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EX-32.2 - EXHIBIT 32.2 - MILLENNIUM HEALTHCARE INC.v407396_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - MILLENNIUM HEALTHCARE INC.v407396_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - MILLENNIUM HEALTHCARE INC.v407396_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - MILLENNIUM HEALTHCARE INC.v407396_ex31-2.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K

 

 

 

(Mark One)                                                       

 

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

 

For the fiscal year ended December 31, 2014

 

¨ 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 0001582054

 

Millennium Healthcare Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 11-3229358

State or other jurisdiction of

Incorporation or organization

(I.R.S. Employer

Identification No.)

 

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

11530

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 516-628-5500

 

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

 

Securities registered pursuant to section 12(g) of the Act:

 

Common Stock, par value $.0001

 

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

 

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

 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

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.   xYes   ¨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).    x Yes  ¨  No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

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

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Note.—If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

 

As of June 30, 2014, the aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing sales price of Common Stock on OTCQB was approximately $22,813,042 million.

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

 

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ¨Yes  ¨ No

 

Indicate the number of shares outstanding of each of the registrant’s classed of common stock, as of the latest practicable date.

 

The number of shares of common stock outstanding as of April 10, 2015 is 134,788,942.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

 

 
 

 

Table of Contents

 

    Page
     
PART I
     
Item 1. Business 3
     
Item 1A. Risk Factors 12
     
Item 1B. Unresolved Staff Comments 17
     
Item 2. Properties 17
     
Item 3. Legal Proceedings 18
     
Item 4. Mine Safety Disclosures 18
     
PART II
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19
     
Item 6. Selected Financial Data 23
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
     
Item 8. Financial Statements and Supplementary Data 30
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 65
     
Item 9A. Controls and Procedures 65
     
Item 9B. Other Information 66
     
PART III
     
Item 10. Directors, Executive Officers, and Corporate Governance 67
     
Item 11. Executive Compensation 68
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 70
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 70
     
Item 14. Principal Accountant Fees and Services 70
     
PART IV
   
Item 15. Exhibits, Financial Statement Schedules 71

 

2
 

 

Cautionary Statement Regarding Forward Looking Statements

 

The discussion contained in this Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases like “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “target,” “expects,” “management believes,” “we believe,” “we intend,” “we may,” “we will,” “we should,” “we seek,” “we plan,” the negative of those terms, and similar words or phrases.     We base these forward-looking statements on our expectations, assumptions, estimates and projections about our business and the industry in which we operate as of the date of this Form 10-K. These forward-looking statements are subject to a number of risks and uncertainties that cannot be predicted, quantified or controlled and that could cause actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Form 10-K describe factors, among others, that could contribute to or cause these differences. Actual results may vary materially from those anticipated, estimated, projected or expected should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect. Because the factors discussed in this Form 10-K could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement made by us or on our behalf, you should not place undue reliance on any such forward-looking statement. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Form 10-K or the date of documents incorporated by reference herein that include forward-looking statements.

 

PART I

 

Item 1.  Business

 

Overview and Description of business

 

Millennium Healthcare Inc. (“Millennium” or the “Company”) is a medical device and healthcare support and services company. The Company purchases, supplies and distributes revolutionary medical devices and equipment with a focus on prevention and early detection. The Company also provides physician practice administration with a 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 office, practice and facility locations with competent and caring doctors and staff. The Company was incorporated in Delaware on July 5, 1994 under the name “Kirlin Holding Corp.” In July 2008, the Company changed its name to “Zen Holding Corp.” in connection with the sale of its subsidiary. On June 14, 2011, the Company entered into an asset purchase agreement with Millennium HealthCare Solutions Inc. (“MHS”), whereby it purchased assets of MHS along with assets of its wholly-owned subsidiaries. The Company’s executive office is located at 400 Garden City Plaza, Suite 440, Garden City, NY 11530. The Company’s telephone number is 516-628-5500. Unless otherwise specified, references to the “Company,” “we,” “our” and “us” refer to Millennium Healthcare Inc. and, unless otherwise specified, its subsidiaries.

 

 Emerging Growth Company Status

 

We are an "emerging growth company", as defined in the Jumpstart Our Business Startups Act enacted on April 5, 2012 (the "JOBS Act"). For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory "say-on-pay" and "say-when-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation.

 

Under the JOBS Act, we will remain an emerging growth company until the earliest of:

 

  ¨ the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;
  ¨ the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock;
  ¨ the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or
  ¨ the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934 (the "Exchange Act") (we will qualify as a large accelerated filer as of the first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by our non-affiliates and (ii) been public for at least 12 months; the value of our outstanding common equity will be measured each year on the last day of our second fiscal quarter).

 

3
 

 

The JOBS Act also provides that an emerging growth company may utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. However, we are choosing to "opt out" of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

Products and Services

 

Medical Device Distribution

 

The Company is currently launching its medical equipment and device business. Through its wholly owned subsidiary, the Company will focus on forming strategic alliances and partnerships with medical device companies that provide innovative and revolutionary medical devices that utilize cutting edge technology and are cost effective and approved by the Food and Drug Administration (“FDA”). The devices that the Company plans to distribute are mainly focused on preventative and diagnostic testing and care with the anticipation of detecting potential medical issues in their early stages yielding positive medical outcomes. All of the products that the Company plans to distribute have obtained necessary approvals and certifications and are reimbursable under current medical procedure billing codes. The Company intends to ramp up and maintain an inventory of such devices and kits in anticipation of meeting and maintaining distribution and delivery requirements in a timely manner.

 

During 2013, the Company has entered into a series of distribution agreements with manufacturers for various medical devices. In February, the Company entered into an exclusive nationwide distribution agreement with CDx Diagnostics Inc. for an oral cancer biopsy test. The patented and proprietary oral swab diagnostic platform consists of a unique tissue sampling method combined with computer-assisted laboratory tissue analysis which can identify precancerous epithelial cells that cannot be practically found by any other means. In May, the Company entered into a distribution agreement with Atossa Genetics Inc. for a breast health test and collection kit (“ForeCYTE Breast Health Test”). The ForeCYTE Breast Health Test provides a cytopathological approach for identifying breast cancer risk utilizing Nipple Aspirate Fluid (“NAF”) collected with FDA-cleared, patented MASCT® non-invasive biopsy instrument with a Patented Lab Development Test (“LDT”) that uses five biomarkers of hyperplasia and an additional marker of sample integrity to help evaluate NAF collected. Also in May, the Company entered into an exclusive distribution agreement with Heart Smart Inc. for a heart health test and assessment device (“VasoScan”). VasoScan is designed to analyze the Autonomic Nervous System (ANS) function, Stress and Peripheral Blood Circulation. The VasoScan product is FDA-cleared and provides early detection of arterial wall elasticity and determination of biological arterial age using a non-invasive LED/Photodiode finger probe sensor. In June, the Company entered into an exclusive distribution agreement with eWellness Corporation for distance monitored physical therapy programs. Distance monitored physical therapy programs (“DMpt”) are easy to use physical therapy programs that are critical elements in reducing the effects of diabetes and cardiovascular disease and have the potential to dramatically reduce the overall healthcare expenditures associated with these diseases. The DMpt programs are complete and comprehensive programs that include patient evaluation and testing, exercise intervention and exercise demonstration, all based around on-line program monitoring and follow-up, yielding the most beneficial exercise prescription in achieving optimal patient outcomes and results. The Company is also currently negotiating a Memorandum of Understanding and formal proposal with a nationwide distribution and fulfillment company to facilitate the Company’s primary product support and distribution operations incorporating fulfillment, warehousing and distribution services for its medical devices and products.

 

Portions of the distribution agreement with CDx Diagnostics Inc. and the distribution agreement with Heart Smart Inc., have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.

 

On May 24, 2013, the Company entered into a Supply and Distribution Agreement with eWellness Corporation. Under the terms of the Agreement, the Company was granted the right to distribute certain of eWellness’ products in Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Delaware Maryland, Virginia, North Carolina, Georgia and Florida. The term of this agreement is for 25 years subject to earlier termination as provided in the agreement. For every $100,000 of revenue from the Company for the services provided pursuant to the agreement, eWellness will issue the Company 110,000 shares of its restricted common stock up to a maximum amount of 1,100,000 shares (subject to adjustment as provided in the agreement). The Company has the right to use eWellness Corporation’s trademarks or trade names in connection with the Agreement. eWellness Corporation agrees to provide support to the Company’s technical service representatives within 12 to 48 hours. eWellness Corporation may terminate the Agreement by giving the Company written notice upon occurrence of certain events, including any material breach by either party, dissolution of either party, if the Company is restrained for 60 days from transacting its business, or if either party is in bankruptcy. The Company may terminate the Agreement upon 30 days’ prior written notice.

 

4
 

 

The Company has entered into a Distribution and Marketing Services Agreement with Atossa. Under the Agreement, the Company has been engaged to use its best commercial efforts to distribute and market Atossa’s ForeCYTE products. Under the Agreement, the Company is required to purchase a minimum quantity of ForeCYTE products as follows:

 

Date  ForeCYTE Product  Quantity   Price* FOB Origin 
            
May 1, 2013  ForeCYTE Collection Kits (AG-FC5)   10,000   $21 
May 1, 2013  MASCT pump (AG-MASCT)   40    FOC 

 

Date  ForeCYTE Product  Quantity   Price* FOB Origin 
            
May 1, 2014  ForeCYTE Collection Kits (AG-FC5)   20,000   $21 
May 1, 2014  MASCT pump (AG-MASCT)   80    FOC 

 

Date  ForeCYTE Product  Quantity   Price* FOB Origin 
            
May 1, 2015  ForeCYTE Collection Kits (AG-FC5)   30,000   $21 
May 1, 2015  MASCT pump (AG-MASCT)   120    FOC 

 

Additionally, Atossa shall pay the Company a fixed fee as follows:

 

Service Period  Fixed Service Fee 
 May 2013  $0 
June 2013  $25,000 
July 2013  $50,000 
August 2013  $75,000 
September 2013  $75,000 
October 2013  $75,000 
November 2013  $100,000 
December 2013  $100,000 
January 2014  $125,000 
February 2014  $125,000 
March 2014  $125,000 
April 2014  $125,000 

 

Service Period  Fixed Service Fee 
 May 2014  $150,000 
June 2014  $150,000 
July 2014  $150,000 
August 2014  $150,000 
September 2014  $175,000 
October 2014  $175,000 
November 2014  $175,000 
December 2014  $175,000 
January 2015  $200,000 
February 2015  $200,000 
March 2015  $200,000 
April 2015  $200,000 

 

Service Period  Fixed Service Fee 
 May 2015  $200,000 
June 2015  $200,000 
July 2015  $200,000 
August 2015  $200,000 
September 2015  $250,000 
October 2015  $250,000 
November 2015  $250,000 
December 2015  $250,000 
January 2016  $300,000 
February 2016  $300,000 
March 2016  $300,000 
April 2016  $300,000 

 

5
 

 

 

The Company may delegate or assign its duties under the Agreement to its representatives, subject to certain provisions and Atossa will provide training to the Company’s sales personnel. The Agreement may be terminated by either party upon 30 days’ written notice or upon a material breach if such breach is not cured within 30 days after written notice of said breach by the non-breaching party.

 

Pursuant to an agreement dated February 1, 2013, as amended on October 31, 2013, by and between the Company and CDx Diagnostics, Inc. the Company agreed to purchase from CDx OralCDx Brush Test Kits (the “Products”). Under the Agreement, the Company is the only one authorized to market, distribute and sell the Products in United States to primary care physicians including healthcare clinics, and hospitals. The Company is required to have completed a minimum amount of sales to third party end users in certain periods and commits to a minimum amount of Products in certain periods as follows:

 

Millennium Sales Requirements in Units per Period

 

   Derm Units   Oral Units 
January 1, 2014 to December 31, 2014   12,500    25,000 
January 1, 2015 to June 30, 2015   35,000    17,500 
July 1, 2015 to December 31, 2015   60,000    30,000 
January 1, 2016 to June 30, 2016   120,000    60,000 
July 1, 2016 to December 31, 2016   150,000    75,000 
January l, 2017 to June 30, 2017   250,000    125,000 
July l, 2017 to December, 2017   300,000    150,00Q
January l, 2018 to June 30, 2018   350,000    175,000 
July 1, 2018 to December 31, 2018   500,000    250,000 

 

In addition, the Company agrees to purchase and the Company agrees to deliver the following minimum numbers of units on the following dates (which shall be estimated at 70% Oral units and 30% Derm units:

 

Year  Sales Requirements   Purchases
January 1
   Purchases
July 1
 
2015   142,500    50,000    50,000 
2016   405,000    225,000    225,000 
2017   825,000    425,000    425,000 
2018   1,275,000    700,000    700,000 

 

 

Of the initial 100,000 Units, 4,000 Units shall be delivered by December 31, 2013, 10,000 Units shall be delivered by January 31, 2014 and 16,000 Units shall be delivered by February 28, 2014 for a total of 30,000 Units delivered by February 28, 2014. Payment for units required to be purchased and delivered under this Section shall be made in full by the Company on the applicable date for such purchase set forth in the table above.

 

In addition, pursuant to the Agreement, CDx Diagnostics, Inc. grants to the Company a reasonable supply of current marketing materials and the Company agrees to not alter the trademarks or marketing materials without express written consent from CDx Diagnostics, Inc. CDx Diagnostics, Inc. will also provide the Company’s sales personnel training. The Company has the right to terminate the Agreement effective as of any one-year anniversary of the Agreement upon prior written notice to CDx Diagnostics, Inc. no more than 120 days and no fewer than 90 days prior to such anniversary. CDx Diagnostics, Inc. may also terminate the Agreement as of any period if the Company fails to meet its minimum sales requirements for such period upon 30 days’ prior written notice. The Agreement may be terminated upon a material breach if such breach is not cured within 30 days after written notice of said breach by the non-breaching party or if either party is dissolved or in bankruptcy.

 

The Company has entered into a Master Purchase, Supply and Distribution Agreement with Heart Smart Inc. Under the Agreement, the Company is acting as Heart Smart’s exclusive master distributor for the exclusive distribution and marketing of Heart Smart’s VasoScan Early Detection and Assessment Test products in the United States, provided however until the Company completes the purchase of the first 200 units, Heart Smart’s internal sales force shall be entitled to sell the aforementioned products. In order to maintain the exclusivity, the Company needs to have completed purchases totaling a minimum of 50 units in the first 12 months with completed purchases totaling a minimum of 200 Units within the first 12 Months, with a minimum of 250 additional Units to be completed by the end of the following 12 month period. The Agreement has an initial term of 5 years. The Company is further granted a license to use Heart Smart’s trademarks, trade names, copyrights, patents and other intellectual properties under the Agreement. The Agreement may be terminated upon a material breach if such breach is not cured within 30 days after written notice of said breach by the non-breaching party or if either party is dissolved or in bankruptcy.

 

6
 

 

Practice Support and Administration

 

Through its wholly owned subsidiary, the Company offers physician practice development, support and administration services for physician facilities and practices with a focus on vascular disorders. With extensive collective experience and a comprehensive suite of administration services and support, the Company 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. The Company develops and supports physician practices and locations specializing in the diagnosis and treatment of peripheral arterial disease (“PAD”) of the lower extremities. PAD is a condition that develops when the arteries that supply blood to the internal organs, arms and legs become completely or partially blocked as a result of atherosclerosis. The Company provides complete and comprehensive administrative services to these practices assisting and supporting physicians build, operate and manage their facility, helping physicians to develop their practice to deliver the most effective and efficient treatments in a safe, convenient, patient-friendly environment. These support services include business management, room build-out, recruitment, information technology, market analysis and assessment, equipment procurement, and credentialing. The Company also provides individual specialized healthcare provider support services through its wholly owned subsidiaries.

  

The Company provides high quality, advanced medical procedure coding and medical procedure billing and collections. Services include all aspects of medical billing and collections along with medical diagnosis and procedure coding and training for ICD-10, electronic medical records implementation and support. Clinical Documentation Improvement (“CDI”) services include concurrent and retrospective CDI reviews, DRG validation services and secure remote and on-site medical procedure coding. The Company also specializes in providing services in handling call processes and message management for the medical and healthcare industries, the service and trade industries, and the professional and business industries. High quality call answering and emergency dispatch services are provided with state of the art technology designed specifically to manage call, answering, messaging and paging services in a live, true call center environment including live answering 24/7, call overflow management, reception, voicemail and call screening services and on-call, covering physician update management.

 

Distribution Methods

 

For its medical device and equipment business, the Company seeks purchase, supply and distribution agreements with labs, manufacturers and/or distributors for specific products the Company chooses to market and distribute. Once arrangements have been made to procure inventory for such products, all distribution and fulfillment will be completed by a national fulfillment company to facilitate the Company’s product support and distribution operations incorporating fulfillment, warehousing and distribution services.

 

For its physician practice administration business, the Company seeks administrative service agreements with physicians and/or medical PCs for specific administrative services. The distribution of administrative services contracted for will be completed and fulfilled by the Company’s employees, consultants and agents. The Company concentrates on back office and administration duties solely under the direction of the physician or medical PC.

 

Suppliers

 

Medical Device Distribution

 

Currently, the Company’s order fulfillment will be handled by a contracted provider.  In order to meet the Company’s high quality standards for product creation and development, fulfillment providers will be directed to purchase from approximately 4 primary vendors. They, then assemble, pick, pack, and fulfill orders for final delivery by FedEx ground or air from orders that are received online, by phone or mail, and digitally transmitted through the Company’s order fulfillment software. Current suppliers for medical devices the Company plans to distribute are CDx Diagnostics Inc., Atossa Genetics Inc., HeartSmart Inc., and eWellness Corporation. Portions of the distribution agreement with CDx Diagnostics Inc., the distribution agreement with Heart Smart Inc., have been omitted and filed separately with the SEC pursuant to a request for confidential treatment. 

 

7
 

 

Practice Support and Administration

 

Currently, the Company’s order fulfillment for medical supplies monitored and maintained on behalf of a physician practice will be handled by an independent contractor at the facility.  In order to meet the Company’s high quality standards and to ensure physician needs are met, independent contractors on site will work with supplier reps and purchase from a variety of vendors and approximately 6 primary vendors. Arrangements are then made for final delivery to the physician’s facility. Current primary suppliers for medical supplies the Company plans to monitor and maintain on behalf of a physician practice are Cardio Vascular Systems Inc., Abbott Vascular, Terumo Medical Corp., Merit Medical Systems Inc., CR Bard Inc. and St. Jude Medical.

 

Competition

 

Medical Device Distribution

 

Currently, the Company’s order fulfillment will be handled by a contracted provider.  In order to meet the Company’s high quality standards for product creation and development, fulfillment providers will be directed to purchase from approximately 4 primary vendors. They, then assemble, pick, pack, and fulfill orders for final delivery by FedEx ground or air from orders that are received online, by phone or mail, and digitally transmitted through the Company’s order fulfillment software. Current suppliers for medical devices the Company plans to distribute are CDx Diagnostics Inc., Atossa Genetics Inc., HeartSmart Inc., and eWellness Corporation. Portions of the distribution agreement with CDx Diagnostics Inc., the distribution agreement with Heart Smart Inc., have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.

 

Practice Support and Administration

 

Currently, the Company’s order fulfillment for medical supplies monitored and maintained on behalf of a physician practice will be handled by an independent contractor at the facility.  In order to meet the Company’s high quality standards and to ensure physician needs are met, independent contractors on site will work with supplier reps and purchase from a variety of vendors and approximately 6 primary vendors. Arrangements are then made for final delivery to the physician’s facility. Current primary suppliers for medical supplies the Company plans to monitor and maintain on behalf of a physician practice are Cardio Vascular Systems Inc., Abbott Vascular, Terumo Medical Corp., Merit Medical Systems Inc., CR Bard Inc. and St. Jude Medical.

 

Competition

 

Medical Device Distribution

 

The Company’s medical device distribution business operates in competitive areas and markets. Basic barriers to entry-level product distribution in the healthcare industry can be relatively low and the products the Company distributes may face challenges in market adoption due to the reliance of physicians and other medical professionals on existing devices, equipment and diagnostic tools. In addition, physicians and other medical professionals may view certain devices distributed by the Company as a screening tools for existing illnesses, rather than as early detection or preventative tools. As a result, these products may be deemed to compete directly with existing, established procedures, which could impair market adoption of such products.

 

The Company has secured exclusive and non-exclusive distribution agreements for the products it distributes and as such, the Company does not believe that it currently faces significant competition in providing medical devices and equipment to healthcare providers and practices. The Company believes that the devices it distributes are well positioned to compete in markets based on the innovative, high quality devices being offered, the reputations of the physicians utilizing the devices, as well as the Company’s and its management team’s reputation and extensive industry experience; however, there can be no assurance that these devices will be able to compete effectively with existing devices in their markets or that new devices or competitors will not enter into their markets or that the equipment and devices being distributed will be readily accepted into their markets. These existing and new competitors may have greater financial and other resources than the Company and/or the products’ manufacturers. The Company faces increased competition from existing equipment and devices, as well as the development of new medical equipment and devices entering its markets.

 

Practice Support and Administration

 

The Company’s physician practice administration business operates in competitive areas and markets. The Company’s clients compete with other PAD practice providers, practices and surgical clinics that provide PAD and atherectomy procedures and vascular surgeons. Basic barriers to entry-level practice management in the cardiovascular and PAD care industry can be relatively low.

 

The Company does not believe that it currently faces significant competition in providing administration and support services to cardiovascular practices. The Company believes that the cardiovascular practices it manages and works with are well positioned to compete in markets based on the reputations of the physicians providing services at those practice facilities, as well as the Company’s and its management team’s reputation and extensive industry experience; however, there can be no assurance that these physician practices will be able to compete effectively with existing providers in their markets or that new competitors will not enter into their markets. These existing and new competitors may have greater financial and other resources than the Company or the practices under management do. The Company faces increased competition from existing practices, as well as new healthcare management companies and healthcare providers entering its markets.

 

As the Company distributes medical devices and equipment and also provides a full suite of management, administration, support and consulting services to physicians, healthcare providers, practices, offices, facilities and locations, the Company’s products and services appeal and apply to a vast array of clientele. As such, these businesses can have no real dependency on any one type or class of customer. Currently, the Company has a concentration of sales with one major customer for its physician practice management business. Additionally, as the Company has begun the rollout of certain medical devices, it also currently has a concentration of sales with three major customers for its medical device distribution business.

 

Intellectual Property

 

The Company has the following intellectual properties :

 

  ¨ United States Letters Patent entitled Safety Syringe - application serial no. 12/931,053 filed on January 21, 2011

 

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Government Regulations

 

To the best of its knowledge, there are currently no known existing or probable government regulations that may adversely affect the Company’s business, however, a severe and/or drastic change in the government’s reimbursement rates, policies and/or procedures, for both targeted medical devices and practice management procedures along with the related medical coding and billing for such devices and services could have a material effect on the Company’s business.

 

Information Systems: The Company’s information systems, to the extent such systems hold or transmit patient medical information, operate in compliance with state and federal laws and regulations relating to the privacy and security of patient medical information, including the Health Insurance Portability and Accountability Act (“HIPAA”). While the Company has endeavored to establish its information systems to be compliant with such laws, including HIPAA, such laws are complex and subject to interpretation.

 

United States Medical Device Regulation: The Federal Food, Drug, and Cosmetic Act (“FDCA”), and the FDA’s implementing regulations, govern registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, and post-market surveillance. Medical devices and their manufacturers are also subject to inspection by the FDA. The FDCA, supplemented by other federal and state laws, also provides civil and criminal penalties for violations of its provisions. The Company distributes and markets medical devices that, when manufactured, may be regulated by the FDA, comparable state agencies and regulatory bodies.

 

Privacy and Security of Health Information and Personal Information; Standard Transactions: The Company may be engaged by a healthcare practice or facility that is considered a Covered Entity under the terms of HIPPA. In providing and performing administration and support services for such Covered Entities (i.e. physician practices and laboratories), such as medical coding and medical billing, medical chart review, healthcare facility call and message management, healthcare emergency dispatch and physician practice administration, the company may come in contact with a Covered Entity’s confidential patient medical information. Under such an engagement, the Covered Entity may make available and/or transfer to the Company certain Protected Health Information, as that term is defined and certain Electronic Protected Health Information ("EPHI") as that term is defined, in connection with goods or services that are being provided by the Company to the Covered Entity, that is confidential and subject to protection under HIPAA, HIPAA regulations and the HITECH Act. As such, the Company would be considered a Business Associate of the Covered Entity and further be subject to state and federal laws and implementing regulations relating to the privacy and security of the medical information of the patients the Company’s client physician practices and facilities treat. The Company, as a “Business Associate”, is subject to state and federal laws and implementing regulations relating to the privacy and security of the medical information of the patients its client physicians treat. The principal federal legislation is part of HIPAA, pursuant to which, the Secretary of the Department of Health and Human Services, or “HHS”, has issued final regulations designed to improve the efficiency and effectiveness of the healthcare system by facilitating the electronic exchange of information in certain financial and administrative transactions, while protecting the privacy and security of the patient information exchanged. These regulations also confer certain rights on patients regarding their access to and control of their medical records in the hands of healthcare providers.

 

Four principal regulations have been issued in final form: privacy regulations, security regulations, standards for electronic transactions, and the National Provider Identifier regulations. The HIPAA privacy regulations, which fully came into effect in April 2003, establish comprehensive federal standards with respect to the uses and disclosures of an individual’s personal health information, referred to in the privacy regulations as “protected health information,” by health plans, healthcare providers, and healthcare clearinghouses. The Company is a Business Associate within the meaning of HIPAA. HIPAA requires health care providers to enter into Business Associate contracts with certain businesses to which they disclose patient health information. These Business Associate contracts generally require the recipients of such information to use appropriate safeguards to protect the patient health information they receive. The regulations establish a complex regulatory framework on a variety of subjects, including:

 

  ¨ Provide that the company obtain and use confidential patient health information obtained from its clients only as necessary to perform customer service and support functions;

 

  ¨ Limit access to such information to those employees and agents who perform identified service and support functions;

 

  ¨ Prohibit disclosure of patient health information received from clients to persons who are not employees or agents of the company in the absence of express approval from the legal department and, if appropriate, the client and/or patient;

 

  ¨ Require all employees and agents of the company to report uses and disclosures of patient information that are not permitted by the company’s Privacy and Security Policy;

 

  ¨ Provide that the company investigate all reports that patient health information was used in a manner not permitted by its Privacy and Security Policy and will impose appropriate sanctions for conduct prohibited by the policy as required and/or permitted by law;

 

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  ¨ Establish and ensure that the company’s employees and agents who may come in contact with patient health information receive training regarding the company’s Privacy and Security Policy and the importance of protecting the privacy and security of patient health information;

 

  ¨ Provide for the storage and transmission of patient health information received from clients in a secure manner that protects the integrity, confidentiality and availability of the information; and

 

  ¨ Establish that the company’s employees, contractors and agents who may come in contact with patient health information maintain any and all protected health information obtained through operating their respective businesses confidential, and agree and acknowledge that such information is subject to protection under HIPAA, the HIPAA regulations and the HITECH Act and will conduct their businesses according to such.

 

The federal privacy regulations, among other things, restricts the Company’s ability to use or disclose protected health information in the form of patient-identifiable data, without written patient authorization, for purposes other than payment, physician treatment, or healthcare operations (as defined by HIPAA) except for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. The privacy regulations provide for significant fines and other penalties for wrongful use or disclosure of protected health information, including potential civil and criminal fines and penalties. Although the HIPAA statute and regulations do not expressly provide for a private right of damages, the Company could incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.

 

The Company has implemented policies and practices that it believes brings it into compliance with the privacy regulations. However, the documentation and process requirements of the privacy regulations are complex and subject to interpretation. Failure to comply with the privacy regulations could subject the Company to sanctions or penalties, loss of business, and negative publicity.

 

The HIPAA privacy regulations establish a “floor” of minimum protection for patients as to their medical information and do not supersede state laws that are more stringent. Therefore, the Company is required to comply with both HIPAA privacy regulations and various state privacy laws. The failure to do so could subject the Company to regulatory actions, including significant fines or penalties, and to private actions by patients, as well as to adverse publicity and possible loss of business. In addition, federal and state laws and judicial decisions provide individuals with various rights for violation of the privacy of their medical information by healthcare providers.

 

The final HIPAA security regulations, which establish detailed requirements for physical, administrative, and technical measures for safeguarding protected health information in electronic form, became effective on April 21, 2005. The Company has employed what it considers to be a reasonable and appropriate level of physical, administrative and technical safeguards for patient information. Failure to comply with the security regulations could subject the Company to sanctions or penalties and negative publicity.

 

The final HIPAA regulations for electronic transactions, referred to as the transaction standards, establish uniform standards for certain specific electronic transactions and code sets and mandatory requirements as to data form and data content to be used in connection with common electronic transactions, such as billing claims, remittance advices, enrollment, and eligibility. The Company has outsourced to a third-party vendor the handling of its billing and collection transactions, to which the transaction standards apply. Failure of the vendor to properly conform to the requirements of the transaction standards could, in addition to possible sanctions and penalties, result in payors not processing transactions submitted on the Company’s behalf, including claims for payment.

 

The HIPAA regulations on adoption of national provider identifiers, or NPI, required healthcare providers to adopt new, unique identifiers for reporting on claims transactions submitted after May 23, 2007. The Company may obtain NPIs for our client physicians so that we may report NPIs to Medicare, Medicaid, and other health plans on their behalf.

 

The healthcare information of the Company’s client physician’s patients includes social security numbers and other personal information that are not of an exclusively medical nature. The consumer protection laws of a majority of states now require organizations that maintain such personal information to notify each individual if their personal information is accessed by unauthorized persons or organizations, so that the individuals can, among other things, take steps to protect themselves from identity theft. The costs of notification and the adverse publicity can both be significant. Failure to comply with these state consumer protection laws can subject a company to penalties that vary from state to state, but may include significant civil monetary penalties, as well as to private litigation and adverse publicity. California recently enacted legislation that expanded its version of a notification law to cover improper access to medical information generally, and other states may follow suit.

 

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Federal and State Fraud and Abuse Laws: The federal healthcare Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce referrals or in return for purchasing, leasing, ordering, or arranging for the purchase, lease, or order of any healthcare item or service reimbursable under a governmental payor program. The definition of “remuneration” has been broadly interpreted to include anything of value, including gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests, opportunity to earn income, and providing anything at less than its fair market value. The Anti-Kickback Statute is broad, and it prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements within the healthcare industry, HHS has issued a series of regulatory “safe harbors.” These safe harbor regulations set forth certain provisions that, if met, will provide healthcare providers and other parties with an affirmative defense against prosecution under the federal Anti-Kickback Statute. Although full compliance with these provisions ensures against prosecution under the federal Anti-Kickback Statute, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Statute will be pursued.

 

Physician Referral Prohibitions: Under a federal law directed at “self-referral,” commonly known as the Stark Law, prohibitions exist, with certain exceptions, on Medicare and Medicaid payments for procedures/tests referred by physicians who personally, or through a family member, have an investment interest in, or a compensation arrangement with, the facility performing the procedures/tests. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $100,000 for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violation of the Stark Law is subject to civil monetary penalties of up to $15,000 per bill submission, an assessment of up to three times the amount claimed, and possible exclusion from participation in federal governmental payor programs. Bills submitted in violation of the Stark Law may not be paid by Medicare or Medicaid, and any person collecting any amounts with respect to any such prohibited bill is obligated to refund such amounts.

 

Any arrangement between a facility and a physician or physicians’ practice that involves remuneration will prohibit the facility from obtaining payment for services resulting from the physicians’ referrals, unless the arrangement is protected by an exception to the self-referral prohibition or a provision stating that the particular arrangement would not result in remuneration. Among other things, a facility’s provision of any item, device, or supply to a physician would result in a Stark Law violation unless it was used only to collect, transport, process, or store specimens for the facility, or was used only to order tests or procedures or communicate related results. This may preclude a facility’s provision of fax machines and computers that may be used for unrelated purposes. Most arrangements involving physicians that would violate the Anti-Kickback Statute would also violate the Stark Law. Many states also have “self-referral” and other laws that are not limited to Medicare and Medicaid referrals. These laws may prohibit arrangements which are not prohibited by the Stark Law, such as a laboratory’s placement of a phlebotomist in a physician’s office to collect specimens for the laboratory. Finally, recent amendments to these laws require self-disclosure of violations by providers.

 

Corporate Practice of Medicine: The Company’s contractual relationships with licensed healthcare providers are subject to regulatory oversight, mainly by state licensing authorities. In certain states, for example, limitations may apply to the relationship with the provider that the Company intends to engage, particularly in terms of the degree of control that the Company exercises or has the power to exercise over the practice of medicine by those providers. A number of states, including New York, Texas, and California, have enacted laws prohibiting business corporations, such as the Company, from practicing medicine and employing or engaging physicians to practice medicine. These requirements are generally imposed by state law in the states in which we operate, vary from state to state, and are not always consistent among states. In addition, these requirements are subject to broad powers of interpretation and enforcement by state regulators. Some of these requirements may apply to the Company even if it does not have a physical presence in the state, based solely on the engagement of a healthcare provider licensed in the state or the provision of services to a resident of the state. The Company believes that it operates in material compliance with these requirements. However, failure to comply can lead to action against the Company and the licensed healthcare professionals that the Company engages, fines or penalties, receipt of cease and desist orders from state regulators, loss of healthcare professionals’ licenses or permits, the need to make changes to the terms of engagement of those professionals that interfere with the Company’s business, and other material adverse consequences.

 

Referrals of a Public Company: The Company’s stock is quoted on the OTC Pink, and as such, is not able to accept referrals from physicians who own, directly or indirectly, shares of our stock unless we comply with the Stark Law exception for publicly traded securities. This requires, among other things, $75 million in stockholders’ equity (total assets minus total liabilities). The parallel safe harbor requires, among other things, $50 million in undepreciated net tangible assets, in order for any distributions to such stockholders to be protected under the Anti-Kickback Statute.

 

Compliance Programs: Compliance with government rules and regulations is a significant concern throughout the industry, in part due to evolving interpretations of these rules and regulations. The Company seeks to conduct its business in compliance with all statutes and regulations applicable to its operations. To this end, the Company has established and continues to establish compliance programs that review for regulatory compliance procedures, policies, and facilities throughout its business.

 

Employees

 

As of April 10, 2015, the Company had six (6) full-time employees.  None of our employees are represented by a labor union, and we consider relations with our employees to be good.

 

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The officers of the company and the company’s subsidiaries have the same powers and duties with respect to the management of the business affairs for the Company and the oversight of the day-to-day management operations for the Company as officers of a business would have. They perform such other reasonable duties (taking into consideration the person’s position in the Company) as may be prescribed by the Board of Directors of the Company from time to time. They are obligated to use best efforts to serve the Company faithfully and promote its best interests and shall devote all of his business time, attention and services to the faithful and competent discharge of such duties.

 

Item 1A.  Risk Factors

 

An investment in the Company’s common stock involves an extremely high degree of risk.  You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in the Company’s common stock.  You should only purchase our securities if you can afford to suffer the loss of your entire investment.

 

RISKS RELATED TO OUR BUSINESS

 

The Company has incurred loss since inception and the Company’s auditor has expressed substantial doubt about our ability to continue as a going concern.

 

The Company commenced generating revenues from operations in 2011. The Company has incurred operating losses for the years ended December 31, 2014 and 2013, has a working capital deficiency of $2,923,247 and an accumulated  deficit of $76,378,261 as of December 31, 2014.

 

In their report dated April 15, 2015, the Company’s independent registered auditor , Paritz & Company PA, stated that the Company’s financial statements for the fiscal year ended December 31, 2014, were prepared assuming that it would continue as a going concern. However, they also expressed substantial doubt about the Company’s ability to continue as a going concern. The Company continues to experience operating losses. We can give no assurance as to our ability to raise sufficient capital or our ability to continue as a going concern.

 

The Company’s success depends on the successful raise of sufficient working capital.

 

The success of the Company’s business strategy depends on the Company’s ability to successfully secure raising additional working capital. The Company’s ability to continue as a going concern is an issue raised as a result of significant losses due to certain debt instruments. The Company also continues to experience operating losses. Although not specifically determined at this time, the company intends to continue to investigate and pursue options and methods of raising capital to meet its financing needs and financial goals, however we can give no assurance as to our ability to raise such sufficient capital or our ability to continue as a going concern.

 

The Company is dependent on the continued participation and level of service of its third-party service provider(s).

 

The Company relies on third-party service providers to provide certain services to us and/or our customers. If any of these third-party service providers stop supporting the Company or if our network of providers does not expand, we will likely have to expand our internal team to meet the needs of our customers, which could increase our operating costs and result in lower gross margins. We can make no assurance that we will be able to establish and maintain the third-party relationships or establish additional relationships as necessary to support growth and profitability of our business on economically viable terms.

 

Defects, failures or quality issues associated with the products the Company distributes could lead to recalls or safety alerts, negative publicity regarding the Company and litigation, including product liability claims, that could adversely affect its business and reputation and result in loss of customers. Loss reserves are difficult to estimate.

 

The design, manufacture and marketing of medical devices of the types the Company distributes entail inherent risks. There are a number of factors that could result in an unsafe condition, injury or death of a patient with respect to products that the Company distributes, including quality issues, component failures, manufacturing flaws, unanticipated or improper uses of the products, design defects or inadequate disclosure of product-related risks or product-related information. Any of these issues could lead to a recall of, or safety alert relating to, one or more of the products distributed by the Company. Any recall, whether voluntary or required by the FDA could result in significant costs and significant negative publicity. Negative publicity including regarding a quality or safety issue, whether accurate or inaccurate, could reduce market acceptance of the products, harm the Company’s reputation, decrease demand for the products, result in the loss of customers, lead to product withdrawals and/or harm the Company’s ability to successfully launch and market in the future. The foregoing problems could also result in enforcement actions by state and federal governments or other enforcement bodies, or product liability claims or lawsuits including those being brought by individuals or by groups seeking to represent a class or establish multi-district litigation proceedings, and a material adverse effect on our business, results of operations, financial condition and/or liquidity.

 

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The Company faces competition from existing providers, as well as new providers entering its markets.

 

The Company’s medical equipment and device business operates in competitive areas and markets. Basic barriers to entry-level product distribution in the healthcare industry can be relatively low and the products the Company distributes may face challenges in market adoption due to the reliance of physicians and other medical professionals on existing devices, equipment and diagnostic tools. In addition, physicians and other medical professionals may view certain devices distributed by the Company as a screening tool for existing illnesses, rather than as an early detection or preventative tool. As a result, certain products may be deemed to compete directly with existing, established procedures, which could impair market adoption of such products.

 

The Company’s physician practice administration business operates in competitive areas and markets. The Company’s clients compete with other PAD practice management providers, practices and surgical clinics that provide PAD and atherectomy procedures and vascular surgeons. Basic barriers to entry-level practice management in the cardiovascular and PAD care industry can be relatively low.

 

New distributors and new healthcare providers that enter the Company’s markets impact the Company’s market share, business volume and growth rates. Increased competitive pressures require the Company to commit resources to marketing efforts, which impacts the Company’s margins and profitability. There can be no assurance that the Company will be able to compete effectively with existing providers in its markets or that new competitors will not enter into its markets. These existing and new competitors may have greater financial and other resources than the Company does. Increased competition could also make it more difficult for the Company to expand its business.

 

The development of alternative treatments could diminish demand for the Company’s services.

 

The healthcare industry is dynamic, and new, technologically intensive devices are constantly under development. New devices that are more effective could decrease patient demand or profitability for the products that the Company currently distributes and patients could seek treatment elsewhere.

 

If the Company is found not to be in compliance with applicable laws and regulations, it could be subject to significant fines or penalties, be forced to curtail certain of our operations or rearrange material agreements to its detriment.

 

The Company is subject to numerous federal and state laws and regulations, including, but not limited to, federal and state anti-kickback laws, controlled substances laws, the federal Stark law and state self-referral laws, false claims laws, the HIPAA, Medicare and Medicaid regulations and laws regulating the business of insurance. These laws and regulations are extremely complex and could be subject to various interpretations. Many aspects of the Company’s business, to date, have not been the subject of federal or state regulatory review and the Company may not have been in compliance at all times with all applicable laws and regulations. If the Company is found by a court or regulatory authority to have violated any applicable laws or regulations, the Company could be subject to significant fines or penalties or be forced to curtail certain of its operations.

 

The Company’s success depends on retaining key members of its management team.

 

The success of the Company’s business strategy depends on the continued contribution of key members of its management team. The loss of key members of this team could disrupt its growth plans and its ability to implement its business strategy.

 

Economic instability could continue to adversely affect the Company.

 

Financial markets and the economies in the United States and internationally may continue to experience disruption and volatility as they have in recent years and conditions could worsen. As a result, the economic environment (including deteriorating economic conditions in certain countries in Europe) may, among other things:

 

  ¨ increase the sales cycle for certain of our products;

 

  ¨ slow the adoption of new technology;

 

  ¨ adversely affect the Company’s suppliers, which could disrupt the Company’s ability to distribute the products; and

 

  ¨ limit the Company access to capital on terms acceptable to the Company.

 

These conditions may continue in the future. Any of these conditions could have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity.

 

We may be subject to significant liability claims and litigation, including potential exposure from the use of our product candidates as well as from physician locations under management, and our insurance may be inadequate to cover claims that may arise.

 

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Our business exposes us to potential liability risks inherent in the administration and support of healthcare facilities and the processing, marketing and distribution of medical device products. Such liability claims may be expensive to defend and result in large judgments against us. We face an inherent risk of product liability exposure related to current and any future product candidates and will face an even greater risk with respect to any commercial sales of such products once distribution begins. No product candidate has been widely used over an extended period of time, and therefore safety data is limited. The manufacturing process and handling requirements are extensive, which increases the risk of quality failures and subsequent product liability claims.

 

 We will need to increase our insurance coverage when we begin commercializing product candidates, if ever. At that time, we may not be able to obtain or maintain product liability insurance on acceptable terms with adequate coverage or at all, or if claims against us substantially exceed our coverage, then our financial position could be significantly impaired.

 

Whether or not we are ultimately successful in any product liability litigation that may arise, such litigation could consume substantial amounts of our financial and managerial resources, decreased demand for our products and injure our reputation.

 

We seek to maintain errors and omissions, directors and officers, workers' compensation and other insurance at levels we believe to be appropriate to our business activities. If, however, we were subject to a claim in excess of this coverage or to a claim not covered by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources, which could have a material adverse effect on our financial condition, results of operations and business. Additionally, liability or alleged liability could harm our business by diverting the attention and resources of our management and damaging our reputation.

 

There is no guarantee that the market for our products or services will develop, and it exposes us to risks inherent in the long-term distribution and growth of our products and services.

 

There currently is no significant global market for our product candidates, nor is there any guarantee that such markets will develop in the near future, or at all. Adverse outcomes or limitations of our products or services, including, but not limited to damage, destruction or a failure in performance or facility or systems of our service providers, could harm our reputation and business and expose us to significant liability from customers. While we believe that we will procure insurance to cover certain of these risks, we may in fact have insufficient insurance to cover losses beyond the limits on its policies, which could have a material adverse effect on our financial condition.

 

Healthcare companies have been the subjects of federal and state investigations, and we could become subject to investigations in the future.

 

Both federal and state government agencies have heightened civil and criminal enforcement efforts. There are numerous ongoing investigations of health care companies, as well as their executives and managers. In addition, amendments to the Federal False Claims Act, including under Healthcare Reform, have made it easier for private parties to bring “ qui tam ” (whistleblower) lawsuits against companies under which the whistleblower may be entitled to receive a percentage of any money paid to the government. The Federal False Claims Act provides, in part, that an action can be brought against any person or entity that has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. The government has taken the position that claims presented in violation of the federal anti-kickback law, Stark Law or other healthcare-related laws, including laws enforced by the FDA, may be considered a violation of the Federal False Claims Act. Penalties include substantial fines for each false claim, plus three times the amount of damages that the federal government sustained because of the act of that person or entity and/or exclusion from the Medicare program. In addition, a majority of states have adopted similar state whistleblower and false claims provisions. We are not aware of any government investigations involving any of our physician facilities or management. While we believe that we are in material compliance with applicable governmental healthcare laws and regulations, any future investigations of our business, clients or executives could cause us to incur substantial costs, and result in significant liabilities or penalties, as well as damage to our reputation.

 

It is uncertain to what extent the government, private health insurers and third-party payors will approve coverage or provide reimbursement for the products distributed or the physician practices to which our administration services relate. Availability for such reimbursement may be further limited by an increasing uninsured population and reductions in Medicare and Medicaid funding in the United States.

 

To the extent that health care providers cannot obtain coverage or reimbursement for cardiovascular procedures and treatment or for medical device products, they may elect not to provide such therapies and products to their patients and, thus, may not need our products or services. Further, as cost containment pressures are increasing in the health care industry, government and private payors may adopt strategies designed to limit the amount of reimbursement paid to health care providers.

 

Similarly, the trend toward managed health care and bundled pricing for health care services in the United States, which may accelerate under the healthcare reform legislation approved by Congress on March 23, 2010 and thereafter signed into law (“Healthcare Reform”), could significantly influence the purchase of healthcare support services and products, resulting in lower prices and reduced demand for our products and support services.

 

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Federal health care programs, such as Medicare, are subject to changes in coverage and reimbursement rules and procedures, including retroactive rate adjustments. These contingencies could materially decrease the range of physician services and products covered by such programs or the reimbursement rates paid directly or indirectly to physicians could significantly influence the products sold to, and our administration and support services for, such physicians and their facilities. To the extent that any health care reform favors the reimbursement of other product and services over products and services the company provides, such reform could affect our ability to sell our products and services, which may have a material adverse effect on our revenues.

 

The limitation on reimbursement available from private and government payors may reduce the demand for, or the price of, physician services and products, which could have a material adverse effect on our revenues. Additional legislation or regulation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future which could adversely affect the revenues generated from the sale of our products and services provided to such healthcare facilities.

 

Furthermore, there has been a trend in recent years towards reductions in overall funding for Medicare and Medicaid. There has also been an increase in the number of people who do not have any form of health care coverage in recent years and who are not eligible for or enrolled in Medicare, Medicaid or other governmental programs. The extent to which the reforms brought about under Healthcare Reform may be successful in reducing the number of such uninsured is unclear, and the reduced funding of governmental programs and increase in uninsured populations could have a negative impact on the demand for our administration services to the extent they relate to such products sold and administrative services provided to physician facilities which are reimbursed by government and private payors.

 

Additionally, and more specifically reimbursements and reimbursement rates for Peripheral Arterial Disease (PAD) procedures are currently under review and a negative change could drastically affect the Company’s ability to successfully and profitably perform practice management and administration for physicians which could further result in the discontinuance of that business segment.

 

Unintended consequences of recently adopted healthcare reform legislation in the U.S. may adversely affect our business.

 

The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the U.S., comprehensive programs are under consideration that seek to, among other things, increase access to healthcare for the uninsured and control the escalation of healthcare expenditures within the economy. On March 23, 2010, healthcare reform legislation was approved by Congress and has been signed into law. While we do not believe this legislation will have a direct impact on our business, the legislation has only recently been enacted and requires the adoption of implementing regulations, which may have unintended consequences or indirectly impact our business. For instance, the scope and implications of the recent amendments pursuant to the Fraud Enforcement and Recovery Act of 2009 (“FERA”), have yet to be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business. Also, in some instances our clients may be health insurers that will be subject to limitations on their administrative expenses and new federal review of “unreasonable” rate increases that could impact the prices they pay for our services. If the legislation causes such unintended consequences or indirect impact, it could have a material adverse effect on our business, financial condition and results of operations.

 

Defects or disruptions in our services and products along with changes in reimbursement rates and procedures could diminish demand, delay or defer collection cycles for accounts receivable and subject us to substantial liability.

 

Because our products and service are complex, our services may be subject to errors and our products may have defects that are identified after use that could result in unanticipated downtime for our customers and harm our reputation and our business. We have from time to time found defects and errors in our services and products and new defects and errors may be detected in the future. In addition, our customers may use products and services in unanticipated ways that may cause a disruption in service or product use. Since our customers use our products and services for important aspects of their business, any errors, defects, disruptions in service or other performance problems with our products or services could hurt our reputation and may damage our customers’ businesses. Furthermore, our customers are physician and healthcare profession facilities who rely on health care programs, such as Medicare, for medical procedures performed and medical devices used in their practices and are subject to changes in coverage and reimbursement rules and procedures, including retroactive rate adjustments. These contingencies could materially decrease the range of physician services and products covered by such programs or the reimbursement rates paid. If that occurs, customers could elect not to renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty claims against us,

 

RISKS ASSOCIATED WITH INVESTING IN THE COMPANY’S COMMON STOCK

 

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The Company’s Stock Has Historically Had a Limited Market and the Trading Prices May Be Volatile.

 

The market price of the Company’s shares of common stock may be based on factors that may not be indicative of future market performance.  Consequently, the market price of the Company’s common stock may vary greatly.  There is a significant risk that the Company’s stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond the Company’s control:

 

  variations in the Company’s quarterly operating results;

 

  announcements that the Company’s revenue or income/loss levels are below analysts’ expectations;

 

  general economic slowdowns;

 

  changes in market valuations of similar companies;

 

  announcements by the Company or its competitors of significant contracts; or

 

  acquisitions, strategic partnerships, joint ventures or capital commitments.

 

Because the Company’s Shares Are Deemed “Penny Stocks,” You May Have Difficulty Selling Them In The Secondary Trading Market.

 

The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as therein defined) of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  Additionally, if the equity security is not registered or authorized on a national securities exchange that makes certain reports available, the equity security may also constitute a “penny stock.”  As the Company’s common stock comes within the definition of penny stock, these regulations require the delivery by the broker-dealer, prior to any transaction involving the Company’s common stock, of a risk disclosure schedule explaining the penny stock market and the risks associated with it. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the trading activity in the secondary market for the Company’s common stock. The ability of broker-dealers to sell the Company’s common stock and the ability of shareholders to sell the Company’s common stock in the secondary market would be limited.  As a result, the market liquidity for the Company’s common stock would be severely and adversely affected. The Company can provide no assurance that trading in the Company’s common stock will not be subject to these or other regulations in the future, which would negatively affect the market for the Company’s common stock.

 

The Company IS Subject To The Reporting Requirements Of Federal Securities Laws, Which Can Be Expensive.

 

The Company is subject to the information and reporting requirements under the Securities Exchange Act of 1934 and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002.  The costs of preparing and filing annual and quarterly reports and other information with the SEC causes our expenses to be higher than they would be if the Company was a privately-held company.

 

The Company’s failure to maintain effective internal control over financial reporting could lead to inaccuracies in its reported financial results.

 

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Moreover, any failure to establish and maintain effective systems of internal control and procedures may impair its ability to accurately report its financial results.  Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 and identified a material weakness in internal control over financial reporting as of that date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statement will not be prevented or detected on a timely basis. Because of the material weakness described in this Report on Form 10-K, management concluded that, as of December 31, 2014, our internal control over financial reporting was not effective. Such failures and the reporting that the Company’s system of internal controls over financial reporting was not effective could result in a restatement of its financial statements and cause investors to lose confidence in the reliability of its financial statements, which could result in a decline in the Company’s stock price. In

 

In addition to potential dilution associated with future fundraising transactions, we currently have significant numbers of securities outstanding that are convertible into or exercisable for our Common Stock, which could result in significant additional dilution and downward pressure on our stock price.

 

The issuance of these shares in the future would result in significant dilution to our current stockholders and could adversely affect the price of our Common Stock and the terms on which we could raise additional capital. In addition, the issuance and subsequent trading of shares could cause the supply of our Common Stock available for purchase in the market to exceed the purchase demand for our Common Stock. Such supply in excess of demand could cause the market price of our Common Stock to decline.

 

16
 

 

Actual and beneficial ownership of large quantities of our Common Stock and certain Preferred Stock by our executive officers and directors may substantially reduce the influence of other stockholders.

 

As a result, such persons may have the ability to exercise enhanced control and influence over the approval process for actions that require stockholder approval, including the approval of mergers, sales of assets or other significant corporate transactions or other matters submitted for stockholder approval. Furthermore, at certain times the interests of our substantial stockholders may conflict with the interests of our other stockholders.

 

If we are unsuccessful in raising the required capital or building or contracting for commercial sales and marketing capabilities in the United States, our revenues from any future products will be adversely affected.

 

We currently have no capabilities or experience in the selling, marketing or commercial distribution of medical device products. We currently have product candidates that are ultimately approved for marketing, and would need to hire and develop an internal sales and marketing organization and/or outsource these functions to one or more third parties.

 

We may be unable to secure the required capital or be unable to establish sufficient marketing, sales and distribution capabilities necessary to successfully inventory, commercialize and gain market acceptance for any of our product candidates. In addition, co-promotion or other marketing arrangements with third parties to commercialize product candidates could significantly limit the revenues we recognize from such product candidates, and these third parties may fail to commercialize the product candidates successfully.

 

Factors outside the Company's control could require us to record an asset impairment of goodwill.

 

We are required to analyze goodwill and other intangible assets for impairment. Factors out of the Company's control, including, but not limited to the economic environment, market capitalization, federal and local government regulations and anticipated cash flows of the Company could require us to record an impairment charge for goodwill. The accounting guidance establishes a method of testing goodwill for impairment on an annual basis, or on an interim basis if an event occurs that would reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value. If an impairment is found to exist, we will be required to record a non-cash asset impairment charge which could be significant.

 

Item 1B.  Unresolved Staff Comments

 

Not applicable.

 

Item 2.  Properties

 

DESCRIPTION OF PROPERTY

 

The Company leases approximately 7,500 square feet in Garden City, New York. All management activities of the Company are conducted out of this location. The lease term expires on December 31, 2023, and has an annual rent of approximately $201,208 for the year ended December 31, 2014.  The Company in executing a more virtual model, is vacating its Garden City, New York offices and is currently relocating to a virtual office environment within Long Island, New York. This new location will be used to provide executive, management and administrative offices for the Company’s regional operations.

 

The Company, on behalf of one of its operating subsidiary, leases approximately 2,900 square feet in New Brunswick, New Jersey commencing on November 15, 2012 for an initial term of sixty months. The annual rent is approximately $72,216 for the year ended December 31, 2014.  The subsidiary utilizes the space for clients and anticipates a minimum of 1 day per month for the current year.

 

One of the Company’s subsidiaries leases approximately 1,800 square feet in New York, New York commencing in June 2013 for an initial term of twenty-four months. The Company has two options to renew the term of the lease for twelve months each. The lease has an estimated annual rent of approximately $140,000 for the year ended December 31, 2013. The subsidiary utilizes the space for its client and anticipates a minimum of 1 day per week for the current year. The Company is no longer utilizing this location after 2013.

 

The Company, on behalf of one of its operating subsidiaries, leases certain office space in Garden City, New York commencing on October 1, 2013 for an initial term of sixty months. The Company can renew the lease for two additional twelve month terms. The annual rent is approximately $24,000 for the year ended December 31, 2014.  The subsidiary utilizes the space for its client and anticipates a minimum of 1 day per month for the current year.

 

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The Company leases approximately 5,442 square feet in New York, New York commencing May 2014 (with rent commencing July 2014) for an initial term of 62 months. The lease has an annual rent payment of approximately $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 Company utilizes this space for executive offices. The Company, in executing a more virtual model, will be looking to consolidate administrative and executive offices and vacate this location in 2015.

 

The Company leases approximately 29,389 square feet in Boynton Beach, Florida commencing May 2014 (upon delivery of the premises) for an initial term of 60 months. The lease has an annual rent payment for the first year of approximately $102,861 plus operating expenses of approximately $98,160 plus annual increase. The Company in executing a more virtual model, is vacating its Boynton Beach, Florida warehouse and storage facility and relocating to a third party warehousing, inventory and logistics facility located in Miami, Florida. This new location will be used to provide and manage complete inventory, logistics and distribution for the Company’s regional operations.

 

Item 3.  Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters  may arise from time to time that may harm its business. We are not currently party to any material legal proceedings.

 

Item 4.  Mine Safety disclosures

 

Not Applicable.

 

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PART II

 

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

 

Quotations for the common stock of the Company are included in the under the symbol “MHCC.” The following table sets forth for the respective periods indicated the prices of the common stock as quoted on the OTC Markets. Such prices are based on inter-dealer bid and ask prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

  

Quarter Ended:  High Bid ($)   Low Bid ($) 
         
         
March 31, 2013  $1.11   $0.50 
June 30, 2013  $0.80   $0.35 
September 30, 2013  $0.60   $0.25 
December 31, 2013  $0.51   $0.27 
March 31, 2014  $1.01   $0.20 
June 30, 2014  $1.50   $0.43 
September 30, 2014  $0.74   $0.33 
December 31, 2014  $0.68   $0.13 

 

As of April 10, 2015, there were approximately 128 holders of record of our common stock.

 

Since inception, no dividends have been paid on the common stock.  The Company intends to retain any earnings for use in its business activities, so it is not expected that any dividends on the common stock will be declared and paid in the foreseeable future.

  

Equity Compensation Plan Information

 

As of December 31, 2014, we do not have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.

 

Recent Sales of Unregistered Securities

 

Common Stock

  

On January 21, 2014 the Company issued 300,000 shares of common stock for an addendum to a master purchase, supple and distribution agreement. 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.

 

On January 21, 2014, the Company issued 3,400,000 shares of common shares to certain professional and employees for services rendered. 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.

 

On January 21, 2014, the Company issued 175,000 shares of common shares to a certain entity for the acquisition of certain assets of that entity. 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.

 

Between February 11 and March 31, 2014, the Company issued 3,575,000 shares of common stock to certain consultants for services rendered. 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.

 

Between April 21 and June 11, 2014, the Company issued 4,650,000 shares of common stock to certain consultants for services rendered. 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.

 

On April 24, 2014 the Company issued 575,000 shares of common stock for settlement and full satisfaction of a promissory note. 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.

  

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On May 27, 2014, the Company issued 225,000 shares of common stock through a private placement. 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.

 

Between July 11 and September 25, 2014, the Company issued 10,600,000 shares of common stock to certain consultants for services rendered. 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.

 

Between August 11 and September 9, 2014, the Company issued 620,000 shares of common stock to a certain note holder for maturity extensions of a convertible promissory note. 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.

 

On September 12, 2014 the Company issued 4,025,000 shares of common stock for settlement and full satisfaction of certain promissory and demand notes. 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.

 

On September 25, 2014, the Company issued 625,000 shares of common shares to a certain professional for services rendered. 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.

 

Between November 14 and November 18, 2014, the Company issued 3,050,000 shares of common stock to certain consultants for services rendered. 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.

 

On November 17, 2014 the Company issued 13,596,770 shares of common stock for settlement and full satisfaction of certain claims, complaints and summons. 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.

 

Between December 2 and December 4, 2014, the Company issued 7,075,000 shares of common stock to certain holders through private placement subscription agreements. 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.

 

On December 9, 2014, the Company issued 2,600,000 shares of common stock to a certain consultant for services rendered. 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.

 

On December 16, 2014, the Company issued 6,250,000 shares of common stock to certain consultants for services rendered. 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.

 

On December 19, 2014, the Company issued 1,000,000 shares of common shares to a certain professional for services rendered. 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.

 

On December 22, 2014 the Company issued 3,250,000 shares of common stock for settlement and full satisfaction of warrants with a certain holder. 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.

 

Series F Preferred Stock

 

From August 2013 to February 2014, the Company completed a private placement pursuant to a term sheet closed on 3,000,000 units of its securities for gross proceeds of $ 3,000,000.  Each unit (“Unit”) consists of one share of the Company’s Common Stock, and one share of a new series of preferred stock to be designated by the Company (“Series F Preferred Stock”).   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.

 

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Series G Preferred Stock

 

The Company sold 5,335 units and raised $5,335,000 under a private placement in 2014. Each unit for this private placement consisted of one thousand shares of common stock and one share of Series G Preferred Stock (“Series G Preferred Stock”), which have the rights and preferences set forth in the Certificate of Designation, Preferences, Rights and Limitations of Series G Preferred Stock of the Company. . As a result, 5,335 shares of Series G were to be issued. 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.

Convertible Notes

 

 

On February 10, 2014, the Company sold a Convertible Promissory Note in the principal amount of $353,000, dated February 7, 2014 for cash consideration of $325,000 by and between the Company and WHC Capital LLC, Bravo Series. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

Between June 26 and July 11 2014, the Company issued original issue discount convertible notes (the “OID Notes”) with an aggregate principal amount of $1,235,218 with warrants to acquire up to 823,530 shares of Common Stock at $1.00 per share.  The OID Notes mature in 13 months after issuance and were issued at an original issue discount of $185,283.  No regularly scheduled interest payments shall be made on the OID Notes.  The OID Notes may be converted by the note holders into shares of 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 expire five years from the date of issuance and are exercisable at (i) $1.00 or (ii) 80% 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. 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.

  

On September 18, 2014, the Company issued a promissory note to accredited investors in the amount of $200,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On October 9, 2014, the Company issued a promissory note to an accredited investor in the amount of $250,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On October 20, 2014, the Company issued a promissory note to an accredited investor in the amount of $40,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

In October 2014, the Company issued a short term note to an investor in the principal amount of $450,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On November 19, 2014, the Company sold Convertible Promissory Notes in the aggregate principal amount of $1,100,000, dated November 10, 2014 for an aggregate of $1,000,000 pursuant to certain Securities Purchase Agreements. The Notes mature on May 10, 2015 and bear an interest rate of 18% per annum. Any accrued and unpaid principal and interest on the Convertible Promissory Notes when due shall bear an interest rate of 22% per annum. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act by virtue of the provisions of Section 4(a)(2) and Regulation D (Rule 506) thereunder, and the corresponding provisions of state securities laws.

 

On December 2, 2014, the Company issued a promissory note to an accredited investor in the amount of $205,000. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

21
 

 

On December 24, 2014, the Company sold Convertible Promissory Notes in the principal amount of $350,000 and 350,000 shares of the Company’s common stock for an aggregate of $350,000 pursuant to certain Securities Purchase Agreements to an accredited investor. 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.

 

Warrants

 

On February 25, 2014, the Company entered into an agreement and general mutual release with a note and warrant holder. As a result, the Company cancelled 500,000 warrants with exercise prices ranging from $.50 to $1.00.

 

On June 26, 2014, the Company issued five year warrants to purchase 549,020 shares of common stock at an exercise price of $1.00 per share in connection with the issuance of certain convertible promissory notes with non-related parties. The Company agreed to pay a 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 issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On July 9, 2014, the Company issued five year warrants to purchase 117,647 shares of common stock at an exercise price of $1.00 per share in connection with the issuance of certain convertible promissory notes with non-related parties. The Company agreed to pay a 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 issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On July 11, 2014, the Company issued five year warrants to purchase 156,863 shares of common stock at an exercise price of $1.00 per share in connection with the issuance of certain convertible promissory notes with non-related parties. The Company agreed to pay a 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 issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

On July 25, 2014, the Company issued two year warrants to purchase 1,200,000 shares of common stock at an exercise price of $3.00 per share in connection with a consulting agreement with a non-related party. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering. 

 

On September 9, 2014, the Company issued five year warrants to purchase 500,000 shares of common stock at an exercise price of $3.00 per share in connection with a consulting agreement with a non-related party. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering. 

 

In October 2014, the Company authorized and approved 12,000,000 warrants, with an exercise price of $0.25, for its executive officers. These warrants shall be disseminated prior to December 31, 2014.

 

On November 4, 2014, the Company entered into a settlement agreement with a warrant holder. As a result, the Company cancelled 500,000 warrants with an exercise price of $.50.

 

On December 19, 2014, the Company entered into a warrant settlement and exchange agreement with an existing warrant holder. As a result, the Company issued 3,000,000 warrants with an exercise price of $.16 and cancelled 2,000,000 warrants with exercise prices ranging from $.50 to $1.00. The transaction did not involve any underwriters, underwriting discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering. 

 

On December 24, 2014, the Company issued 35,000 warrants in connection with an agreement to pay a placement agent a commission of warrants equal to 10% of the aggregate number of shares issuable upon sale of certain units through a private placement. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not involving a public offering.

 

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Item 6.  Selected Financial Data

 

Not applicable.

 

Item 7.  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 employment agreements with key management as well as 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.

 

On May 1, 2013, the Company entered into a distribution agreement with Atossa Genetics Inc. for a breast health test and collection kit (“ForeCYTE Breast Health Test”). Material terms of the agreement include automatic term renewals for one year, minimum purchase commitments of 40 units for May 2013, 80 units for May 2014 and 120 units for May 2015. The agreement also provides for a minimum monthly fixed service fee earned by the Company through April 2016. On October 4, 2013, Atossa Genetics Inc. initiated a voluntary recall of the ForeCYTE Breast Health Test to address FDA’s concerns regarding the modifications identified in a Warning Letter. The ForeCYTE Breast Health Test has not been cleared by the FDA for marketing in the United States and cannot be marketed or distributed within the United States until clearance for this device is received from the FDA. The Company has not distributed any of the products and has no plan to distribute the products until clearance is received. Therefore, the management of the Company believes the recall has no impact on the Company’s operations.

 

On September 18, 2013, the Company secured a strategic alliance and entered into an agreement with CodeSmart Group Inc., whereby the Company (through its Coding & Billing subsidiary) will offer, promote and endorse CodeSmart Group Inc.’s ICD-10 Educational and Consulting services and solutions, including, but not limited to ICD-10 traditional services, outsourced coding, strategic consulting services and educational products, including, but not limited to proprietary programs such as CodeSmart University and online education programs. In 2014, several officers of CodeSmart Holdings, Inc., the holding company of CodeSmart Group Inc., resigned from their positions and no new officers have been appointed, based on the SEC filings of CodeSmart Holdings, Inc. The management believes that these changes have no impact on the Company’s business as services pursuant to the agreement with CodeSmart Group Inc. were never utilized. 

 

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Critical Accounting Policies and Estimates: Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.

 

While our significant accounting policies are more fully described in our financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial statements.

 

Convertible Instruments: The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument. The resulting discount to the face value of the debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method.

 

Derivative Financial Instruments: The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

 

Revenue Recognition: The Company recognizes revenues from the following sources:

 

Sales of medical devices are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the buyer is fixed or determinable, and collectability is reasonable assured.

 

Healthcare support, management and administration services rendered to healthcare centers and physician practices are recognized when the services have been rendered.

 

Impairment of Long-Lived Assets: Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company performs a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.

 

In December, 2013 management decided to initiate a strategic change in the business operations of the Company. In connection therewith, management decided to focus its future efforts on the development of its medical device distribution business and to phase out its existing businesses.

 

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As a result, the Company has impaired its goodwill and other net intangible assets aggregating $4,046,826 which were acquired in acquisitions consummated in 2011.

 

Stock-Based Compensation:

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services ”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to expense and additional paid-in capital.

 

Results of Operations

 

Twelve Months Ended December 31, 2014 Compared to Twelve Months Ended December 31, 2013

 

Revenue

 

For the twelve months ended December 31, 2014, the Company had total revenue of $8,340,831 as compared to revenue of $1,987,312 for the twelve months ended December 31, 2013. Revenue increased by $6,353,519 or 319% over prior period due to the initial distribution and placement of medical devices within contracted networks and the acquisition of call answering service customers. 2014 revenue consisted of $1,800,000 in revenue from physician practice administration and support, $237,575 in revenue from medical coding and billing and call answering and emergency dispatch services performed and $6,303,256 in revenues from the distribution and placement of medical devices.

 

For the twelve months ended December 31, 2013, the Company had total revenue of $1,987,312. 2013 revenue consisted of $1,817,825 in revenue from physician practice administration and support and $169,487 in revenue from medical coding and billing and call answering and emergency dispatch services performed. The changes in our operating expenses from December 31, 2014 to December 31, 2013 are as follows:

 

Payroll, consulting, and professional fees

 

Payroll, consulting, and professional fees aggregated $26,640,367 for the twelve months ended December 31, 2014 compared to $11,209,451 for the twelve months ended December 31, 2013, an increase of $15,430,916 or 137.7%. The increase is primarily attributed to an increase in the value of common stock issued for professional services of $12,082,757 from $9,050,464 to $21,133,221, due to the issuance of shares to consultants and professionals for services rendered for investor and public relations, marketing and capital raising efforts, shares issued in connection with debt maturity extensions and settlements, and the issuance of shares through employment agreements. Additionally, professional fees increased $1,834,360 to $3,322,841 from $1,488,482 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 twelve months ended December 31, 2014 increased $734,298 to $1,042,732 compared to $308,434 for the twelve months ended December 31, 2013. The increase is the result of rate increases along with added management personnel and professional staffing for the launching of the medical device business. Also, legal and accounting fees combined for the twelve months ended December 31, 2014 increased $779,501 to $1,141,573 compared to $362,071 for the twelve months ended December 31, 2013 due to the Company utilizing additional legal and accounting services for support within the normal course of business and for compliance with SEC requirements to become and remain fully reporting in accordance with those regulations.

 

25
 

  

Rent

 

Rent expense for the twelve months ended December 31, 2014 was $672,564 compared to $310,468 for the twelve months ended December 31, 2013, an increase of $362,096 or 116.6%. The increase was the result of the expenses related to the corporate headquarters in Garden City, New York and related escalations, expenses related to new executive office space in New York, New York, expenses related to new office/warehouse space in Boynton Beach, Florida and additional usage days for physician practice management services.

 

General and administrative

 

General and administrative expenses aggregated $1,382,005 for the twelve months ended December 31, 2014 compared to $1,013,608 for the twelve months ended December 31, 2013, an increase of $368,397 or 36.5%. The increase is primarily attributable to $221,884 in insurance expense for the twelve months ended December 31, 2014 compared to $134,269 for the twelve months ended December 31, 2013, an increase of $87,615 or 65.3%. The increase was primarily due to expanding coverages for our device division as well as physician practice management division for vascular services, increased overall business policy coverage and rate increases; $110,581 in telephone and telecommunication expense for the twelve months ended December 31, 2014 compared to $90,165 for the twelve months ended December 31, 2013, a decrease of $20,416 or 22.6%. These costs increased 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 as the Company began building the infrastructure to develop and launch its device business; $145,815 in travel, entertainment, meals and related expenses for the twelve months ended December 31, 2014 compared to $46,244 for the twelve months ended December 31, 2013, an increase of $99,571 or 215.3%, 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 $904,986 in medical supplies, office and information technology expense for the twelve months ended December 31, 2014 compared to $742,931 for the twelve months ended December 31, 2013, an increase of $162,056 or 21.8%. 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 had increases in office and related technology expenses for its corporate offices and warehousing location.

 

Cost of devices

 

Cost of devices for the twelve months ended December 31, 2014 aggregated $550,000 and increased $550,000 from $-0- or 100.0% from the twelve months ended December 31, 2013 due to the initial rollout and distribution of medical devices during 2014.

 

Depreciation and amortization

 

Depreciation and amortization expenses for the twelve months ended December 31, 2014 aggregated $172,017 and decreased $598,337 from $770,354 or 77% from the twelve months ended December 31, 2013 primarily due to the impairment of certain fixed and intangible assets during 2013.

 

Other income (expense)

 

Net other income (expense) was ($44,890) for the twelve months ended December 31, 2014 compared to ($3,943,085) for the twelve months ended December 31, 2013, an increase of $3,898,195. This decrease in expense is primarily attributable to the fair value adjustment related to the derivative liability of $78,935 offset by an increase in interest expense of $69,695 for the twelve months ended December 31, 2014 and one-time expense of $4,046,826 for the impairment of certain fixed and intangible assets during the twelve months ended December 31, 2013.

 

Income taxes

 

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

 

26
 

  

Net Loss

 

The net loss of the twelve months ended December 31, 2014 was ($24,357,707) compared to the net loss of ($16,459,663) for the twelve months ended December 31, 2013. The Company had a loss per weighted common share outstanding of ($0.16) for the twelve months ended December 31, 2014 compared to ($0.36) for the twelve months ended December 31, 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, 2014 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 $5,970,000 through private placements and $3,893,218 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 December 31, 2014 and 2013:

 

   Twelve Months Ended
December 31
 
   2014   2013 
Net cash used in operating activities   (5,835,548)  $(3,131,773)
Net cash used in investing activities   (1,132,222)   (38,295)
Net cash provided by financing activities   6,964,850    3,158,564 
Net decrease in cash   (2,920)  $(11,504)

  

Cash flows for the twelve months ended December 31, 2014 compared to December 31, 2013: For the twelve months ended December 31, 2014, we incurred a net loss of $24,357,707. Net cash used in operating activities was $5,835,548, net cash used in investing activities was $1,132,222 and net cash provided by financing activities was $6,964,850. For the twelve months ended December 31, 2013, we incurred a net loss of $16,577,078. Net cash used in operating activities was $3,131,773, net cash used in investing activities was $38,295 and net cash provided by financing activities was $3,158,564.

 

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

 

Category  December 31, 2014   December 31, 2013 
Current assets   6,023,714    2,145,885 
Current liabilities   8,946,961    6,664,738 
Working capital (deficit)  $2,923,247  $(4,518,853)

 

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As of December 31, 2014, the Company had a working capital deficit of $2,923,247, compared to $4,518,853 at December 31, 2013, or a decrease in working capital deficit of $1,595,606. For 2014, current assets increased by $3,877,829 primarily due to a decrease of $4,332,220 in cash, an increase of $4,332,220 in accounts receivable related to our practice management services and the launch of our medical device business, a net decrease of $720,963 in inventory related to the purchase and placement of medical devices and prepaid expenses of $269,492 primarily related to compensation as a result of certain consulting agreements and deposits for new locations. Current liabilities increased $2,282,734 primarily related to increases of $1,958,448 in liability for stock to be issued, decrease in the change of fair value of the derivative liability related to the warrants issued with notes payable of $816,070 and an increase of $531,191 in accounts payable and accrued expense, along with an increase in current portion of notes payable of $635,101. In addition, non-current portion of notes payable increased $350,000 and the Company issued $337,500 Series F preferred shares which have been classified as a liability.

 

Rollforward of the Allowance for Doubtful Accounts

 

The rollforward of the allowance for doubtful accounts consisted of the following for the years ended December 31, 2014, 2013 and 2012:

 

   December 31   December 31   December 31 
   2014   2013   2012 
             
Balance at beginning of period  $1,200,000   $-   $- 
Provision   3,236,000    1,200,000    - 
Write-offs   1,436,000    -    - 
Recoveries   -    -    - 
Balance at end of period  $3,000,000   $1,200,000   $- 

 

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 commencement and ongoing development of our medical equipment and device business as well as maintaining 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;

 

28
 

 

-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 the commencement of 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 fourth 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, with fulfillment starting for these initial networks under contract in the later part of the third 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 as well as the securing of professional staffing in 2014 to facilitate the rollout of our device division at new locations. 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 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable

 

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Item 8.  Financial Statements and Supplementary Data

  

ltrhd2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Millennium Healthcare, Inc. 

 

We have audited the accompanying consolidated balance sheet of Millennium Healthcare, Inc. (the “Company”), as of December 31, 2014 and 2013 and the related statements of operations, stockholders’ deficit and cash flows for the year sended December 31, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We have conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Millennium Healthcare, Inc. as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years ended December 31, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the accompanying financial statements, the Company has incurred operating losses for the past several years, has a working capital deficiency of $2,923,247 and a stockholders’ deficit of $2,390,368 as of December 31, 2014. These factors, among others, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are described in Note 4. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

  

 

/s/ Paritz & Company, P.A.

 

Hackensack, New Jersey

April 15, 2015

 

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MILLENNIUM HEALTHCARE INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2014 AND 2013

 

   DECEMBER 31,   DECEMBER 31, 
   2014   2013 
ASSETS    
         
         
CURRENT ASSETS          
Cash  $112,725   $115,645 
Accounts receivable, net of allowance for doubtful accounts of $3,000,000 and $1,200,000 at December 31, 2014 and 2013, respectively   5,193,634    861,414 
Inventory   100,000    820,963 
Prepaid expenses   617,355    347,863 
Total current assets   6,023,714    2,145,885 
           
Fixed assets, net   789,950    98,660 
           
OTHER ASSETS          
Security deposits   375,595    79,263 
Intangible assets, net   54,833    82,250 
Total other assets   430,428    161,513 
           
TOTAL ASSETS  $7,244,092   $2,406,058 
           
LIABILITIES AND STOCKHOLDERS' (DEFICIT)          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $1,278,748   $748,068 
Preferred stock dividends payable   0    25,936 
Current portion of notes payable, net of debt discounts of $220,878 and $384,563, and original issue discounts of $106,504 and $91,122, net of current portion   2,862,836    2,227,735 
Derivative liability   1,061,476    1,877,546 
Liability for common stock to be issued   640,100    902,952 
Liability for preferred stock to be issued   3,103,800    882,500 
Total current liabilities   8,946,960    6,664,738 
           
Preferred stock   337,500    337,500 
Notes payable   350,000    - 
           
TOTAL LIABILITIES   9,634,460    7,002,238 
           
STOCKHOLDERS' (DEFICIT)          
Preferred stock, $0.0001 par value, 15,000,000 shares authorized          
Series A Preferred stock, $0.0001 par value, 1,000,000 shares authorized,          
600,000 and 500,000 shares issued and outstanding, respectively   60    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, 0 and 132,258          
shares issued and outstanding, respectively   -    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,          
128,828,942 and 63,237,172 shares issued and outstanding, respectively   12,883    6,324 
Additional paid in capital   77,427,977    47,936,049 
Deferred compensation   (3,453,027)   (645,964)
Accumulated deficit   (76,378,261)   (51,892,652)
Total stockholders' (deficit)   (2,390,368)   (4,596,180)
           
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)  $7,244,092   $2,406,058 

 

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

 

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MILLENNIUM HEALTHCARE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   YEAR ENDED   YEAR ENDED 
   DECEMBER 31, 2014   DECEMBER 31, 2013 
         
         
REVENUE  $8,340,831   $1,987,312 
           
OPERATING EXPENSES          
Payroll, consulting and professional fees   26,640,367    11,209,450 
Rent   672,564    310,468 
General and administrative   1,382,006    1,013,618 
Cost of devices sold   550,000    - 
Depreciation and amortization   179,489    770,354 
Bad debt expense   3,229,222    1,200,000 
           
Total operating expenses   32,653,648    14,503,890 
           
LOSS BEFORE OTHER INCOME (EXPENSE) AND PREFERRED   (24,312,817)   (12,516,578)
STOCK DIVIDENDS          
           
OTHER INCOME (EXPENSE)          
Interest income (expense)   (3,075,633)   (3,005,938)
Impairment of assets   -    (4,046,826)
Gain on change in fair value of derivative liability   3,030,743    3,109,679 
           
Total other income (expense)   (44,890)   (3,943,085)
           
NET (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   (24,357,707)   (16,459,663)
           
Preferred stock dividends   (127,902)   (117,415)
           
NET (LOSS)  $(24,485,609)  $(16,577,078)
           
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC & DILUTED   82,207,894    45,863,349 
           
NET INCOME (LOSS) PER SHARE - BASIC & DILUTED  $(0.16)  $(0.36)

 

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

 

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MILLENNIUM HEALTHCARE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

 

   YEAR ENDED   YEAR ENDED 
   DECEMBER 31, 2014   DECEMBER 31, 2013 
CASH FLOWS FROM OPERATING ACTIVITIES:          
   Net loss  $(24,357,707)  $(16,577,078)
           
Adjustments to reconcile net loss          
to net cash used in operating activities:          
Depreciation and amortization   172,017    770,354 
Non-cash interest   718,937    2,984,685 
Impairment loss   -    4,046,826 
Gain on change in fair value of derivative   (3,030,743)   (3,109,679)
Preferred stock dividend   127,902    117,415 
Amortization of deferred compensation   1,335,450    975,625 
Share-based compensation   22,548,665    8,194,457 
Allowance for doubtful accounts   3,000,000    1,200,000 
           
Change in operating assets and liabilities:          
Prepaid expenses   (269,492)   (358,463)
Accounts receivable   (7,332,220)   (873,688)
Inventory   720,963    (820,963)
Accounts payable and accrued expenses   530,680    318,736 
Total adjustments   18,522,159    13,445,305 
Net cash used in operating activities   (5,835,548)   (3,131,773)
           
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Security deposits   (296,332)   (17,500)
Acquisition of fixed assets   (835,890)   (20,795)
Net cash used in investing activities   (1,132,222)   (38,295)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Issuance of preferred and common stock for cash (including          
liability for shares to be issued)   6,229,500    2,061,000 
Preferred dividends paid   (101,448)   - 
Proceeds received from notes payable   4,188,218    1,681,500 
Repayments of notes payable   (3,351,420)   (583,936)
Net cash provided by financing activities   6,964,850    3,158,564 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (2,920)   (11,504)
           
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR   115,645    127,149 
           
CASH AND CASH EQUIVALENTS - END OF YEAR  $112,725   $115,645 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid during the period for:          
Interest  $-   $- 
Taxes  $-   $- 
           
NON-CASH SUPPLEMENTAL INFORMATION:          
Issuance of common stock for liability of stock to be issued  $3,802,550   $- 
Issuance of preferred stock for liability of stock to be issued  $2,269,500   $- 
Common stock to be issued for acquisition of intangible asset  $-   $64,750 
Derivative liability issued for debt discount  $385,350   $1,681,500 

 

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

 

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MILLENNIUM HEALTHCARE INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2014 and 2013

 

   Series A   Series B   Series D   Series E   Series F   Series G       Additional             
   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid-In   Deferred   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Compensation   Deficit   Total 
                                                                         
Balance - December 31, 2012   100,000    10    -    -    110,000    11    -    -    -    -    -    -    22,961,372    2,297    33,440,848    (1,411,589)   (35,315,574)   (3,283,997)
                                                                                           
Shares issued for services rendered and liability for stock to be issued   -    -    -    -    -    -                                  28,735,000    2,873    3,170,179    -    -    3,173,052 
                                                                                           
Shares issued under agreements with consultants and employees   -    -    -    -    -    -                                  10,990,800    1,099    10,928,106    -    -    10,929,205 
                                                                                           
Shares issued for cash                                                               550,000    55    212,445              212,500 
                                                                                           
Deferred compensation                                                                              (210,000)        (210,000)
                                                                                           
Amortization of deferred compensation   -    -    -    -    -    -                                  -    -    -    975,625    -    975,625 
                                                                                           
Shares issued to founders   400,000    40    -    -    -    -                                  -    -    -    -    -    40 
                                                                                           
Shares issued of Series D Preferred Stock for accrued dividends   -    -    -    -    13,200    1                                  -    -    150,631    -    -    150,632 
                                                                                           
Conversion of Series D Preferred Stock for Series E Preferred Stock   -    -    -    -    (123,200    (12    126,280    13                                                 1 
                                                                                           
Shares issued of Series E Preferred Stock for accrued dividends                                 3,384    -                                  33,840              33,840 
                                                                                           
Net loss for the year ended December 31, 2013        -    -    -    -    -                                  -    -    -    -    (16,577,078)   (16,577,078)
                                                                                           
Balance - December 31, 2013   500,000   $50    -   $-    -   $-    129,664   $13    -   $-    -   $-    63,237,172   $6,324   $47,936,049   $(645,964)  $(51,892,652)  $(4,596,180)
                                                                                           
Shares issued for services rendered and liability for stock to be issued   -    -    -    -    -    -                                  9,400,000    940    4,881,362    -    -    4,882,302 
                                                                                           
Shares issued under agreements with consultants and employees   -    -    -    -    -    -                                  34,125,000    3,413    14,390,588         -    14,394,001 
                                                                                           
Shares issued for cash                                                               0    0    0              0 
                                                                                           
Deferred compensation                                                                              (4,142,513)        (4,142,513)
                                                                                           
Amortization of deferred compensation   -    -    -    -    -    -                                  -    -    -    1,335,450    -    1,335,450 
                                                                                           
Shares issued to founders   100,000    10    -    -    -    -                                  -    -    -    -    -    10 
                                                                                           
Shares issued in settlements   -    -    -    -    0    0                                  21,446,770    2,145    6,111,958    -    -    6,114,103 
                                                                                           
Conversion/settlement of Series E Preferred Stock   -    -    -    -    0    0    (132,258)   (13)                                                (13)
                                                                                           
Shares issued of Series E Preferred Stock for accrued dividends                                 2,594    0                                  25,935              25,935 
                                                                                           
Shares issued for note extensions                                                               620,000    62    247,988              248,050 
                                                                                           
Issuance of warrants for services                                                                         3,834,097              3,834,097 
                                                                                           
Net loss for the year ended December 31, 2014        -    -    -    -    -                                  -    -    -    -    (24,485,609)   (24,485,609)
                                                                                           
Balance - December 31, 2014   600,000   $60    0   $0    0   $0    0   $0    0   $0    0   $0    128,828,942   $12,883   $77,427,977   $(3,453,027)  $(76,378,261)  $(2,390,368)

 

34
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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 launched its medical equipment and device business in 2013. In connection therewith 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.

 

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 $2,923,247 and a stockholders’ deficit of $2,390,368 as of December 31, 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.

 

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

35
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Cash

 

The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents.

 

The Company maintains cash and cash equivalent balances at financial institutions that are insured by the Federal Deposit Insurance Corporation.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Costs of maintenance and repairs will be charged to expense as incurred. Costs for renewals and betterments are capitalized. Gains or losses upon sale or retirement due to obsolescence are reflected in the operating results in the period the event occurs.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are stated at the amounts management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances outstanding after management has used collection efforts are written off through a charge to bad debt expense.

 

Inventory

 

Inventories, consisting of finished medical devices purchased for resale, are valued at the lower of cost or market determined on the first in first out method.

 

Impairment of Long-Lived Assets

 

Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company performs a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.

 

36
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In December 2013, management decided to initiate a strategic change in the business operations of the Company. In connection therewith, management decided to focus its future efforts on the development of its medical device distribution business and to phase out its existing businesses.

 

As a result, the Company has impaired its goodwill, other net intangible assets and certain fixed assets aggregating $4,046,826 which were acquired in acquisitions consummated in 2011.

 

Convertible Instruments

 

The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument. The resulting discount to the face value of the debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method.

 

Derivative Financial Instruments

 

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

 

37
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Income Taxes

 

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.

 

The Company has performed a review of its material tax positions. During the years ended December 31, 2014 and 2013, the Company did not recognize any amounts for interest and penalties with respect to any unrecognized tax benefits.

 

Revenue Recognition

 

Sales of medical devises are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the buyer is fixed or determinable, and collectability is reasonable assured. Healthcare support, management and administration services rendered to healthcare centers and physician practices are recognized when the services have been rendered.

 

Loss Per Share of Common Stock

 

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted loss per share (EPS) include additional dilution from common stock equivalents, such as convertible notes, preferred stock, stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be anti-dilutive for periods presented.

 

38
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Goodwill

 

Goodwill and Other Intangible Assets—Under ASC No. 350, “Intangibles—Goodwill and Other” (“ASC 350”), goodwill and indefinite lived intangible assets are not amortized but are reviewed annually for impairment, or more frequently, if impairment indicators arise. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the provisions of ASC No. 360, “Property, Plant and Equipment” (“ASC 360”).

 

Goodwill impairment is tested at least annually or when factors indicate potential impairment using a two-step process that begins with an estimation of the fair value of each reporting unit. Step 1 is a screen for potential impairment pursuant to which the estimated fair value of each reporting unit is compared to its carrying value. The Company estimates the fair values of each reporting unit by a combination of (i) estimation of the discounted cash flows of each of the reporting units based on projected earnings in the future (the income approach) and (ii) a comparative analysis of revenue and margins multiples of public companies in similar markets (the market approach). If there is a deficiency (the estimated fair value of a reporting unit is less than its carrying value), a Step 2 test is required.

 

The Company evaluates the goodwill attributable to each of the reporting units in accordance with ASC 350-20-35-36 and ASC 350-20-35-41. (see note )

 

Stock-Based Compensation

 

The Company accounts for stock based compensation in accordance with the provisions of ASC 718-10 “Share Based Payments”

 

The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

 

The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.

 

Rental Expense

 

Rental expense is accounted for on the straight line method. Deferred rent payable represents the excess of rent charged to operations over the actual rents paid of $527,000 and $66,000, and is included in accounts payable and accrued expenses in the accompanying December 31, 2014 and 2013, balance sheets, respectively.

 

39
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

  

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 December 31, 2014 and for the years ended December 31, 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.

 

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.

 

December 31, 2014  Coding   Device   Vascular   Corporate   Total 
                          
Revenues  $3,596   $6,299,660   $2,037,575   $-   $8,340,831 
Operating Expenses   3,773    3,214,329    2,406,878    27,028,668    32,653,648 
Other (Income) Loss   -    -    -    44,890    44,890 
                          
Assets                         
Fixed Assets  $-   $739,974   $10,440   $39,536   $789,950 
Intangible Assets   -    -    54,833    -    54,833

 

40
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

December 31, 2013  Coding   Device   Vascular   Corporate   Total 
                     
Revenues  $169,487   $-   $1,817,825   $-   $1,987,312 
                          
Operating Expenses   576,064    129,983    2,258,248    11,539,595    14,503,890 
Impairment Loss                  4,046,826    4,046,826 
Other (Income) Loss   -         3,368    (107,109)   (103,741)
                          
Assets                         
Fixed Assets  $-   $-   $35,693   $62,967   $98,660 
Intangible Assets   82,250    -    -    -    82,250 
                          
Total Assets  $82,250   $-   $35,693   $62,967   $180,910 

 

Generally, any item not related to one of our other segments would generally 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 to 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 3- FIXED ASSETS

 

Fixed assets as of December 31, 2014 and 2013 were as follows:

 

41
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

   Estimated Useful        
   Lives (Years)  December 31,   December 31, 
      2014   2013 
Computer equipment  5  $53,422   $53,422 
Vaso scan equipment      798,601      
Software  3   34,180    34,180 
Telephone  5   1,400    1,400 
Furniture and fixtures  5   125,565    88,275 
       1,013,168    177,277 
Less: accumulated depreciation      223,218    78,617 
Fixed assets, net     $789,950   $98,660 

 

Depreciation expense charged to operations was $172,017 and $144,656 for the years ended December 31, 2014 and 2013, respectively.

 

NOTE 4- INTANGIBLE ASSETS (exclusive of goodwill)

 

Intangible assets as of December 31, 2014 and 2013 were as follows:

 

   Estimated 
Useful
  December 31,   December 31, 
   Lives (Years)  2014   2013 
Website  3  $-   $3,500 
Patents  10   -    335,000 
Customer Lists  3   82,250    1,853,450 
       82,250    2,191,950 
Less: accumulated amortization      (27,417)   (1,503,711)
Less: accumulated impairment, net      -    (605,989)
Intangible assets, net     $54,833   $82,250 

 

Amortization expense charged to operations was $27,417 and $625,698 for the years ended December 31, 2014 and 2013, respectively.

 

NOTE 5- 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.

 

42
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 6- PREFERRED STOCK - 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 September 30, 2014 were $26,452. In November 2014, the Company entered into a series of settlement agreements with all holders of the Series E Preferred Stock. As a result, a final dividend payment of $75,000 was made, 8,596,770 common shares were issued in conversion and 5,000,000 common shares were issued in settlement. There are no Series E Preferred shares issued or outstanding nor any dividends accrued or payable at December 31, 2014.

 

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 $4,920,000 under a private placement during 2014. As a result, 4,920 shares of Series G are to be issued, which were valued at $1,747,300 and recorded as a liability for stock to be issued.

  

43
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 7- 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.

 

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 September 30, 2014 is $130,000. These notes are in settlement negotiations at September 30, 2014 and have been settled and fully satisfied October 2014.

  

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.

 

44
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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.

 

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 matures 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.

 

The Company entered into a short term $200,000 Promissory Note on September 18, 2014. The note is scheduled to mature with the completion of the Company’s next round of financing under certain terms. Interest on the note is fixed and stated at 20,000 shares of the Company’s restricted common stock.

 

In October 2014, the Company entered into a short term $250,000 Promissory Note with an individual. The note has a maturity of 30 days and interest on the note is fixed at 175,000 shares of common stock. During October 2014, the Company made a $40,000 payment on the note for an extension of the note’s maturity.

 

45
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In October 2014, the Company entered into a short term $450,000 Promissory Note with an individual. The note has a maturity of 60 days and interest on the note is fixed at 300,000 shares of common stock. In December 2014 the Company made a $250,000 payment on the note.

 

In October 2014, the Company entered into a short term $40,000 Promissory Note with an individual. The note has a maturity of one year and interest on the note is fixed at 10% per annum.

 

In October 2014, the Company negotiated and completed a settlement and full satisfaction of certain promissory and demand notes. The settlements included the issuance of 4,600,000 shares of common stock during September 2014 and payments of $450,000 during October 2014. 

  

In December 2014, the Company entered into a short term $205,000 Promissory Note with an entity. The note has a maturity of one year and interest on the note is fixed at 10% per annum.

 

In December 2014, the Company issued promissory note with a principal amount of $350,000 with 350,000 shares of Common Stock pursuant to a private placement.  The note matures in 36 months and interest on the note is fixed at 12% and provides for regularly scheduled interest payments which shall be made quarterly in arrears.  In addition, the Company agreed to pay to the placement agent a fee of 10% of the aggregate purchase price received by the Company and a warrant equal to 10% of the aggregate number of shares issued in the offering. The Company accrued fees of $35,000 and 35,000 warrants to the placement agent during 2014.

 

Promissory Notes - 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. On August 11, 2014, the Company issued the note holder 125,000 shares and 75,000 warrants for an extension of the note’s maturity date to August 25, 2014. On September 9, 2014, the Company issued the note holder 495,000 shares for the relinquishment of the warrant and an extension of the note’s maturity date to September 17, 2014. This convertible promissory note has been fully repaid and satisfied September 2014.

 

The Company and an entity entered into a convertible promissory note on November 10, 2014 for $440,000. 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.

 

46
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

The Company and an entity entered into a convertible promissory note on November 10, 2014 for $660,000. 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.

 

Assigned non-interest bearing notes aggregate $250,000. These notes have been settled and fully satisfied October 2014.

 

Other short term notes outstanding aggregate $55,000. These notes have been settled and fully satisfied October 2014.

 

Promissory Notes – Original Issue Discount Convertible

 

During 2014, The Company issued original issue discount convertible notes (the “OID Notes”) with an aggregate principal amount of $1,235,218 with warrants to acquire up to 823,530 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 $185,283.  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% 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. The Company paid fees of $104,935 in cash and 164,706 warrants to the placement agent during 2014.

 

47
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Preferred Stock

 

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

 

December 31, 2014

 

 
Preferred
Stock
  Authorized
Date
   
Issue
Date
  Number
of
Shares
    
Par
Value
   Conversion
to
Common
Stock
Series “A" (1)  June 14, 2011  June 2011   600,000   $.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   0   $.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

 

(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 500,000 to the officers of Millennium Healthcare Inc. 

(2) Issued to an unrelated third party in conversion of the Line of Credit. There are no shares issued as of December 31, 2014.

(3) Issued to an unrelated third party in conversion of the Series B Preferred Stock and additional funds provided. There are no shares issued as of December 31, 2014.

(4) Issued to an unrelated third party in conversion of the Series D Preferred Stock. Settlement and conversion completed with all shareholders. There are no shares issued as of December 31, 2014.

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

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

 

48
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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 June 2011, 100,000 shares of Series A Preferred Stock were issued to the principal owners of Millennium Healthcare Solutions Inc. upon the acquisition of the net assets of that company. In January 2012, the Company issued 100,000 shares, in December 2013, the Company issued 300,000 shares and in July 2014 the Company issued 100,000 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).

 

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

 

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.

 

49
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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. 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 September 30, 2014 were $26,452.

 

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.

 

50
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

During November 2014, the Company entered into a series of settlement agreements with all holders of the Series E Preferred Stock. As a result, a final dividend payment of $75,000 was made, 8,596,770 common shares were issued in conversion and 5,000,000 common shares were issued in settlement. There are no Series E Preferred shares issued or outstanding nor any dividends accrued or payable at December 31, 2014.

 

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.

 

In March 2014, the Company amended the certificate of designation to authorize a Series G Preferred Stock. During the six months ended June 30, 2014, the Company sold 1,175 units for $1,000 per unit. Each unit consisted of 1,000 shares of common stock and 1 share of 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 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.

 

51
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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 4,920 units and raised $4,920,000 under a private placement through December 31, 2014. Each unit for this private placement consisted of one thousand shares of common stock and one share of Series G. As a result, 4,920 shares of Series G were to be issued, were valued at $1,747.300 and recorded as a liability for stock to be issued.

  

Common Stock

 

The Company issued 36,225,000 shares of common stock for consulting and other services during the twelve months ended December 31, 2014.

 

The Company issued 4,600,000 shares of common stock for settlement and full satisfaction of promissory and demand notes during the nine months ended December 31, 2014.

 

52
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

The Company issued 13,596,770 shares of common stock for settlement and full conversion of Series E preferred shares during the twelve months ended December 31, 2014.

 

The Company issued 3,250,000 shares of common stock for settlement and full cancellation of certain warrants during the twelve months ended December 31, 2014.

 

The Company issued 620,000 shares of common stock for maturity extensions of a convertible promissory note during the twelve months ended December 31, 2014.

 

The Company raised $7,920,000 under private placements through December 31, 2014. As a result, 7,920,000 shares of common stock were to be issued, in which 550,000 shares were issued during 2013, 7,300,000 shares were issued during 2014 and 70,000 shares valued at $25,900 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. During the twelve months ending December 31, 2014, the Company settled and cancelled 5,800,000 warrants at exercise prices ranging from $.50 to $1.00 per share. During the twelve months ending December 31, 2014, the Company issued 17,723,236 warrants at exercise prices ranging from $.13 to $3.00 per share. All of the warrants are vested and remain outstanding. The warrants have a weighted average price of $.58.

  

Consultant warrants provided for services to be rendered over a one-year period of time. The Company issued 200,000 consultant warrants during 2013 and 1,700,000 consultant warrants during 2014. Such 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 823,530 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 issued 164,706 warrants to the placement agent during 2014.

 

The Company authorized and approved 12,000,000 warrants, with an exercise price of $0.25, for its executive officers.

 

53
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

The Company agreed to pay the placement agent of a private placement a fee of warrants equal to 10% of the aggregate number of shares issued in the offering. The Company issued 35,000 warrants to the placement agent during 2014.

 

The Company entered into a warrant settlement and exchange agreement with an existing warrant holder. As a result, the Company issued 3,000,000 warrants with an exercise price of $.16 and cancelled 2,000,000 warrants with exercise prices ranging from $.50 to $1.00 during 2014.

 

The Company entered into a release agreement with a note and warrant holder. As a result, the Company cancelled 500,000 warrants with exercise prices ranging from $.50 to $1.00 during 2014.

 

 The Company entered into a settlement agreement with a warrant holder. As a result, the Company cancelled 3,300,000 warrants with exercise price of $.50 during 2014.

 

The Company used the black-scholes method to value the warrants, with the following inputs: volatility 344.72%; quarterly dividend percentage 0%; and discount rate of 0.95%.

 

NOTE 8- INCOME TAXES

 

The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the years ended December 31, 2014 and 2013 to the Company’s effective tax rate is as follows:

 

   Years  Ended 
   December 31, 2014   December 31, 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%   -0.8%
Change in valuation allowance   40.8%   40.8%
Income Tax provision (benefit)   0.0%   0.0%

 

The benefit for income tax is summarized as follows:

 

   Years Ended 
   December 31, 2014   December 31, 2013 
         
Federal:          
Current  $(7,573,000)  $- 
Deferred   (1,450,000)   (5,230,783)
State:          
Current   -      
Deferred      923,079
Change in valuation allowance   9,023,000    6,153,862 
Income Tax provision (benefit)  $-0-   $- 

 

54
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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

 

     
   December 31, 2014   December 31, 2013 
         
Deferred Tax Assets          
Net operating losses  $15,599,000   $5,856,000 
           
Deferred Tax Liabilities          
Impairment  $1,618,000   $1,618,000 
Allowance for doubtful accounts   1,200,000    480,000 
    2,818,000    2,098,000 
           
Net deferred tax asset   12,781,000    3,758,000 
Less: Valuation allowance   12,781,000   (3,758,000)
   $-   $- 

 

As of December 31, 2014 and 2013, the Company had approximately $49,000,000 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.

 

55
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2011. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

 

NOTE 9- 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 December 31, 2014:

 

   Level 1   Level 2   Level 3   Total 
                 
Cash  $112,725   $-   $-   $112,725 
                     
Total assets  $112,725   $-   $-   $112,725 
                     
Notes payable, net of debt discount and OID  $-   $-   $3,212,836   $3,212,836 
                     
Embedded conversion feature and derivative liability  $-   $-   $1,061,476   $1,061,476 
                     
Total liabilities  $-   $-   $4,274,312   $4,274,312 

 

56
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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  $-   $-   $1,877,547   $1,877,547 
                     
Total liabilities  $-   $-   $4,105,282   $4,105,282 

 

 

   Year
Ended
December 31,
   Year
Ended
December 31,
 
   2014   2013 
           
Total gain/(loss) from revaluation of derivatives included in earnings:  $3,030,743  $3,109,679 


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 $0.14; exercise price $0.16 to $1.00; risk free interest rate 0.95%, term of 5 years; volatility rate of 344.72%; dividend yield of 0%.

 

57
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

  

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

 

   Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 
   Notes Payable   Embedded conversion feature and derivative liability   Total 
             
December 31, 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   718,937    (3,030,743)   (2,311,806)
included in other comprehensive income   -    -    - 
Purchases, issuances, sales, and settlements   -    -    - 
Purchases   -    -    - 
Issuances   3,617,584    2,214,673    5,832,257 
Sales   -    -    - 
Settlements   (3,351,420)   -    (3,351,420)
Ending balance   3,212,836    1,061,477    4,274,313 
                
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 

 

 

NOTE 10- COMMITMENTS

 

In April 2014, the Company entered into a five year two month lease agreement in New York City, New York for executive offices of the Company, which requires an annual payment of approximately $283,000 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. Rent commenced July 1, 2014 and the Company paid a security deposit of $259,402.

 

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MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In April 2014, the Company entered into a five year lease agreement in Boynton Beach, Florida for the development of a new 30,000 square foot facility which 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 approximately $103,000 plus operating expenses of approximately $98,000 plus annual increases. Rent commenced May 13, 2014 and the Company paid a security deposit of $36,099.

 

The Company is obligated under non-cancelable operating leases which expire through December 31, 2023. The aggregate future obligations under these leases are as follows:

 

2015  $873,000 
      
2016  $873,000 
      
2017  $852,000 
      
2018  $806,000 
      
2019  $461,000 
      
Thereafter  $642,000 

 

Rental expense charged to operations aggregated $672,565 and $281,500 for the twelve months ended December 31, 2014 and 2013, respectively.

 

Rental expense is accounted for on the straight-line method.

 

The excess of recognized rent expense over scheduled lease payments is included in accounts payable and accrued expenses.

 

Employment Agreements

 

The Company has entered into employment agreements and has amended employment agreements with additional and existing key management individuals in 2014. The Company has issued stock bonuses which vest over a one to three-year period to certain individuals. The unvested portion is reflected as deferred compensation, with the vested portion expensed as stock based compensation.

 

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MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 11-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 $4,775,507, which accounted for approximately 92% of the total receivables at December 31, 2014 and from two customers were $826,829, which accounted for approximately 96% of the total receivables at December 31, 2013.

 

Revenue from one customer was $5,794,212, and from another was $1,800,000, which accounted for approximately 69% and 22% of the total revenues respectively for the twelve months ended December 31, 2014 and revenue from one customer was $900,000 and from another was $900,000, which accounted for approximately 45% and 45% of the total revenues respectively for the twelve months ended December 31, 2013.

 

NOTE 12-RELATED PARTY TRANSACTIONS

 

Commencing in the year ended December 31, 2013 the Company retained an entity wholly owned by Elizabeth Sartorio, the spouse of the Chief Executive Officer of the Company, to furnish support and administrative type consulting services and an entity wholly owned by Kristine Urbano, the spouse of the Chief Financial Officer of the Company, to furnish bookkeeping/accounting support and administrative type consulting services. For the year ending December 31, 2014 consulting expenses related to these services were $150,000 and $37,500, respectively.

  

NOTE 13-CONTINGENCIES

 

On August 11, 2014, as previously disclosed, 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 “Federal Action”). The complaint (among other allegations) alleges that the Members sought to convert their respective Series E 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.

 

On November 13, 2014, the Company, Cypress and LMARK entered into a Settlement Agreement. Pursuant to the Settlement Agreement, on or before November 20, 2014, the Company shall issue: 812,500 shares of unrestricted common stock to Cypress in full conversion of their 12,500 Series E Preferred Shares, (ii) 1,137,500 unrestricted shares of common stock to LMARK in full conversion of their 17,500 Series E Preferred Shares, (iii) 416,000 restricted shares of common stock to LMARK and (iv) 584,000 restricted shares of common stock to Cypress. The parties agreed to promptly file a Stipulation of Voluntary Dismissal with Prejudice of the Federal Action. The Company received a release (subject to the terms of the Settlement Agreement) from Cypress and LMARK including with respect to the claims in the Federal Action and the Company gave Cypress and LMARK a release (subject to the terms of the Settlement Agreement).

 

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MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

On August 12, 2014, as previously disclosed, 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 (the “Aquafina Action”) 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.

 

On November 13, 2014, the Company and Aquafina entered into a Settlement Agreement. Pursuant to the Settlement Agreement, the Company agreed to issue 2,000,000 restricted shares of common stock on or before November 20, 2014, in full satisfaction of any and all issues set forth in the Settlement Agreement, including but not limited to any claims for cashless warrants or a preferred offering. The Company also received a release from Aquafina pursuant to which Aquafina released all claims set forth in the Aquafina Action (subject to the terms of the Settlement Agreement) and the parties agreed to promptly file a Stipulation of Discontinuance with Prejudice of the Aquafina Action. Pursuant to the Settlement Agreement the Company also gave Aquafina a release (subject to the terms of the Settlement Agreement).

  

NOTE 14- SUBSEQUENT EVENTS

 

Common Stock

 

In January 2015, the Company issued 2,000,000 shares of common stock for consulting services.

 

In February 2015, the Company issued 500,000 shares of common stock for consulting services.

 

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MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In February 2015, the Company issued 70,000 shares of common stock as a result of a private placement. These shares were previously recorded as a liability for common stock to be issued.

 

In March 2015, the Company entered into satisfaction, exchange and release agreements with a certain Series F Preferred Stock holders, in which the holders exchanged shares held of the Company’s Series F Preferred Stock for shares of the Company’s common stock totaling 240,000 shares.

 

In March 2015, the Company issued 3,000,000 shares of common stock for consulting services.

 

In March 2015, the Company committed to certain actions to amend its Certificate of Incorporation to increase the number of authorized shares of common stock of the Company, par value $0.0001 per share from 200,000,000 shares to 350,000,000 shares.

 

Preferred Stock

 

In March 2015, the Company issued 400,000 shares of Series A Preferred Stock to senior management of the Company. Each share of this series 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.

 

In March 2015, the Company filed an amendment to its Designation, Number, Voting Powers, Preferences and Rights of Series A Preferred Stock. With this amendment, the holders of Series A Preferred Stock vote together as a single class with common stock holders and any other class or series of shares entitled to vote with the common stock, with the holders of the Series A Preferred Stock being entitled to fifty-one percent (51%) of the total votes on all such matters regardless of the actual number of shares of Series A Preferred Stock then outstanding, and the holders of common stock and any other shares entitled to vote being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power.

 

During February and March 2015, the Company entered into satisfaction, exchange and release agreements with certain Series F and Series G Preferred Stock holders, in which the holders exchanged shares held of the Company’s Series F or Series G Preferred Stock for shares of the Company’s common stock.

 

62
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Warrants

 

In April 2015, the Company authorized and approved the issuance of 106,200,000 shares of the Company’s common stock in exchange for 1,560,000 warrants as a result of satisfaction agreements and releases with certain warrant holders. These shares shall be issued upon full and complete execution of the satisfaction agreements and releases with these certain warrant holders.

 

In April 2015, the Company authorized and approved 60,000,000 warrants at an exercise price of $0.025 for its executive officers and employees.

 

Promissory Notes

 

In January 2015, the Company entered into a $220,000 Promissory Note with an individual. The note has a maturity of one year and interest on the note is fixed at 10% per annum.

 

In January 2015, the Company entered into Promissory Notes totaling $300,000 as a result of private placements. These notes mature in 36 months and interest on the note is fixed at 12% and provides for regularly scheduled interest payments which shall be made quarterly in arrears.  In addition, the Company agreed to pay to the placement agent a fee of 10% of the aggregate purchase price received by the Company.

 

In February 2015, the Company entered into a $119,030 Promissory Note with an individual. The note has a maturity of one year and interest on the note is fixed at 10% per annum.

 

In February 2015, the Company entered into Promissory Notes totaling $142,000 as a result of private placements. These notes mature in 36 months and interest on the note is fixed at 12% and provides for regularly scheduled interest payments which shall be made quarterly in arrears.  In addition, the Company agreed to pay to the placement agent a fee of 10% of the aggregate purchase price received by the Company and a warrant equal to 10% of the aggregate number of shares issued in the offering.

 

Employment Agreement

 

In January 2015 the Company entered into an employment agreement with a key management individual. The Company is to issue a stock bonus which vests over a three-year period. The unvested portion will be reflected as deferred compensation, with the vested portion expensed as stock based compensation.

 

63
 

 

MILLENNIUM HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Commitments

 

One of the Company’s subsidiaries received an executed purchase order to purchase certain products during December 2014. As a direct result of limited capitalization and funds availability for the procurement of sufficient inventory, this purchase order commitment has not been recorded nor reflected in revenues or related receivables for that period.

 

In March 2015, the Company, in executing a more virtual model, has vacated its Boynton Beach, Florida warehouse and storage facility and relocated to a state of the art, third party warehousing, inventory and logistics facility located in Miami, Florida. This new location will be used to provide and manage complete inventory, logistics and distribution for the Company’s regional operations.

 

In March 2015, the Company, in executing a more virtual model, has vacated its Garden City, New York offices and is currently relocating to a state of the art, true virtual office environment within Long Island, New York. This new location will be used to provide executive, management and administrative offices for the Company’s regional operations.

 

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

 

None.

 

Item 9A.  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 including 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.

 

Management’s Report on Internal Control Over Financial Reporting  .

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Exchange Act Rules 13a-15(f) and 15(d) -15(f) as a process designed by, or under the supervision of, our Chief Executive and Chief Financial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

  ¨ pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;

 

  ¨ provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles;

 

  ¨ provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

 

  ¨ provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management conducted an evaluation of the effectiveness of our internal control  over financial reporting as of December 31, 2013 and identified a material weakness in internal control over financial reporting as of that date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statement will not be prevented or detected on a timely basis. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway  Commission (COSO), in Internal Control-Integrated Framework. Because of the material weakness described below, management concluded that, as of December 31, 2013, our internal control over financial reporting was not effective .

 

65
 

  

Changes in Internal Controls.

 

There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

 None.

 

66
 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Directors and officers

 

As of April 10, 2015, the executive officers and directors of the Company were as follows:

 

Name  Date of Appointment  Positions
Dominick Sartorio  June 7, 2011  Chief Executive Officer, Chairman
Christopher Amandola  June 8, 2011  President and Director
Anthony Urbano  June 6, 2011  Chief Financial Officer and Director
David Perry  April 8, 2014  Chief Operating Officer and Director
Marc Pergament  August 13, 2012  Director

  

Biographies

 

The following are brief biographies of the officers and directors:

 

Dominick Sartorio, Age 49, from 2011 to Present served as Chief Executive Officer of Millennium Healthcare Inc. From 2010 to 2011 Mr. Sartorio served as Chief executive Officer of Millennium Healthcare Solutions Inc. From 2008 until 2010 Mr. Sartorio served as Director of New Business for a Wall Street management consulting firm creating and implementing initiatives for client companies’ worth up to $550 million in annual sales. During this tenure, Mr. Sartorio was placed as acting CEO of a global technology firm, directing the research and development process, patent approval, product launch, and the negotiation of sales agreements. Prior, Mr. Sartorio co-founded a manufacturing and distribution company maintaining global reach in numerous industries such as medical, chemical and emerging technology markets. Mr. Sartorio has attended the Bachelor of Sciences Program at Farmingdale University. He also has earned an Associates in Electronic Engineering from The Wilson Technological Institute and holds various Certificates in Strategic Sales and Marketing.

 

Christopher Amandola , Age 43 has more than 15 years of professional sales, sales management, senior management and entrepreneurial experience in the medical device arena. From 2011 to Present Mr. Amandola has served as President of Millennium Health Care Inc. From 2010 to 2011, Mr. Amandola served as President at Millennium Health Care Solutions Inc. Prior to joining Millennium Health Care Solutions, Mr. Amandola held territory sales management positions at Smith & Nephew Inc. from 2009 to 2010  Prior, Mr. Amandola has held positions at medical device companies including C.R. Bard Inc., Boston Scientific Corporation and Edwards Lice Sciences Inc. Mr. Amandola has experience and extensive knowledge in fields of Peripheral Vascular, Coronary, Gastroenterology, Wound Care and Infection Control. Mr. Amandola has earned a Bachelor of Arts degree from Western Connecticut State University.

 

Anthony Urbano , Age 45, has over 18 years of forensic and financial accounting, finance, administration, operational, sales/marketing budgets and projections, advisory and managerial experience in entrepreneurial and high-growth companies. His experience comes from a variety of industries including, manufacturing, distribution, small cap/start-ups, financial markets and financial data reporting, automotive, technology and media/entertainment. From 2011 to Present, Mr. Urbano has served as Chief Financial Officer for Millennium Healthcare Inc. From 2010 to 2011 Mr. Urbano has served as Chief Financial Officer for Millennium Healthcare Solutions Inc. Mr. Urbano has served as Managing Partner for a private management consulting firm specializing in creating and implementing capital raises, refinancing, restructuring and turnaround initiatives from 2008 to 2010. Prior, Mr. Urbano led the finance and administration initiatives for a highly successful manufacturing and distribution company maintaining a global presence in numerous industries such as medical, chemical and emerging technology markets. Mr. Urbano has provided strong executive leadership for companies including the management and direction of cash/profitability forecasting activities, budgeting, implementation of financial reporting structures, financial analyses, evaluation and recommendations of company information systems, sales and marketing initiatives, audit support, infrastructures, traditional and alternative financing, information technology, cost and debt reduction initiatives, restructuring and strategic planning. Mr. Urbano also has extensive experience in managing reporting, compliance and issue resolutions for government and regulatory bodies. He also has executed the planning, design and implementation of complete human resource/employee benefit and retirement initiatives, information technology infrastructures and corporate/commercial risk management. Mr. Urbano has earned a Bachelor of Science degree, Magna Cum Laude, from St. John’s University – College of Business Administration.

 

David Perry, Age 50, has over twenty years of success within the medical device arena. Starting with large corporations like Johnson& Johnson Inc., Pfizer Medical Technology Inc., and Boston Scientific Inc, Mr. Perry decided to bring his wealth of corporate sales experience to the start up world. He made significant contributions in executing the sale of Fox Hollow Technologies to EV3 Inc, the sale of Microvention to Terumo Inc., and bringing Cardiovascular Systems Inc. to the public market. His vast experience in sales, marketing, and management with the medical device field has translated well in assisting Millennium Health Care in all divisions. From 2012 to Present, Mr. Perry served as President of Millennium Vascular Management Group Inc. From 2009 to 2012, Mr. Perry served as Senior Sales Representative at Angioscore. Mr. Perry served as Executive Sales Representative for Cardiovascular Systems Inc. from 2007 to 2009. Mr. Perry has earned a Bachelor of Arts degree from the University of Maine and a Masters of Business Administration from the University of Maine.

 

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Marc PergamentDirector serves as Partner of Weinberg, Gross & Pergament LLP. Mr. Pergament is a Long Island Chapter 7 Trustee and has been a panel trustee in the Eastern District of New York since 1990, where he is assigned cases filed in the Central Islip Bankruptcy Court. Mr. Pergament graduated from Brooklyn College in 1977 with a B.A. cum laude . He attended Rutgers University Law School, graduating in 1980. He is a founding partner of the Garden City law firm, Weinberg, Gross & Pergament LLP which was created in 1987. Prior to that, Mr. Pergament was a trial attorney for the United States Department of Justice, in their Antitrust Division, from 1980 to 1983. He was previously involved as a coordinator and treasurer for 13 years with the Notre Dame Catholic Youth Organization in Nassau County.

 

Family Relationships

 

There are no familial relationships among our officers and directors.

 

Involvement in Certain Legal Proceedings

 

In 2007, Mr. Sartorio, as CEO of the Marquee Group filed for corporate bankruptcy protection for its manufacturing and distribution subsidiaries/affiliates and personal bankruptcy protection due to the devastating impact of Hurricane Katrina on his manufacturing and distribution subsidiaries/affiliates.

 

Other than disclosed above, during the past ten years, none of our officers, directors, promoters or control persons have been involved in any legal proceedings as described in Item 401(f) of Regulation S-K.

 

Board Committee

 

The Company does not have a formal Audit Committee, Nominating Committee or Compensation Committee.  As the Company’s business expands, however, it will reassess this.

  

Code of Ethics

 

The Company has adopted a code of ethics to apply to its principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

 

Board Meetings

 

The Board of Directors met one time during the fiscal year of 2014.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

 

Based solely on our review of the copies of such reports received by us, and on written representations by our officers and directors regarding their compliance with the applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the fiscal year ended December 31, 2014, our officers and directors, and all of the persons known to us to own more than 10% of our common stock, filed all required reports on a timely basis, except that Dominick Sartorio, Christopher Amandola, Anthony Urbano each filed a Form 3 reporting their beneficial ownership of the Company’s common stock late. David Perry and Marc  Pergament didn’t file a Form 3 to report their beneficial ownership of the Company’s common stock.

 

Item 11. Executive Compensation

 

The following table sets forth for the two years ended December 31, 2014 and 2013 the compensation awarded to, paid to, or earned by, the Company’s Chief Executive Officer and the Company’s other most highly compensated executive officers whose total compensation during the year ended December 31, 2014 and 2013 exceeded $100,000.  Certain columns were excluded as the information was not applicable.

 

68
 

 

Summary Compensation Table

 

Name and Principal
Position
   Year     Salary ($)     Bonus ($)     Other Incentive  
Compensation
($) (1)
    Option
Awards ($) (2)
    Total $  
Dominick Sartorio   2014    360,000                   360,000 
    2013    250,000    0    0