UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2015

 

OR

 

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

 

For the transition period from ______ to ______.

 

Commission File Number: 000-54346

 

 

MEDYTOX SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada			90-0902-741
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
400 South Australian Ave., 8th Floor West Palm Beach, FL			33401
(Address of principal executive offices)			(Zip Code)

 

(561) 855-1626

(Registrant’s telephone number, including area code)

 

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

 

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

 

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 o	Accelerated filer o
Non-accelerated filer o (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 Exchange Act). Yes o No x

 

As of August 12, 2015, the registrant had 30,931,026 shares of its Common Stock, $0.0001 par value, outstanding.

 

 

MEDYTOX SOLUTIONS, INC.

FORM 10-Q

June 30, 2015

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II – OTHER INFORMATION		32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		33

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MEDYTOX SOLUTIONS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

		June 30,				December 31,
		2015				2014
ASSETS
Current assets:
Cash		$	700,923			$	2,406,246
Accounts receivable, net			22,471,342				17,463,947
Prepaid expenses and other current assets			572,314				170,353
Deferred tax assets			–				28,300
Deposits on acquisitions			–				259,875
Total current assets			23,744,579				20,328,721
Property and equipment, net			7,814,666				7,678,123
Other assets:
Intangible assets, net			4,420,372				4,436,473
Goodwill			3,278,813				3,139,942
Deposits			218,552				177,495
Total assets		$	39,476,982			$	35,760,754

 

See accompanying notes to condensed consolidated financial statements.

 

 

MEDYTOX SOLUTIONS, INC.

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

		June 30,				December 31,
		2015				2014
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,885,116			$	3,356,797
Accrued expenses			3,627,422				2,297,416
Income tax liabilities			7,539,715				8,087,946
Deferred income taxes			9,200				–
Current portion of notes payable			259,184				443,292
Current portion of notes payable, related party			3,804,329				2,620,000
Current portion of capital lease obligations			611,927				962,562
Derivative liability			380,000				380,000
Total current liabilities			20,116,893				18,148,013
Other liabilities:
Notes payable, net of current portion			–				93,392
Capital lease obligations, net of current portion			3,145,080				2,222,625
Deferred tax liabilities			291,600				252,900
Total liabilities			23,553,573				20,716,930
Commitments and contingencies
Stockholders' equity:
Preferred stock, 100,000,000 shares authorized:
Series B preferred stock, $0.0001 par value, 5,000 shares authorized, 5,000 and 5,000 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			1				1
Series D preferred stock, $0.0001 par value, 200,000 shares authorized, 50,000 and 200,000 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			5				20
Series E preferred stock, $0.0001 par value, 100,000 shares authorized, 45,000 and 100,000 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			5				10
Common stock, $0.0001 par value, 500,000,000 shares authorized, 30,931,026 and 29,046,386 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively			3,093				2,905
Additional paid-in-capital			10,926,621				5,357,367
Retained earnings			4,993,684				9,562,517
Total Medytox Solutions stockholders' equity			15,923,409				14,922,820
Noncontrolling interest			–				121,004
Total stockholders' equity			15,923,409				15,043,824
Total liabilities and stockholders' equity		$	39,476,982			$	35,760,754

 

See accompanying notes to condensed consolidated financial statements.

 

 

MEDYTOX SOLUTIONS, INC.

Condensed Consolidated Statements of Operations

(unaudited)

 

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2015				2014				2015				2014
Revenues
Gross charges (net of contractual allowances and discounts)		$	13,225,117			$	20,784,426			$	33,347,632			$	41,846,998
Provision for bad debts			(3,843,466	)			(4,830,727	)			(10,317,199	)			(11,017,760	)
Net Revenues			9,381,651				15,953,699			$	23,030,433			$	30,829,238
Operating expenses:
Direct costs of revenue			2,668,357				4,187,041				6,699,631				7,464,882
General and administrative			9,396,040				4,456,357				15,035,973				8,176,315
Legal fees related to disputed subsidiary			–				35,545				–				94,217
Sales and marketing expenses			1,139,567				1,245,982				2,321,788				2,035,284
Bad debt			99,754				–				99,754				–
Depreciation and amortization			669,641				230,482				1,250,434				396,170
Total operating expenses			13,973,359				10,155,407				25,407,580				18,166,868
Income (Loss) from operations			(4,591,708	)			5,798,292				(2,377,147	)			12,662,370
Other income (expense):
Other income			2				132				23				253
Gain on disposition of subsidiary			–				–				–				134,185
Gain on legal settlement			–				–				275,028				–
Interest expense			(542,442	)			(100,945	)			(1,047,543	)			(197,696	)
Total other income (expense)			(542,440	)			(100,813	)			(772,492	)			(63,258	)
Income (Loss) before income taxes			(5,134,148	)			5,697,479				(3,149,639	)			12,599,112
Provision for income taxes			(878,700	)			2,198,000				98,800				4,796,100
Net income (loss) attributable to Medytox Solutions			(4,255,448	)			3,499,479				(3,248,439	)			7,803,012
Preferred stock dividends			797,344				1,510,542				1,320,394				2,424,105
Net income (loss) attributable to Medytox Solutions common shareholders		$	(5,052,792	)		$	1,988,937			$	(4,568,833	)		$	5,378,907
Net income (loss) per common share:
Basic		$	(0.17	)		$	0.07			$	(0.16	)		$	0.18
Diluted		$	(0.17	)		$	0.06			$	(0.16	)		$	0.18
Weighted average number of common shares outstanding during the period:
Basic			29,324,158				30,247,265				29,055,952				30,145,723
Diluted			30,419,158				30,669,487				30,233,452				30,482,862

 

See accompanying notes to condensed consolidated financial statements.

 

 

MEDYTOX SOLUTIONS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

		For the Six Months Ended June 30,
		2015				2014
Cash flows from (used in) operating activities:
Net income (loss)		$	(3,248,439	)		$	7,803,012
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization			1,250,434				396,170
Stock issued in lieu of cash compensation			2,800,000				162,500
Stock-based compensation			269,421				61,000
Bad debts			10,416,953				11,017,760
Accretion of beneficial conversion feature as interest			495,890				3,278
Accretion of debt discount			188,439				–
Write-off of deferred issuance costs			–				12,500
Gain on disposition of subsidiary			–				(134,185	)
Gain on legal settlement			(275,028	)			–
Changes in operating assets and liabilities:
Accounts receivable			(15,424,348	)			(17,215,280	)
Prepaid expenses and other current assets			(401,961	)			(114,730	)
Deferred tax assets			28,300				(1,786,100	)
Security deposits			(41,057	)			(55,839	)
Accounts payable			528,318				171,777
Accrued expenses			1,355,035				(365,235	)
Income tax liabilities			(548,231	)			4,637,115
Deferred tax liabilities			47,900				49,800
Net cash provided by (used in) operating activities			(2,558,374	)			4,643,543
Cash flows provided by (used in) investing activities:
Purchase of property and equipment			(324,750	)			(920,024	)
Cash paid for acquisitions			–				(1,500,000	)
Cash received in acquisitions			–				31,671
Net cash provided by (used in) investing activities			(324,750	)			(2,388,353	)
Cash flows provided by (used in) financing activities:
Dividends on Series B preferred stock			(1,320,394	)			(2,424,105	)
Proceeds from issuance of notes payable, related party			3,030,000				–
Payments on notes payable			(57,500	)			(659,939	)
Payments on capital lease obligations			(474,305	)			(136,802	)
Net cash provided by (used in) financing activities			1,177,801				(3,220,846	)
Net increase (decrease) in cash			(1,705,323	)			(965,656	)
Cash at beginning of period			2,406,246				4,141,416
Cash at end of period		$	700,923			$	3,175,760

 

See accompanying notes to condensed consolidated financial statements.

 

Continued

 

 

MEDYTOX SOLUTIONS, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(unaudited)

 

		For the Six Months Ended June 30,
		2015				2014
Supplemental disclosure of cash flow information:
Cash paid for interest		$	136,028			$	172,024
Cash paid for taxes		$	570,831			$	1,932,383
Non-cash investing and financing activities:
Net liabilities acquired in acquisitions, net of cash		$	–			$	959,331
Goodwill		$	–			$	(2,438,348	)
Accrued expenses		$	–			$	150,000
Contingent acquisition liability		$	–			$	54,017
Common stock		$	–			$	1
Series D preferred stock		$	–			$	20
Additional paid in capital		$	–			$	1,274,979
Exercise of stock options as reduction of notes payable, related party:
Current portion of notes payable, related party		$	(2,500,000	)		$	–
Common stock		$	100			$	–
Additional paid-in-capital		$	2,499,900			$	–
Acquisition of noncontrolling interest in Biohealth Medical Laboratory, Inc.:
Deposits on acquisitions		$	259,875			$	–
Goodwill		$	(138,871	)		$	–
Noncontrolling interest		$	(121,004	)		$	–
Capital lease assets acquired		$	(1,046,126	)		$	(1,321,253	)
Capital lease obligations		$	1,046,126			$	1,321,253
Series D preferred stock converted to common stock:
Series D preferred stock		$	(15	)		$	–
Common stock		$	13			$	–
Additional paid in capital		$	2			$	–
Series E preferred stock converted to common stock:
Series E preferred stock		$	(5	)		$	–
Common stock		$	5			$	–
Common stock issued as payment of accrued bonuses:
Accrued bonuses		$	–			$	(525,000	)
Common stock		$	–			$	21
Additional paid in capital		$	–			$	524,979

 

See accompanying notes to condensed consolidated financial statements.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 1 – Organization and Presentation

 

Organization

 

Medytox Solutions, Inc. (the “Company”) was incorporated in Nevada on July 20, 2005 as Casino Players, Inc. In the first half of 2011, Company management decided to reorganize the operations of the Company as a holding company to acquire and manage a number of companies in the medical services sector.

 

On June 22, 2011, the Company organized Medytox Medical Management Solutions Corp. ("MMMSC"), a Florida corporation, as a wholly-owned subsidiary. MMMSC was a marketing company selling laboratory testing services to medical clinics, hospitals and physicians’ offices. On October 26, 2013, MMMSC changed its name to Medytox Information Technology, Inc. (“MIT”). MIT provides information technology services and solutions to all subsidiaries and customers of the Company and operates from the corporate offices in West Palm Beach, Florida.

 

On July 26, 2011, the Company organized Medytox Institute of Laboratory Medicine, Inc. ("MILM"), a Florida corporation, as a wholly-owned subsidiary. MILM was organized to acquire and manage medical testing laboratories. MILM operates from the corporate offices in West Palm Beach, Florida.

 

On August 22, 2011, the Company acquired 100% of the equity interests in Medical Billing Choices, Inc. ("MBC"), a privately-owned North Carolina corporation, through a stock purchase agreement for cash and an installment note. MBC operates a medical billing service for a variety of medical providers throughout the southeastern United States from offices in Charlotte, North Carolina. Since the acquisition, MBC is the main billing company for the Company's laboratories.  

 

On February 6, 2012, the Company formed Medytox Diagnostics Inc. (“MDI”), a Florida corporation, as a wholly-owned subsidiary to acquire and build clinical laboratories. MDI operates from the corporate offices in West Palm Beach, Florida.

 

On February 16, 2012, MDI acquired majority interest in Collectaway, LLC, now known as PB Laboratories, LLC ("PB Labs"), a Florida limited liability company. On October 12, 2012, MDI acquired the remaining interest in PB Labs, and PB Labs became a wholly-owned subsidiary of MDI. Operations of PB Labs were merged into EPIC Reference Labs, Inc. in February 2015.

 

On March 9, 2012, the Company formed Medytox Medical Marketing & Sales, Inc. (“MMMS”), a Florida corporation, as a wholly-owned subsidiary that provides marketing for clinical laboratories that are owned by the Company.

 

On December 7, 2012, MDI acquired a majority interest in Biohealth Medical Laboratory, Inc. (“Biohealth”), a Florida corporation. The remaining non-controlling interest was acquired on March 31, 2015. The initial agreement allowed MDI to retain all revenues.

 

On January 1, 2013, MDI purchased 100% of the stock of Alethea Laboratories, Inc. ("Alethea"). Althea operates a licensed clinical lab in Las Cruces, New Mexico and is an enrolled Medicare provider.

 

On January 29, 2013, MDI formed Advantage Reference Labs, Inc. (“Advantage”), a Florida corporation, as a wholly-owned subsidiary that provides reference, confirmation and clinical testing services. On October 14, 2013, Advantage changed its name to EPIC Reference Labs, Inc. (“EPIC”).

 

On April 4, 2013, MDI purchased 100% of the interests in International Technologies, LLC ("Tech").  In October 2013, Tech began doing business as NJ Reference Labs (“NJ Ref”). NJ Ref operates a licensed clinical lab in Waldwick, New Jersey and is an enrolled Medicare provider.  

 

On March 18, 2014, MDI purchased all of the outstanding stock of Clinlab, Inc (“Clinlab”). Clinlab develops and markets laboratory information management systems.

 

On May 9, 2014, the Company formed Medical Mime, Inc. (“Mime”), a Florida corporation, as a wholly-owned subsidiary.

 

On May 23, 2014, Mime purchased certain net assets, primarily consisting of software, of GlobalOne Information Technologies, LLC (“GlobalOne”). GlobalOne developed software and provided services for the Electronic Health Records Management (“ERM/EHR”) segment of the medical industry.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 1 – Organization and Presentation (Continued)

 

Organization (Continued)

 

On July 28, 2014, the Company formed Platinum Financial Solutions, Ltd. (“PFS”) as a 100% owned foreign subsidiary of the Company to pursue the opportunity of providing financial solutions, including factoring and accounts receivable acquisition in the healthcare sector. PFS has a Florida subsidiary, Platinum Financial Solutions, LLC, through which it may do business with U.S. based customers.

 

On August 26, 2014, MDI purchased all of the outstanding stock of Epinex Diagnostics Laboratories, Inc. (“Epinex”), a California corporation. Epinex is a clinical laboratory in Tustin, California.

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows for the interim periods reported in this Form 10-Q. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

 

These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2015.

 

Revenue Recognition

 

Service revenues are principally generated from laboratory testing services including chemical diagnostic tests such as blood analysis and urine analysis. Net service revenues are recognized at the time the testing services are performed and are reported at their estimated net realizable amounts.

 

Net service revenues are determined utilizing gross service revenues net of contractual allowances. Even though it is the responsibility of the patient to pay for laboratory service bills, most individuals in the United States have an agreement with a third party payor such as Medicare, Medicaid or a commercial insurance provider to pay all or a portion of their healthcare expenses; the majority of services provided by Medytox are to patients covered under a third party payor contract. In certain cases, the individual has no insurance or does not provide insurance information. Despite follow up billing efforts, the Company does not currently anticipate collection of a significant portion of self-pay billings including the patient responsibility portion of the billing for patients covered by third party payors. The Company does not currently have any capitated agreements. In the remainder of the cases, Medytox is provided the third party billing information and seeks payment from the third party under the terms and conditions of the third party payor for health service providers like Medytox. Each of these third party payors may differ not only with regard to rates, but also with regard to terms and conditions of payment and providing coverage (reimbursement) for specific tests. Estimated revenues are established based on a series of procedures and judgments that require industry specific healthcare experience and an understanding of payor methods and trends.

 

We review our calculations on a monthly basis in order to make certain that we are properly allowing for the uncollectable portion of our gross billings and that our estimates remain sensitive to variances and changes within our payor groups. The contractual allowance calculation is made on the basis of historical allowance rates for the various specific payor groups on a monthly basis with a greater weight being given to the most recent trends; this process is adjusted based on recent changes in underlying contract provisions and shifts in the testing being performed. The provision for bad debts represents our estimate of net revenues that will ultimately be uncollectable and is based upon our analysis of historical payment rates by specific payor groups on a monthly basis with primary weight being given to the most recent trends; this approach allows bad debt to more accurately adjust to short-term changes in the business environment. These two calculations are routinely analyzed by Medytox on the basis of actual allowances issued by payors and the actual payments made to determine what adjustments, if any, are needed.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 1 – Organization and Presentation (Continued)  

 

Contractual Allowances and Doubtful Accounts

 

Accounts receivable are reported at realizable value, net of allowances for contractual credits and doubtful accounts, which are estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for contractual credits and doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the collectability of these receivables or reserve estimates. Receivables deemed to be uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. Historically, revisions to the allowances for doubtful accounts estimates were recorded as an adjustment to the provision for bad debt within selling, general and administrative expenses.

 

During the third quarter of 2014, the Company corrected the classification of the provision for bad debts from a component of operating expenses to a reduction in revenues in our Condensed Consolidated Statements of Operations. This presentation is required under U.S. GAAP due to the uncertainties of collection of the self-pay portion of patent service revenues.

 

Reclassifications

 

Certain items on the statements of operations for the three and six months ended June 30, 2014 have been reclassified to conform to current period presentation.

  

Note 2 – Long-Lived Assets

 

Property and equipment at June 30, 2015 and December 31, 2014 consisted of the following:

 

		June 30,				December 31,
		2015				2014
Medical equipment		$	928,608			$	896,641
Equipment			527,647				396,551
Equipment under capital leases (See Note 5 - Capital Lease Obligations)			5,070,573				4,024,449
Furniture			413,177				333,316
Leasehold improvements			1,703,084				1,665,501
Vehicles			196,534				177,534
Computer equipment			620,816				595,571
Software			1,832,053				1,832,053
			11,292,492				9,921,616
Less accumulated depreciation			(3,477,826	)			(2,243,493	)
Property and equipment, net		$	7,814,666			$	7,678,123

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 2 – Long-Lived Assets (Continued)

 

Depreciation of property and equipment was $1,234,333 and $396,170 for the six months ended June 30, 2015 and 2014, respectively.

 

Management periodically reviews the valuation of long-lived assets for potential impairments. Management has not recognized an impairment of these assets to date, and does not anticipate any negative impact from known current business developments.

 

Note 3 – Notes Payable

 

The Company and its subsidiaries are party to a number of loans with affiliates and unrelated parties. At June 30, 2015 and December 31, 2014, notes payable consisted of the following:

 

Notes Payable – Third Parties

 

		June 30,				December 31,
		2015				2014
Acquisition convertible note No. 1 to former member of International Technologies, LLC in the amount of $250,000 at 5% interest and was due January 17, 2014. The note was convertible into the Company's common stock at a ten percent (10%) discount to the average market price for the thirty days prior to conversion. See "Acquisition Convertible Notes" below.		$	–			$	250,000
Loan payable to former shareholder of Epinex Diagnostics Laboratories, Inc. in the amount of $400,000, at 0% interest, with principal payments of $100,000 due in periodic installments from November 26, 2014 through February 26, 2016. Amount recorded is net of imputed discount of $13,316 at June 30, 2015 and December 31, 2014.			259,184				286,684
			259,184				536,684
Less current portion			(259,184	)			(443,292	)
Notes payable, net of current portion		$	–			$	93,392

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 3 – Notes Payable (Continued)

 

Notes Payable – Related Parties

 

		June 30, 2015
		Face Value				Put				Put				Debt				Net Value
		of Note				Discount				Premium				Discount				of Note
Convertible debenture payable to D&D Funding II, LLC dated December 31, 2014 in the amount of $3,000,000 which bears interest at 10% and is due December 31, 2015. The note provides the lender the option to covert the note into the Company's common stock at a 25% discount to the average trading price (as defined in the note agreement) for the ten consecutive trading days prior to the conversion date. The note has been discounted by the value of warrants issuable upon conversion of $191,561 at June 30, 2015. The note has also been discounted by the unamortized value of its put premium of $504,110, and increased by the put premium liability of $1,000,000, at June 30, 2015.		$	3,000,000			$	(504,110	)		$	1,000,000			$	(191,561	)		$	3,304,329
Loan payable to Alcimede LLC in the amount of $3,000,000, at 6% interest, with one payment of $3,000,000, plus interest, due on February 2, 2016. (On June 29, 2015, Alcimede offset $2,500,000 under the loan to pay the exercise price of options to purchase 1,000,000 shares. See Note 4.)		$	500,000				–				–				–			$	500,000
		$	3,500,000			$	(504,110	)		$	1,000,000			$	(191,561	)		$	3,804,329

 

		December 31, 2014
		Face Value				Put				Put				Debt				Net Value
		of Note				Discount				Premium				Discount				of Note
Convertible debenture payable to D&D Funding II, LLC dated December 31, 2014 in the amount of $3,000,000 which bears interest at 10% and is due December 31, 2015. The note provides the lender the option to covert the note into the Company's common stock at a 25% discount to the average trading price (as defined in the note agreement) for the ten consecutive trading days prior to the conversion date. The note has been discounted by the value of warrants issuable upon conversion of $380,000 at December 31, 2014. The note has also been discounted by the unamortized value of its put premium of $1,000,000, and increased by the put premium liability of $1,000,000, at December 31, 2014.		$	3,000,000			$	(1,000,000	)		$	1,000,000			$	(380,000	)		$	2,620,000

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 3 – Notes Payable (Continued)

 

Acquisition Convertible Notes

 

The Company filed actions against Reginald Samuels and Ralph Perricelli seeking, among other things, a declaration that the convertible debentures in the aggregate amount of $500,000 that the Company issued to Mr. Samuels and Mr. Perricelli as part of the consideration for the purchase of their interests in International Technologies, LLC are null and void.

 

All litigation with Mr. Samuels was settled by the Company on December 8, 2014. Specifics of the settlement are confidential.

 

The Company received a default judgement against Mr. Perricelli in January 2015, relieving the Company of its obligations under the convertible debenture. The note payable and related accrued interest were written off in January 2015, resulting in a “Gain on Legal Settlement” of $275,028.

 

Note 4 – Related Party Transactions

 

On June 30, 2015, the Company issued 200,000 shares of common stock to SS International Consulting Ltd., of which a director of the Company is the sole manager.

 

On February 27, 2015, the Company borrowed $30,000 from Alcimede LLC, of which our CEO is the sole manager. The loan was repaid on April 15, 2015.

 

On February 3, 2015, the Company borrowed $3,000,000 from Alcimede LLC. The note has an interest rate of 6% and is due on February 2, 2016. On June 29, 2015, Alcimede exercised options granted in October 2012 to purchase one million shares of the Company’s common stock at an exercise price of $2.50 per share. The loan outstanding was reduced in satisfaction of the aggregate exercise price of $2,500,000.

 

On December 31, 2014, the Company borrowed $3,000,000 from D&D Funding II, LLC (“D&D”), Christopher Diamantis, a director of the Company, is the manager and 50% owner of D&D. (See Note 3 for a description of this Note.)

 

Note 5 – Capital Lease Obligations

 

The Company leases various assets under capital leases expiring through 2020 as follows:

 

		June 30,				December 31,
		2015				2014
Medical equipment		$	5,070,573			$	4,024,449
Less accumulated depreciation			(1,399,018	)			(883,015	)
Net		$	3,671,555			$	3,141,434

 

Depreciation expense on assets under capital leases was $516,003 and $147,347 for the six months ended June 30, 2015 and 2014, respectively.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 5 – Capital Lease Obligations (Continued)

 

Aggregate future minimum rentals under capital leases are as follows:

 

Future minimum rentals

 

December 31,
2015				$	752,062
2016					1,364,188
2017					1,255,783
2018					668,572
2019					130,968
Thereafter					32,611
Total					4,204,184
Less interest					447,177
Present value of minimum lease payments					3,757,007
Less current portion of capital lease obligations					611,927
Capital lease obligations, net of current portion				$	3,145,080

 

Note 6 – Stockholders’ Equity

 

Authorized Capital

 

The Company has 500,000,000 authorized shares of Common Stock at $0.0001 par value per share and 100,000,000 authorized shares of Preferred Stock at $0.0001 par value per share.

 

On October 1, 2012, the Company filed a certificate of designation with the Secretary of State of Nevada to designate 5,000 shares of Series B Non-convertible Preferred Stock, at $0.0001 par value per share.  The Series B shares do not include any voting rights and allow for monthly dividends in an amount equal to the sum of 1) 10% of the amount of gross sales in excess of $1 million collected in the ordinary course of business, not to exceed $150,000, and 2) 15% of the amount of gross sales in excess of $2.5 million collected in the ordinary course of business. At each of June 30, 2015 and December 31, 2014, there were 5,000 shares of Series B Preferred Stock outstanding.

 

On March 27, 2014, each of the holders of shares of Series B Preferred Stock entered into a purchase option agreement with the Company. Each agreement grants the Company an option to purchase any or all shares of Series B Preferred Stock held by the holder at any time through March 27, 2016 at a purchase price of $5,000 per share. Each holder agreed not to transfer or dispose of any shares of Series B Preferred Stock during the term of the option, other than to the Company upon an exercise of the option. Any exercise of an option is completely at the Company's discretion.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 6 – Stockholders’ Equity (Continued)

 

Authorized Capital (Continued)

 

On March 17, 2014, the Company filed a Certificate of Designation with the Secretary of State of Nevada authorizing up to 200,000 shares of Series D Convertible Preferred Stock at $0.0001 par value per share ("Series D Preferred Stock"). Each share of Series D Preferred Stock is convertible into the number of shares of Common Stock equal to the quotient of 5 divided by the product of 0.80 multiplied by the market price, as defined in Certificate of Designation, of the Company’s Common Stock at the date of conversion. After the earlier of the date the trading volume of the Common Stock exceeds an aggregate of 3,000,000 shares in any 30 day period or the date the Company sells shares of Common Stock in a firm commitment underwritten public offering with aggregate gross proceeds of at least $30,000,000, each share of Series D Preferred Stock shall be convertible into the number of shares of Common Stock equal to the quotient of (i) 5 divided by (ii) the market price of the Common Stock. All shares of Series D Preferred Stock outstanding on the second anniversary of the original issuance date shall be automatically converted into shares of Common Stock.

 

The Series D shares also include voting rights of 1 vote for every share of Series D Preferred Stock and are entitled to dividends, at the same time any dividend is paid or declared on any shares of the Company’s Common Stock. The dividends are to be in an amount equal to the amount such holder would have received if the Series D Preferred Stock were converted to Common Stock. As of June 30, 2015 and December 31, 2014, there were 50,000 and 200,000 shares of Series D Preferred Stock outstanding, respectively.

 

On August 21, 2014, the Company filed a Certificate of Designation with the Secretary of State of Nevada authorizing 100,000 shares of Series E Convertible Preferred Stock at a par value of $.0001 per share. The Series E shares are convertible into the number of shares of Common Stock equal to the quotient of 8 divided by the average market price of the Company’s Common Stock for thirty trading days prior to the date of conversion, multiplied by the number of Series E shares being converted. Any Series E shares which remain outstanding on August 28, 2016 will be automatically converted into Common Stock using the prescribed formula. The Series E shares also include voting rights of 1 vote for every share of Series E Preferred Stock and are entitled to dividends at the same time any dividend is paid or declared on any shares of the Company’s Common Stock. The dividends are to be in an amount equal to the amount such holder would have received if the Series E Preferred Stock were converted to Common Stock at the same time any dividend is paid or declared on any shares of the Company’s Common Stock. As of June 30, 2015 and December 31, 2014, there were 45,000 and 100,000 shares of Series E Preferred Stock outstanding, respectively.

 

Preferred Stock

 

During the six months ended June 30, 2015 and 2014, the Series B preferred shareholders earned dividends totaling $1,320,394 and $2,424,105, respectively. At June 30, 2015 and December 31, 2014, accrued dividends of $1,852,355 and $913,271, respectively, were included in accrued expenses.

 

On March 18, 2014, 200,000 shares of Series D Preferred Stock of the Company were issued to the previous owners of Clinlab pursuant to a stock purchase agreement whereby the Company purchased all of the outstanding stock of Clinlab. On March 20, 2015, 150,000 shares of these Series D Preferred Stock were converted into 125,334 shares of common stock.

 

On August 28, 2014, 100,000 shares of Series E Preferred Stock of the Company were issued to the previous owner of Epinex pursuant to a stock purchase agreement whereby the Company purchased all of the outstanding stock of Epinex. On March 3, 2015, 55,000 shares of these Series E Preferred Stock were converted into 58,856 shares of common stock.

 

Common Stock

 

During the six months ended June 30, 2015, the Company issued an aggregate of 1,884,190 shares of the Company’s common stock; 1,000,000 shares were issued for the exercise of stock options by Alcimede (see Note 4), 184,190 shares were issued in connection with the conversions of the Series D and E Preferred Stock, 100,000 shares, valued at $4.00 per share, were issued to three employees pursuant to employment agreements and an aggregate of 600,000 shares, valued at $4.00 per share, were issued to three consultants as compensation for services.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 6 – Stockholders’ Equity (Continued)

 

2013 Equity Plan

 

On September 25, 2013, the Company’s board of directors approved and adopted the Medytox Solutions, Inc. 2013 Incentive Compensation Plan (the “2013 Plan”). The 2013 Plan was approved by a majority of stockholders of the Company on November 22, 2013. The 2013 Plan provides for the grant of shares of common stock, options, performance shares, performance units, restricted stock, stock appreciation rights and other awards.

 

The following summarizes activity under the 2013 Plan through June 30, 2015:

 

Shares approved for issuance at plan inception			5,000,000
Options granted in 2014			(1,435,000	)
Options cancelled in 2014			10,000
Restricted shares issued in 2014			(210,000	)
Balance at December 31, 2014			3,365,000
Options granted in 2015			(730,000	)
Options cancelled in 2015			100,000
Balance at June 30, 2015			2,735,000

 

Stock Options

 

The following summarizes options outstanding at June 30, 2015:

 

		Common				Weighted
		Stock				average
		Options				exercise
		Outstanding				price
Balance at December 31, 2014			24,225,000			$	5.47
Options granted			730,000				4.00
Options exercised			(1,000,000	)			2.50
Options cancelled or expired			(100,000	)			2.50
Balance at June 30, 2015			23,855,000			$	5.56

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 6 – Stockholders’ Equity (Continued)

 

Stock Options (Continued)

 

The following table summarizes information with respect to stock options outstanding and exercisable by employees, directors and consultants at June 30, 2015:

 

				Options outstanding																Options vested and exercisable
								Weighted
								average				Weighted												Weighted
								remaining				average				Aggregate								average				Aggregate
Exercise				Number				contractual				exercise				intrinsic				Number				exercise				intrinsic
price				outstanding				life (years)				price				value				vested				price				value
$2.50					8,375,000				2.70			$2.50				$	12,562,500				8,375,000			$2.50				$	12,562,500
$4.00					730,000				10.00			$4.00									200,000			$4.00
$5.00					7,750,000				2.99			$5.00									7,750,000			$5.00
$10.00					7,000,000				8.01			$10.00									7,000,000			$10.00
					23,855,000							$5.56				$	12,562,500				23,325,000			$5.59				$	12,562,500

During the six months ended June 30, 2014, the Company issued options to purchase a total of 1,035,000 shares of the Company’s common stock to various employees. These options had contractual lives of ten years and were valued at an average grant date fair value of $0.70 per option, or $724,500, using the Black-Scholes Option Pricing Model with the following assumptions:

 

Stock price	$2.50
Expected term	5.375 years
Expected volatility	27.72%
Risk free interest rate	1.46%
Dividend yield	0

 

The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. As of June 30, 2015, all of these options had vested and the Company recognized $52,024 of stock-based compensation expense for the six months ended June 30, 2015.

 

In May 2014, the Company issued options to purchase a total of 300,000 shares of the Company’s common stock to a director. These options had contractual lives of four years and were valued at an average grant date fair value of $0.18 per option, or $54,000, using the Black-Scholes Option Pricing Model with the following assumptions:

 

Stock price	$2.50
Expected term	2 years
Expected volatility	24.43%
Risk free interest rate	0.43%
Dividend yield	0

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 6 – Stockholders’ Equity (Continued)

 

Stock Options (Continued)

 

The stock price was based on the price of shares sold to investors and volatility was based on comparable volatility of other companies since the Company had no significant historical volatility. As of June 30, 2015, all of these options had vested and the Company recognized $2,959 of stock-based compensation expense for the six months ended June 30, 2015.

 

In June 2015, the Company issued options to purchase a total of 730,000 shares of the Company’s common stock to employees. These options had contractual lives of four years and were valued at an average grant date fair value of $0.18 per option, or $131,400, using the Black-Scholes Option Pricing Model with the following assumptions:

 

Stock price	$4.00
Expected term	2 years
Expected volatility	24.43%
Risk free interest rate	0.43%
Dividend yield	0

 

The stock price was based on an independent valuation completed as of November 1, 2014. As of June 30, 2015, 200,000 of these options had vested and the Company recognized $210,000 of stock-based compensation expense for the six months ended June 30, 2015.

 

As of June 30, 2015, there were unrecognized compensation costs of $583,000 related to stock options. The Company expects to recognize those costs over a weighted average period of .75 years as of June 30, 2015. Future option grants will increase the amount of compensation expense to be recorded in these periods.

 

Warrants

 

The following table summarizes warrant transactions for the six months ended June 30, 2015:

 

Weighted

Weighted

average

average

remaining

Aggregate

Number

exercise

contractual

intrinsic

of warrants

price

term (years)

value

Outstanding and Exercisable at December 31, 2014

300,000

$

3.33

–

$

–

Outstanding and Exercisable at June 30, 2015

–

$

–

–

$

–

Weighted Average Grant Date Fair Value

$

–

 

The warrants were issued by the Company in 2013 to two individuals in connection with obligations entered into by the Company’s subsidiaries. These warrants had contractual lives of two years and expired in January 2015.

 

Basic and Diluted Income per Share

 

The Company computes income per share in accordance with ASC 260, "Earnings per Share", which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all potential dilutive equivalent shares of common stock outstanding during the period using the treasury stock method and convertible debt and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, convertible debt, convertible preferred stock, or warrants.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 6 – Stockholders’ Equity (Continued)

 

Basic and Diluted Income per Share (Continued)

 

Basic and Diluted EPS were calculated as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Basic:
Numerator - net income (loss) available to common stockholders		$	(5,052,792	)			1,988,937			$	(4,568,833	)			5,378,907
Denominator - weighted-average shares outstanding			29,324,158				30,247,265				29,055,952				30,145,723
Net income (loss) per share - Basic		$	(0.17	)		$	0.07			$	(0.16	)		$	0.18
Diluted:
Numerator:
Net income (loss) available to common stockholders		$	(5,052,792	)		$	1,988,937			$	(4,568,833	)		$	5,378,907
Interest expense on convertible debt, net of taxes			45,000				3,739				91,912				7,439
			(5,007,792	)			1,992,676				(4,476,921	)			5,386,346
Denominator:
Weighted-average shares outstanding			29,324,158				30,247,265				29,055,952				30,145,723
Weighted-average equivalent shares options			–				–				–				–
Weighted-average equivalent shares from convertible debt			1,000,000				222,222				1,000,000				222,222
Weighted-average equivalent shares from Series C convertible preferred stock			–				–				–				–
Weighted-average equivalent shares from Series D convertible preferred stock			50,000				200,000				114,167				200,000
Weighted-average equivalent shares from Series E convertible preferred stock			45,000				–				63,333				–
			30,419,158				30,669,487				30,233,452				30,567,945
Net income (loss) per share - Diluted		$	(0.17	)		$	0.06			$	(0.16	)		$	0.18

 

Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of June 30, 2015 and 2014, the following potential common stock equivalents were excluded from the calculation of Diluted EPS as their effect was anti-dilutive:

 

		June 30,
		2015				2014
Stock options outstanding			23,855,000				24,395,000
Warrants outstanding			–				346,400
			23,855,000				24,741,400

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 7 – Income Taxes

 

Significant components of the income tax provision are summarized as follows:

 

		Six Months Ended June 30,
		2015				2014
Current provision:
Federal		$	19,300			$	5,577,600
State			3,300				954,800
Deferred provision:
Federal			68,900				(1,568,800	)
State			7,300				(167,500	)
		$	98,800			$	4,796,100

 

A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on income before income taxes for the six months ended June 30, 2015 and 2014 is as follows:

 

		Six Months Ended June 30,
		2015				2014
Expected federal income tax at 34% statutory rate			34.0%				34.0%
State income taxes			-0.2%				4.1%
Permanent differences			-36.9%				-0.1%
			-3.1%				38.0%

 

Of the $7,539,715 of income tax liabilities at June 30, 2015, $1,943,925 relates to 2013 and $5,573,190 relates to 2014. The Company has made no payments on its 2015 tax liability. The Company has received a “Notice of Intent to Levy” from the Internal Revenue Service relating to the 2013 tax liability.

 

 

The Company provides for income taxes using the liability method in accordance with FASB ASC Topic 740 “Income Taxes”. Deferred income taxes arise from the differences in the recognition of income and expenses for tax purposes. Deferred tax assets and liabilities are comprised of the following at June 30, 2015 and December 31, 2014:

 

		June 30,				December 31,
		2015				2014
Deferred income tax assets:
Allowance for bad debts		$	(9,200	)		$	28,300
Stock options			524,600				423,200
Total deferred income tax assets		$	515,400			$	451,500
Deferred income tax liabilities:
Property and equipment		$	(603,900	)		$	(513,600	)
Intangible amortization			(212,300	)			(162,500	)
Total deferred income tax liabilities		$	(816,200	)		$	(676,100	)
Net deferred income taxes:
Current			(9,200	)			28,300
Non-current			(291,600	)			(252,900	)
		$	(300,800	)		$	(224,600	)

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 7 – Income Taxes (Continued)

 

Management has reviewed the provisions regarding assessment of its valuation allowance on deferred tax assets and based on that criteria determined that it will have sufficient taxable income to realize those assets. Therefore, management has assessed the realization of the deferred tax assets and has determined that it is more likely than not that they will be realized.

 

The Company recognizes the consolidated financial statement impact of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than–not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Note 8 – Business Combinations

 

On April 15, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Medytox, CollabRx Inc. (“CollabRx”), and CollabRx Merger Sub, Inc., a wholly owned subsidiary of CollabRx (“Merger Sub”), pursuant to which it is contemplated that Merger Sub would merge with and into Medytox, with Medytox surviving the merger as a wholly owned subsidiary of CollabRx (the “Merger”).

 

In the Merger, (i) each share of Medytox Common Stock will be converted into the right to receive such number of shares of CollabRx Common Stock equal to the Exchange Ratio (as defined in the Merger Agreement), (ii) each share of Medytox Series B Preferred Stock will be converted into the right to receive one share of CollabRx Series B Preferred Stock, which will be designated prior to the closing of the Merger, (iii) each share of Medytox Series D Preferred Stock will be converted into the right to receive one share of CollabRx Series D Preferred Stock, which will be designated prior to the closing of the Merger, (iv) each share of Medytox Series E Preferred Stock will be converted into the right to receive one share of CollabRx Series E Preferred Stock, which will be designated prior to the closing of the Merger, (v) each option and warrant to purchase shares of CollabRx Common Stock will continue in existence pursuant to its terms, (vi) each restricted stock unit for CollabRx Common Stock will settle prior to the closing of the Merger in accordance with its terms, and (vii) Medytox’s equity incentive plan will be assumed by CollabRx and each outstanding option to purchase shares of Medytox Common Stock will be assumed by CollabRx and converted into an option to purchase shares of CollabRx Common Stock (with proportional adjustment to the number of shares underlying the option and the exercise price, each in accordance with the Exchange Ratio). The Exchange Ratio will be calculated such that holders of CollabRx equity prior to the closing of the Merger (including all outstanding CollabRx Common Stock and all restricted stock units, options and warrants exercisable for shares of CollabRx Common Stock) will hold 10% of CollabRx’s Common Stock following the closing of the Merger, and holders of Medytox equity prior to the closing of the Merger (including all outstanding Medytox Common Stock and all outstanding options exercisable for shares of Medytox Common Stock, but less certain options that will be cancelled contingent upon the closing pursuant to agreements between Medytox and such optionees) will hold 90% of CollabRx’s Common Stock following the closing of the Merger, in each case on a fully diluted basis, provided, however, outstanding shares of the newly designated CollabRx Series B Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, certain outstanding convertible promissory notes exercisable for CollabRx Common Stock after the closing and certain option grants expected to be made at or immediately following the closing of the Merger are excluded from such ownership percentages.

 

On July 17, 2015, CollabRx filed a Form S-4 with the SEC detailing the merger. The Form S-4 is subject to review by the SEC before its effectiveness. The merger transaction is expected to be completed during the fourth calendar quarter after approval of the shareholders of the respective companies and the satisfaction of all other conditions.

 

On January 16, 2015, in contemplation of the business combination the Company entered into a Loan and Security Agreement with CollabRx, pursuant to which the Company agreed it would loan up to $2,395,644 to CollabRx. Also, on January 16, 2015, the Company entered into an Agreement with CollabRx, pursuant to which CollabRx agreed that in the event it enters into a merger or other sale transaction involving at least thirty-five percent (35.0%) of its shares or assets with a party other than the Company, CollabRx will pay the Company a $1,000,000 fee.

 

On February 19, 2015, Medytox and CollabRx entered into an amendment to the Loan Agreement. The Amendment sets forth CollabRx’s agreement not to request any further advances from Medytox pursuant to the Loan Agreement until after it has spent at least the greater of (i) $1,500,000 of the proceeds of a recent offering by CollabRx of shares of its common stock and warrants or (ii) 60% of the net proceeds of the offering.

 

All amounts loaned to date under the Loan Agreement were repaid before the merger agreement was executed.

 

The Company entered into a non-binding letter of intent (“LOI”) dated March 25, 2015 for the potential purchase of certain assets of Epinex Diagnostics, Inc. (“Epinex”), a California corporation. In connection with the LOI, the companies entered into a Loan and Security Agreement (“Agreement”) dated as of June 1, 2015. Under the terms of the Agreement, the Company has agreed to make discretionary advances to Epinex up to an aggregate of $637,210; repayable with simple interest at a rate of 15%. The advances are secured by all the assets of Epinex. Further, the parties have entered into an agreement under which Epinex is required to pay Medytox a termination fee of $1,000,000 in the event Epinex enters into an “Alternative Transaction” with another buyer within a specified twelve month time period. As of June 30, 2015, Medytox had advanced Epinex $367,823 under this arrangement.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 8 – Business Combinations (Continued)

 

The Company acquired the remaining 49.5% of Biohealth in the six months ended June 30, 2015.

 

The Company completed three acquisitions during the year ended December 31, 2014. The Company accounted for the assets, liabilities and ownership interests in accordance with the provisions of FASB ASC 805 “Business Combinations”. As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as goodwill.

 

Goodwill was attributable to the following subsidiaries as of June 30, 2015 and December 31, 2014:

 

		June 30,				December 31,
		2015				2014
Medical Billing Choices, Inc.		$	1,202,112			$	1,202,112
PB Laboratories, LLC			107,124				107,124
Biohealth Medical Laboratory, Inc.			255,634				116,763
Clinlab, Inc.			857,532				857,532
Medical Mime, Inc.			274,811				274,811
Epinex Diagnostics Laboratories, Inc.			581,600				581,600
		$	3,278,813			$	3,139,942

 

The purchase of the remaining portion of Biohealth increased previously reported goodwill by $138,871.

 

Note 9 – Commitments and Contingencies

 

Legal Matters

 

During the course of business, litigation commonly occurs.  From time to time the Company may be a party to litigation matters involving claims against the Company. The Company operates in a highly regulated industry and employs personnel which may inherently lend itself to legal matters.  Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company's financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions and unasserted claims below.

 

On February 26, 2014, the Company filed an action against Reginald Samuels and Ralph Perricelli in the United States District Court for the Southern District of Florida seeking, among other things, a declaration that the convertible debentures in the aggregate amount of $500,000 that the Company issued to Mr. Samuels and Mr. Perricelli as part of the consideration for the purchase of their interests in International Technologies, LLC are null and void.  On October 21, 2013, Mr. Samuels had filed a complaint in the Superior Court of New Jersey (Bergen County) against the Company and Medytox Diagnostics, Inc. alleging breach of contract under his employment agreement and the agreement under which International Technologies, LLC was acquired; unjust enrichment, fraud; intentional and negligent misrepresentation; and breach of an implied duty of good faith and fair dealing and seeking an accounting.  Mr. Perricelli filed a similar action.

 

All litigation with Reginald Samuels was settled by the Company on December 8, 2014. Specifics of the settlement are confidential.

 

The Company received a default judgement against Ralph Perricelli on February 12, 2015, relieving the Company of its obligations under the convertible debenture. As a consequence of the settlement, the Company recognized a gain of $275,028.

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 10 – Segment Reporting

 

Selected financial information for the Company’s operating segments is as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Net revenues - External
Laboratory Services		$	8,924,951			$	15,672,816			$	22,424,754			$	30,519,321
Medical Support Solutions			456,700				280,883				605,679				309,917
Corporate & Eliminations			–				–				–				–
		$	9,381,651			$	15,953,699			$	23,030,433			$	30,829,238
Net revenues - Inter Segment
Laboratory Services		$	–			$	–			$	–			$	–
Medical Support Solutions			444,629				983,930				828,737				1,500,674
Corporate & Eliminations			–				–				–				–
		$	444,629			$	983,930			$	828,737			$	1,500,674
Income (loss) from operations
Laboratory Services		$	1,291,465			$	7,619,944			$	6,356,886			$	14,897,290
Medical Support Solutions			(1,362,273	)			394,711				(2,720,262	)			498,187
Corporate & Eliminations			(4,520,900	)			(2,216,363	)			(6,013,771	)			(2,733,107	)
		$	(4,591,708	)		$	5,798,292			$	(2,377,147	)		$	12,662,370
Depreciation and amortization
Laboratory Services		$	521,024			$	219,210			$	968,349			$	375,900
Medical Support Solutions			175,507				16,074				335,863				25,072
Corporate & Eliminations			(26,890	)			(4,802	)			(53,778	)			(4,802	)
		$	669,641			$	230,482			$	1,250,434			$	396,170
Capital expenditures
Laboratory Services		$	84,867			$	344,027			$	272,752			$	623,408
Medical Support Solutions			26,741				188,590				51,998				296,616
Corporate & Eliminations			–				–				–				–
		$	111,608			$	532,617			$	324,750			$	920,024

 

 

Medytox Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

 

Note 10 – Segment Reporting (Continued)

 

		June 30,				December 31,
		2015				2014
Total assets
Laboratory Services		$	34,292,391			$	29,362,062
Medical Support Solutions			4,039,938				5,214,139
Corporate & Eliminations			1,144,653				1,184,553
		$	39,476,982			$	35,760,754
Intangible assets
Laboratory Services		$	4,086,168			$	4,088,835
Medical Support Solutions			334,204				347,638
Corporate & Eliminations			–				–
		$	4,420,372			$	4,436,473
Goodwill
Laboratory Services		$	944,358			$	805,487
Medical Support Solutions			2,334,455				2,334,455
Corporate & Eliminations			–				–
		$	3,278,813			$	3,139,942

 

Note 11 – Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the SEC. The Company has determined that there are no subsequent events that warrant disclosure or recognition in the consolidated financial statements.

 

 

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

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements made in this Form 10-Q are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

 

The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "believe," "anticipate," "future," "potential," "estimate," "encourage," "opportunity," "growth," "leader," "expect," "intend," "plan," "expand," "focus," "through," "strategy," "provide," "offer," "allow," commitment," "implement," "result," "increase," "establish," "perform," "make," "continue," "can," "ongoing," "include" or the negative of such terms or comparable terminology. All forward-looking statements included in this Form 10-Q are based on information available to us as of the filing date of this report, and the Company assumes no obligation to update any such forward-looking statements, except as required by law. Our actual results could differ materially from the forward-looking statements.

 

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in our subsequent filings with the Securities and Exchange Commission.  The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.

 

Company Overview

 

Medytox Solutions, Inc. (the “Company”, "Medytox", “we”, “us”, or “our”) is a holding company that owns and operates businesses in the medical services sector.  Our principal line of business is clinical laboratory blood and urine testing services, with a particular emphasis in the provision of urine drug toxicology and comprehensive pain medication monitoring programs to physicians, clinics and rehabilitation facilities in the United States.  For each of the six-month periods ended June 30, 2015 and 2014, testing services to rehabilitation facilities represented over 90% of our revenues.

 

We offer a complete, turn-key urine drug testing (UDT) program allowing physicians to proactively monitor and treat patients. The Medytox UDT program is utilized by physicians to identify and evaluate prescribed and/or non-prescribed drugs that when combined may cause adverse drug interactions dangerous to a patient's health.  With our UDT program, physicians can be more assured their patients are adhering to their therapeutic drug regimens and are in compliance with their prescribed guidelines. Our UDT program helps the health care provider achieve better outcomes for patients and in evaluating to what extent the prescribed medications and their dosages are working for the patient to achieve a better outcome towards recovery.

 

In addition to our clinical testing operations, we provide a web-based portal to provide laboratory ordering and results to our physician customers. The Company also provides lab information systems and Electronic Health Records (“EHR”) and billing services to customers.

 

As a provider of clinical laboratory services, we continue to pursue our strategy of acquiring or entering into binding relationships with high-complexity laboratories that can facilitate our customers' needs. We have successfully completed several such acquisitions or strategic partnerships with laboratories located in different regions of the United States, allowing us to correspondingly increase our client base. These laboratories, and those we shall continue to seek out, offer or can be developed to offer the most advanced analytical technology for the processing of urine and blood specimens including Immunoassay Analyzers (IA) for screens and GCMS/LCMS for confirmations.  All Medytox laboratories are fully-staffed professional COLA-accredited high-complexity laboratories with additional certifications such as the COLA Laboratory of Excellence Award (COLA's Highest Commendation), CLIA (Clinical Laboratory Improvement Amendments) and the State of Florida's AHCA Clinical Laboratory License for Non-Waived High Complexity testing. In the case of any facilities acquired in the future we anticipate that the operations will meet these stringent requirements as they become fully operational in the Medytox group. Our in-house billing company services all of our acquired or allied facilities, utilizing electronic processing of claims to the major insurance payers and eliminating the need to rely on and pay for the services of clearing houses allowing us to maximize profit retention.

 

 

Company History

 

Medytox was organized on July 20, 2005 under the laws of the State of Nevada. In the first half of 2011, Company management decided to reorganize as a holding company to acquire and manage a number of companies in the medical services sector.

 

On June 22, 2011, the Company organized Medytox Medical Management Solutions Corp. ("MMMS"), a Florida corporation, as a wholly-owned subsidiary. On October 26, 2013, MMMS changed its name to Medytox Information Technology, Inc. ("MIT"). MIT provides information technology and management solutions to our subsidiaries and outside medical service providers. MIT operates from the corporate offices in West Palm Beach, Florida.

 

On July 26, 2011, the Company organized Medytox Institute of Laboratory Medicine, Inc. (“MILM”), a Florida corporation, as a wholly-owned subsidiary.  MILM was organized to acquire and manage medical testing laboratories. MILM operates from the corporate offices in West Palm Beach, Florida.

 

On August 22, 2011, the Company acquired 100% of Medical Billing Choices, Inc. ("MBC"), a privately-held North Carolina corporation. The company operates a medical billing service for a variety of medical providers throughout the southeastern United States from offices in Charlotte, North Carolina. MBC is also the main billing company for the Medytox-owned laboratories and allows Medytox to offer medical billing services to its customers.

 

On February 16, 2012, Medytox Diagnostics, Inc. (“MDI”), a wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement for the purchase of 50.5% of the outstanding membership interests in Collectaway, LLC, a clinical laboratory located in Palm Beach County, Florida.  The name of Collectaway, LLC was changed to PB Laboratories, LLC. On October 12, 2012, MDI acquired the remaining 49.5% ownership in PB Laboratories, LLC that it did not already own. Operations were merged into EPIC Reference Labs, Inc. in February 2015.

 

On March 9, 2012, the Company formed Medytox Medical Marketing & Sales, Inc. ("MMM&S"), a Florida corporation, as a wholly-owned subsidiary that provides marketing for clinical laboratories that are owned by the Company. MMM&S operates from the corporate offices in West Palm Beach, Florida.

 

On September 10, 2012, the Company entered into an agreement to purchase all of the assets and intellectual property rights to the software known as "Medytox Advantage" that it did not already own from Dash Software, LLC for $150,000.

  

On December 7, 2012, the Company, through its wholly-owned subsidiary MDI, entered into an agreement to acquire 50.5% ownership in Biohealth Medical Laboratory, Inc., a Miami-based clinical laboratory. The agreement provided that MDI would retain all earnings of the lab. The Company immediately initiated an investment program to increase the clinical lab testing capacity of blood and urine specimens at Biohealth Medical Laboratory, Inc. The Company acquired the remaining 49.5% on March 31, 2015. MDI now owns 100% of this laboratory.

 

On January 1, 2013, MDI purchased 100% of the stock of Alethea Laboratories, Inc. ("Alethea").  Althea operates a licensed clinical lab in Las Cruces, New Mexico and is an enrolled Medicare provider.  

 

On January 25, 2013, MDI entered into a ten year, automatically renewable, License Agreement with Dry Spot Diagnostics AG (“Dry Spot”), a German based laboratory, for the right to use a proprietary specialty in-vitro diagnostic test system for plasma, urine and other biological fluids in its U.S. based laboratories. Medytox will pay to Dry Spot a royalty equal to 10% of the collected revenue generated from providing the licensed laboratory diagnostic tests to Medytox customers. Dry Spot must receive a minimum of $100,000 in 2014 and $200,000 each in 2015 and 2016.

 

On January 29, 2013, the Company formed Advantage Reference Labs, Inc. ("Advantage"), a Florida corporation, as a wholly-owned subsidiary to provide reference, confirmation and clinical testing services. On October 14, 2013, Advantage changed its name to EPIC Reference Labs, Inc. ("EPIC").

 

On April 4, 2013, MDI purchased 100% of the membership interests of International Technologies, LLC ("International"). International operates a licensed clinical laboratory in Waldwick, New Jersey and is a licensed Medicare provider.

 

 

On March 18, 2014, the Company’s wholly-owned subsidiary, MIT, purchased 100% of the stock of Clinlab, Inc. ("Clinlab"), a Florida corporation. Clinlab develops and markets laboratory information management systems.

  

On May 9, 2014, the Company formed Medical Mime, Inc. (“Mime”), a Florida corporation, as a wholly-owned subsidiary.

 

On May 23, 2014, Mime purchased certain net assets, primarily consisting of software, of GlobalOne Information Technologies, LLC (“GlobalOne”). GlobalOne developed software and provided services for the Electronic Records Management (“ERM”) segment of the medical industry.

 

On July 28, 2014, the Company formed Platinum Financial Solutions, Ltd. (“PFS”) as a 100% owned foreign subsidiary of the Company to pursue the opportunity of providing financial solutions, including factoring and accounts receivable acquisition in the healthcare sector. PFS has a Florida subsidiary, Platinum Financial Solutions, LLC, through which it may do business with U.S. based customers.

 

On August 26, 2014, MDI purchased all of the outstanding stock of Epinex Diagnostics Laboratories, Inc. (“Epinex”), a California corporation. Epinex is a clinical laboratory in Tustin, California.

 

On December 6, 2014, the Company and CollabRx, Inc. ("CollabRx") entered into a non-binding letter of intent for a potential business combination between the companies (the “Letter of Intent”). CollabRx develops and markets medical information and clinical decision support products and services intended to set a standard for the clinical interpretation of genomics-based, precision medicine in cancer.

 

On December 31, 2014, the Company borrowed $3,000,000 from D&D Funding II LLC (“D&D”). Christopher Diamantis, a director of the Company, is the manager and 50% owner of D&D.

 

Pursuant to the Letter of Intent, the Company agreed to advance certain funding to CollabRx in contemplation of the business combination. On January 16, 2015, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with CollabRx, pursuant to which the Company agreed it would loan up to $2,395,644 to CollabRx. Also on January 16, 2015, the Company entered into an Agreement with CollabRx, pursuant to which CollabRx agreed that in the event it enters into a merger or other sale transaction involving at least thirty-five percent (35.0%) of its shares or assets with a party other than the Company CollabRx will pay the Company a $1,000,000 fee.

 

On February 3, 2015, the Company borrowed $3,000,000 from Alcimede LLC, of which the CEO of the Company is the sole manager. The note has an interest rate of 6% and is due on February 2, 2016.

 

On February 19, 2015, Medytox and CollabRx entered into an amendment to the Loan Agreement. The amendment sets forth CollabRx’s agreement not to request any further advances from Medytox pursuant to the Loan Agreement until after it has spent at least the greater of (i) $1,500,000 of the proceeds of a recent offering by CollabRx of shares of its common stock and warrants or (ii) 60% of the net proceeds of the offering.

 

On April 15, 2015, the Company entered into an Agreement and Plan of Merger by and among Medytox, CollabRx, and CollabRx Merger Sub, Inc., a wholly owned subsidiary of CollabRx (“Merger Sub”), pursuant to which it is contemplated that Merger Sub would merge with and into Medytox, with Medytox surviving the merger as a wholly owned subsidiary of CollabRx.

 

Plan of Operation

 

Medytox is a holding company that owns and operates businesses in the medical services sector. Medytox has invested in a strong sales team, a client services team and proprietary technologies to better serve the needs of a modern-day medical provider.

 

The Company seeks to become a leading provider of laboratory and related services and solutions to medical providers. To date, we have specialized in providing urine and blood drug toxicology and comprehensive pain medication monitoring programs to physicians, clinics and rehabilitation facilities in the United States. We intend to grow through the acquisition and/or formation of additional laboratory testing facilities and related businesses in the United States.

 

 

Results of Operations

 

For the three months ended June 30, 2015 compared to the three months ended June 30, 2014

Net Revenues

Net revenues were $9,381,651 for the three months ended June 30, 2015 compared to $15,953,899 for the three months ended June 30, 2014, a decline of $6,572.248 or 41.1%. Volumes from insured patients increased approximately 34% over the second quarter of 2014, but the Company reduced anticipated recovery rates on insured patients based on collection history, which offset the impact of this volume growth. The anticipated recovery on billings in the second quarter was reduced to 20% as compared to 28% in the second quarter of 2014. This reduction is a continuation of trend from prior periods as the recovery rate for the first three months of 2015 was estimated to be 25%. Reimbursements per sample also declined as a consequence of reduced insurance reimbursement practices and the mix of testing performed. Net revenues for the three months ended June 30, 2015 were also reduced by $971,022 due to the Company’s clean up and write off of accounts no longer deemed to be collectible.

Operating Expenses and Other Income

For the three months ended June 30, 2015 our operating expenses were $13,973,359 as compared to $10,155,407 for the same period in 2014, an increase of $3,817,952 or 37.6%. This increase is driven by growth in general administrative expenses which were $9,396,040 for the three months ended June 30, 2015, an increase of $4,939,683 over the second quarter of 2014. The increase in general administrative expenses was due to the issuance of stock valued at $2,800,000 to certain employees and contractors during the quarter. The remainder of the general administrative expense increase reflects increased costs in IT due to continued development of the Company’s software offerings, additional administrative personnel and the first time inclusion of expenses of companies acquired in 2014. Depreciation and amortization reflected an increase in the three months ended June 30, 2015 of $439,159 due to the depreciation of software acquired in the Clinlab and Mime acquisitions. The increases in general administrative and depreciation and amortization expenses were somewhat offset by a decline in direct costs of revenues for the three months ended June 30, 2015. These costs reflected a decline of $1,518,684 as compared to the second quarter of 2014. This decrease in direct expenses is due to changes in the mix of testing being completed and timing of materials purchases. As a consequence of the IT investments, the Company has signed contracts in the third quarter of 2015 with customers for our EHR product.

As a consequence of the decline in net revenues and the increased operating expenses, the Company had a loss from operations of $4,591,708 for the three months ended June 30, 2015. For the same period in the prior year, the Company reported income from operations of $5,798,292.

 

Other expenses were $542,440 for the three months ended June 30, 2015 as compared to $100,813 for the same period of 2014 due primarily to increased interest expense.

 

As a consequence of the operating loss for the three months ended June 30, 2015, the Company has no taxable income and tax expense for the period. Rather, the Company is realizing a reduction in taxes in the amount of $878,000.

 

For the three months ended June 30, 2015, the Company is reporting a net loss attributable to Medytox Solutions’ common stockholders of $5,052,792 as compared to net income attributable to Medytox Solutions’ common stockholders of $1,988,937 for the same period in 2014.

 

For the six months ended June 30, 2015 compared to the six months ended June 30, 2014

 

Net Revenues

 

The Company’s net revenues for the six months ended June 30, 2015 were $23,030,433 as compared to net revenues of the same period in the prior year of $30,829,238, a decrease of 25.3%. Laboratory services revenues were $22,424,754 for the six months ended June 30, 2015 as compared to $30,519,321 for the six months ended June 30, 2014; a decline of 26.5%. Volumes for insured patients increased approximately 37% during the first six months of 2015. However, the beneficial impact of the increased volume was more than offset by declines in the charges per test due to changes in reimbursement practices of payors, the mix of tests being completed and an adjustment of $971,022 to clean up and write off accounts no longer deemed collectible which reduced net revenue. Further, the estimated collection percentage on charges was reduced to 22% for the six months ended June 30, 2015 as compared to 27% for the same period in 2014. The Company closed the PB Lab early in 2015 and these volumes were transitioned to the new EPIC facility. In addition to the volumes from PB Labs, EPIC had volume growth of nearly 82%. International Technologies and Alethea also contributed to the volume growth which was offset in part by a decline in volumes at the Biohealth lab.

 

 

Operating and Other Expenses

 

Operating expenses for the six months ended June 30, 2015 were $25,407,580 as compared to $18,166,868 for the six months ended June 30, 2014. This represents an increase of $7,240,712 or 39.9%. Acquisitions completed in 2014 whose operating expenses were included in the entire period ended June 30, 2015, but for only a portion of the six months ended June 30, 2014 accounted for $1,757,584 of the increase. Without these added expenses, the growth in operating expenses in the first six months of 2015 as compared to 2014 would have been $5,483,128 or 30.1%. General and administrative expenses accounted for the largest portion of the increase in operating expenses. General and administrative expenses for the six months months ended June 30, 2015 grew $6,859,658 or 83.9% over the same period in 2014. The expenses of the acquired entities accounted for $1,408,408 of the increase. Another primary driver of the increase was $2,800,000 in stock compensation costs for employees and consultants. Other drivers were increases in headcount and contract labor to support the Company’s efforts in developing IT solutions and administrative support for the growing operations. Depreciation and amortization expenses for the six months ended June 30, 2015 were $1,250,434 as compared to $396,170 for the first six months of the prior year. This increase is primarily the result of depreciation expense from the significant capital investments in laboratory equipment and amortization of the software acquired, primarily at Clinlab. Sales and marketing expenses for the six months ended June 30, 2015 increased 14.1% to $2,321,788. The increase is driven primarily by the growth in the Company’s sales force and marketing activities. Despite increased lab volumes, direct costs of revenue reflected a decrease in the six months ended June 30, 2015 as compared to the same period of 2014 of $765,251. This decrease in direct expenses is due to changes in the mix of testing being completed and timing of materials purchases. As a consequence of the IT investments, the Company has signed contracts in the third quarter of 2015 with customers for our EHR product.

 

As a consequence of the decline in net revenues and the increased operating expenses, the Company had a loss from operations of $2,377,147 for the six months ended June 30, 2015. For the same period in the prior year the Company reported income from operations of $12,662,370.

 

Other expenses were $772,492 for the six months ended June 30, 2015 as compared to $63,528 for the same period of 2014. This change was driven primarily by increased interest expense offset in part by a gain on legal settlement.

 

Despite reporting a loss before taxes of $3,149,639 for the six months ended June 30, 2015, the Company has taxable income after eliminating certain items not currently deductible for tax purposes, primarily stock compensation expenses. As a consequence the Company has reported tax expense of $98,800 for the six months ended June 30, 2015. The effective tax rate for the six months ended June 30, 2015 was (3.1%).

 

For the six months ended June 30, 2015 the Company is reporting a net loss attributable to Medytox Solutions’ common stockholders of $4,568,833 as compared to net income attributable to Medytox Solutions’ common stockholders of $5,378,907 for the same period in 2014.

 

Disputed Segment

 

The dispute with Trident Laboratories, Inc. and its shareholders originated in 2012. The assets and liabilities of Trident were excluded from the individual consolidated balance sheet line items and presented separately as assets and liabilities from disputed activity. Effective March 31, 2014, the Company’s management determined that the net assets of Trident were not recoverable and as such, the Company accounted for the disputed assets and liabilities as if they had been disposed, resulting in a gain on the disposition of $134,185. 

 

Liquidity and Capital Resources

 

Overview

 

The Company historically has utilized various credit facilities to fund working capital needs, acquisitions and capital expenditures. Future cash needs for working capital, acquisitions and capital expenditures may require management to seek additional equity or obtain additional credit facilities. The sale of additional equity could result in additional dilution to the Company's stockholders. A portion of the Company's cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies.

 

For the six months ended June 30, 2015, we funded our operations primarily through cash provided by operations and borrowings from related parties. Our principal use of funds during the six months ended June 30, 2015 has been for operating activities, additions to property and equipment, and dividends to Series B Preferred shareholders. For the six months ended June 30, 2014, we funded our operations primarily through cash provided by operations. Our principal use of funds for the six months ended June 30, 2014 was for acquisitions, dividends on Series B Preferred Stock, purchases of property and equipment and payments of notes payable and capital lease obligations. Management believes that based on the current level of operations, cash flow from operations and financing activities, the Company will have sufficient liquidity to fund anticipated expenses, tax obligations and other commitments for the next twelve months.

 

 

Liquidity and Capital Resources during the six months ended June 30, 2015 compared to the six months ended June 30, 2014

 

As of June 30, 2015, we had cash and working capital of $700,923 and $3,627,686, respectively. The Company’s operations consumed cash in the amount of $2,558,374 for the six months ended June 30, 2015 as compared to cash provided by operations of $4,643,543 for the six months ended June 30, 2014. The net loss from operations for the six months ended June 30, 2015 of $3,248,439 was the primary driver of this cash usage. Non cash charges and changes in net operating assets and liabilities in the amount of $2,009,859 offset the net loss, in part, to account for the cash consumed in the six months ended June 30, 2015. The net income from operations of $7,803,012 for the six months ended June 30, 2014, adjusted by non cash charges and changes in net operating assets aggregating $583,548 generated cash from operations of $7,219,464.

 

Cash used in investing activities was $324,750 and $2,388,353 for the six months ended June 30, 2015 and 2014, respectively. In the six months ended June 30, 2015, the Company purchased property and equipment for $324,750. Cash used in investing activities for the six months ended June 30, 2014 included $920,024 for the purchase of property and equipment and cash paid for acquisitions of $1,500,000, offset by cash received in acquisitions of $31,671.

 

Cash from financing activities was $1,177,801 for the six months ended June 30, 2015 as a result of proceeds from the issuance of notes payable of $3,030,000 offset in part by dividends on Series B Preferred Stock of $1,320,394 and payments of capital lease of $474,305 and notes payable obligations of $57,500. Cash used in financing activities for the six months ended June 30, 2014 was $3,220,846 and included $2,424,105 of dividends on Series B Preferred Stock, payments on notes payable of $659,939, and payments on capital lease obligations of $136,802.

 

Under terms of the Senior Secured Revolving Credit Facility agreement with TCA Global Credit Master Fund, LP, originally signed May 12, 2012 and as subsequently amended, the Company executed an Amended and Restated Revolving Promissory Note, due January 15, 2014, in the amount of $3,025,000. The note was extended by the lender from January 15, 2014 to September 15, 2014. The borrowings under this facility were repaid in full on September 8, 2014.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

   

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2, “Summary of Significant Accounting Policies” in our audited consolidated financial statements as of and for the year ended December 31, 2014, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2015.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

  

Not applicable

 

 

Item 4. Controls and Procedures.

  

(a)

Evaluation of Disclosure Controls and Procedures

   

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company's management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of June 30, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the interim chief financial officer, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, the Company's management concluded, as of the end of the period covered by this report, that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective. In connection with such evaluation, management concluded that the material weakness in internal control over financial reporting identified in our Form 10-Q/A for the quarter ended September 30, 2014, Form 10-K for the year ended December 31, 2014 and Form 10-Q for the quarter ended March 31, 2015 continued to exist, and as such our disclosure controls and procedures were not effective as of June 30, 2015. Insufficient staffing and accounting processes and procedures led to a lack of of contemporaneous documentation supporting the accounting for certain transactions. The Company is in the process of taking the following steps to remediate the material weakness: (i) increased the staffing of its internal accounting department, (ii) engaging outside independent consultants to assist in the analysis of complex accounting transactions, and (iii) implementing enhanced documentation procedures to be followed by the internal accounting department and outside independent consultants.

 

Notwithstanding such material weakness, management believes that the condensed consolidated financial statements included in this Form 10-Q fairly present in all material respects the Company's financial condition, results of operations and cash flows for the periods and dates presented.

 

(b)

Changes in Internal Control over Financial Reporting

 

Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

   

During the course of business, litigation commonly occurs.  From time to time the Company may be a party to litigation matters involving claims against the Company. The Company operates in a highly regulated industry and employs personnel which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company's financial position or results of operations. We do not believe that there are any proceedings threatened or pending against us, which if determined adversely, would have a material effect on our financial position or results of operations or cash flows.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 which could materially affect our business, financial condition, or future results. There have been no material changes to the risk factors previously disclosed in our 2014 Form 10-K.

 

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

   

On June 5, 2015, the Company issued 25,000 shares to an employee as part of their compensation agreement. 

 

On June 29, 2015 the Company issued 1,000,000 shares to Alcimede LLC, of which our CEO is the sole manager, upon the exercise of stock options. Alcimede offset $2,500,000 of the amount owed by the Company under its loan to pay the exercise price of the options.

 

On June 30, 2015, the Company issued 200,000 shares to each of three consultants as compensation for services rendered.

 

These securities were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.

 

Item 3. Defaults Upon Senior Securities.

  

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

2.1	Agreement and Plan of Merger dated as of April 15, 2015 (filed as Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference). (1)
10.1	Parent Support Agreement dated as of April 15, 2015 between Medytox and Thomas R. Mika (filed as Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
10.2	Form of Company Voting and Support Agreement dated as of April 15, 2015 among CollabRx and certain Medytox stockholders identified therein (filed as Exhibit 10.2  to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
10.3	Stockholders Agreement dated as of April 15, 2015 among CollabRx, Thomas R. Mika and certain Medytox stockholders identified therein (filed as Exhibit 10.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
Exhibit 31.1	Rule 13a-14(a) Certification by the Principal Executive Officer
Exhibit 31.2	Rule 13a-14(a) Certification by the Principal Financial Officer
Exhibit 32.1	Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 32.2	Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Schema Document
Exhibit 101.CAL	XBRL Calculation Link base Document
Exhibit 101.DEF	XBRL Definition Link base Document
Exhibit 101.LAB	XBRL Label Link base Document
Exhibit 101.PRE	XBRL Presentation Link base Document

   

*Furnished herewith

(1)

The Schedules to the Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Medytox will furnish copies of any schedules to the SEC upon request.

 

SIGNATURES

 

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

 

 

		MEDYTOX SOLUTIONS, INC.
Date: August 14, 2015		By: /s/ Seamus Lagan
		Seamus Lagan
		Chief Executive Officer (Principal Executive Officer)

 

 

Date: August 14, 2015		By: /s/ Jeffrey L. Wadman
		Jeffrey L. Wadman
		Interim Chief Financial Officer (Principal Financial Officer)

 

 

Exhibit Index

 

Exhibit Number	Description
2.1	Agreement and Plan of Merger dated as of April 15, 2015 (filed as Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference). (1)
10.1	Parent Support Agreement dated as of April 15, 2015 between Medytox and Thomas R. Mika (filed as Exhibit 10.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
10.2	Form of Company Voting and Support Agreement dated as of April 15, 2015 among CollabRx and certain Medytox stockholders identified therein (filed as Exhibit 10.2  to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
10.3	Stockholders Agreement dated as of April 15, 2015 among CollabRx, Thomas R. Mika and certain Medytox stockholders identified therein (filed as Exhibit 10.3 to the Company's Form 8-K filed with the Securities and Exchange Commission on April 20, 2015, and incorporated herein by reference).
Exhibit 31.1	Rule 13a-14(a) Certification by the Principal Executive Officer
Exhibit 31.2	Rule 13a-14(a) Certification by the Principal Financial Officer
Exhibit 32.1	Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 32.2	Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Schema Document
Exhibit 101.CAL	XBRL Calculation Link base Document
Exhibit 101.DEF	XBRL Definition Link base Document
Exhibit 101.LAB	XBRL Label Link base Document
Exhibit 101.PRE	XBRL Presentation Link base Document

 

*Furnished herewith

 

(1)

The Schedules to the Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Medytox will furnish copies of any schedules to the SEC upon request.