014 compared to $439,612 for the six months ended June 30, 2013, decrease of $332 or 0.1%. These costs remained relatively the same period to period as the Company maintained its physician practice management division and the purchase of medical supplies for that business and maintained office and related technology expenses for its corporate office.

 

 

Depreciation and amortization

 

Depreciation and amortization expenses for the six months ended June 30, 2014 aggregated $33,602 and decreased $350,535 from $384,137 or 91.3% from the six months ended June 30, 2013 related primarily to the impairment of certain fixed and intangible assets during 2013.

 

Other income (expense)

 

Net other income (expense) was ($1,593,064) for the six months ended June 30, 2014 compared to $352,108 for the six months ended June 30, 2013, a decrease of $1,945,172. This increase in expense is primarily attributable to the fair value adjustment related to the derivative liability of $2,851,363 offset by a decrease in interest expense of $906,191 for the six months ended June 30, 2014.

 

Income taxes

 

No provision for income taxes has been recorded as the Company has provided a full valuation allowance.

 

Net Loss

 

The net loss of the six months ended June 30, 2014 was ($9,259,185) compared to the net loss of ($1,464,862) for the six months ended June 30, 2013. The Company had a loss per weighted common share outstanding of ($.13) for the six months ended June 30, 2014 compared to ($.04) for the six months ended June 30, 2013.

 

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

 

 

Revenue

 

For the three months ended June 30, 2014, the Company had total revenue of $522,116 as compared to revenue of $506,315 for the three months ended June 30, 2013. Revenue increased by $15,801 or 3.1% over prior period due to the maintenance of physician practice locations under management, the acquisition of call answering service customers and the initial distribution and placement of medical devices. 2014 revenue for the three month period consisted of $450,000 in revenue from physician practice administration and support, $51,840 in revenue from medical coding and billing and call answering and emergency dispatch services performed and $20,276 in revenues from the distribution and placement of medical devices.

 

For the three months ended June 30, 2013, the Company had total revenue of $506,315. 2013 revenue for the three month period consisted of $467,700 in revenue from physician practice administration and support and $38,615 in revenue from medical coding and billing and call answering and emergency dispatch services performed. The changes in our operating expenses for the three months ending June 30, 2014 to June 30, 2013 are as follows:

 

Payroll, consulting, and professional fees

 

Payroll, consulting, and professional fees aggregated $4,302,790 for the three months ended June 30, 2014 compared to $1,076,201 for the three months ended June 30, 2013, an increase of $3,226,589 or 299.8%. The increase is primarily attributed to an increase in the value of common stock issued for professional services of $2,480,892 from $776,432 to $ 3,257,324, due to the issuance of shares to consultants and professionals for services rendered for investor and public relations, marketing, capital raising efforts and employment agreements and professional fees which increased $533,022 to $736,631 from $203,609 in 2013 resulting from consulting fees related to the launching of the medial device business, investor and public relations initiatives and capital raising efforts. In addition, payroll and related tax expenses for the three months ended June 30, 2014 increased $71,851 to $144,499 compared to $72,648 for the three months ended June 30, 2013. The increase is the result of rate increases along with added management personnel for the launching of the medical device business.

 

 

Rent

 

Rent expense for the three months ended June 30, 2014 was $104,048 compared to $61,132 for the three months ended June 30, 2013, an increase of $42,916 or 70.2%. The increase was the result of the expenses related to the corporate headquarters in Garden City, NY and related escalations as well as additional usage days for physician practice management services.

 

General and administrative

 

General and administrative expenses aggregated $341,773 for the three months ended June 30, 2014 compared to $361,074 for the three months ended June 30, 2013, a decrease of $19,301 or 5.3%. The overall decrease is primarily attributable to $70,322 in insurance expense for the three months ended June 30, 2014 compared to $47,280 for the three months ended June 30, 2013, an increase of $23,042 or 48.7%. The increase was due to expanding coverage for our device division as well as physician practice management division for vascular services, increased overall business policy coverage and rate increases; $15,252 in telephone and telecommunication expense for the three months ended June 30, 2014 compared to $31,407 for the three months ended June 30, 2013, decrease of $16,155 or 51.4%. These costs decreased primarily due to one-time and setup expenses for voice, data, software and hosting usage along with related repairs/maintenance and expansion of such services and equipment during 2013 as the Company began building the infrastructure to develop and launch its device business; $30,855 in travel, entertainment, meals and related expenses for the three months ended June 30, 2014 compared to $7,106 for the three months ended June 30, 2013, an increase of $23,749 or 334.2%. The increase is due to the launching of the medical device business and an increase in the Company’s capital raise and investor and public relations efforts; and $225,314 in medical supplies, office and information technology expense for the three months ended June 30, 2014 compared to $275,281 for the three months ended June 30, 2013, a decrease of $49,967 or 18.2%. These costs decreased primarily due to the leveling off and maintenance of medical supplies for practice management business.

 

Depreciation and amortization

 

Depreciation and amortization expenses for the three months ended June 30, 2014 aggregated $16,801 and decreased $175,267 from $192,068 or 91.3% from the three months ended June 30, 2013 related primarily to the impairment of certain fixed and intangible assets during 2013.

 

Other income (expense)

 

Net other income (expense) was $2,935,973 for the three months ended June 30, 2014 compared to $1,265,575 for the three months ended June 30, 2013, an increase of $1,670,398 or 132.0%. This increase is primarily attributable to the change in fair value adjustment related to the derivative liability of $1,492,699 and a reduction in interest expense of $177,699 for the three months ended March 31, 2014.

 

Income taxes

 

No provision for income taxes has been recorded as the Company has provided a full valuation allowance.

 

 

Net Loss

 

The net loss of the three months ended June 30, 2014 was ($1,333,774) compared to the net income of $48,357 for the three months ended June 30, 2013. The Company had a loss per weighted common share outstanding of ($.02) for the three months ended June 30, 2014 compared to a gain per weighted common share outstanding of $.00 for the three months ended June 30, 2013.

 

Liquidity and Capital Resources

 

We have a history of operating losses as we have focused our efforts on raising capital and maintaining our physician practice administration business and the rollout and launching of our medical device business. The report of our independent auditors issued on our consolidated financial statements as of and for the year ending December 31, 2013 expresses substantial doubt about our ability to continue as a going concern. In 2012, we were successful in raising net proceeds of $693,500 through private placements and $1,270,000 through debt financing in order to fund the development and growth of our operations. During 2013, we were successful in raising net proceeds of $1,950,000 through private placements and $1,805,200 through debt financing in order to fund the development and growth of our operations. During 2014 we were successful in raising net proceeds of $4,560,000 through private placements and $1,176,530 through debt financing in order to fund the development and growth of our operations as well as the extinguishing of certain existing demand, promissory and original issue discount notes as they became due. Our ability to continue as a going concern is dependent on our obtaining additional adequate capital to fund additional operating losses until we become profitable. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities for June 30, 2014 and 2013:

 

		Six Months Ended June 30
		2014				2013
Net cash used in operating activities			(2,837,978	)		$	(1,005,493	)
Net cash provided by (used) in investing activities			-				-
Net cash provided by financing activities			3,244,943				880,000
Net increase (decrease) in cash			406,965			$	(125,493	)

 

Cash flows for the six months ended June 30, 2014 compared to June 30, 2013: For the six months ended June 30, 2014, we incurred a net loss of $9,259,185. Net cash used in operating activities was $2,837,978, net cash used in investing activities was $-0- and net cash provided by financing activities was $3,244,943. For the six months ended June 30, 2013, we incurred a net loss of $1,464,862. Net cash used in operating activities was $1,005,493, net cash used in investing activities was $-0- and net cash provided by financing activities was $880,000.

 

 

Working Capital Deficit Information - The following table presents a summary of our working capital deficit:

 

Category		June 30, 2014				December 31, 2013
Current assets			3,595,863				2,145,885
Current liabilities			10,872,372				6,664,738
Working capital (deficit)		$	(7,276,509	)		$	(4,518,853	)

 

As of June 30, 2014, the Company had a working capital deficit of $7,276,509, compared to $4,518,853 at December 31, 2013, or an increase in working capital deficit of $2,757,656. For 2014, current assets increased by $1,449,978 primarily due to increases of $406,965 in cash, $655,231 in accounts receivable related to our practice management services and launch related to our medical device business, $627,638 in inventory related to the purchase of medical devices for distribution offset by a decrease in prepaid expenses of $239,856. Current liabilities increased $4,207,635 primarily related to increases of $4,286,998 in liability for stock to be issued and increases in the change of fair value of the derivative liability related to the warrants issued with notes payable of $1,361,105 offset by a reduction of notes payable of $1,434,735 and other items of $5,733. In addition, the Company issued $337,500 Series F preferred shares which have been classified as a liability.

 

Funding Requirements: We expect to incur substantial expenses and generate ongoing operating losses for the foreseeable future as we prepare for the scale-up of inventory and ongoing development and launch of our medical equipment and device business and maintain the existing base of our physician practice administration and support business. If we are unable to raise an adequate amount of capital, however, we could be forced to curtail or cease operations. Our future capital uses and requirements depend on numerous forward-looking factors. These factors include the following:

 

-the time and expense needed to complete the procurement of inventory and successful launch of the medical equipment and device business;

 

-the expense associated with building a network of independent sales representatives to market the devices selected for distribution;

 

-the degree and speed of patient and physician acceptance of these devices and products and the degree to which third-party payors approve and pay for reimbursement; and

 

-the time and expense needed to complete the securing of additional days at existing location under contract and/or the securing of additional new physician practice facilities and locations under contract for our practice administration and support business.

 

Our revenue generating activities during 2014 continue to improve as the physician practice management services business is re-focused and continues to progress and we enter the final phase of launch for our medical device distribution business, as we strategically start to place our medical devices for distribution into the marketplace. During 2013, we entered into several distribution agreements to launch our medical device division and have procured over $1.4 Million in medical device inventory for distribution through the third quarter 2014. The Company has also secured several network selling agreements with US based healthcare organizations for the use of certain medical devices we are distributing in a number of each organizations’ locations which include average monthly minimum unit usage per device, per location. Strategic rollout and placement of these devices has commenced in the later part of the first quarter of 2014. The Company has also secured additional key management personnel in 2013 and 2014 to help facilitate the launch and rollout of our device division. The Company also continues its capital raising efforts during 2014 with increased exposure and awareness through more formalized investor and public relations, roadshows and the engaging of professional firms.

 

 

In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financial requirements, raise additional financing, and the success of our future operations.

 

Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution to our existing stockholders would result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements.

 

If adequate funds are not available, we may be required to terminate, significantly modify or delay the development and launch of our businesses, reduce our planned commercialization efforts, or obtain funds through means that may require us to relinquish certain rights that we might otherwise seek to protect and retain. Further, we may elect to raise additional funds even before we need them if we believe the conditions for raising capital are favorable.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Our independent accounting firm has not, nor is required, to perform any procedures to assess the effectiveness of management remediation efforts.

 

Evaluation of Disclosure Controls and Procedures.

 

Our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. The Company is growing and currently lacks documented procedures included documentation related to testing of processes, data validation procedures from the systems into the general ledger, testing of systems, validation of results, disclosure review, and other analytics. Furthermore, the Company lacked sufficient personnel to properly segregate duties. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Changes in Internal Controls.

 

There were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

On August 11, 2014, LMark Holding LLC (“LMark”) and Cypress Drive Partners LLC (“Cypress”) (“Cypress and LMARK are collectively referred to as the “Members”) filed a summons’s and complaint in the United States District Court Eastern District of New York against the Company. The complaint (among other allegations) alleges that the Members sought to convert their respective Series E Shares Preferred Shares and the Company refused to honor their requests. The complaint asks that the court order the Company to issue 1,950,000 unrestricted shares of its common stock to the Members The Complaint asserts claims for breach of contract and alleges that the Members were injured in an amount to be determined at trial but not less than $1,000,000. The Company denies these allegations and intends to vigorously defend itself in this action.

 

On August 12, 2014, Aquafina Design LLC whose purported members are Cypress and LMARK, filed a summons and complaint with the Supreme Court of the State of New York, county of Nassau asserting that it provided the Company with certain loans, and was issued (among other securities) 110,000 detachable warrants, with each warrant giving it the right to purchase 30 common shares, for a total of 3,300,000 common shares.  The complaint further asserts that Aquafina exercised all of its warrants on a cashless basis on March 5, 2014 and was entitled to receive 1,312,048 unrestricted common shares and that the Company has not issued such shares.  The complaint seeks compensatory damages for breach of contract in favor of Aquafina in an amount to be determined at trial, but not less than $1,088,990.  The Company denies these allegations and intends to vigorously defend itself in this related action as well.

  

ITEM 1A.

RISK FACTORS

 

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Form 10 as filed with the SEC on July 25, 2013, as amended.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On July 11, 2014, the Company issued original issue discount convertible notes (the “OID Notes”) with an aggregate principal amount of $1,235,294 with warrants to acquire up to 823,524 shares of Common Stock at $1.00 per share as described below.  The OID Notes mature in 13 months and were issued at an original issue discount of $185,294.  No regularly scheduled interest payments shall be made on the OID Notes.  The OID Notes may be converted by the investors into the Company’s common stock at a conversion price equal to the lower of the (i) $0.75 or (ii) the per share price of the Company’s equity securities sold in a future public offering multiplied by 80%.  The warrants give each investor, for five years from the date of issuance, the right to purchase the Company’s common stock at a price equal to (i) $1.00 or (ii) the lowest per share price of the Company’s common stock sold by the Company in any future public offering, during the period that the investor’s OID Note is outstanding multiplied by 80% (the “Warrant Exercise Price”).  The Company agreed to pay to the placement agent a commission equal to 10% of the gross proceeds received by the Company and a warrant equal to 10% of the aggregate number of shares issuable upon conversion of the Notes at an exercise price equal to 110% of the Warrant Exercise Price.  The above referenced securities were offered and sold in reliance on the exemption from registration afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act and corresponding provisions of state securities laws.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

Not applicable.

  

 

ITEM 6.

EXHIBITS

 

Exhibit Number		Description of Exhibit
31.1		Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)
31.2		Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)
32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
EX-101.INS		XBRL INSTANCE DOCUMENT
EX-101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

  

 

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.

  

		MILLENNIUM HEALTHCARE INC.
DATE: August 19, 2014	By:	/s/ Dominick Sartorio
		Dominick Sartorio
		Chief Executive Officer

  

DATE: August 19, 2014	By:	/s/ Anthony Urbano
		Anthony Urbano
		Chief Financial Officer