Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS
Basis of Presentation
The accompanying financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation
Nature of Business Operations
Medefile International, Inc. has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Medefile's goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. Medefile intends to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Medefile's products and services are designed to provide healthcare providers with the ability to reference their patients’ actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.
Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive Electronic Health Record (EHR). The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeFile flash drive/keychain or branded UBS-bracelet.
By subscribing to the MedeFile system, members empower themselves to take control of their own health and well-being, and empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available. In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.
MedeFile believes it enjoys a number of competitive advantages over other firms within the medical records marketplace, including:
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MedeFile has developed products and services geared to the patient, while containing the depth and breadth of information required by treating physicians and medical personnel.
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●
|
MedeFile does all the work of collecting and updating medical information on an ongoing basis; the function of our products’ dependence on the patient taking action is minimal – particularly when compared to patient action required to support competing solutions.
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●
|
MedeFile provides a complete medical record. Other companies claim complete longitudinal records, but in reality only provide histories (usually completed by the member/patient), which are by no means complete or necessarily accurate records.
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●
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MedeFile provides a coherent mix of services and products that are intended to improve the quality of healthcare by enabling the patient to manage and access the information normally retained by doctors and other care providers.
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Going Concern
The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net income of $1,427,251 for the year ended December 31, 2013. During the comparable year ended 2012, the Company had a net loss of $11,404,925, as a direct result of the change in valuation of the Company’s warrant derivative. The Company had an accumulated deficit of $27,696,097 as of December 31, 2013. The Company has negative working capital of $786,169 as of December 31, 2013.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The operating losses raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to obtain additional financing depends on the availability of its borrowing capacity, the success of its growth strategy and its future performance, each of which is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond the Company's control.
We will need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Cash and Cash Equivalents
For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. Currently our operating account is not above the FDIC limit.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. The Company incurred advertising costs for the year ended December 31, 2013 and 2012 of approximately $0 and $0 respectively.
Income Taxes
The Company accounts for
income
taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Property and Equipment
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 10 years.
Trademark Costs
Trademark costs incurred in the registration and acquisition of trademarks and trademark rights are capitalized. These costs will be amortized over the legal life of the related trademark once the trademark is awarded. The Company performs an annual review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of the assets may not be recoverable.
The Company expenses all software costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.
Website Development
The Company's policy is to capitalize website development costs at original cost and amortize the balance over the life of the product. The life of website is determined at completion of the project. The Company reviews the amounts capitalized for impairment whenever events or circumstances indicate that the carrying amounts of the assets may not be recoverable.
The Company expenses all development costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.
Revenue Recognition
The Company generates revenue from licensing the right to utilize its proprietary software for the storage and distribution of healthcare information to individuals and affinity groups. For revenue from product sales, the Company recognizes revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
Deferred Revenue
The Company generally receives subscription fees for its services. From time to time, the Company will receive quarterly or annual subscriptions paid in advance and deferred revenue is recorded at that time. The deferred revenue is amortized into revenue on a pro- rata basis each month. Customers with quarterly or annual subscriptions may cancel their subscriptions and request a refund for future months' revenues at any time. Therefore, a liability is recorded to reflect the amounts that are potentially refundable. At December 31, 2013 and December 31, 2012, deferred revenue totaled $2,075 and$4,313, respectively.
Reclassifications
Certain reclassifications have been made in prior periods financial statements to conform to classifications used in the current period.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a material effect on the Company’s financial statements.
Fair Value of Financial Instruments
Cash and Equivalents, Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities
The carrying amounts of these items approximated fair value.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
Level 1
—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2
—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3
—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:
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|
Fair Value Measurements
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Website development
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
261,340
|
|
|
$
|
261,340
|
|
Intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
1,339
|
|
|
|
1,339
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
262,679
|
|
|
$
|
262,679
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenues
|
|
$
|
2,075
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,075
|
|
Derivative Liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,062,141
|
|
|
|
1,062,141
|
|
Total
|
|
$
|
2,791
|
|
|
$
|
-
|
|
|
$
|
1,535,431
|
|
|
$
|
1,064,216
|
|
Impairment of Long Lived Assets
In accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ASC 360-10 relates to assets that can be amortized and the life can be determinable. The Company reviews property and equipment and other long-lived assets for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the asset’s carrying amount to future undiscounted net cash flows the assets are expected to generate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the assets or their fair values, whichever is more determinable.
Inventory
Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. For the years ended December 31, 2013 and 2012, the Company did not have any inventory write downs.
Net Loss per Share
Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding. Warrants to purchase 3,037,546 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the year ending December 31, 2013.
Management Estimates
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Stock Based Compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
2. ACCOUNTS RECEIVABLE
Due to the collection history of the Company, the Company does not maintain an allowance for doubtful accounts. Recognition of a specific uncollectible account is written directly against the invoice in accounts receivable and expensed in the current period.
3. WEBSITE DEVELOPMENT
Website development consists of the following:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Website development
|
|
$
|
224,946
|
|
|
$
|
62,946
|
|
Additional development
|
|
|
99,340
|
|
|
|
162,00
|
|
Accumulated amortization
|
|
|
(62,946
|
)
|
|
|
(57,701
|
)
|
Net website development
|
|
$
|
261,340
|
|
|
$
|
167,245
|
|
During May 2012 the Company began redesigning its website. The Company anticipates that the redesign will be completed by March 2014.
Amortization is calculated over a three-year period. Amortization expense for the years ending December 31, 2013 and 2012 is $5,245 and $20,961, respectively.
4. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
$
|
169,286
|
|
|
$
|
169,286
|
|
|
|
|
38,618
|
|
|
|
38,618
|
|
|
|
|
207,904
|
|
|
|
207,904
|
|
Less: accumulated depreciation
|
|
|
(207,491
|
)
|
|
|
(206,375
|
)
|
Net furniture and equipment
|
|
$
|
413
|
|
|
$
|
1,529
|
|
Depreciation is calculated by using the straight-line method over the estimated useful life. Depreciation expense totaled $1,117 and $8,749 for the year ended December 31, 2013 and 2012, respectively.
5. CONVERTIBLE DEBEBTURE – RELATED PARTY
The Company entered into two 10% Secured Convertible Debentures with a significant shareholder. The debentures carry a one year term. The debentures were issued in the amount of $50,000 on November 4, 2013 and $60,000 on December 17, 2013. Both debentures have a conversion feature at a share price of $0.10. The Company recognized a beneficial conversion feature (BCF) due to the intrinsic value of the conversion rate compared to the market price of the common stock as of the grant date. A discount is computed based on the share value at the time of issuance and amortized over the period of the debenture.
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Convertible debenture – related party
|
|
$
|
111,013
|
|
|
$
|
-
|
|
Beneficial conversion feature
|
|
|
(101,836
|
)
|
|
|
-
|
|
Convertible debenture, net of BCF
|
|
$
|
9,177
|
|
|
$
|
-
|
|
6. WARRANT LIABILITY
In connection with certain securities purchase agreements entered into during the third quarter 2011 and the second quarter 2012 (see Note 7), the Company granted warrants with ratchet provisions. The warrants contain an expiration date of four years from the date of grant. During the first two years of grant, if the Company issues any additional shares of common stock at a price per share less than the exercise price in effect, the exercise price will be adjusted to equal the average price per share received by the Company for the additional shares issued. After the first two years, if the Company issues any additional shares of common stock at a price per share less than the exercise price in effect, the exercise price will be adjusted using a formula based on the existing exercise price, the outstanding shares before and after the issuance of such shares, and the average price during the issuance of such shares. In addition to the exercise price adjustment, the number of shares upon exercise of the warrants is also subject to adjustment.
Upon grant, the Company assesses the fair value of the warrants using the Black Scholes pricing model and records a warrant liability for the value. The Company then assesses the fair value of the warrants quarterly based on the Black Scholes Model and increases or decreases the warrant liability to the new value, and records a corresponding gain or loss. The Company uses expected volatility based primarily on historical volatility using weekly pricing observations for recent periods that correspond to the expected life of the warrants. The risk-free interest rate is based on U.S. Treasury securities rates.
Due to the ratchet provisions, the Company treats the warrants as a derivative liability in accordance with the provisions of ASC 815 “Derivatives and Hedging” (ASC 815). ASC 815 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative and to any freestanding financial instruments that potentially settle in an entity’s own common stock.
As of December 31, 2013, these warrants include the following:
Warrants granted during July 2011 in connection with the sale of 35,461 shares of common stock with the right to originally purchase up to 35,461 shares of the Company’s common stock with an original exercise price of $2.50. Due to the issuance of the Company’s common stock in April 2012, the exercise price was adjusted to $0.50 and the number of shares to 1,808,511. Fair value was determined using the following variables:
|
|
Grant Date
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Risk-free interest rate at grant date
|
|
|
1.21
|
%
|
|
|
1.27
|
%
|
|
|
0.54
|
%
|
Expected stock price volatility
|
|
|
194.9
|
%
|
|
|
189.65
|
%
|
|
|
187.0
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected option in life-years
|
|
|
4
|
|
|
|
1.5
|
|
|
|
2.5
|
|
Warrants granted during April 2012 in connection with the sale of 100,000 shares of the Company’s preferred stock to a significant shareholder and brother of the Chief Executive Officer with the right to purchase up to 200,000 shares of the Company’s common stock with an exercise price of $0.50. Fair value was determined using the following variables:
|
|
Grant Date
|
|
|
December 31, 2013
|
|
Risk-free interest rate at grant date
|
|
|
0.47
|
%
|
|
|
1.27
|
%
|
Expected stock price volatility
|
|
|
137.8
|
%
|
|
|
189.65
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
Expected option in life-years
|
|
|
3.75
|
|
|
|
2
|
|
Warrants granted during April 2012 in connection with the sale of 1,000,000 shares of the Company’s common stock with an exercise price of $0.50.
|
|
Grant Date
|
|
|
December 31, 2013
|
|
Risk-free interest rate at grant date
|
|
|
0.47
|
%
|
|
|
1.27
|
%
|
Expected stock price volatility
|
|
|
137.8
|
%
|
|
|
18965
|
%
|
Expected dividend payout
|
|
|
-
|
|
|
|
-
|
|
Expected option in life-years
|
|
|
3.75
|
|
|
|
2.25
|
|
Transactions involving warrants with ratchet provisions are as follows:
|
|
Number of Warrants
|
|
|
Weighted-Average Price Per Share
|
|
Outstanding at December 31, 2011
|
|
|
1,200,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
Additional due to ratchet trigger
|
|
|
1,808,511
|
|
|
|
0.50
|
|
Outstanding at December 31, 2012
|
|
|
3,008,511
|
|
|
|
0.50
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
Addition due to ratchet trigger
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
3,008,511
|
|
|
$
|
0.50
|
|
As of December 31, 2013 and December 31, 2012, the warrant liability consisted of the following:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Warrant liability (beginning balance)
|
|
$
|
5,618,819
|
|
|
$
|
111,636
|
|
Additional liability due to new grants
|
|
|
|
|
|
|
5,078,052
|
|
Loss(gain) on changes in fair market value of warrant liability
|
|
|
(4,556,678)
|
|
|
|
429,131
|
|
Net warrant liability
|
|
$
|
1,062,141
|
|
|
$
|
5,618,819
|
|
Change in fair market value of warrant liability resulted in a gain totaling $2,366,218 and a loss of $429,131 for the years ended December 31, 2013 and 2012, respectively.
7. EQUITY
Common Stock
On October 8, 2012, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada, pursuant to which (i) the Company effected a 5,000-to-1 reverse split of its common stock and (ii) the number of authorized shares of the Company’s common stock decreased from 75,000,000,000 to 100,000,000. The market effective date of the reverse split was October 9, 2012. The effect of the stock split has been applied retroactively. On December 19, 2013 the Company increased its authorized shares of common stock from 100,000,000 to 500,000,000
2012
On March 1, 2012, the Company issued 10,714 shares of common stock to a consultant. The market value of the shares was $42,859,
On April 18, 2012, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, on April 18, 2012, the Company sold 1,000,000 shares of common stock for an aggregate purchase price of $500,000, and the Company issued four-year warrants to purchase 1,000,000 shares of common stock to the investors with an exercise price of $0.50. The investors were purchasers under the Company’s Securities Purchase Agreements entered into in July 2011.
On April 23, 2012, the Company issued an aggregate of 7,980,133 shares of common stock to certain shareholders of the Company, in accordance with anti-dilution rights held by such shareholders, including 5,383,594 shares to Lyle Hauser valued at par $539, 1,632,000 shares to Kevin Hauser valued at fair market value for compensation expense of $9,792,000, and 964,539 shares valued at par $96 to purchasers under Securities Purchase Agreements entered into by the Company in July 2011. Lyle Hauser is the Company’s largest shareholder and the brother of Kevin Hauser, the Company’s chief executive officer.
On May 15, 2012, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, on May 15, 2012, the Company sold 600,000 shares of common stock for an aggregate purchase price of $300,000, and the Company issued four-year warrants to purchase 600,000 shares of common stock to the investors with an exercise price of $0.50. The investors were purchasers under the Company’s Securities Purchase Agreements entered into in July 2011.
On June 26, 2012, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, on June 26, 2012, the Company sold 200,000 shares of common stock for an aggregate purchase price of $100,000, and the Company issued four-year warrants to purchase 200,000 shares of common stock to the investors with an exercise price of $0.50. The investors were purchasers under the Company’s Securities Purchase Agreements entered into in July 2011. The Company issued 100,000 shares on July 18, 2012 and the remaining 100,000 shares on November 14, 2012.
On July 16, 2012, the Company issued 24,000 shares of common stock to a consultant in the amount of $60,000.
On September 20, 2012, the Company sold 100,000 shares of common stock for a purchase price of $50,000. The shares were issued on November 14, 2012
On August 24, 2012, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 500,000 shares of common stock for an aggregate purchase price of $250,000.
2013
On January 17, 2013 the Company entered into a Securities Purchase Agreement pursuant to which, the Company sold 400,000 shares of common stock for an aggregate purchase price of $200,000
On April 15, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which the Company sold 2,000,000 shares of common stock for an aggregate purchase price of $400,000.
On May 1, 2013 the Company issued an aggregate of 11,872,281shares of common stock to purchasers under the securities purchase agreements entered into by the Company in July 2011 and April 2012 pursuant to anti-dilution rights held by such purchasers.
On August 27, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 42,743 shares of common stock for an aggregate purchase price of $29,920.
On September 23, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 21,429 shares of common stock for an aggregate purchase price of $15,000.
On December 17, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 2,000,000 shares of common stock for an aggregate purchase price of $40,000. The shares are currently unissued.
In connection with this sale, the Company will issue an aggregate of 150,129,655 shares of common stock to existing stockholders for no additional consideration pursuant to anti-dilution rights held by such stockholders. These shares have not yet been issued.
On December 20, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 15,000,000 shares of common stock for an aggregate purchase price of $300,000.
Preferred Stock
On April 10, 2012, the Company filed a certificate of designation of Series B Preferred Stock (the “Series B Certificate of Designation”) with the Secretary of State of Nevada, pursuant to which 100,000 shares of the Company’s preferred stock were designated as Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Pursuant to the Series B Certificate of Designation, the Series B Preferred Stock:
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Has a liquidation preference over the common stock equal to the stated value of $1.00 per share.
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Votes as a single class with the common stock and entitles its holders, for each share of Series B Preferred Stock, to cast such number of votes equal to 0.00051% of the total number of votes entitled to be cast. Accordingly, a holder of all 100,000 shares of Series B Preferred Stock will have the right to cast 51% of the total number of votes entitled to be cast.
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Will automatically convert into common stock at a ratio of 2 shares of common stock for each share of Series B Preferred Stock, effective upon the Company’s filing of a certificate of amendment to its articles of incorporation.
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On April 12, 2012, the Company entered into a securities purchase agreement with Lyle Hauser (the “Preferred Stock Investor”). Lyle Hauser is the Company’s largest shareholder and the brother of Kevin Hauser, the Company’s chief executive officer. Pursuant to the purchase agreement, on April 12, 2012, the Company sold 100,000 shares of Series B Preferred Stock to the Preferred Stock Investor for an aggregate purchase price of $100,000, and the Company issued four-year warrants to purchase 200,000 shares of common stock to the Preferred Stock Investor with an exercise price of $0.50. On April 23, 2012, 100,000 Series B Preferred shares were converted to 200,000 shares of common stock
Stock Options
2006 Incentive Stock Plan
In January 2006, the Board of Directors of the Company approved an Incentive Stock Plan, pursuant to which they have initially reserved 2,000 shares of common Stock for issuance. Under the 2006 Incentive Stock, the Board has granted an aggregate of
1,128
options to employees pursuant to certain employment agreements. All previously granted options have expired unexercised.
2008 Amended and Restated Incentive Stock Plan
In November 2008, our Board of Directors adopted the 2008 Equity Incentive Plan and subsequently amended it in January 2009, June 2009 and July 2009 (the “2008 Plan”). The purpose of the 2008 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2008 Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2008 Plan will be administered by our Board of Directors until such time as such authority has been delegated to a committee of the board of directors.
2010 Incentive Stock Plan
In December 2009, our Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The purpose of the 2010 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2010 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2010 Plan will be administered by our Board of Directors until such time as such authority has been delegated to a committee of the Board of Directors.
Other Warrants
During the first quarter of 2008 the Company awarded 35 Common Stock warrants, at an exercise price of $2800 per share, to former Board members at the quoted stock price on the effective date of the awards. The warrants have an expiration date of five years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions:
Risk-free interest rate at grant date
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Expected stock price volatility
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Expected option in life-years
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On June 22, 2011, the Company awarded 2,000 Common Stock warrants, at an exercise price of $50 per share, to consultants for services at the quoted stock price on the effective date of the awards. The warrants have an expiration date of four years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions listed below:
On July 28, 2011, the Company awarded 27,000 Common Stock Warrants, at an exercise price of $25 per share to consultants for services at the quoted stock price on the effective date of the awards. The warrants have an expiration date of three years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services was determined using the Black-Scholes pricing model and the assumptions listed below.
Risk-free interest rate at grant date
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Expected stock price volatility
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Expected option in life-years
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Transactions involving warrants are summarized as follows:
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Number of Warrants
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Weighted-Average Price Per Share
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Outstanding at December 31, 2011
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29,035
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30.07
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-
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-
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Outstanding at December 31, 2012
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29,035
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$
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30.07
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-
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-
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-35
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28.00
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-
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Outstanding at September30, 2013
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29,000
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$
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48.27
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Warrants Outstanding
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Weighted
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Average
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Remaining
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Exercise
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Number
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Contractual
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Prices
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Outstanding
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Life (years)
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8. RELATED PARTY TRANSACTIONS
On
December 17, 2013, the Company entered into a Securities Purchase Agreement with accredited investors pursuant to which, the Company sold 2,000,000 shares of common stock for an aggregate purchase price of $40,000. The shares are currently unissued
During the fourth quarter of 2013, the Company sold two 10% Secured Convertible Promissory Notes from a significant shareholder in the amount of $110,000. The notes have a one year term.
9. SUBSEQUENT EVENTS
On January 27, 2014, Kevin Hauser resigned as President, Chairman, and Chief Executive Officer of MedeFile International, Inc. (the “Company”). Mr. Hauser will continue to support the Company’s new business development activities on a consulting basis as a member of MedeFile’s sales and marketing team.
On January 28, 2014, Niquana Noel was appointed Chairwoman, President and Chief Executive Officer of the Company.