Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[
] Yes [X] No
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the
Act.
[ ] Yes [X] No
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.
[X] Yes [
] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
[
] Yes [X] No
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrants most recently
completed second fiscal quarter.
Note.If a determination as to whether a particular person or
entity is an affiliate cannot be made without involving unreasonable effort and
expense, the aggregate market value of the common stock held by non-affiliates
may be calculated on the basis of assumptions reasonable under the
circumstances, provided that the assumptions are set forth in this Form.
As of June 30, 2015, the aggregate market value of voting stock
held by non-affiliates of the registrant, based on the closing sales price of
Common Stock on OTCQB was approximately $3,485,941.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
[ ] Yes [ ] No
Indicate the number of shares outstanding of each of the
registrants classed of common stock, as of the latest practicable date.
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).
The discussion contained in this Annual Report on Form 10-K
contains forward-looking statements within the meaning of Section 27A of the
United States Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the United States Securities Exchange Act of 1934, as amended, or
the Exchange Act. Any statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and may be forward-looking. These statements are often, but not always, made
through the use of words or phrases like anticipate, estimate, plans,
projects, continuing, ongoing, target, expects, management believes,
we believe, we intend, we may, we will, we should, we seek, we
plan, the negative of those terms, and similar words or phrases. We base these
forward-looking statements on our expectations, assumptions, estimates and
projections about our business and the industry in which we operate as of the
date of this Form 10-K. These forward-looking statements are subject to a number
of risks and uncertainties that cannot be predicted, quantified or controlled
and that could cause actual results to differ materially from those set forth
in, contemplated by, or underlying the forward-looking statements. Statements in
this Form 10-K describe factors, among others, that could contribute to or cause
these differences. Actual results may vary materially from those anticipated,
estimated, projected or expected should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect.
Because the factors discussed in this Form 10-K could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statement made by us or on our behalf, you should not place undue reliance on
any such forward-looking statement. New factors emerge from time to time, and it
is not possible for us to predict which will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statement. Except as required by
law, we undertake no obligation to publicly revise our forward-looking
statements to reflect events or circumstances that arise after the date of this
Form 10-K or the date of documents incorporated by reference herein that include
forward-looking statements.
PART I
Overview and Description of business
Millennium Healthcare Inc.
(Millennium or the Company) is a medical device and healthcare support and
services company. The Company purchases, supplies and distributes revolutionary
medical devices and equipment with a focus on prevention and early detection.
The Company is currently re-launching this business. The Company also provides
physician practice administration with a focus on physician practices
specializing in cardiovascular procedures. In addition, the Company provides
support and services specializing in medical procedure billing and collections,
medical procedure coding, call and message management, and emergency dispatch.
The Company is currently re-focusing efforts and streamlining this business. The
marketplace for the Companys products and services continues to be high quality
physician offices, practices and facility locations with competent and caring
doctors and staff. The Company was incorporated in Delaware on July 5, 1994
under the name Kirlin Holding Corp. In July 2008, the Company changed its name
to Zen Holding Corp. in connection with the sale of its subsidiary. On June
14, 2011, the Company entered into an asset purchase agreement with Millennium
HealthCare Solutions Inc. (MHS), whereby it purchased assets of MHS along with
assets of its wholly-owned subsidiaries. The Companys executive office is
located at 445 Broad Hollow Road, Suite 25, Melville, NY 11747. The Companys
telephone number is 516-628-5500. Unless otherwise specified, references to the
Company, we, our and us refer to Millennium Healthcare Inc. and, unless
otherwise specified, its subsidiaries.
Emerging Growth Company Status
We are an "emerging growth
company", as defined in the Jumpstart Our Business Startups Act enacted on April
5, 2012 (the "JOBS Act"). For as long as we are an emerging growth company, we
may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth
companies, including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding
advisory "say-on-pay" and "say-when-on-pay" votes on executive compensation and
shareholder advisory votes on golden parachute compensation.
Under the JOBS Act, we will
remain an emerging growth company until the earliest of:
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the last day of the fiscal year during which we have
total annual gross revenues of $1 billion or more;
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the last day of the fiscal year following the fifth
anniversary of the date of the first sale of our common stock;
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the date on which we have, during the previous three-year
period, issued more than $1 billion in non-convertible debt; or
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the date on which we are deemed to be a "large
accelerated filer" under the Securities Exchange Act of 1934 (the
"Exchange Act") (we will qualify as a large accelerated filer as of the
first day of the first fiscal year after we have (i) more than $700 million in outstanding common equity held by
our non-affiliates and (ii) been public for at least 12 months; the value of our
outstanding common equity will be measured each year on the last day of our
second fiscal quarter).
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The JOBS Act also provides that an emerging growth company may
utilize the extended transition period provided in Section 7(a)(2)(B) of the
Securities Act, for complying with new or revised accounting standards. However,
we are choosing to "opt out" of such extended transition period, and, as a
result, we will comply with new or revised accounting standards on the relevant
dates on which adoption of such standards is required for companies that are not
emerging growth companies. Section 107 of the JOBS Act provides that our
decision to opt out of the extended transition period for complying with new or
revised accounting standards is irrevocable.
Products and Services
Medical Device Distribution
The Company is currently
re-launching its medical equipment and device business. Through its wholly owned
subsidiary, the Company will focus on forming strategic alliances and
partnerships with medical device and technology companies that provide
innovative and revolutionary medical devices that utilize cutting edge
technology, are cost effective and cleared by the Food and Drug Administration
(FDA). The devices that the Company plans to distribute are mainly focused on
preventative and diagnostic testing and care with the anticipation of detecting
potential medical issues in their early stages yielding positive medical
outcomes. All of the products that the Company plans to distribute have obtained
necessary approvals and certifications and are reimbursable under current
medical procedure billing codes.
During 2013, the Company entered
into a series of distribution agreements with manufacturers for various medical
devices including an exclusive nationwide distribution agreement with CDx
Diagnostics Inc. for an oral cancer biopsy test, with Heart Smart Inc. for a
heart health test and assessment device (VasoScan) and eWellness Corporation
for distance monitored physical therapy programs.
During 2015, the Company entered
into a distribution agreement and a marketing agreement with a healthcare
products company and its UroVal Bulbocavernousus Reflex Latency System (BRS)
which measures the Bulbocavenosus reflex to show effective sacral nerve response
utilizing mechanical stimulation and a consulting agreement with SMA Medical
Inc., a specialty medical laboratory that handles tests from basic and
preventative screenings to the most innovative testing procedures using leading
edge technology and automated computer driven routines to perform certain
laboratory, development, optimization and related services.
Practice Support and Administration
Through its wholly owned
subsidiaries, the Company continues to offer physician practice support and
administration services for physician facilities and practices. The Company
offers complete and comprehensive administrative services to practices assisting
and supporting physicians operate and manage their facility, helping physicians
to enhance their practice to deliver the most effective and efficient healthcare
services in a safe, convenient, patient-friendly environment. These individual
specialized healthcare provider support services include business management,
information technology, equipment procurement, advanced medical procedure coding
and medical procedure billing and collections and high quality call answering
and emergency dispatch services providing call and answering management,
messaging and paging services. The Company is currently re-focusing and
streamlining this business.
Distribution Methods
For its medical device and
equipment business, the Company seeks purchase, supply and distribution
agreements with labs, manufacturers and/or distributors for specific products
the Company chooses to market and distribute. Once arrangements have been made
to procure inventory for such products, all distribution and fulfillment will be
completed by a national warehousing and fulfillment company to facilitate the
Companys product support and distribution operations incorporating fulfillment,
warehousing, logistics and distribution services.
For its physician practice
support and administration business, the Company seeks administrative service
agreements with physicians and/or medical PCs for specific administrative
services. The distribution of administrative services contracted for will be
completed and fulfilled by the Companys employees, consultants and agents. The
Company concentrates on back office and administration duties solely under the
direction of the physician or medical PC.
5
Suppliers
Medical Device Distribution
Currently, the Companys order
fulfillment will be handled by a contracted provider. In order to meet the
Companys high quality standards for product creation and development, the
Companys warehousing and fulfillment provider(s) will be directed to receive
purchases from primary suppliers/vendors. They then assemble, pick, pack, and
fulfill orders for final delivery by FedEx ground or air from orders that are
received and transmitted through the Company. Suppliers for medical devices and
technology include CDx Diagnostics Inc., HeartSmart Inc., UroVal and SMA Medical
Inc.
Practice Support and Administration
Currently, the Companys order
fulfillment for medical supplies monitored and maintained on behalf of a
physician practice will be handled by an independent contractor at the facility.
In order to meet the Companys high quality standards and to ensure physician
and facility needs are met, independent contractors on site will work with
supplier reps and purchase from a variety of vendors. Arrangements are then made
for final delivery to the physicians facility. Suppliers for medical supplies
the Company may monitor and maintain on behalf of a physician practice include
Abbott Vascular, Merit Medical Systems Inc., CR Bard Inc. and St. Jude Medical.
Competition
Medical Device Distribution
The Companys medical device
distribution business operates in competitive areas and markets. Basic barriers
to entry-level product distribution in the healthcare industry can be relatively
low and the products the Company distributes may face challenges in market
adoption due to the reliance of physicians and other medical professionals on
existing devices, equipment and diagnostic tools. In addition, physicians and
other medical professionals may view certain devices distributed by the Company
as a screening tools for existing illnesses, rather than as early detection or
preventative tools. As a result, these products may be deemed to compete
directly with existing, established procedures, which could impair market
adoption of such products.
The Company pursues to secure
exclusive and non-exclusive distribution agreements for the products it
distributes and as such, the Company does not believe that it currently faces
significant competition in providing medical devices and equipment to healthcare
providers and practices. The Company believes that the devices it distributes
are well positioned to compete in markets based on the innovative, high quality
devices being offered, the reputations of the physicians utilizing the devices,
as well as the Companys and its management teams experience; however, there
can be no assurance that these devices will be able to compete effectively with
existing devices in their markets or that new devices or technologies or
competitors will not enter into their markets or that the equipment and devices
being distributed will be readily accepted into their markets. These existing
and new competitors may have greater financial and other resources than the
Company and/or the products manufacturers. The Company faces increased
competition from existing equipment and devices, as well as the development of
new medical equipment, technology and devices entering its markets.
Practice Support and Administration
The Companys physician practice
support and administration business operates in competitive areas and markets.
The Companys clients compete with other practice providers, practices and
surgical clinics that provide the same or similar procedures. Basic barriers to
entry-level practice support and management in the healthcare industry can be
relatively low.
The Company does not believe that
it currently faces significant competition in providing administration and
support services to cardiovascular practices. The Company believes that the
cardiovascular practices it seeks to manage and work with are well positioned to
compete in markets based on the reputations of the physicians providing services
at those practice facilities, as well as the Companys and its management teams
experience; however, there can be no assurance that these physician practices
will be able to compete effectively with existing providers in their markets or
that new competitors will not enter into their markets. These existing and new
competitors may have greater financial and other resources than the Company or
the practices under management do. The Company faces increased competition from
existing practices, as well as new healthcare management companies and
healthcare providers entering its markets.
As the Company distributes
medical devices and equipment and also provides a full suite of administration,
support and consulting services to physicians and healthcare providers, the
Companys products and services appeal and apply to a vast array of clientele.
As such, these businesses can have no real dependency on any one type or class
of customer.
Intellectual Property
The Company has the following
intellectual properties:
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United States Letters Patent entitled Safety
Syringe - application serial no. 12/931,053 filed on January 21, 2011
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Government Regulations
To the best of its knowledge,
there are currently no known existing or probable government regulations that
may adversely affect the Companys business, however, a severe and/or drastic
change in the governments reimbursement rates, policies and/or procedures, for
both targeted medical devices and practice management procedures along with the
related medical coding and billing for such devices and services could have a
material effect on the Companys business.
Information Systems:
The
Companys information systems, to the extent such systems hold or transmit
patient medical information, operate in compliance with state and federal laws
and regulations relating to the privacy and security of patient medical
information, including the Health Insurance Portability and Accountability Act
(HIPAA). While the Company has endeavored to establish its information systems
to be compliant with such laws, including HIPAA, such laws are complex and
subject to interpretation.
United States Medical Device
Regulation:
The Federal Food, Drug, and Cosmetic Act (FDCA), and the FDAs
implementing regulations, govern registration and listing, manufacturing,
labeling, storage, advertising and promotion, sales and distribution, and
post-market surveillance. Medical devices and their manufacturers are also
subject to inspection by the FDA. The FDCA, supplemented by other federal and
state laws, also provides civil and criminal penalties for violations of its
provisions. The Company distributes and markets medical devices that, when
manufactured, may be regulated by the FDA, comparable state agencies and
regulatory bodies.
Privacy and Security of Health
Information and Personal Information; Standard Transactions:
The Company may
be engaged by a healthcare practice or facility that is considered a Covered
Entity under the terms of HIPPA. In providing and performing administration and
support services for such Covered Entities (i.e. physician practices and
laboratories), such as medical coding and medical billing, medical chart review,
healthcare facility call and message management, healthcare emergency dispatch
and physician practice administration, the company may come in contact with a
Covered Entitys confidential patient medical information. Under such an
engagement, the Covered Entity may make available and/or transfer to the Company
certain Protected Health Information, as that term is defined and certain
Electronic Protected Health Information ("EPHI") as that term is defined, in
connection with goods or services that are being provided by the Company to the
Covered Entity, that is confidential and subject to protection under HIPAA,
HIPAA regulations and the HITECH Act. As such, the Company would be considered a
Business Associate of the Covered Entity and further be subject to state and
federal laws and implementing regulations relating to the privacy and security
of the medical information of the patients the Companys client physician
practices and facilities treat. The Company, as a Business Associate, is
subject to state and federal laws and implementing regulations relating to the
privacy and security of the medical information of the patients its client
physicians treat. The principal federal legislation is part of HIPAA, pursuant
to which, the Secretary of the Department of Health and Human Services, or
HHS, has issued final regulations designed to improve the efficiency and
effectiveness of the healthcare system by facilitating the electronic exchange
of information in certain financial and administrative transactions, while
protecting the privacy and security of the patient information exchanged. These
regulations also confer certain rights on patients regarding their access to and
control of their medical records in the hands of healthcare providers.
Four principal regulations have
been issued in final form: privacy regulations, security regulations, standards
for electronic transactions, and the National Provider Identifier regulations.
The HIPAA privacy regulations, which fully came into effect in April 2003,
establish comprehensive federal standards with respect to the uses and
disclosures of an individuals personal health information, referred to in the
privacy regulations as protected health information, by health plans,
healthcare providers, and healthcare clearinghouses. The Company is a Business
Associate within the meaning of HIPAA. HIPAA requires health care providers to
enter into Business Associate contracts with certain businesses to which they
disclose patient health information. These Business Associate contracts
generally require the recipients of such information to use appropriate
safeguards to protect the patient health information they receive. The
regulations establish a complex regulatory framework on a variety of subjects,
including:
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Provide that the company obtain and use confidential
patient health information obtained from its clients only as necessary to
perform customer service and support functions;
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Limit access to such information to those employees and
agents who perform identified service and support functions;
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Prohibit disclosure of patient health information
received from clients to persons who are not employees or agents of the
company in the absence of express approval from the legal department and,
if appropriate, the client and/or patient;
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Require all employees and agents of the company to report
uses and disclosures of patient information that are not permitted by the
companys Privacy and Security Policy;
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Provide that the company investigate all reports that
patient health information was used in a manner not permitted by its
Privacy and Security Policy and will impose appropriate sanctions for
conduct prohibited by the policy as required and/or permitted by law;
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Establish and ensure that the companys employees and
agents who may come in contact with patient health information receive
training regarding the companys Privacy and Security Policy and the
importance of protecting the privacy and security of patient health
information;
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Provide for the storage and transmission of patient
health information received from clients in a secure manner that protects
the integrity, confidentiality and availability of the information; and
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Establish that the companys employees, contractors and
agents who may come in contact with patient health information maintain
any and all protected health information obtained through operating their
respective businesses confidential, and agree and acknowledge that such
information is subject to protection under HIPAA, the HIPAA regulations
and the HITECH Act and will conduct their businesses according to such.
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The federal privacy regulations,
among other things, restricts the Companys ability to use or disclose protected
health information in the form of patient-identifiable data, without written
patient authorization, for purposes other than payment, physician treatment, or
healthcare operations (as defined by HIPAA) except for disclosures for various
public policy purposes and other permitted purposes outlined in the privacy
regulations. The privacy regulations provide for significant fines and other
penalties for wrongful use or disclosure of protected health information,
including potential civil and criminal fines and penalties. Although the HIPAA
statute and regulations do not expressly provide for a private right of damages,
the Company could incur damages under state laws to private parties for the
wrongful use or disclosure of confidential health information or other private
personal information.
The Company has implemented
policies and practices that it believes brings it into compliance with the
privacy regulations. However, the documentation and process requirements of the
privacy regulations are complex and subject to interpretation. Failure to comply
with the privacy regulations could subject the Company to sanctions or
penalties, loss of business, and negative publicity.
The HIPAA privacy regulations
establish a floor of minimum protection for patients as to their medical
information and do not supersede state laws that are more stringent. Therefore,
the Company is required to comply with both HIPAA privacy regulations and
various state privacy laws. The failure to do so could subject the Company to
regulatory actions, including significant fines or penalties, and to private
actions by patients, as well as to adverse publicity and possible loss of
business. In addition, federal and state laws and judicial decisions provide
individuals with various rights for violation of the privacy of their medical
information by healthcare providers.
The final HIPAA security
regulations, which establish detailed requirements for physical, administrative,
and technical measures for safeguarding protected health information in
electronic form, became effective on April 21, 2005. The Company has employed
what it considers to be a reasonable and appropriate level of physical,
administrative and technical safeguards for patient information. Failure to
comply with the security regulations could subject the Company to sanctions or
penalties and negative publicity.
The final HIPAA regulations for
electronic transactions, referred to as the transaction standards, establish
uniform standards for certain specific electronic transactions and code sets and
mandatory requirements as to data form and data content to be used in connection
with common electronic transactions, such as billing claims, remittance advices,
enrollment, and eligibility. The Company has outsourced to a third-party vendor
the handling of its billing and collection transactions, to which the
transaction standards apply. Failure of the vendor to properly conform to the
requirements of the transaction standards could, in addition to possible
sanctions and penalties, result in payors not processing transactions submitted
on the Companys behalf, including claims for payment.
The HIPAA regulations on adoption
of national provider identifiers, or NPI, required healthcare providers to adopt
new, unique identifiers for reporting on claims transactions submitted after May
23, 2007. The Company may obtain NPIs for our client physicians so that we may
report NPIs to Medicare, Medicaid, and other health plans on their behalf.
The healthcare information of the
Companys client physicians patients includes social security numbers and other
personal information that are not of an exclusively medical nature. The consumer
protection laws of a majority of states now require organizations that maintain
such personal information to notify each individual if their personal
information is accessed by unauthorized persons or organizations, so that the
individuals can, among other things, take steps to protect themselves from
identity theft. The costs of notification and the adverse publicity can both be
significant. Failure to comply with these state consumer protection laws can
subject a company to penalties that vary from state to state, but may include
significant civil monetary penalties, as well as to private litigation and
adverse publicity. California recently enacted legislation that expanded its
version of a notification law to cover improper access to medical information
generally, and other states may follow suit.
8
Federal and State Fraud and
Abuse Laws:
The federal healthcare Anti-Kickback Statute prohibits, among
other things, knowingly and willfully offering, paying, soliciting, or receiving
remuneration to induce referrals or in return for purchasing, leasing, ordering,
or arranging for the purchase, lease, or order of any healthcare item or service
reimbursable under a governmental payor program. The definition of
remuneration has been broadly interpreted to include anything of value,
including gifts, discounts, the furnishing of supplies or equipment, credit
arrangements, payments of cash, waivers of payments, ownership interests,
opportunity to earn income, and providing anything at less than its fair market
value. The Anti-Kickback Statute is broad, and it prohibits many arrangements
and practices that are lawful in businesses outside of the healthcare industry.
Recognizing that the Anti-Kickback Statute is broad and may technically prohibit
many innocuous or beneficial arrangements within the healthcare industry, HHS
has issued a series of regulatory safe harbors. These safe harbor regulations
set forth certain provisions that, if met, will provide healthcare providers and
other parties with an affirmative defense against prosecution under the federal
Anti-Kickback Statute. Although full compliance with these provisions ensures
against prosecution under the federal Anti-Kickback Statute, the failure of a
transaction or arrangement to fit within a specific safe harbor does not
necessarily mean that the transaction or arrangement is illegal or that
prosecution under the federal Anti-Kickback Statute will be pursued.
Physician Referral
Prohibitions:
Under a federal law directed at self-referral, commonly
known as the Stark Law, prohibitions exist, with certain exceptions, on Medicare
and Medicaid payments for procedures/tests referred by physicians who
personally, or through a family member, have an investment interest in, or a
compensation arrangement with, the facility performing the procedures/tests. A
person who engages in a scheme to circumvent the Stark Laws referral
prohibition may be fined up to $100,000 for each such arrangement or scheme. In
addition, any person who presents or causes to be presented a claim to the
Medicare or Medicaid programs in violation of the Stark Law is subject to civil
monetary penalties of up to $15,000 per bill submission, an assessment of up to
three times the amount claimed, and possible exclusion from participation in
federal governmental payor programs. Bills submitted in violation of the Stark
Law may not be paid by Medicare or Medicaid, and any person collecting any
amounts with respect to any such prohibited bill is obligated to refund such
amounts.
Any arrangement between a
facility and a physician or physicians practice that involves remuneration will
prohibit the facility from obtaining payment for services resulting from the
physicians referrals, unless the arrangement is protected by an exception to
the self-referral prohibition or a provision stating that the particular
arrangement would not result in remuneration. Among other things, a facilitys
provision of any item, device, or supply to a physician would result in a Stark
Law violation unless it was used only to collect, transport, process, or store
specimens for the facility, or was used only to order tests or procedures or
communicate related results. This may preclude a facilitys provision of fax
machines and computers that may be used for unrelated purposes. Most
arrangements involving physicians that would violate the Anti-Kickback Statute
would also violate the Stark Law. Many states also have self-referral and
other laws that are not limited to Medicare and Medicaid referrals. These laws
may prohibit arrangements which are not prohibited by the Stark Law, such as a
laboratorys placement of a phlebotomist in a physicians office to collect
specimens for the laboratory. Finally, recent amendments to these laws require
self-disclosure of violations by providers.
Corporate Practice of
Medicine:
The Companys contractual relationships with licensed healthcare
providers are subject to regulatory oversight, mainly by state licensing
authorities. In certain states, for example, limitations may apply to the
relationship with the provider that the Company intends to engage, particularly
in terms of the degree of control that the Company exercises or has the power to
exercise over the practice of medicine by those providers. A number of states,
including New York, Texas, and California, have enacted laws prohibiting
business corporations, such as the Company, from practicing medicine and
employing or engaging physicians to practice medicine. These requirements are
generally imposed by state law in the states in which we operate, vary from
state to state, and are not always consistent among states. In addition, these
requirements are subject to broad powers of interpretation and enforcement by
state regulators. Some of these requirements may apply to the Company even if it
does not have a physical presence in the state, based solely on the engagement
of a healthcare provider licensed in the state or the provision of services to a
resident of the state. The Company believes that it operates in material
compliance with these requirements. However, failure to comply can lead to
action against the Company and the licensed healthcare professionals that the
Company engages, fines or penalties, receipt of cease and desist orders from
state regulators, loss of healthcare professionals licenses or permits, the
need to make changes to the terms of engagement of those professionals that
interfere with the Companys business, and other material adverse consequences.
Referrals of a Public
Company:
The Companys stock is currently quoted on the OTC Bulletin Board,
and as such, is not able to accept referrals from physicians who own, directly
or indirectly, shares of our stock unless we comply with the Stark Law exception
for publicly traded securities. This requires, among other things, $75 million
in stockholders equity (total assets minus total liabilities). The parallel
safe harbor requires, among other things, $50 million in undepreciated net
tangible assets, in order for any distributions to such stockholders to be
protected under the Anti-Kickback Statute.
Compliance Programs:
Compliance with government rules and regulations is a significant concern
throughout the industry, in part due to evolving interpretations of these rules
and regulations. The Company seeks to conduct its business in compliance with
all statutes and regulations applicable to its operations. To this end, the
Company has established and continues to establish compliance programs that
review for regulatory compliance procedures, policies, and facilities throughout
its business.
9
Employees
As of November 30, 2016, the Company
had four (4) full-time employees. None of our employees are represented by a
labor union, and we consider relations with our employees to be good.
The officers of the Company and
the Companys subsidiaries have the same powers and duties with respect to the
management of the business affairs for the Company and the oversight of the
day-to-day management operations for the Company as officers of a business would
have. They perform such other reasonable duties (taking into consideration the
persons position in the Company) as may be prescribed by the Board of Directors
of the Company from time to time. They are obligated to use best efforts to
serve the Company faithfully and promote its best interests and shall devote all
of his/her business time, attention and services to the faithful and competent
discharge of such duties.
An investment in the Companys common stock is speculative
and involves an extremely high degree of risk. You should carefully consider the
risks described below and the other information contained in this report before
deciding to invest in the Companys common stock. These risks and uncertainties
should be considered in evaluating forward-looking statements and you should not
place undue reliance on these forward-looking statements. We undertake no
obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
in the future or to reflect the occurrence of unanticipated events, except as
required by U.S. federal securities laws. The risks and uncertainties described
below are not the only ones facing the Company. Additional risks and
uncertainties may also adversely impair the Companys business operations. If
any of such risks actually occur, the Companys business, financial condition or
results of operations would likely suffer significantly. If any of such risks
actually occur, the Companys business, financial condition or results of
operations would likely suffer significantly. In such case, the value of the
Companys common stock could decline, and you may lose all or part of the money
you paid to buy the Companys securities. You should only purchase our
securities if you can afford to suffer the loss of your entire investment.
RISKS RELATED TO OUR BUSINESS
The Company has incurred operating losses since inception
and the Companys auditor has expressed substantial doubt about our ability to
continue as a going concern.
The Company commenced generating
revenues from operations in 2011. The Company has incurred operating losses for
the past several years and has a working capital deficiency of $34,839,476 and
an accumulated deficit of $34,710,426 as of December 31, 2015.
In their report dated November
30, 2016, the Companys independent registered auditor, Paritz & Company
PA, stated that the Companys financial statements for the fiscal year ended
December 31, 2015, were prepared assuming that it would continue as a going
concern. However, they also expressed substantial doubt about the Companys
ability to continue as a going concern. The Company continues to experience
operating losses. As of the date of this report, the Company is currently traded
on the OTC:Pink and is currently a non-reporting, non-current Company. We can
give no assurance as to our ability to raise sufficient capital or our ability
to continue as a going concern.
The Companys success depends on the successful raise of
sufficient working capital.
The success of the Companys
business strategy depends on the Companys ability to successfully secure
raising additional working capital. The Companys ability to continue as a going
concern is an issue raised as a result of significant losses due to certain debt
instruments. The Company also continues to experience operating losses. Although
not specifically determined at this time, the Company intends to continue to
investigate and pursue options and methods of raising capital to meet its
financing needs and financial goals, however we can give no assurance as to our
ability to raise such sufficient capital or our ability to continue as a going
concern.
The Company is dependent on the continued participation
and level of service of its third-party service provider(s).
The Company relies on third-party
service providers to provide certain services to us and/or our customers. If any
of these third-party service providers stop supporting the Company or if our
network of providers does not expand, we will likely have to expand our internal
team to meet the needs of our customers, which could increase our operating
costs and result in lower gross margins. We can make no assurance that we will
be able to establish and maintain the third-party relationships or establish
additional relationships as necessary to support growth and profitability of our
business on economically viable terms.
10
Defects, failures or quality issues associated with the
products the Company distributes could lead to recalls or safety alerts,
negative publicity regarding the Company and litigation, including product
liability claims, that could adversely affect its business and reputation and
result in loss of customers. Loss reserves are difficult to estimate.
The design, manufacture and
marketing of medical devices and technologies of the types the Company
distributes entail inherent risks. There are a number of factors that could
result in an unsafe condition, injury or death of a patient with respect to
products that the Company distributes, including quality issues, component
failures, manufacturing flaws, unanticipated or improper uses of the products,
design defects or inadequate disclosure of product-related risks or
product-related information. Any of these issues could lead to a recall of, or
safety alert relating to, one or more of the products distributed by the
Company. Any recall, whether voluntary or required by the FDA could result in
significant costs and significant negative publicity. Negative publicity
including regarding a quality or safety issue, whether accurate or inaccurate,
could reduce market acceptance of the products, harm the Companys reputation,
decrease demand for the products, result in the loss of customers, lead to
product withdrawals and/or harm the Companys ability to successfully launch and
market in the future. The foregoing problems could also result in enforcement
actions by state and federal governments or other enforcement bodies, or product
liability claims or lawsuits including those being brought by individuals or by
groups seeking to represent a class or establish multi-district litigation
proceedings, and a material adverse effect on our business, results of
operations, financial condition and/or liquidity.
Healthcare reform could impact the demand for the
Companys services.
The Patient Protection and
Affordable Care Act and The Health Care and Education Reconciliation Act of
2010, or the Affordable Care Act, were signed into law in March 2010 and will
result in significant reforms to the U.S. healthcare system and the structure of
the healthcare provider delivery system. The full impact of the Affordable Care
Act is uncertain, and will depend on future regulations and guidance to be
promulgated by the Centers or Medicare & Medicaid Services. Any new
reimbursement methodologies and mechanisms adopted by Medicare, Medicaid or
other commercial third party payors as a direct or indirect result of the
affordable care Act could have an impact on the demand and reimbursement for our
services.
The Company faces competition from existing providers, as
well as new providers entering its markets.
The Companys medical equipment
and device business operates in competitive areas and markets. Basic barriers to
entry-level product distribution in the healthcare industry can be relatively
low and the products the Company distributes may face challenges in market
adoption due to the reliance of physicians and other medical professionals on
existing devices, equipment and diagnostic tools. In addition, physicians and
other medical professionals may view certain devices distributed by the Company
as a screening tool for existing illnesses, rather than as an early detection or
preventative tool. As a result, certain products may be deemed to compete
directly with existing, established procedures, which could impair market
adoption of such products.
The Companys physician practice
administration business operates in competitive areas and markets. The Companys
clients compete with other PAD practice management providers, practices and
surgical clinics that provide PAD and atherectomy procedures and vascular
surgeons. Basic barriers to entry-level practice management in the
cardiovascular and PAD care industry can be relatively low.
New distributors, technology and
new healthcare providers that enter the Companys markets impact the Companys
market share, business volume and growth rates. Increased competitive pressures
require the Company to commit resources to marketing efforts, which impacts the
Companys margins and profitability. There can be no assurance that the Company
will be able to compete effectively with existing providers in its markets or
that new competitors will not enter into its markets. These existing and new
competitors may have greater financial and other resources than the Company
does. Increased competition could also make it more difficult for the Company to
expand its business.
The development of alternative treatments could diminish
demand for the Companys services.
The healthcare industry is
dynamic, and new, technologically intensive devices are constantly under
development. New devices that are more effective could decrease patient demand
or profitability for the products that the Company currently distributes and
patients could seek treatment elsewhere.
If the Company is found not to be in compliance with
applicable laws and regulations, it could be subject to significant fines or
penalties, be forced to curtail certain of our operations or rearrange material
agreements to its detriment.
The Company is subject to
numerous federal and state laws and regulations, including, but not limited to,
federal and state anti-kickback laws, controlled substances laws, the federal
Stark law and state self-referral laws, false claims laws, the HIPAA, Medicare
and Medicaid regulations and laws regulating the business of insurance. These
laws and regulations are extremely complex and could be subject to various
interpretations. Many aspects of the Companys business, to date, have not been
the subject of federal or state regulatory review and the Company may not have
been in compliance at all times with all applicable laws and regulations. If the Company is found by a court or regulatory
authority to have violated any applicable laws or regulations, the Company could
be subject to significant fines or penalties or be forced to curtail certain of
its operations.
11
The Companys success depends on retaining key members of
its management team.
The success of the Companys
business strategy depends on the continued contribution of key members of its
management team. The loss of key members of this team could disrupt its growth
plans and its ability to implement its business strategy.
Economic instability could continue to adversely affect
the Company.
Financial markets and the
economies in the United States and internationally may continue to experience
disruption and volatility as they have in recent years and conditions could
worsen. As a result, the economic environment (including deteriorating economic
conditions in certain countries in Europe) may, among other things:
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increase the sales cycle for certain of our products;
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slow the adoption of new technology;
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adversely affect the Companys suppliers, which could
disrupt the Companys ability to distribute the products; and
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limit the Company access to capital on terms acceptable
to the Company.
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These conditions may continue in
the future. Any of these conditions could have a material adverse effect on the
Companys business, results of operations, financial condition and/or liquidity.
We may be subject to significant liability claims and
litigation, including potential exposure from the use of our product candidates
as well as from physician locations under management, and our insurance may be
inadequate to cover claims that may arise.
Our business exposes us to
potential liability risks inherent in the administration and support of
healthcare facilities and the processing, marketing and distribution of medical
device products. Such liability claims may be expensive to defend and result in
large judgments against us. We face an inherent risk of product liability
exposure related to current and any future product candidates and will face an
even greater risk with respect to any commercial sales of such products once
distribution begins. No product candidate has been widely used over an extended
period of time, and therefore safety data is limited. The manufacturing process
and handling requirements are extensive, which increases the risk of quality
failures and subsequent product liability claims.
We will need to
increase our insurance coverage when we begin commercializing product
candidates, if ever. At that time, we may not be able to obtain or maintain
product liability insurance on acceptable terms with adequate coverage or at
all, or if claims against us substantially exceed our coverage, then our
financial position could be significantly impaired.
Whether or not we are ultimately
successful in any product liability litigation that may arise, such litigation
could consume substantial amounts of our financial and managerial resources,
decreased demand for our products and injure our reputation.
We seek to maintain errors and
omissions, directors and officers, workers' compensation and other insurance at
levels we believe to be appropriate to our business activities. If, however, we
were subject to a claim in excess of this coverage or to a claim not covered by
our insurance and the claim succeeded, we would be required to pay the claim
from our own limited resources, which could have a material adverse effect on
our financial condition, results of operations and business. Additionally,
liability or alleged liability could harm our business by diverting the
attention and resources of our management and damaging our reputation.
There is no guarantee that the market for our products or
services will develop, and it exposes us to risks inherent in the long-term
distribution and growth of our products and services.
There currently is no significant
global market for our product candidates, nor is there any guarantee that such
markets will develop in the near future, or at all. Adverse outcomes or
limitations of our products or services, including, but not limited to damage,
destruction or a failure in performance or facility or systems of our service
providers, could harm our reputation and business and expose us to significant
liability from customers. While we believe that we will procure insurance to
cover certain of these risks, we may in fact have insufficient insurance to
cover losses beyond the limits on its policies, which could have a material
adverse effect on our financial condition.
12
Healthcare companies have been the subjects of federal
and state investigations, and we could become subject to investigations in the
future.
Both federal and state government
agencies have heightened civil and criminal enforcement efforts. There are
numerous ongoing investigations of health care companies, as well as their
executives and managers. In addition, amendments to the Federal False Claims
Act, including under Healthcare Reform, have made it easier for private parties
to bring
qui tam
(whistleblower) lawsuits against companies under
which the whistleblower may be entitled to receive a percentage of any money
paid to the government. The Federal False Claims Act provides, in part, that an
action can be brought against any person or entity that has knowingly presented,
or caused to be presented, a false or fraudulent request for payment from the
federal government, or who has made a false statement or used a false record to
get a claim approved. The government has taken the position that claims
presented in violation of the federal anti-kickback law, Stark Law or other
healthcare-related laws, including laws enforced by the FDA, may be considered a
violation of the Federal False Claims Act. Penalties include substantial fines
for each false claim, plus three times the amount of damages that the federal
government sustained because of the act of that person or entity and/or
exclusion from the Medicare program. In addition, a majority of states have
adopted similar state whistleblower and false claims provisions.
We are not aware of any
government investigations involving any of our physician facilities or
management. While we believe that we are in material compliance with applicable
governmental healthcare laws and regulations, any future investigations of our
business, clients or executives could cause us to incur substantial costs, and
result in significant liabilities or penalties, as well as damage to our
reputation.
It is uncertain to what extent the government, private
health insurers and third-party payors will approve coverage or provide
reimbursement for the products distributed or the physician practices to which
our administration services relate. Availability for such reimbursement may be
further limited by an increasing uninsured population and reductions in Medicare
and Medicaid funding in the United States.
To the extent that health care
providers cannot obtain coverage or reimbursement for cardiovascular procedures
and treatment or for medical device products, they may elect not to provide such
therapies and products to their patients and, thus, may not need our products or
services. Further, as cost containment pressures are increasing in the health
care industry, government and private payors may adopt strategies designed to
limit the amount of reimbursement paid to health care providers.
Similarly, the trend toward
managed health care and bundled pricing for health care services in the United
States, which may accelerate under the healthcare reform legislation approved by
Congress on March 23, 2010 and thereafter signed into law (Healthcare Reform),
could significantly influence the purchase of healthcare support services and
products, resulting in lower prices and reduced demand for our products and
support services.
Federal health care programs,
such as Medicare, are subject to changes in coverage and reimbursement rules and
procedures, including retroactive rate adjustments. These contingencies could
materially decrease the range of physician services and products covered by such
programs or the reimbursement rates paid directly or indirectly to physicians
could significantly influence the products sold to, and our administration and
support services for, such physicians and their facilities. To the extent that
any health care reform favors the reimbursement of other product and services
over products and services the company provides, such reform could affect our
ability to sell our products and services, which may have a material adverse
effect on our revenues.
The limitation on reimbursement
available from private and government payors may reduce the demand for, or the
price of, physician services and products, which could have a material adverse
effect on our revenues. Additional legislation or regulation relating to the
health care industry or third-party coverage and reimbursement may be enacted in
the future which could adversely affect the revenues generated from the sale of
our products and services provided to such healthcare facilities.
Furthermore, there has been a
trend in recent years towards reductions in overall funding for Medicare and
Medicaid. There has also been an increase in the number of people who do not
have any form of health care coverage in recent years and who are not eligible
for or enrolled in Medicare, Medicaid or other governmental programs. The extent
to which the reforms brought about under Healthcare Reform may be successful in
reducing the number of such uninsured is unclear, and the reduced funding of
governmental programs and increase in uninsured populations could have a
negative impact on the demand for our administration services to the extent they
relate to such products sold and administrative services provided to physician
facilities which are reimbursed by government and private payors.
Additionally, and more
specifically reimbursements and reimbursement rates for Peripheral Arterial
Disease (PAD) procedures are currently under review and a negative change could
drastically affect the Companys ability to successfully and profitably perform
practice management and administration for physicians which could further result
in the discontinuance of that business segment.
Unintended consequences of recently adopted healthcare
reform legislation in the U.S. may adversely affect our business.
The healthcare industry is
undergoing fundamental changes resulting from political, economic and regulatory
influences. In the U.S., comprehensive programs are under consideration that
seek to, among other things, increase access to healthcare for the uninsured and
control the escalation of healthcare expenditures within the economy. On March
23, 2010, healthcare reform legislation was approved by Congress and has been
signed into law. While we do not believe this legislation will have a direct
impact on our business, the legislation has only recently been enacted and
requires the adoption of implementing regulations, which may have unintended consequences or indirectly impact our
business. For instance, the scope and implications of the recent amendments
pursuant to the Fraud Enforcement and Recovery Act of 2009 (FERA), have yet to
be fully determined or adjudicated and as a result it is difficult to predict
how future enforcement initiatives may impact our business. Also, in some
instances our clients may be health insurers that will be subject to limitations
on their administrative expenses and new federal review of unreasonable rate
increases that could impact the prices they pay for our services. If the
legislation causes such unintended consequences or indirect impact, it could
have a material adverse effect on our business, financial condition and results
of operations.
13
Defects or disruptions in our services and products along
with changes in reimbursement rates and procedures could diminish demand, delay
or defer collection cycles for accounts receivable and subject us to substantial
liability.
Because our products and service
are complex, our services may be subject to errors and our products may have
defects that are identified after use that could result in unanticipated
downtime for our customers and harm our reputation and our business. We have
from time to time found defects and errors in our services and products and new
defects and errors may be detected in the future. In addition, our customers may
use products and services in unanticipated ways that may cause a disruption in
service or product use. Since our customers use our products and services for
important aspects of their business, any errors, defects, disruptions in service
or other performance problems with our products or services could hurt our
reputation and may damage our customers businesses. Furthermore, our customers
are physician and healthcare profession facilities who rely on health care
programs, such as Medicare, for medical procedures performed and medical devices
used in their practices and are subject to changes in coverage and reimbursement
rules and procedures, including retroactive rate adjustments. These
contingencies could materially decrease the range of physician services and
products covered by such programs or the reimbursement rates paid. If that
occurs, customers could elect not to renew, or delay or withhold payment to us,
we could lose future sales or customers may make warranty claims against us, all
of which could result in an increase in our provision for doubtful accounts, an
increase in collection cycles for accounts receivable, create substantial doubt
on account collectability or the expense and risk of litigation.
RISKS ASSOCIATED WITH INVESTING IN THE COMPANYS COMMON
STOCK
The Companys Stock Has Historically Had a Limited Market
and the Trading Prices May Be Volatile.
The market price of the Companys
shares of common stock may be based on factors that may not be indicative of
future market performance. Consequently, the market price of the Companys
common stock may vary greatly. There is a significant risk that the Companys
stock price may fluctuate dramatically in the future in response to any of the
following factors, some of which are beyond the Companys control:
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variations in the Companys quarterly operating results;
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announcements that the Companys revenue or income/loss
levels are below analysts expectations;
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general economic slowdowns;
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changes in market valuations of similar companies;
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announcements by the Company or its competitors of
significant contracts; or
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acquisitions, strategic partnerships, joint ventures or
capital commitments.
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There are significant restrictions on the transferability
of securities.
The offer and sale of the
Companys shares are being made without registration under state and federal
securities laws in reliance upon the private offering exemption of Section
4(a)(2) and/or Rule 506 of Regulation D under the Securities Act as well as
available exemptions under applicable state securities laws. The shares will be
restricted securities under the Securities Act and cannot be resold or
otherwise transferred unless they are registered under the Securities Act and
any applicable state securities laws or are transferred in a transaction exempt
from such registration. Consequently, each investors ability to control the
timing of the liquidation of his or her investment in the Company may be
restricted. Investors should be prepared to hold the Shares for an indefinite
period of time.
Because the Companys Shares Are Deemed Penny Stocks,
You May Have Difficulty Selling Them In The Secondary Trading Market.
The SEC has adopted regulations
which generally define a penny stock to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
Additionally, if the equity security is not registered or authorized on a
national securities exchange that makes certain reports available, the equity security may also constitute a
penny stock. As the Companys common stock comes within the definition of
penny stock, these regulations require the delivery by the broker-dealer, prior
to any transaction involving the Companys common stock, of a risk disclosure
schedule explaining the penny stock market and the risks associated with it. The
broker-dealer also must provide the customer with bid and offer quotations for
the penny stock, the compensation of the broker-dealer and any salesperson in
the transaction, and monthly account statements indicating the market value of
each penny stock held in the customers account. In addition, the penny stock
rules require that, prior to a transaction in a penny stock not otherwise exempt
from those rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the trading activity in the secondary market for
the Companys common stock. The ability of broker-dealers to sell the Companys
common stock and the ability of shareholders to sell the Companys common stock
in the secondary market would be limited. As a result, the market liquidity for
the Companys common stock would be severely and adversely affected. The Company
can provide no assurance that trading in the Companys common stock will not be
subject to these or other regulations in the future, which would negatively
affect the market for the Companys common stock. As of the date ofthis report,
the Company is currently traded on the OTC:Pink and is currently a
non-reporting, non-current Company.
14
Management has broad discretion over the use of proceeds
of this offering, and may apply the proceeds of this offering to uses that
ultimately do not improve our operating results or increase the value of
potential investors investment.
The Companys management intends
to use the proceeds from this offering for working capital and other general
corporate purposes. Accordingly, our management will have broad discretion as to
the application and use these proceeds. The proceeds may be applied in ways that
may not ultimately improve our operating results or otherwise increase the value
of a holders investment.
An investment in the Companys common shares is
speculative and there can be no assurance of any return on any such investment.
An investment in the common
shares pf the Company is speculative and there is no assurance that investors
will obtain any return on their investment. Investors will be subject to
substantial risks involved in an investment in the Company, including the risk
of losing their entire investment.
The Company Is Subject To The Reporting Requirements Of
Federal Securities Laws, Which Can Be Expensive.
The Company is subject to the
information and reporting requirements under the Securities Exchange Act of 1934
and other federal securities laws, and the compliance obligations of the
Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and
quarterly reports and other information with the SEC will cause our expenses to
be higher than they would be if the Company was a privately-held company. As of
the date of this report, the Company is currently traded on the OTC:Pink and is
currently a non-reporting, non-current Company.
The Companys failure to maintain effective internal
control over financial reporting could lead to inaccuracies in its reported
financial results.
A material weakness is a
significant deficiency, or combination of significant deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected. If the Companys
independent registered public accounting firm were to determine that a
significant deficiency were to exist, or if the Company was otherwise unable to
achieve and maintain effective internal controls on a timely basis, management
would not be able to conclude that we have effective internal control over
financial reporting for purposes of Section 404 of the Sarbanes-Oxley Act of
2002. In addition, the Companys independent registered public accounting firm
would not be able to certify as to the effectiveness of its internal control
over financial reporting. Moreover, any failure to establish and maintain
effective systems of internal control and procedures may impair its ability to
accurately report its financial results. Our management conducted an evaluation
of the effectiveness of our internal control over financial reporting as of
December 31, 2015 and identified a material weakness in internal control over
financial reporting as of that date. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of the
annual or interim financial statement will not be prevented or detected on a
timely basis. Because of the material weakness described in this Report on Form
10-K, management concluded that, as of December 31, 2015, our internal control
over financial reporting was not effective. Such failures and the reporting that
the Companys system of internal controls over financial reporting was not
effective could result in a restatement of its financial statements and cause
investors to lose confidence in the reliability of its financial statements,
which could result in a decline in the Companys stock price.
In addition to potential dilution associated with future
fundraising transactions, we currently have significant numbers of securities
outstanding that are convertible into or exercisable for our Common Stock, which
could result in significant additional dilution and downward pressure on our
stock price.
The issuance of these shares in
the future would result in significant dilution to our current stockholders and
could adversely affect the price of our Common Stock and the terms on which we
could raise additional capital. In addition, the issuance and subsequent trading
of shares could cause the supply of our Common Stock available for purchase in
the market to exceed the purchase demand for our Common Stock. Such supply in excess of
demand could cause the market price of our Common Stock to decline.
15
Actual and beneficial ownership of large quantities of
our Common Stock and certain Preferred Stock by our executive officers and
directors may substantially reduce the influence of other stockholders.
As a result, such persons may
have the ability to exercise enhanced control and influence over the approval
process for actions that require stockholder approval, including the approval of
mergers, sales of assets or other significant corporate transactions or other
matters submitted for stockholder approval. Furthermore, at certain times the
interests of our substantial stockholders may conflict with the interests of our
other stockholders.
If we are unsuccessful in raising the required capital or
building or contracting for commercial sales and marketing capabilities in the
United States, our revenues from any future products will be adversely
affected.
We currently have limited to no
capabilities or experience in the selling, marketing or commercial distribution
of medical device products. We currently have product candidates that are
ultimately approved for marketing, and would need to hire and develop an
internal sales and marketing organization and/or outsource these functions to
one or more third parties.
We may be unable to secure the
required capital or be unable to establish sufficient marketing, sales and
distribution capabilities necessary to successfully inventory, commercialize and
gain market acceptance for any of our product candidates. In addition,
co-promotion or other marketing arrangements with third parties to commercialize
product candidates could significantly limit the revenues we recognize from such
product candidates, and these third parties may fail to commercialize the
product candidates successfully.
We currently have significant numbers of securities
and/or debt instruments outstanding that are convertible into or exercisable for
our Common Stock, which could result in significant additional dilution and
downward pressure on our stock price.
The issuance of the shares of
Common Stock in the future could result in significant dilution to our current
stockholders and could adversely affect the price of our Common Stock. In
addition, the issuance and subsequent trading of shares could cause the supply
of our Common Stock available for purchase in the market to exceed the purchase
demand for our Common Stock. Such supply in excess of demand could cause the
market price of our Common Stock to decline. Additionally, the Company also
currently has Board approval for up to a 5,000 to 1 reverse stock split and has
filed for a 1,500 to 1 reverse split and a reduction in stated par value of
common shares to $0.00001. The Company continues to negotiate settlement and
satisfaction agreements with debt holders and others, which could include
additional significant issuances of the Companys common stock.
You should consult your own tax and legal advisors
concerning income tax risks.
Prospective investors in the
Companys common stock are urged to consult with their own representatives,
including their own tax and legal advisors, with respect to the federal (as well
as state and local) income tax consequences of an investment in the Companys
common stock before purchasing any securities. Prospective investors should not
construe the information set forth in this report as providing any tax advice
and this report is not intended to be a complete or definitive summary of any
tax consequences of an investment in the Companys common shares. Prospective
investors are advised to consult with their own tax counsel concerning the tax
aspects of the purchase of the Companys common shares.
Item 1B.
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Unresolved Staff Comments
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Not applicable.
DESCRIPTION OF PROPERTY
The Company rents office suites
in Melville, New York. All management and administration activities of the
Company are conducted out of this location. The office rental operating
agreement expires on May 31, 2016, as amended, and has an annual rent of
approximately $38,136 for the year ended December 31, 2015.
The Company rents warehousing
and storage space in Miami, Florida. All warehousing, storage and logistics
activities of the Company are conducted out of this location. The rental
operating agreement is month to month, and has an annual rent of approximately
$13,260 for the year ended December 31, 2015.
16
Item 3.
|
Legal Proceedings
|
From time to time, we may become
involved in various lawsuits and legal proceedings, which arise in the ordinary
course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that
may harm the Companys business.
In March 2015, a notice of
petition to confirm an arbitration award was filed against one of the Companys
subsidiaries (the Subsidiary) in the Supreme Court of the State of New York,
County of Nassau (the Petition). The Petition (among other stipulations)
included an application to confirm and enforcement of a prior arbitration award.
In June, 2015 a notice of judgement for the Petition was filed against the
Subsidiary ordering and granting the arbitration award of $89,720. During
February 2016, a stipulation of settlement and further satisfaction of judgement
was filed for $10,000 fully settling and satisfying the Petition.
In April 2015, a complaint under
the Fair Labor Standards Act was filed against one of the Companys subsidiaries
(the Subsidiary) and certain current and former executives of the Company in
the United States District Court Southern District of Florida (the Complaint).
The Complaint (among other allegations) included seeking recovery for unpaid
wages disputes and other relief by certain former employees of the Subsidiary.
In September, 2015 the court approved a settlement and dismissed the case with
prejudice for $150,000. In March, 2016 a motion for consent judgement was filed
and granted against the Subsidiary and certain current and former executives of
the Company.
In October 2015, a summons and
notice of motion for summary judgement in lieu of complaint in the Supreme Court
of the State of New York, County of New York was filed against the Company (the
Motion). The Motion (among other allegations) requests an order granting the
plaintiffs summary judgements under various alleged notes aggregating $1,007,482
plus all additional accruing interest and costs of collection. The Motion
asserts claims and alleges that the Company is in default under various
promissory notes held by the plaintiffs. The Company denies these allegations
and has filed an answer in response to the motion.
In October 2015, the Company
received a notice of default from a holder of certain promissory notes. The
notice demanded the timely satisfaction of a required quarterly interest payment
under the terms of the notes. In December 2015, a summons and notice of motion
for summary judgement in lieu of complaint in the Supreme Court of the State of
New York, County of New York was filed against the Company (the Motion). The
Motion (among other allegations) requests an order granting the plaintiff
summary judgement under various notes aggregating $650,000 plus all additional
accruing interest and costs of collection. The Motion asserts claims and alleges
that the Company is in default under various promissory notes held by the
plaintiff. In April 2016, a decision and order on motion was filed granting
judgement against the Company.
On February 8, 2016, certain
promissory note holders (Petitioning Creditors) filed a Notice of Involuntary
Bankruptcy Case in the United States Bankruptcy Court Eastern District of New
York against the Company seeking relief under Chapter 7 of the United States
Bankruptcy Code with respect to the Companys indebtedness to the Petitioning
Creditors. The Company believes the Notice of Involuntary Bankruptcy is grossly
incorrect and wrongfully filed and is seeking negotiated settlement and
dismissal.
Item 4.
|
Mine Safety disclosures
|
Not Applicable.
17
PART II
Item 5.
|
Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity
Securities
|
Quotations for the common stock
of the Company are included in the under the symbol MHCC. The following table
sets forth for the respective periods indicated the prices of the common stock
as quoted on the OTC Markets. Such prices are based on inter-dealer bid and ask
prices, without markup, markdown, commissions, or adjustments and may not
represent actual transactions.
Quarter Ended:
|
|
|
High Bid ($)
|
|
|
Low Bid ($)
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
$
|
1.01
|
|
$
|
0.20
|
|
June 30, 2014
|
|
$
|
1.50
|
|
$
|
0.43
|
|
September 30, 2014
|
|
$
|
0.74
|
|
$
|
0.33
|
|
December 31, 2014
|
|
$
|
0.68
|
|
$
|
0.13
|
|
March 31, 2015
|
|
$
|
0.07
|
|
$
|
0.06
|
|
June 30, 2015
|
|
$
|
0.02
|
|
$
|
0.01
|
|
September 30, 2015
|
|
$
|
0.0012
|
|
$
|
0.001
|
|
December 31, 2015
|
|
$
|
0.0006
|
|
$
|
0.0004
|
|
As of April 4, 2016, there were
approximately 141 holders of record of our common stock.
Since inception, no dividends
have been paid on the common stock. The Company intends to retain any earnings
for use in its business activities, so it is not expected that any dividends on
the common stock will be declared and paid in the foreseeable future.
Equity Compensation Plan Information
As of December 31, 2015, we do
not have any securities authorized for issuance under any equity compensation
plans and we do not have any equity compensation plans.
Recent Sales of Unregistered Securities
Common Stock
On January 21, 2014 the Company
issued 300,000 shares of common stock for an addendum to a master purchase,
supple and distribution agreement. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
On January 21, 2014, the Company
issued 3,400,000 shares of common shares to certain professional and employees
for services rendered. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
On January 21, 2014, the Company
issued 175,000 shares of common shares to a certain entity for the acquisition
of certain assets of that entity. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
Between February 11 and March 31,
2014, the Company issued 3,575,000 shares of common stock to certain consultants
for services rendered. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
Between April 21 and June 11,
2014, the Company issued 4,650,000 shares of common stock to certain consultants
for services rendered. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
On April 24, 2014 the Company
issued 575,000 shares of common stock for settlement and full satisfaction of a
promissory note. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
18
On May 27, 2014, the Company
issued 225,000 shares of common stock through a private placement. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
Between July 11 and September 25,
2014, the Company issued 10,600,000 shares of common stock to certain
consultants for services rendered. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
Between August 11 and September
9, 2014, the Company issued 620,000 shares of common stock to a certain note
holder for maturity extensions of a convertible promissory note. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On September 12, 2014 the Company
issued 4,025,000 shares of common stock for settlement and full satisfaction of
certain promissory and demand notes. The above referenced securities were
offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
On September 25, 2014, the
Company issued 625,000 shares of common shares to a certain professional for
services rendered. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
Between November 14 and November
18, 2014, the Company issued 3,050,000 shares of common stock to certain
consultants for services rendered. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
On November 17, 2014 the Company
issued 13,596,770 shares of common stock for settlement and full satisfaction of
certain claims, complaints and summons. The above referenced securities were
offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
Between December 2 and December
4, 2014, the Company issued 7,075,000 shares of common stock to certain holders
through private placement subscription agreements. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
On December 9, 2014, the Company
issued 2,600,000 shares of common stock to a certain consultant for services
rendered. The above referenced securities were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) and Regulation D (Rule
506) under the Securities Act and corresponding provisions of state securities
laws.
On December 16, 2014, the Company
issued 6,250,000 shares of common stock to certain consultants for services
rendered. The above referenced securities were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) and Regulation D (Rule
506) under the Securities Act and corresponding provisions of state securities
laws.
On December 19, 2014, the Company
issued 1,000,000 shares of common shares to a certain professional for services
rendered. The above referenced securities were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) and Regulation D (Rule
506) under the Securities Act and corresponding provisions of state securities
laws.
On December 22, 2014 the Company
issued 3,250,000 shares of common stock for settlement and full satisfaction of
warrants with a certain holder. The above referenced securities were offered and
sold in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
Between January 9 and March 23,
2015, the Company issued 5,500,000 shares of common stock to certain consultants
for services rendered. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
On February 18, 2015, the Company
issued 70,000 shares of common stock through a private placement. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On April 8, 2015 the Company
issued 240,000 shares of common stock for settlement and full satisfaction of a
promissory note. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
19
On April 15, 2015 the Company
issued 1,000,000 shares of common stock to a consultant. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
On April 15, 2015 the Company
issued 300,000 shares of common for settlement and full satisfaction of a
promissory note. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
On April 16, 2015 the Company
issued 2,000,000 shares of common stock for settlement, full satisfaction and
release with certain consultants. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
On April 16, 2015, the Company
issued 650,000 shares of common stock through a private placement. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
Between April 23 and June 24,
2015 the Company issued 98,142,000 shares of common stock for settlement and
full satisfaction of certain promissory notes and warrants with certain holders.
The above referenced securities were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws.
On July 8, 2015 the Company
issued 22,000,000 shares of common for settlement and full satisfaction of a
promissory note. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
Between July 8 and October 2,
2015 the Company issued 127,031,059 shares of common stock for the conversion of
certain convertible promissory notes with certain holders. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
On September 3, 2015 the Company
issued 5,000,000 shares of common stock for settlement, full satisfaction and
release with a certain consultant. The above referenced securities were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws.
Between September 9 and October
6, 2015 the Company issued 37,000,000 shares of common stock for the settlement
and full satisfaction of warrants with certain holders. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
Between September 10 and
September 29, 2015 the Company issued 29,000,000 shares of common stock for
settlement and full satisfaction of a promissory note with a certain holder. The
above referenced securities were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
Between October 2 and December
16, 2015 the Company issued 196,200,000 shares of common stock for settlement
and full satisfaction of certain promissory notes with certain holders. The
above referenced securities were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
Between October 2 and October 14,
2015 the Company issued 37,300,000 shares of common stock for the conversion of
a certain convertible promissory note with a certain holder. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On October 14, 2015 the Company
issued 2,600,000 shares of common stock for an amended settlement, full
satisfaction and release with a certain holder. The above referenced securities
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
On November 6, 2015 the Company
issued 50,000,000 shares of common stock to consultants. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
20
On December 3, 2015, the Company
issued 8,000,000 shares of common stock through private placements. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
Series F Preferred Stock
From August 2013 to February
2014, the Company completed a private placement pursuant to a term sheet closed
on 3,000,000 units of its securities for gross proceeds of $3,000,000. Each unit
(Unit) consists of one share of the Companys Common Stock, and one share of a
new series of preferred stock to be designated by the Company (Series F
Preferred Stock). The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
During 2015, the Company entered
into Satisfaction Agreements and Releases with all Series F holders in which all
shares of Series F preferred stock were surrendered and exchanged for shares of
the Companys common stock.
Series G Preferred Stock
The Company sold 4,920 units and
raised $4,920,000 under a private placement in 2014. Each unit for this private
placement consisted of one thousand shares of common stock and one share of
Series G Preferred Stock (Series G Preferred Stock), which have the rights and
preferences set forth in the Certificate of Designation, Preferences, Rights and
Limitations of Series G Preferred Stock of the Company. As a result, 4,920
shares of Series G were to be issued. The above referenced securities were
offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
During March and June 2015, the
Company entered into Satisfaction Agreements and Releases with all Series G
holders in which all shares of Series G preferred stock at that time were
surrendered and exchanged for shares of the Companys common stock.
The Company further sold 418
units and raised $418,000 under a private placement in 2015. Each unit for this
private placement consisted of one thousand shares of common stock and one share
of Series G Preferred Stock, which have the rights and preferences set forth in
the Certificate of Designation, Preferences, Rights and Limitations of Series G
Preferred Stock of the Company. As a result, 418 shares of Series G were to be
issued. The above referenced securities were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws.
Promissory Notes
On February 10, 2014, the Company
sold a Convertible Promissory Note in the principal amount of $353,000, dated
February 7, 2014 for cash consideration of $325,000 by and between the Company
and WHC Capital LLC, Bravo Series. The transaction did not involve any
underwriters, underwriting discounts or commissions, or any public offering. The
issuance of these securities was deemed to be exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof, as a transaction by an issuer not involving a public offering.
Between June 26 and July 11 2014,
the Company issued original issue discount convertible notes (the OID Notes)
with an aggregate principal amount of $1,235,218 with warrants to acquire up to
823,530 shares of Common Stock at $1.00 per share. The OID Notes mature in 13
months after issuance and were issued at an original issue discount of $185,283.
No regularly scheduled interest payments shall be made on the OID Notes. The OID
Notes may be converted by the note holders into shares of the Companys common
stock at the lower of (i) $0.75 or (ii) 80% of the per share price of the
Companys equity securities sold in a future public offering. The warrants
expire five years from the date of issuance and are exercisable at (i) $1.00 or
(ii) 80% the lowest per share price of the Companys common stock sold by the
Company in any future public offering, during the period that the investors OID
Note is outstanding. The OID Notes and related warrants contain anti-dilution
provisions. In addition, the Company agreed to pay to the placement agent a fee
of 10% of the gross proceeds received by the Company and a warrant equal to 10%
of the aggregate number of shares issuable upon conversion of the Notes at an
exercise price equal to 110% of the warrant exercise price. The above referenced
securities were offered and sold in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D (Rule 506) under the Securities Act
and corresponding provisions of state securities laws.
On September 18, 2014, the
Company issued a promissory note to accredited investors in the amount of
$200,000. The transaction did not involve any underwriters, underwriting
discounts or commissions, or any public offering. The issuance of these securities was deemed to be exempt from the registration
requirements of the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof, as a transaction by an issuer not involving a public offering.
21
On October 9, 2014, the Company
issued a promissory note to an accredited investor in the amount of $250,000.
The transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On October 20, 2014, the Company
issued a promissory note to an accredited investor in the amount of $40,000. The
transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
In October 2014, the Company
issued a short term note to an investor in the principal amount of $450,000. The
transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On November 19, 2014, the Company
sold Convertible Promissory Notes in the aggregate principal amount of
$1,100,000, dated November 10, 2014 for an aggregate of $1,000,000 pursuant to
certain Securities Purchase Agreements. The Notes mature on May 10, 2015 and
bear an interest rate of 18% per annum. Any accrued and unpaid principal and
interest on the Convertible Promissory Notes when due shall bear an interest
rate of 22% per annum. The issuance of these securities was deemed to be exempt
from the registration requirements of the Securities Act by virtue of the
provisions of Section 4(a)(2) and Regulation D (Rule 506) thereunder, and the
corresponding provisions of state securities laws.
On December 2, 2014, the Company
issued a promissory note to an accredited investor in the amount of $205,000.
The transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On December 24, 2014, the Company
sold Convertible Promissory Notes in the principal amount of $350,000 and
350,000 shares of the Companys common stock for an aggregate of $350,000
pursuant to certain Securities Purchase Agreements to an accredited investor.
The above referenced securities were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws.
On January 6, 2015, the Company
issued a promissory note to an accredited investor in the amount of $220,000.
The transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On January 20, 2015, the Company
sold Convertible Promissory Notes in the principal amount of $300,000 and
300,000 shares of the Companys common stock for an aggregate of $300,000
pursuant to certain Securities Purchase Agreements to an accredited investor.
The above referenced securities were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws.
On February 2, 2015, the Company
issued a promissory note to a related individual in the amount of $170,000. The
transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On February 26, 2015, the Company
sold Promissory Notes in the aggregate principal amount of $142,000 pursuant to
certain Securities Purchase Agreements to an accredited investor. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On May 18, 2015, the Company
issued a promissory note to an accredited investor in the amount of $160,000.
The transaction did not involve any underwriters, underwriting discounts or
commissions, or any public offering. The issuance of these securities was deemed
to be exempt from the registration requirements of the Securities Act of 1933,
as amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
On June 26, 2015, the Company
issued original issue discount convertible promissory notes (the OID Notes)
with an aggregate principal amount of $224,000 to accredited investors. The OID
Notes mature in 12 months after issuance and were issued at an original issue
discount of $200,000. No regularly scheduled interest payments shall be made on
the OID Notes. The OID Notes may be converted by the note holders into shares of
the Companys common stock at the lower of (i) $0.02 or (ii) 60% of the lowest
daily Volume Weighted Average Price (VWAP) of the Companys common stock. The
above referenced securities were offered and sold in reliance on the exemption
from registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
22
On August 11, 2015, the Company
issued a convertible promissory note with a principal amount of $15,000 to an
accredited investor. The note mature in 12 months after issuance and accrues
interest at 18% per annum. No regularly scheduled interest payments shall be
made on the note. The note may be converted by the note holder into shares of
the Companys common stock at 60% of the lowest daily Volume Weighted Average
Price (VWAP) of the 20 trading days prior to conversion of Companys common
stock. The above referenced securities were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws.
During September, 2015, the
Company sold original issue discount promissory notes (the OID Notes) with an
aggregate principal amount of $192,500 and 218,750,000 shares of the Companys
common stock to accredited investors. The OID Notes mature in 12 months after
issuance and were issued at an aggregate original issue discount of $175,000. No
regularly scheduled interest payments shall be made on the OID Notes. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On October 8, 2015, the Company
issued a senior secured original issue discount convertible promissory note (the
OID Note) with a principal amount of $1,300,000 to an accredited investor. The
OID Note matures July 8, 2016 and was issued at an original issue discount of
$1,200,000. No regularly scheduled interest payments shall be made on the OID
Note. The OID Note may be converted by the note holder into shares of the
Companys common stock at the lower of (i) 50% discount of the lowest intra-day
trading price of the 30 trading days prior to conversion or (ii) 50% discount of
the lowest intra-day trading price of the 20 trading days immediately prior to
note execution. The above referenced securities were offered and sold in
reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws.
On October 30, 2015, the Company
sold an original issue discount promissory note (the OID Note) with a
principal amount of $55,000 and 62,500,000 shares of the Companys common stock
to an accredited investor. The OID Note matures in 12 months after issuance and
was issued at an original issue discount of $50,000. No regularly scheduled
interest payments shall be made on the OID Note. The above referenced securities
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
On November 12, 2015, the Company
sold an original issue discount promissory note (the OID Note) with a
principal amount of $66,000 and 75,000,000 shares of the Companys common stock
to an accredited investor. The OID Note matures in 12 months after issuance and
was issued at an original issue discount of $60,000. No regularly scheduled
interest payments shall be made on the OID Note. The above referenced securities
were offered and sold in reliance on the exemption from registration afforded by
Section 4(2) and Regulation D (Rule 506) under the Securities Act and
corresponding provisions of state securities laws.
During December, 2015, the
Company sold promissory notes to accredited investors in the aggregate amount of
$81,250 and 4,062,500,000 shares of the Companys common stock. The notes mature
in 36 months after issuance and were issued at 12% interest per annum. The above
referenced securities were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws.
On December 24, 2015, the Company
sold promissory notes to accredited investors in the aggregate amount of
$20,001. The notes mature in 36 months after issuance and were issued at 10%
interest per annum. The transaction did not involve any underwriters,
underwriting discounts or commissions, or any public offering. The issuance of
these securities was deemed to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
Warrants
On February 25, 2014, the Company
entered into an agreement and general mutual release with a note and warrant
holder. As a result, the Company cancelled 500,000 warrants with exercise prices
ranging from $.50 to $1.00.
On June 26, 2014, the Company
issued five year warrants to purchase 549,020 shares of common stock at an
exercise price of $1.00 per share in connection with the issuance of certain
convertible promissory notes with non-related parties. The Company agreed to pay
a placement agent a commission of warrants equal to 10% of the aggregate number
of shares issuable upon conversion of these convertible notes at an exercise price equal to 110%
of the warrant exercise price. The issuance of these securities was deemed to be
exempt from the registration requirements of the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof, as a transaction by an issuer not
involving a public offering.
23
On July 9, 2014, the Company
issued five year warrants to purchase 117,647 shares of common stock at an
exercise price of $1.00 per share in connection with the issuance of certain
convertible promissory notes with non-related parties. The Company agreed to pay
a placement agent a commission of warrants equal to 10% of the aggregate number
of shares issuable upon conversion of these convertible notes at an exercise
price equal to 110% of the warrant exercise price. The issuance of these
securities was deemed to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
On July 11, 2014, the Company
issued five year warrants to purchase 156,863 shares of common stock at an
exercise price of $1.00 per share in connection with the issuance of certain
convertible promissory notes with non-related parties. The Company agreed to pay
a placement agent a commission of warrants equal to 10% of the aggregate number
of shares issuable upon conversion of these convertible notes at an exercise
price equal to 110% of the warrant exercise price. The issuance of these
securities was deemed to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
On July 25, 2014, the Company
issued two year warrants to purchase 1,200,000 shares of common stock at an
exercise price of $3.00 per share in connection with a consulting agreement with
a non-related party. The transaction did not involve any underwriters,
underwriting discounts or commissions, or any public offering. The issuance of
these securities was deemed to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
On September 9, 2014, the Company
issued five year warrants to purchase 500,000 shares of common stock at an
exercise price of $3.00 per share in connection with a consulting agreement with
a non-related party. The transaction did not involve any underwriters,
underwriting discounts or commissions, or any public offering. The issuance of
these securities was deemed to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
In October 2014, the Company
authorized and approved 12,000,000 warrants, with an exercise price of $0.25,
for its executive officers.
On November 4, 2014, the Company
entered into a settlement agreement with a warrant holder. As a result, the
Company cancelled 500,000 warrants with an exercise price of $.50.
On December 19, 2014, the Company
entered into a warrant settlement and exchange agreement with an existing
warrant holder. As a result, the Company issued 3,000,000 warrants with an
exercise price of $.16 and cancelled 2,000,000 warrants with exercise prices
ranging from $.50 to $1.00. The transaction did not involve any underwriters,
underwriting discounts or commissions, or any public offering. The issuance of
these securities was deemed to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
On February 27, 2015, the Company
issued 14,200 warrants in connection with an agreement to pay a placement agent
a commission of warrants equal to 10% of the aggregate number of shares issuable
upon sale of certain units through a private placement. The issuance of these
securities was deemed to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
On April 18, 2015, the Company
entered into warrant settlement and exchange agreements with various existing
warrant holders. As a result, the Company issued common shares in exchange and
cancellation of 1,060,000 warrants with exercise prices ranging from $.50 to
$1.00. The issuance of these securities was deemed to be exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof, as a transaction by an issuer not involving a public
offering.
In April 2015, the Company
entered into a settlement and release agreement with an existing warrant holder
and consultant. As a result, 500,000 warrants with an exercise price of $3.00
were cancelled.
In April 2015, the Company
authorized and approved 60,000,000 warrants, with an exercise price of $0.25,
for its executive officers.
Item 6.
|
Selected Financial Data
|
Not applicable.
24
Item 7.
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
Company
Overview
The Company is a medical device
and healthcare support and services company. The Company purchases, supplies and
distributes revolutionary medical devices and equipment focused primarily on
preventative care through early detection. The Company also provides physician
practice administration with a current focus on physician practices specializing
in cardiovascular procedures. In addition, the Company provides support and
services specializing in medical procedure billing and collections, medical
procedure coding, call and message management, and emergency dispatch. The
marketplace for the Companys products and services continues to be high quality
physician offices, practices and facility locations with competent and caring
doctors and staff.
Current Operations and Recent
Developments
The Company is currently
re-launching its medical equipment and device business. This business focuses on
strategic alliances and partnerships with medical device companies that provide
innovative medical devices that utilize cutting edge technology, are cost
effective, and FDA cleared. Devices the Company elects to distribute are focused
on preventative and diagnostic testing and care with the anticipation of
detecting potential medical issues in their early stages yielding positive
medical outcomes for patients. Currently, the products that the Company
distributes have obtained necessary approvals and certifications and are
reimbursable under current medical procedure billing codes. As the Company
continues to re-launch, evolve and grow this business, it anticipates
capitalizing on network selling agreements with US based healthcare organization
for the use of its medical devices and technology within these organizations
managed locations. The Company continues to work to secure and fulfill these
agreements as well as pursuing additional networks during re-launch, focusing on
delivering the best possible customer service and support to its valued
partners.
The Company anticipates meeting
challenges and continued growth through fiscal 2016. The Company intends to
support its established distribution channels as well as introduce new sales
partnerships throughout the coming year. In addition to increasing sales of
existing product offerings, the Company intends to research, develop and
introduce new products, technologies and services to new and existing customers.
The Company is at the very
beginning of its re-launch and re-growth cycle and like many emerging growth
companies, it faces many challenges. These challenges include the need for
additional re-launch and growth capital, additional qualified management and
support personnel, the proper management of supply and market expectations and
the successful supporting of product inventory and customer maintenance as
anticipated demand increases. The Company believes that as it meets, manages and
overcomes these various challenges, increased opportunities for growth can be
realized.
During the first half of 2015 the
Company has vacated its Boynton Beach, Florida warehouse and storage facility
and relocated to a state of the art, third party warehousing, inventory and
logistics facility located in Miami, Florida. This new location will be used to
provide and manage complete inventory, logistics and distribution for the
Companys regional operations. In continuing our enhanced virtual model, the
Company has also vacated its Garden City, New York and New York City, New York
offices and has relocated to a state of the art, true virtual office environment
in Melville, New York. This new location will be used to provide executive,
management and administrative offices for the Companys regional operations.
The Company continued with
product placement and support efforts through existing networks and channels
through 2015, attempting to establish a core foundation and penetration for the
re-launch of existing products, and anticipates on building upon that foundation
and further enhancing and expanding upon products offered and networks serviced
during 2016, focusing on the evaluation, implementation and placement of new
products through new distribution channels, partners and strategic alliances. As
the Company looks forward to this re-launch, growth and evolution, and the
further execution of an enhanced model, the Company is also actively seeking the
appointment of a new executive management team. The Company is also seeking to
expand its Board of Directors. In support of this initiative, during June 2015,
two Board of Director members of the Company stepped down and resigned from the
Board in order to allow for the future appointment of additional industry
leadership and expertise. During 2015, the Company had met with some challenges
in the pursuit of such new appointments.
25
The Company had appointed a
new Chief Executive Officer in June 2015 and appointed a new President in August
2015. While the Board of Directors' efforts to do so were in concert with the
forward progress of the Company and its re-launch in the healthcare services and
device industry, the newly appointed CEO and President ultimately were not
aligned with the Board's goals for the Company. As such, during September 2015,
both the newly appointed Chief Executive Officer and President of the Company
withdrew and resigned effective September 30, 2015. The Companys former
President resumed the role as interim President as the Company aggressively
identifies and pursues viable candidates to take these executive positions. The
addition of new executive leadership is anticipated to provide the Company with
healthcare and market industry leadership as well as extensive executive
management experience, expertise and a fresh perspective in the re-launching
and evolving of the Company as a medical device technology-based company. This
endeavor also includes the investigation and the partnering with or acquiring of
companies that can immediately contribute to this process.
During 2015, in connection with
the re-launch and support of an enhanced model, the Company has already begun to
gain traction. During the last half of 2015, the Company entered into agreements
with specialty media, advisory, marketing and investor relations companies in
designing and executing a re-launch and re-image strategy for the Company. In
November 2015, the Company also entered into a distribution agreement and a
marketing agreement with a healthcare products company and its Bulbocavernousus
Reflex Latency System (BRS). This system measures the Bulbocavenosus reflex to
show effective sacral nerve response utilizing mechanical stimulation. And in
December 2015, the Company entered into a consulting agreement with a specialty
medical laboratory that handles tests from basic and preventative screenings to
the most innovative testing procedures using leading edge technology and
automated computer driven routines to perform certain laboratory, development,
optimization and related services.
As the Companys momentum is now
with its re-launch and enhanced model, it continues re-focusing its efforts
away from and streamline its physician practice administration and support
business. This business offers physician practice development, support and
administration services for physician facilities and practices with a focus on
vascular disorders. This group assists the physician and their practice in
creating environments in which essential vascular access care is provided
effectively and efficiently, with optimal outcomes for both the physician and
the patient. As the Company focuses on an enhanced model and re-launch in
evolving into a healthcare device technology-based company, it begins to pull
away from allocating resources and the further development and support of this
business. Future business and revenue generation continues to be investigated
and pursued, including the investigation of strategic alliances and partnerships
with companies that may immediately capitalize on the Companys experience and
established methods while contributing revenues with minimal expenditures to the
Company.
Critical Accounting Policies
and Estimates:
Our managements discussion and analysis of our financial
condition and results of operations is based on our financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States, or GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities and expenses. On an ongoing basis, we evaluate these
estimates and judgments, including those described below. We base our estimates
on our historical experience and on various other assumptions that we believe to
be reasonable under the circumstances. These estimates and assumptions form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results and experiences
may differ materially from these estimates.
While our significant accounting
policies are more fully described in our financial statements, we believe that
the following accounting policies are the most critical to aid you in fully
understanding and evaluating our reported financial results and affect the more
significant judgments and estimates that we use in the preparation of our
financial statements.
Convertible Instruments:
The Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature. Generally, embedded conversion features where the ability to
physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a
derivative financial instrument. (See Derivative Financial Instruments below).
Bifurcation of the embedded derivative instrument requires allocation of the
proceeds first to the fair value of the embedded derivative instrument with the
residual allocated to the debt instrument. The resulting discount to the face
value of the debt instrument is amortized through periodic charges to interest
expense using the Effective Interest Method.
26
Derivative Financial
Instruments:
The Company generally does not use derivative financial
instruments to hedge exposures to cash-flow or market risks. However, certain
other financial instruments, such as warrants or options to acquire common stock
and the embedded conversion features of debt and preferred instruments that are
indexed to the Companys common stock, are classified as liabilities when either
(a) the holder possesses rights to net-cash settlement or (b) physical or net
share settlement is not within the control of the Company. In such instances,
net-cash settlement is assumed for financial accounting and reporting, even when
the terms of the underlying contracts do not provide for net-cash settlement.
Such financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
Revenue Recognition
: The
Company recognizes revenues from the following sources:
Sales of medical devices are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, priced to the buyer is fixed or
determinable, and collectability is reasonably assured.
Healthcare support, management
and administration services rendered to healthcare centers and physician
practices are recognized when the services have been rendered.
Impairment of Long-Lived
Assets:
Long-lived assets, primarily fixed assets, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets might not be recoverable. The Company performs a
periodic assessment of assets for impairment in the absence of such information
or indicators. Conditions that would necessitate an impairment assessment
include a significant decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying amount of an
asset or group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount
is not recoverable through its undiscounted cash flows and measures the
impairment loss based on the difference between the carrying amount and
estimated fair value.
In December, 2013 management
decided to initiate a strategic change in the business operations of the
Company. In connection therewith, management decided to focus its future efforts
on the development of its medical device distribution business and to phase out
its existing businesses.
As a result, the Company has
impaired its goodwill and other net intangible assets aggregating $4,046,826
which were acquired in acquisitions consummated in 2011.
Stock-Based
Compensation:
The Company measures compensation
expense for its non-employee stock-based compensation under ASC 505-50,
Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring or in Conjunction with Selling, Goods or Services
. The fair
value of the option issued is used to measure the transaction, as this is more
reliable than the fair value of the services received. The fair value is
measured at the value of the Companys common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterpartys performance is complete. The fair value of the equity instrument
is charged directly to expense and additional paid-in capital.
27
Results of
Operations
Twelve Months Ended
December31, 2015 Compared to Twelve Months Ended December 31,
2014
Revenue
For the twelve months ended
December 31, 2015, the Company had total revenue of $753,391 as compared to
revenue of $8,340,831 for the twelve months ended December 31, 2014. Revenue
decreased by $7,587,440 or 91.0% over prior period due to the Company
re-launching its medical device business and the initiation of an enhanced model
in 2015. The Company met with challenges during 2015 and attempted to support
its existing, established distribution channels as well as researching new
products, technologies and services. In connection with this re-launch, the
Company is looking to obtain and secure new executive management team and Board
members to bring additional industry experience and expertise in accomplishing
the Companys current goals. The Company is also further streamlining its
physician practice administration and support business and as the Company
focuses on re-launching as a healthcare device technology-based company, it
begins to pull away from allocating resources and the further development of
this business. 2015 revenue consisted of $450,000 in revenue from physician
practice administration and support, $-0- in revenue from medical coding and
billing, $252,096 in call answering and emergency dispatch services performed
and $51,295 in revenues from the distribution and placement of medical devices.
For the twelve months ended
December 31, 2014, the Company had total revenue of $8,340,831. 2014 revenue
consisted of $1,800,000 in revenue from physician practice administration and
support, $3,596 in revenue from medical coding and billing, $237,575 in revenue
from call answering and emergency dispatch services performed and $6,299,660 in
revenues from the distribution and placement of medical devices. The changes in
our operating expenses from December 31, 2015 to December 31, 2014 are as
follows:
For the twelve months ended
December 31, 2015, the Company had total selling, general and administrative
expenses of $18,683,638 as compared to $29,424,426 for the twelve months ended
December 31, 2014. Total selling, general and administrative expenses for the
respective periods are comprised of the following:
Payroll, consulting, and
professional fees
Payroll, consulting, and
professional fees aggregated $13,197,315 for the twelve months ended December
31, 2015 compared to $26,640,367 for the twelve months ended December 31, 2014,
a decrease of $13,443,052 or 50.5% . The decrease is primarily attributed to a
decrease in the value of common stock issued in connection with various
settlements and agreements as well as decreases in professional services
aggregating $10,958,794 from $21,133,221 to $10,174,427, resulting from a
reduction in the issuance of shares to consultants and professionals for
services rendered for investor and public relations, marketing and capital
raising efforts and in the issuance of shares through various settlement
agreements with former warrant holders, note holders and others. Additionally,
professional fees decreased $986,668 to $2,336,173 from $3,322,841 in 2014
resulting from decreased fees as a result of the re-focusing and re-launching of
the Companys business in 2015, including business professionals, investor and
public relations initiatives, capital raising efforts and contractors. Payroll
and related tax expenses for the twelve months ended December 31, 2015 decreased
$599,914 to $442,818 compared to $1,042,732 for the twelve months ended December
31, 2014. This decrease is primarily due to the ceasing of operations and
vacating of the Boynton Beach, FL location, the vacating of the New York, NY and
the Garden City, NY locations and the resulting reduced costs of former
employees. Legal and accounting fees combined for the twelve months ended
December 31, 2015 had a net decrease of $897,676 to $243,897 compared to
$1,141,573 for the twelve months ended December 31, 2014 due to the Company
utilizing additional legal and accounting services in 2014 for support required
with the original launch of the medical device business and for SEC compliance
for certain reporting requirements.
Rent
Rent expense for the twelve
months ended December 31, 2015 was $3,995,017 compared to $672,564 for the
twelve months ended December 31, 2014, an increase of $3,322,453 or 494.0% . The
increase was the result of expenses related to the former corporate headquarters
and related escalations, expenses related to previously occupied office space in
New York, New York, and expenses related to previously occupied office/warehouse
space in Boynton Beach, Florida during the first half of 2015, along with
reserves established for ongoing negotiations to settle certain legal
proceedings with the former landlords. The Company has vacated its Boynton
Beach, Florida warehouse and storage facility and relocated to a state of the
art, third party warehousing, inventory and logistics facility located in Miami, Florida. This new location will be
used to provide and manage complete inventory, logistics and distribution for
the Companys regional operations. Additionally, the Company has also vacated
its Garden City, New York and New York City, New York offices and has relocated
to a state of the art, true virtual office environment in Melville, New York.
This new location will be used to provide executive, management and
administrative offices for the Companys regional operations. Although the
Company is currently engaged in ongoing negotiations to settle certain legal
proceedings with certain landlords, the Company anticipates a material reduction
in operating rent expense through 2016.
28
General and
administrative
General and administrative
expenses aggregated $1,311,546 for the twelve months ended December 31, 2015
compared to $1,382,006 for the twelve months ended December 31, 2014, a decrease
of $70,460 or 5.1% . The decrease is primarily attributable to $183,301 in
insurance expense for the twelve months ended December 31, 2015 compared to
$221,884 for the twelve months ended December 31, 2014, a decrease of $38,583 or
17.4% . The decrease was primarily due to reductions in coverages for our device
division as well as physician practice management division along with a
reductions in overall business policy coverages as related to former employees
and vacated locations; $223,508 in telephone and telecommunication expense for
the twelve months ended December 31, 2015 compared to $110,581 for the twelve
months ended December 31, 2014, an increase of $112,927 or 102.1% . These costs
increased primarily due to expenses for voice, data, software and hosting usage
along with related cloud, dashboard, portal access, datacenter and polling
development/maintenance and expansion of infrastructure for the device business
during early 2015; $86,851 in travel, entertainment, meals and related expenses
for the twelve months ended December 31, 2015 compared to $145,815 for the
twelve months ended December 31, 2014, a decrease of $58,964 or 40.4%, The
decrease is primarily due to the ceasing of operations and vacating of the
Boynton Beach, FL location along with the re-focusing of the Company to a
distributor of medical technology-based devices; and $817,887 in medical
supplies, office and information technology expense for the twelve months ended
December 31, 2015 compared to $903,726 for the twelve months ended December 31,
2014, a decrease of $85,839 or 9.5% . These costs decreased as the Company
streamlines its physician practice management division and the purchase of
medical supplies for that business along with decreased levels of office and
related technology/administration expenses primarily due to the ceasing of
operations and the vacating of the Boynton Beach, FL location and the New York
City, NY and Garden City, NY locations.
Cost of devices
Cost of devices for the twelve
months ended December 31, 2015 aggregated $-0- from $550,000 or 100.0% from the
twelve months ended December 31, 2014. This is primarily due to the Company
launching its device business in 2014 and focusing on customer and product
service, support and logistics for previously placed devices with existing
networks during 2015, along with a focus on an enhanced model, healthcare
technology and re-launching efforts. The Company continues to seek industry
leaders in assembling a new executive management team as the Company re-launches
as a distributor of medical and healthcare technology-based device company,
which includes the investigation and partnering with or acquiring of companies
as well as the research and discovery of merger and acquisition candidates that
can immediately contribute to this process.
Depreciation and
amortization
Depreciation and amortization
expenses for the twelve months ended December 31, 2015 aggregated $179,762 and
increased $7,745 from $172,017 or 4.5% from the twelve months ended December 31,
2014.
Bad debt expense
The Company made a provision of
$5,516,027 for bad debts for the twelve months ended December 31, 2015. Although
recognizing such a provision, the Company remains diligent in collection efforts
and remains confident in the future collections of its receivables.
29
Other income
(expense)
Net other income (expense) was
($16,676,051) for the twelve months ended December 31, 2015 compared to
($44,890) for the twelve months ended December 31, 2014, an increase of
$16,631,161. This increase in expense is primarily attributable to a
loss on disposal of certain assets of $788,782, loss on the extinguishment of
certain debt of $10,824,365, gain on change in fair value of derivative liability of $846,294 and an increase in interest expense of $2,833,565 as
a result of the extinguishment of certain debt for the twelve months ended
December 31, 2015.
Income taxes
No provision for income taxes has
been recorded as the Company has provided a full valuation allowance.
Net Loss
The net loss of the twelve months
ended December 31, 2015 was ($40,122,325) compared to the net loss of
($24,485,609) for the twelve months ended December 31, 2014. The Company had a
loss per weighted average common share outstanding of ($0.13) for the twelve
months ended December 31, 2015 compared to ($0.30) for the twelve months ended
December 31, 2014.
Liquidity and Capital
Resources
We have a history of operating
losses as we have focused our efforts on raising capital and developing our
medical device business. The report of our independent auditors issued on our
consolidated financial statements as of and for the year ending December 31,
2015 expresses substantial doubt about our ability to continue as a going
concern. In 2012, we were successful in raising net proceeds of $693,500 through
private placements and $1,270,000 through debt financing in order to fund the
development and growth of our operations. During 2013, we were successful in
raising net proceeds of $1,950,000 through private placements and $1,805,200
through debt financing in order to fund the development and growth of our
operations. During 2014 we were successful in raising net proceeds of $5,970,000
through private placements and $3,893,218 through debt financing in order to
fund the development and growth of our operations as well as the extinguishing
of certain existing demand, promissory and original issue discount notes as they
became due. During 2015, we were successful in raising net proceeds of $444,000
through private placements and $1,708,876 through debt financing in order to
fund the development, growth and re-launch of our operations. Our ability to
continue as a going concern is dependent on our obtaining additional adequate
capital to fund additional operating losses until we become profitable. If we
are unable to obtain adequate capital, we could be forced to cease operations.
The following table presents a
summary of our net cash provided by (used in) operating, investing and financing
activities for December 31, 2015 and 2014:
|
|
Twelve
Months Ended
|
|
|
|
December 31
|
|
|
|
2015
|
|
|
2014
|
|
Net cash used in operating
activities
|
|
(2,197,397
|
)
|
$
|
(5,835,548
|
)
|
Net cash used in investing activities
|
|
(40,594
|
)
|
|
(1,132,222
|
)
|
Net cash provided by
financing activities
|
|
2,142,116
|
|
|
6,964,850
|
|
Net (decrease) increase in
cash
|
|
(95,875
|
)
|
$
|
(2,920
|
)
|
Cash flows for the twelve months
ended December 31, 2015 compared to December 31, 2014:
For the twelve
months ended December 31, 2015, we incurred a net loss of $40,122,325. Net cash
used in operating activities was $2,197,397, net cash used in investing
activities was $40,594 and net cash provided by financing activities was
$2,142,116. For the twelve months ended December 31, 2014, we incurred a net
loss of $24,357,707. Net cash used in operating activities was $5,835,548, net
cash used in investing activities was $1,132,222 and net cash provided by
financing activities was $6,964,850.
30
Working Capital Deficit
Information
-
The following table presents a summary of our
working capital deficit:
|
|
December
|
|
|
December
|
|
Category
|
|
31, 2015
|
|
|
31, 2014
|
|
Current assets
|
|
238,622
|
|
|
6,023,714
|
|
Current liabilities
|
|
35,078,099
|
|
|
8,946,960
|
|
Working capital (deficit)
|
$
|
(34,839,477
|
)
|
$
|
(2,923,246
|
)
|
As of December 31, 2015, the
Company had a working capital deficit of $34,839,477, compared to $2,923,247 at
December 31, 2014, or an increase in working capital deficit of $31,916,231. For
2015, current assets had a net decrease of $5,785,092 primarily due to a
decrease of $95,875 in cash, a decrease of $5,093,804 in accounts receivable
related to the Company focusing on business re-launching efforts as well as
recognizing an increase in allowances for doubtful accounts of $5,510,912, in
which, although recognizing such reserve, the Company remains diligent in
collection efforts and remains confident in the future collections of its
receivables, a net decrease in prepaid expenses of $562,813 primarily related to
the settlement and full amortization of compensation as a result of certain
consulting agreements and a net decrease in inventory of $32,600 due to a loss
on the move/disposal of certain units. Current liabilities had a net increase of
$26,131,139 primarily related to an increase of $23,015,804 in liability for
stock to be issued, as a result of various settlement agreements with former
warrant holders, note holders and others, a decrease in the fair value of the
derivative liability related to warrants issued with notes payable in 2014 of
$1,059,867 and an increase of $6,306,701 in accounts payable and accrued
expenses, primarily due to rent reserves for vacated leases/locations.
Rollforward of the Allowance for Doubtful
Accounts
The rollforward of the allowance
for doubtful accounts consisted of the following for the years ended December
31, 2015 and 2014:
|
|
December 31
|
|
|
December 31
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
Balance at beginning of
year
|
$
|
3,000,000
|
|
$
|
1,200,000
|
Provision
|
|
5,516,027
|
|
|
3,236,000
|
Write-offs
|
|
5,115
|
|
|
1,436,000
|
Recoveries
|
|
-
|
|
|
-
|
Balance at end of year
|
$
|
8,510,912
|
|
$
|
3,000,000
|
Funding Requirements:
We expect to incur substantial expenses and generate ongoing operating
losses for the foreseeable future as we prepare for the re-launch and ongoing
development of our medical equipment and device business with an added focus on
healthcare technology. If we are unable to raise an adequate amount of capital,
however, we could be forced to curtail or cease operations. Our future capital
uses and requirements depend on numerous forward-looking factors. These factors
include, but are not limited to the following:
-the time
and expense needed to complete the procurement of inventory and the successful
re-launch of the medical equipment and device business;
-the
expense associated with building and properly managing a network of independent
sales representatives to market devices, equipment and technology selected for
distribution;
-the time
and expense associated with building and maintaining an electronic
infrastructure and network supporting healthcare devices, data and technology;
31
-the
degree and speed of patient and physician acceptance and implementation of these
devices and products and the degree to which third-party payors approve and pay
for reimbursement;
-the time
and expense associated with properly maintaining a compliance and reporting
infrastructure supporting the requirements necessary for timely and accurate
compliance reporting required of a public entity;
and
-the time
and expense associated in securing the appointment of additional proper senior
executives to provide additional leadership, focus and vision in re-launching
the medical equipment and device business.
The Company anticipates meeting
challenges and continued momentum and growth through fiscal 2016. The Company
intends to support its established distribution channels as well as introduce
new sales partnerships throughout the coming year. In addition to increasing
sales of existing product offerings, the Company intends to research, develop
and introduce new products, technologies and services to its customers.
The Company will continue with
product placement and support efforts through existing networks and channels
through 2016, attempting the establishment of a core foundation and penetration
for the re-launch of existing products, and anticipates on building upon that
foundation and further enhancing and expanding upon products offered and
networks serviced, focusing on the evaluation, implementation and placement of
new products and technology through new distribution channels, partners and
strategic alliances. As the Company looks forward to this re-launch, growth and
expansion, and the further execution of an enhanced model, the Company is also
actively seeking the appointment of a new executive management team. The Company
also seeks to expand and enhance its Board of Directors. The addition of new
executive leadership is anticipated to provide the Company with healthcare and
market industry leadership as well as extensive executive management experience
and a fresh perspective in the re-launching and transforming of the Company as
medical device technology-based company. This endeavor also includes the
investigation and the partnering with or acquiring of companies that can
immediately contribute to this process.
Future business and revenue
generation for the physician practice management and support business, although
not a primary focus, continues to be investigated and pursued, including the
investigation of strategic alliances and partnerships with companies that may
immediately capitalize on the Companys experience and established methods and
networks while contributing revenues with minimal expenditures to the Company.
The Company also continues its
capital raising efforts through 2016 with increased exposure and awareness
through more formalized investor and public relations, communications, roadshows
and the engaging of professional firms.
In view of these matters,
realization of certain of the assets in the accompanying balance sheet is
dependent upon our continued operations, which in turn is dependent upon our
ability to meet our financial requirements, raise additional financing, and the
success of our future operations.
Additional funding may not be
available to us on acceptable terms or at all. In addition, the terms of any
financing may adversely affect the holdings or the rights of our stockholders.
For example, if we raise additional funds by issuing equity securities or by
selling debt securities, if convertible, further dilution to our existing
stockholders would result. The Company also has Board approval for up to a 5,000
to 1 reverse stock split and continues to negotiate settlement and satisfaction
agreements with debt holders, which could include additional significant
issuances of the Companys common stock. To the extent our capital resources are
insufficient to meet our future capital requirements, we will need to finance
our future cash needs through public or private equity offerings, collaboration
agreements, debt financings or licensing arrangements.
If adequate funds are not
available, we may be required to terminate, significantly modify or delay the
development and re-launch of our businesses, reduce our planned
commercialization efforts, or obtain funds through means that may require us to
relinquish certain rights that we might otherwise seek to protect and retain.
Further, we may elect to raise additional funds even before we need them if
we believe the conditions for raising capital are favorable.
32
Item 7A.
|
Quantitative and Qualitative Disclosures
About Market Risk
|
Not applicable
Item 8.
|
Financial Statements and Supplementary
Data
|
[EDGAR AGENT PLEASE
INSERT]
Item 9.
|
Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
|
None.
Item 9A.
|
Controls and Procedures
|
Our independent accounting firm
has not, nor is required, to perform any procedures to assess the effectiveness
of management remediation efforts.
Evaluation of Disclosure Controls and Procedures.
Our Principal Executive Officer
and Principal Financial Officer evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures as of
the end of the period covered by this report were not effective such that the
information required to be disclosed by us in reports filed under the Exchange
Act is (i) recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and (ii) accumulated and communicated to
our Principal Executive Officer and Principal Financial Officer, as appropriate,
to allow timely decisions regarding disclosure. The Company is re-launching its
business and currently lacks documented procedures including documentation
related to testing of processes, data validation procedures from systems into
the general ledger, testing of systems, validation of results and reports,
disclosure review, and other review and analytical procedures. Furthermore, the
Company lacked sufficient personnel to properly effectuate the segregation of
duties. A controls system cannot provide absolute assurance, however, that the
objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Managements Report on Internal Control Over Financial
Reporting.
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
for our company. Internal control over financial reporting is defined in
Exchange Act Rules 13a-15(f) and 15(d) -15(f) as a process designed by, or under
the supervision of, our Chief Executive and Chief Financial Officer and effected
by our board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
|
|
pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and disposition of
our assets;
|
|
|
|
|
|
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles;
|
|
|
|
|
|
provide reasonable assurance that our receipts and
expenditures are being made only in accordance with authorization of our
management and directors; and
|
|
|
|
|
|
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of our
assets that could have a material effect on the financial statements.
|
Because of inherent limitations,
internal controls over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate because of changes
in conditions or that the degree of compliance with the policies or procedures
may deteriorate.
33
Our management conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2015 and identified a material weakness in internal control
over financial reporting as of that date. A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of the
annual or interim financial statement will not be prevented or detected on a
timely basis. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), in
Internal Control-Integrated Framework. Because of the material weakness
described below, management concluded that, as of December 31, 2015, our
internal control over financial reporting was not effective.
The Company is re-launching and
growing its business along with seeking additional management executives and
board members and currently lacks documented procedures including documentation
related to testing of processes, data validation procedures from systems into
the general ledger, testing of systems, validation of results and reports,
disclosure review, and other review and analytical procedures. Furthermore, the
Company lacked sufficient personnel to properly effectuate the segregation of
duties. A controls system cannot provide absolute assurance, however, can
provide that the objectives of the controls system are met, and no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected.
Changes in Internal Controls.
There were no changes in our
internal controls over financial reporting during the fiscal year ended December
31, 2015, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B.
|
Other Information
|
None.
34
MILLENNIUM HEALTHCARE INC.
CONSOLIDATED BALANCE
SHEETS
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
|
$
|
16,850
|
|
$
|
112,725
|
|
Accounts receivable, net of
allowance for doubtful accounts of $8,510,912 and
$3,000,000 at December 31, 2015 and December 31, 2014, respectively
|
|
99,830
|
|
|
5,193,634
|
|
Inventory
|
|
67,400
|
|
|
100,000
|
|
Prepaid expenses
|
|
54,542
|
|
|
617,355
|
|
Total current assets
|
|
238,622
|
|
|
6,023,714
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
286,092
|
|
|
789,950
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
Security deposits
|
|
-
|
|
|
375,595
|
|
Intangible assets, net
|
|
27,416
|
|
|
54,833
|
|
Total other assets
|
|
27,416
|
|
|
430,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
552,130
|
|
$
|
7,244,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable and
accrued expenses
|
$
|
7,585,449
|
|
$
|
1,278,748
|
|
Current portion of notes payable, net
of debt discounts of $146,667 and $220,878, and original issue
discounts of
$103,400 and $106,504, respectively
|
|
3,393,457
|
|
|
2,862,836
|
|
Derivative liability
|
|
1,609
|
|
|
1,061,476
|
|
Liability for common stock to be issued
|
|
23,655,904
|
|
|
640,100
|
|
Liability for preferred
stock to be issued
|
|
441,680
|
|
|
3,103,800
|
|
Total current liabilities
|
|
35,078,099
|
|
|
8,946,960
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
-
|
|
|
337,500
|
|
Notes payable, net of debt
discounts of $209,726 and $-0-, and original issue discounts
of $14,068
and $-0-, respectively, net of current portion
|
|
184,458
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
35,262,557
|
|
|
9,634,460
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' (DEFICIT)
|
|
|
|
|
|
|
Preferred stock, $0.0001 par
value, 15,000,000 shares authorized
|
|
|
|
|
|
|
Series A Preferred stock, $0.0001 par
value, 1,000,000 shares
authorized, 1,000,000
and 600,000 shares issued and outstanding, respectively
|
|
100
|
|
|
60
|
|
Series B Preferred
stock, $0.0001 par value, 276,666 shares authorized, 0 shares issued and
outstanding, respectively
|
|
-
|
|
|
-
|
|
Series D Preferred stock, $0.0001 par
value, 110,000 shares authorized, 0 shares issued and outstanding,
respectively
|
|
-
|
|
|
-
|
|
Series E Preferred
stock, $0.0001 par value, 200,000 shares authorized, 0 shares issued and
outstanding, respectively
|
|
-
|
|
|
-
|
|
Series F Preferred stock, $0.0001 par
value, 3,000,000 shares authorized, 0 and 550,000
shares issued
and outstanding, respectively
|
|
-
|
|
|
-
|
|
Series G Preferred
stock, $0.0001 par value, 100,000 shares authorized, 0
shares issued
and outstanding respectively
|
|
-
|
|
|
-
|
|
Common stock, $0.0001 par value,
10,950,000,000 and 200,000,000 shares authorized, respectively, 728,040,377
and 128,828,942 shares issued and outstanding, respectively
|
|
72,804
|
|
|
12,883
|
|
Additional paid in
capital
|
|
85,811,121
|
|
|
77,427,977
|
|
Deferred compensation
|
|
(4,093,866
|
)
|
|
(3,453,027
|
)
|
Accumulated deficit
|
|
(116,500,586
|
)
|
|
(76,378,261
|
)
|
Total stockholders' deficit
|
|
(34,710,427
|
)
|
|
(2,390,368
|
)
|
|
|
|
|
|
|
|
|
|
552,130
|
|
|
7,244,092
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
MILLENNIUM HEALTHCARE INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
|
|
YEAR ENDED
|
|
|
YEAR ENDED
|
|
|
|
DECEMBER 31, 2015
|
|
|
DECEMBER 31, 2014
|
|
REVENUE
|
$
|
753,391
|
|
$
|
8,340,831
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
Selling, general and
administrative
|
|
18,683,638
|
|
|
29,424,426
|
|
Bad debt expense
|
|
5,516,027
|
|
|
3,229,222
|
|
Total operating expenses
|
|
24,199,665
|
|
|
32,653,648
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE OTHER INCOME (EXPENSE) AND
PREFERRED
STOCK DIVIDENDS
|
|
(23,446,274
|
)
|
|
(24,312,817
|
)
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
Interest expense
|
|
(5,909,198
|
)
|
|
(3,075,633
|
)
|
Loss on disposal of
assets
|
|
(788,782
|
)
|
|
-
|
|
Loss on
extinguishment of debt
|
|
(10,824,365
|
)
|
|
-
|
|
Gain on change in fair
value of derivative liability
|
|
846,294
|
|
|
3,030,743
|
|
Total other income (expense)
|
|
(16,676,051
|
)
|
|
(44,890
|
)
|
|
|
|
|
|
|
|
NET (LOSS) BEFORE
PREFERRED STOCK DIVIDNEDS
|
|
(40,122,325
|
)
|
|
(24,357,707
|
)
|
|
|
|
|
|
|
|
Preferred stock
dividends
|
|
-
|
|
|
(127,902
|
)
|
|
|
|
|
|
|
|
NET (LOSS)
|
$
|
(40,122,325
|
)
|
$
|
(24,485,609
|
)
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC & DILUTED
|
|
318,753,533
|
|
|
82,207,894
|
|
|
|
|
|
|
|
|
NET (LOSS) PER SHARE -
BASIC & DILUTED
|
$
|
(0.13
|
)
|
$
|
(0.30
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
MILLENNIUM HEALTHCARE INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND
2104
|
|
YEAR ENDED
|
|
|
YEAR ENDED
|
|
|
|
DECEMBER 31, 2015
|
|
|
DECEMBER 31, 2014
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(40,122,325
|
)
|
$
|
(24,357,707
|
)
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss
to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
179,762
|
|
|
172,017
|
|
Non-cash interest
|
|
5,909,198
|
|
|
718,937
|
|
Loss on extinguishment of debt
|
|
10,824,365
|
|
|
-
|
|
(Gain) on change in fair
value of derivative
|
|
(846,294
|
)
|
|
(3,030,743
|
)
|
Loss on disposal of assets
|
|
788,782
|
|
|
-
|
|
Preferred stock dividend
|
|
-
|
|
|
127,902
|
|
Amortization of deferred
compensation
|
|
4,216,178
|
|
|
1,335,450
|
|
Share based compensation
|
|
4,857,019
|
|
|
22,548,665
|
|
Provisions for doubtful
accounts
|
|
5,516,027
|
|
|
3,229,222
|
|
|
|
|
|
|
|
|
Change in operating assets
and liabilities
|
|
|
|
|
|
|
Prepaid expenses
|
|
562,813
|
|
|
(269,492
|
)
|
Accounts receivable
|
|
(422,223
|
)
|
|
(7,561,442
|
)
|
Inventory
|
|
32,600
|
|
|
720,963
|
|
Accounts payable and
accrued expenses
|
|
6,306,701
|
|
|
530,680
|
|
Total adjustments
|
|
37,924,928
|
|
|
18,522,159
|
|
Net cash used
in operating activities
|
|
(2,197,397
|
)
|
|
(5,835,548
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
Security deposits
|
|
-
|
|
|
(296,332
|
)
|
Acquisition of fixed
assets
|
|
(40,594
|
)
|
|
(835,890
|
)
|
Net cash used in investing activities
|
|
(40,594
|
)
|
|
(1,132,222
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Issuance of preferred and common stock
for cash (including liability for shares to be issued)
|
|
602,866
|
|
|
6,229,500
|
|
Preferred dividends
paid
|
|
-
|
|
|
(101,448
|
)
|
Proceeds received from notes payable
|
|
1,743,250
|
|
|
4,188,218
|
|
Repayments of notes
payable
|
|
(204,000
|
)
|
|
(3,351,420
|
)
|
Net cash
provided by financing activities
|
|
2,142,116
|
|
|
6,964,850
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
(95,875
|
)
|
|
(2,920
|
)
|
|
|
|
|
|
|
|
CASH - BEGINNING OF
YEAR
|
|
112,725
|
|
|
115,645
|
|
|
|
|
|
|
|
|
CASH - END OF
YEAR
|
$
|
16,850
|
|
$
|
112,725
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
Taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
NON-CASH SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
Issuance of common stock for liability of
stock to be issued
|
$
|
11,235,863
|
|
$
|
3,802,550
|
|
Issuance of preferred stock
for liability of stock to be issued
|
|
|
|
$
|
2,269,500
|
|
Cancellation of preferred stock for liability
of stock to be issued, net
|
$
|
2,662,120
|
|
$
|
-
|
|
Derivative liability issued
for debt discount
|
$
|
-
|
|
$
|
385,350
|
|
Exchange of notes payable
|
$
|
250,000
|
|
$
|
-
|
|
Conversion of notes payable into equity
|
$
|
1,435,194
|
|
$
|
-
|
|
Deferred compensation paid through issuance of common stock and liability to issue common stock
|
$
|
2,166,921
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
MILLENNIUM
HEALTHCARE
INC.
CONSOLIDATED
STATEMENT
OF
CHANGES
IN
STOCKHOLDERS'
DEFICIT
FOR THE
YEARS
ENDED
DECEMBER
31, 2015 and 2014
|
|
Series A
|
|
|
Series
B
|
|
|
Series D
|
|
|
Series
E
|
|
|
Series F
|
|
|
Series G
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
Balance - December 31, 2013
|
|
500,000
|
|
$
|
50
|
|
|
-
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
129,664
|
|
$
|
13
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
63,237,172
|
|
$
|
6,324
|
|
$
|
47,936,049
|
|
$
|
(645,964
|
)
|
$
|
(51,892,652
|
)
|
$
|
(4,596,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
rendered and liability for stock to be issued
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,400,000
|
|
|
940
|
|
|
4,881,362
|
|
|
-
|
|
|
-
|
|
|
4,882,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under
agreements with consultants and employees
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,125,000
|
|
|
3,413
|
|
|
14,390,588
|
|
|
|
|
|
-
|
|
|
14,394,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,142,513
|
)
|
|
|
|
|
(4,142,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,335,450
|
|
|
-
|
|
|
1,335,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to founders
|
|
100,000
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
0
|
|
|
0
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,446,770
|
|
|
2,145
|
|
|
6,111,958
|
|
|
-
|
|
|
-
|
|
|
6,114,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion/settl ement of
Series E Preferred Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
0
|
|
0
|
|
|
(132,258)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of Series E
Preferred Stock for accrued dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,594
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,935
|
|
|
|
|
|
|
|
|
25,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for note
extensions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
620,000
|
|
|
62
|
|
|
247,988
|
|
|
|
|
|
|
|
|
248,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,834,097
|
|
|
|
|
|
|
|
|
3,834,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended
December 31, 2014
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(24,485,609
|
)
|
|
(24,485,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2014
|
|
600,000
|
|
$
|
60
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
128,828,942
|
|
$
|
12,883
|
|
$
|
77,427,977
|
|
$
|
(3,453,027
|
)
|
$
|
(76,378,261
|
)
|
$
|
(2,390,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under agreements with
consultants and employees
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,500,000
|
|
|
5,650
|
|
|
798,951
|
|
|
|
|
|
-
|
|
|
804,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,720,000
|
|
|
872
|
|
|
149,528
|
|
|
|
|
|
|
|
|
150,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,857,017
|
)
|
|
|
|
|
(4,857,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
deferred compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,218,178
|
|
|
-
|
|
|
4,216,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to founders
|
|
400,000
|
|
|
40
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,500,000
|
)
|
|
(2,350
|
)
|
|
2,350
|
|
|
-
|
|
|
-
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,427,051
|
|
|
40,943
|
|
|
7,109,444
|
|
|
-
|
|
|
-
|
|
|
7,150,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversionof Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,064,384
|
|
|
14,806
|
|
|
313,110
|
|
|
|
|
|
|
|
|
327,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants for
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,761
|
|
|
|
|
|
|
|
|
9,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,122,325
|
)
|
|
(40,122,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015
|
|
1,000,000
|
|
$
|
100
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
728,040,377
|
|
$
|
72,804
|
|
$
|
85,811,121
|
|
$
|
(4,093,866
|
)
|
$
|
(116,500,586
|
)
|
$
|
(34,710,427
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 1-
|
ORGANIZATION AND BUSINESS
DESCRIPTION
|
Millennium Healthcare Inc. (the
Company), was formed in the State of Delaware on July 28, 1994 as Kirlin
Holding Corp., changed its name to Zen Holding Corp. in July, 2008 and to
Millennium Healthcare, Inc. on June 16, 2011.
The Company has currently re-launched
its medical equipment and device business. In connection therewith the Company
seeks to enter into various agreements to become the nationwide distributor for
various medical devices mainly focused on preventative and diagnostic testing
and care including an oral diagnostic biopsy test and a heart health test and
assessment device.
The Company also provides physician
practice administration and support with a current focus on physician practices
specializing in cardiovascular and vascular procedures and provides support and
services specializing in medical procedure billing and collections, medical
procedure coding, call and message management, and emergency dispatch.
Going Concern
These consolidated financial
statements are presented on the basis that the Company will continue as a going
concern which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has incurred operating
losses for the past several years, has a working capital deficiency of
$34,839,477 and a stockholders deficit of $34,710.427 as of December 31, 2015.
In addition, during February 2016, certain promissory note holders filed a
Notice of Involuntary Bankruptcy Case in the United States Bankruptcy Court
Eastern District of New York against the Company seeking relief under Chapter 7
of the United States Bankruptcy Code. These conditions, among others, raise
substantial doubt about the Companys ability to continue as a going concern.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
The Company intends to support its established distribution channels as well as introduce new sales partnerships throughout the coming years. In addition to increasing sales of existing product offerings, the Company intends to research, develop and introduce new products, technologies and services.
The Company will continue with product placement and support efforts through existing networks and channels, attempting the establishment of a core foundation and penetration for the re-launch of existing products, and anticipates on building upon that foundation and further enhancing and expanding upon products offered and networks serviced, focusing on the evaluation, implementation and placement of new products and technology through new distribution channels, partners and strategic alliances. The Company also continues its capital raising efforts with increased exposure and awareness through more formalized investor and public relations, communications, roadshows and the engaging of professional firms.
NOTE 2-
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Principles of
Consolidation
The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-5
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Use of Estimates
The preparation of consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash
The Company considers all highly
liquid debt instruments and other short-term investments with maturity of three
months or less, when purchased, to be cash equivalents.
The Company maintains cash and cash
equivalent balances at financial institutions that are insured by the Federal
Deposit Insurance Corporation.
Fixed Assets
Fixed assets are stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the related assets. Costs of
maintenance and repairs will be charged to expense as incurred. Costs for
renewals and betterments are capitalized. Gains or losses upon sale or
retirement due to obsolescence are reflected in the operating results in the
period the event occurs.
Accounts Receivable and
Allowance for Doubtful Accounts
Accounts receivable are stated at the
amounts management expects to collect from outstanding balances. Management
provides for probable uncollectible amounts through a charge to earnings and a
credit to a valuation allowance based on its assessment of the current status of
individual accounts. Balances outstanding after management has used collection
efforts are written off through a charge to bad debt expense.
Inventory
Inventories, consisting of finished
medical devices purchased for resale, are valued at the lower of cost or market
determined on the first in first out method.
Impairment of Long-Lived
Assets
Long-lived assets, primarily fixed
assets, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets might not be recoverable. The
Company performs a periodic assessment of assets for impairment in the absence of such information or
indicators. Conditions that would necessitate an impairment assessment include a
significant decline in the observable market value of an asset, a significant
change in the extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of an asset or group
of assets is not recoverable. For long-lived assets to be held and used, the
Company recognizes an impairment loss only if its carrying amount is not
recoverable through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and estimated fair value.
F-6
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Convertible Instruments
The Company reviews the terms of
convertible debt and equity securities for indications requiring bifurcation,
and separate accounting, for the embedded conversion feature. Generally,
embedded conversion features where the ability to physical or net-share settle
the conversion option is not within the control of the Company are bifurcated
and accounted for as a derivative financial instrument. (See Derivative
Financial Instruments below). Bifurcation of the embedded derivative instrument
requires allocation of the proceeds first to the fair value of the embedded
derivative instrument with the residual allocated to the debt instrument. The
resulting discount to the face value of the debt instrument is amortized through
periodic charges to interest expense using the Effective Interest Method.
Derivative Financial
Instruments
The Company generally does not use
derivative financial instruments to hedge exposures to cash-flow or market
risks. However, certain other financial instruments, such as warrants or options
to acquire common stock and the embedded conversion features of debt and
preferred instruments that are indexed to the Companys common stock, are
classified as liabilities when either (a) the holder possesses rights to
net-cash settlement or (b) physical or net share settlement is not within the
control of the Company. In such instances, net-cash settlement is assumed for
financial accounting and reporting, even when the terms of the underlying
contracts do not provide for net-cash settlement. Such financial instruments are
initially recorded at fair value and subsequently adjusted to fair value at the
close of each reporting period.
Income Taxes
Deferred income taxes are determined
using the liability method for the temporary differences between the financial
reporting basis and income tax basis of the Companys assets and liabilities.
Deferred income taxes are measured based on the tax rates expected to be in
effect when the temporary differences are included in the Companys tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases. A valuation allowance is
provided to reduce the deferred tax assets reported if based on the weight of
the available positive and negative evidence, it is more likely than not some
portion or all of the deferred tax assets will not be realized.
The Company follows ASC 740-10,
Accounting for Uncertainty in Income Taxes (ASC 740-10). This interpretation
requires recognition and measurement of uncertain income tax positions using a
more-likely-than-not approach.
The Company has performed a review of
its material tax positions. During the years ended December 31, 2015 and 2014,
the Company did not recognize any amounts for interest and penalties with
respect to any unrecognized tax benefits. The Companys tax returns for the
years ended December 31, 2012 to 2015 are open for audit by the respective tax
authorities.
F-7
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Revenue Recognition
Sales of medical devises are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, price to the buyer is fixed or
determinable, and collectability is reasonably assured. Healthcare support,
management and administration services rendered to healthcare centers and
physician practices are recognized when the services have been rendered.
Loss Per Share of Common
Stock
Basic net income (loss) per common
share is computed using the weighted average number of common shares
outstanding. Diluted loss per share (EPS) include additional dilution from
common stock equivalents, such as convertible notes, preferred stock, stock
issuable pursuant to the exercise of stock options and warrants. Common stock
equivalents are not included in the computation of diluted earnings per share
when the Company reports a loss because to do so would be anti-dilutive for
periods presented.
Goodwill
Goodwill and Other Intangible
AssetsUnder ASC No. 350, IntangiblesGoodwill and Other (ASC 350), goodwill
and indefinite lived intangible assets are not amortized but are reviewed
annually for impairment, or more frequently, if impairment indicators arise.
Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the
provisions of ASC No. 360, Property, Plant and Equipment (ASC 360).
F-8
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Goodwill impairment is tested at least
annually or when factors indicate potential impairment using a two-step process
that begins with an estimation of the fair value of each reporting unit. Step 1
is a screen for potential impairment pursuant to which the estimated fair value
of each reporting unit is compared to its carrying value. The Company estimates
the fair values of each reporting unit by a combination of (i) estimation of the
discounted cash flows of each of the reporting units based on projected earnings
in the future (the income approach) and (ii) a comparative analysis of revenue
and margins multiples of public companies in similar markets (the market
approach). If there is a deficiency (the estimated fair value of a reporting
unit is less than its carrying value), a Step 2 test is required.
The Company evaluates the goodwill
attributable to each of the reporting units in accordance with ASC 350-20-35-36
and ASC 350-20-35-41.
Stock-Based Compensation
The Company accounts for stock based
compensation in accordance with the provisions of ASC 718-10
Share Based
Payments
The Company recognizes these
compensation costs, net of an estimated forfeiture rate, on a pro rata basis
over the requisite service period of each vesting tranche of each award. The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
The Company measures compensation
expense for its non-employee stock-based compensation under ASC 505-50,
Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services
.
Liability For Stock To Be Issued
The Company enters into agreements for the issuance of common and preferred stock for cash and services. When the shares have not been issued the Company records the amounts as liability for stock to be issued. For cash transactions the Company records the liability for the amount of cash received and for services the Company records the transaction in accordance with ASC 845 Nonmonetary transactions whereby the services are valued based on the fair value of the services or the equity instruments to be issued, whichever is more clearly evident, as of the measurement date.
Segment Information
The Company follows the provisions of
ASC 280-10,
Disclosures about Segments of an Enterprise and Related
Information
. This standard requires that companies disclose operating
segments based on the manner in which management disaggregates the Company in
making internal operating decisions. As of December 31, 2015 and for the years
ended December 31, 2015 and 2014, the Company operated in three segments as well
as separately identifying the corporate overhead costs. The segments are as
follows: Coding this includes the coding, billing and telecommunications
services of the Company; Vascular this includes all vascular physician
practice administration and support services; and Devices this includes all
services related to the medical device and equipment segment.
F-9
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The Companys chief financial officer
reviews financial information presented on an entity level basis accompanied by
disaggregated information about revenues by product type and certain information
about geographic regions where appropriate for purposes of making operating
decisions and assessing financial performance.
December 31, 2015
|
|
|
Coding
|
|
|
Device
|
|
|
Vascular
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmented
Operating
Revenues
|
|
$
|
-
|
|
$
|
51,295
|
|
$
|
702,096
|
|
$
|
-
|
|
$
|
753,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses excluding
Depreciation and
Amortization, and
Other (Income)
Expense
|
|
|
5,343
|
|
|
4,856,866
|
|
|
2,060,525
|
|
|
17,097,169
|
|
|
24,019,903
|
|
Depreciation and
Amortization
|
|
|
-
|
|
|
126,653
|
|
|
30,698
|
|
|
22,411
|
|
|
179,762
|
|
Other (Income)
Expense
|
|
|
-
|
|
|
399,844
|
|
|
24,925
|
|
|
16,251,282
|
|
|
16,676,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
$
|
-
|
|
$
|
277,749
|
|
$
|
-
|
|
$
|
8,343
|
|
$
|
286,092
|
|
Intangible
Assets
|
|
|
-
|
|
|
-
|
|
|
27,416
|
|
|
-
|
|
|
27,416
|
|
December 31, 2014
|
|
|
Coding
|
|
|
Device
|
|
|
Vascular
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmented Operating
Revenues
|
|
$
|
3,596
|
|
$
|
6,299,660
|
|
$
|
2,037,575
|
|
$
|
-
|
|
$
|
8,340,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
excluding Depreciation and
Amortization, and Other
(Income) Expense
|
|
|
3,773
|
|
|
3,094,656
|
|
|
2,372,134
|
|
|
27,003,596
|
|
|
32,474,159
|
|
Depreciation and Amortization
|
|
|
-
|
|
|
119,673
|
|
|
34,744
|
|
|
25,072
|
|
|
179,489
|
|
Other (Income) Expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
44,890
|
|
|
44,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
$
|
-
|
|
$
|
739,974
|
|
$
|
10,440
|
|
$
|
39,536
|
|
$
|
789,950
|
|
Intangible
Assets
|
|
|
-
|
|
|
-
|
|
|
54,833
|
|
|
-
|
|
|
54,833
|
|
F-10
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Generally, any item not related to one
of our other segments would be included in the Corporate Column. This includes
corporate overhead costs such as consulting fees, legal fees, and other
professional fees including all common stock issued for services; and interest
expenses, including all fair value measurements of warrants and fair value
adjustments related to our derivative liability that have been charged to
interest. The Company has determined it would be more appropriate to include a
corporate column rather than develop an allocation to our other divisions as the
Company has not determined allocation percentages.
Recently Issued Accounting
Standards
The Financial Accounting Standards
Board and the Securities Exchange commission have issued certain accounting
standards updates and regulations that will become effective in subsequent
periods. Management does not believe that any of those updates would have
significantly affected the Companys financial accounting measures or
disclosures had they been in effect in 2015 and 2014, and it does not believe
that any of those pronouncements will have a significant impact on the Companys
consolidated financial statements at the time they become effective.
Fixed assets as of December 31, 2015
and 2014 were as follows:
|
|
Lives (Years)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Computer equipment
|
|
5
|
|
$
|
53,422
|
|
$
|
53,422
|
|
Vasoscan equipment
|
|
|
|
|
312,808
|
|
|
798,601
|
|
Software
|
|
3
|
|
|
34,180
|
|
|
34,180
|
|
Telephone
|
|
5
|
|
|
1,400
|
|
|
1,400
|
|
Furniture and fixtures
|
|
5
|
|
|
-
|
|
|
125,565
|
|
|
|
|
|
|
401,810
|
|
|
1,013,168
|
|
Less: accumulated
depreciation
|
|
|
|
|
115,718
|
|
|
223,218
|
|
Fixed assets, net
|
|
|
|
$
|
286,092
|
|
$
|
789,950
|
|
Depreciation expense charged to
operations was $152,345 and $172,017 for the years ended December 31, 2015 and
2014, respectively.
NOTE 4-
|
INTANGIBLE ASSETS (exclusive of
goodwill)
|
Intangible assets as of December 31,
2015 and 2014 were as follows:
F-11
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
Lives (Years)
|
|
|
2015
|
|
|
2014
|
|
|
Customer Lists
|
|
3
|
|
|
82,250
|
|
|
82,250
|
|
|
|
|
|
|
|
82,250
|
|
|
82,250
|
|
|
Less: accumulated
amortization
|
|
|
|
|
(54,834
|
)
|
|
(27,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
27,416
|
|
$
|
54,833
|
|
Amortization expense charged to
operations was $27,417 and $27,417 for the years ended December 31, 2015 and
2014, respectively.
NOTE 5-
|
PREFERRED STOCK - SERIES F AND SERIES G
|
During 2015, the Company entered into
Satisfaction Agreements and Releases with various Series F holders in which
700,000 shares of Series F preferred stock (which were not yet issued and recorded as a liability) were surrendered and exchanged for
2,840,000 shares of the Companys common stock. Further, 240,000 of these common
shares were issued and 2,600,000 shares valued at $390,000 were recorded as a
liability for common stock to be issued.
During 2015, the Company entered into
a Satisfaction Agreement and Release with a Series G holder in which 75 shares
of Series G preferred stock (which were not yet issued and recorded as a liability) were surrendered and exchanged for 300,000 shares of
the Companys common stock.
In June 2015, the Company entered into
a unified Satisfaction Agreement and Release with various Series F and Series G
holders in which 2,300,000 shares of Series F preferred stock and 4,775 shares
of Series G preferred stock (which were not yet issued and recorded as a liability) were surrendered and exchanged for shares of the
Companys common stock. The terms of the Agreement call for a 10,500,000 block
of common shares at settlement and for common stock true-up blocks issuable
under certain terms over 36 months until the common stock issued has reached a
total realized cash value of $18,000,000. As a result, 10,500,000 shares of
common stock for the initial block were valued at $420,000 and recorded as a
liability for stock to be issued and 100,000,000 shares of common stock in
reserve were valued at $4,000,000 and also recorded as a liability for stock to
be issued.
In September 2015, the Company entered
into Global Settlement Agreements with various promissory note holders in which
$721,000 in the aggregate of remaining outstanding note balances were settled
and satisfied for shares of the Companys common and Series G preferred stock.
As a result, 636 shares of Series G preferred stock were valued at $0.06 and recorded as a
liability for stock to be issued.
In October 2015, the Company entered
into Global Settlement Agreements with various promissory note holders in which
$25,000 in the aggregate of remaining outstanding note balances were settled and
satisfied for shares of the Companys common and Series G preferred stock. As a
result, 23 shares of Series G preferred stock were valued at $0.002 and recorded
as a liability for stock to be issued.
F-12
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 6-
|
NOTES PAYABLE, PREFERRED AND
COMMON
STOCK, AND WARRANTS
|
Promissory Notes
The Company entered into a short term
$200,000 Promissory Note on September 18, 2014. The note is scheduled to mature
with the completion of the Companys next round of financing under certain
terms. Interest on the note is fixed and stated at 20,000 shares of the
Companys restricted common stock. In May 2015 the note was settled for a cash
and common stock combination totaling $350,000. The cash portion is for a total
of $90,000 payable under certain terms. The stock portion is for 5,000,000
unrestricted common shares at settlement and for a common stock true-up
issuable under certain terms until the combined total of cash repaid and common
stock issued has reach a total value of $350,000. In June 2015 the cash portion
of the settled note has been repaid and the remaining unissued common stock
portion of the settled note has been valued at $260,000 and recorded as a
liability for common stock to be issued.
In October 2014, the Company entered
into a short term $250,000 Promissory Note with an individual. The note had a
maturity of 30 days and interest on the note was fixed at 175,000 shares of
common stock. During October 2014, the Company made a $40,000 payment on the
note for an extension of the notes maturity. In October of 2014, as an
inducement to extend this note, the Company included interest at the rate of 10%
of the outstanding principal per annum, and extended the note through October 9,
2015. During September 2015, the note and any accrued interest were settled with
the Holder for 173 shares of preferred stock Series G and with the Holder and
all assignees combined for 2,000,000,000 shares of common stock.
In October 2014, the Company entered
into a short term $450,000 Promissory Note with an individual. The note had a
maturity of 60 days and interest on the note was fixed at 300,000 shares of
common stock. In December of 2014, as an inducement to extend this note, the
Company included interest at the rate of 10% of the outstanding principal per
annum, and extended the note through October 14, 2015. During September 2015,
the note and any accrued interest were settled with the Holder for 415 shares of preferred stock Series G
and with the Holder and all assignees combined for 1,750,000,000 shares of
common stock.
F-13
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
In October 2014, the Company entered
into a short term $250,000 Promissory Note with an individual. The note had a
maturity of 60 days and interest on the note was 7% per annum. During December
2014, the Company repaid the note in its entirety.
In October 2014, the Company entered
into a short term $100,000 Promissory Note with an individual. The note had a
maturity of 90 days and repayment on the note was fixed at 103% and 100,000
shares of common stock at maturity. During October 2015, the note was amended
and any accrued interest was settled with the holder for 65,000,000 shares of
common stock (under certain terms as defined in the amendment) and all notes
plus accrued interest with all assignees combined were settled for 23 shares of
preferred stock Series G and 115,000,000 shares of common stock.
In October 2014, the Company entered
into a short term $40,000 Promissory Note with an individual. The note had a
maturity of one year and interest on the note is fixed at 10% per annum. In May
2015, the note and any accrued interest were settled for 22,000,000 unrestricted
shares of common stock.
In October 2014, the Company
negotiated and completed a settlement and full satisfaction of certain
promissory and demand notes. The settlements included the issuance of 4,600,000
shares of common stock during September 2014 and payments of $450,000 during
October 2014.
In December 2014, the Company entered
into a short term $205,000 Promissory Note with an entity. The note has a
maturity of one year and interest on the note is fixed at 10% per annum. During
January 2015, the Company made total repayments of $114,000 on the note. Certain
portions of the note have been assigned under similar terms by the Holder.
During September 2015, the note and any accrued interest were settled with the
Holder for 48 shares of preferred stock Series G and with the Holder and all
assignees combined for 2,450,000,000 shares of common stock. During January 2016
the settlement with the holder was amended to 42 shares of preferred stock
Series G.
In December 2014, the Company issued a
promissory note with a principal amount of $350,000 with 350,000 shares of
Common Stock pursuant to a private placement. The note matures in 36 months and
interest on the note is fixed at 12% and provides for regularly scheduled
interest payments which shall be made quarterly in arrears. In addition, the
Company agreed to pay to the placement agent a fee of 10% of the aggregate
purchase price received by the Company and a warrant equal to 10% of the
aggregate number of shares issued in the offering. The Company accrued fees of
$35,000 and 35,000 warrants to the placement agent during 2014. The Company paid the accrued fees of $35,000
to the placement agent during February 2015.
F-14
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
In January 2015, the Company issued a
promissory note of $300,000 with 300,000 shares of Common Stock to be issued
pursuant to a private placement. The note matures in 36 months and bears
interest at 12% per annum, payable quarterly in arrears. In addition, the
Company agreed to pay to the placement agent a fee of 10% of the aggregate
purchase price received by the Company. The Company paid $30,000 to the
placement agent during February 2015.
In January 2015, the Company sold a
$220,000 Promissory Note to an unrelated individual. The note has a maturity of
one year and bears interest at 10% per annum. During September 2015, the note
and any accrued interest were settled as part of a global settlement,
satisfaction and release with the Holder.
In February 2015, the Company sold a
$170,000 Promissory Note to a related individual. The note has a maturity of one
year and bears interest at 10% per annum. In May 2015 the holder issued a notice
of default to the Company and certain default provisions of the note were
triggered. In June 2015 the holder issued an extension letter to the Company
extending the due date to June 30, 2015. In July 2015, the holder further issued
another extension letter to the Company extending the defaulted note with
additional default provisions to December 31, 2015. The Note has been settled
for cash and common shares during Jan 2016. See Note 13 for settlement details.
In February 2015, the Company sold
Promissory Notes totaling $142,000 as a result of private placements. These
notes mature in 36 months and bears interest at 12% per annum payable quarterly
in arrears. In addition, the Company agreed to pay to the placement agent a fee
of 10% of the aggregate purchase price received by the Company and a warrant
equal to 10% of the aggregate number of shares issued in the offering. The
Company paid fees of $14,200 in cash and 14,200 warrants to the placement agent
during 2015.
In May 2015, the Company sold a
$160,000 Promissory Note which has a maturity date of January 29, 2016 and bears
interest at 10% per annum and is currently in default.
During December 2015, the Company sold
Promissory Notes to various individuals and entities for an aggregate principal
amount of $81,250 along with 4,062,500,000 shares of the Companys common stock.
These notes mature in 36 months and bear interest at 12% per annum payable
quarterly in arrears.
F-15
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
During December 2015, the Company sold
Promissory Notes to various individuals totaling $20,001. These notes mature in
36 months and bear interest at 10% per annum.
Promissory Notes -
Convertible
The Company sold a convertible
promissory note to an unrelated entity on November 10, 2014 for $440,000. The
note has a term of six months and accrues interest at 18% per annum. At any time
during the term, the holder may convert the outstanding balance into common
shares at a fixed conversion price of $1.00 per share. In May 2015, the Company
received a notice of default from the holder. During October 2015, the note and
any accrued interest were packaged along with an additional defaulted
convertible note and were assigned to an unrelated entity as a new senior
secured original issue discount convertible promissory note.
The Company sold a convertible
promissory note to an unrelated entity on November 10, 2014 for $660,000. The
note has a term of six months and accrues interest at 18% per annum. At any time
during the term, the holder may convert the outstanding balance into common
shares at a fixed conversion price of $1.00 per share. In June 2015, the Company
received a notice of default from the holder. During October 2015, the note and
any accrued interest were packaged along with an additional defaulted
convertible note and were assigned to an unrelated entity as a new senior
secured original issue discount convertible promissory note.
The Company sold a convertible
promissory note to an unrelated entity on August 11, 2015 for $15,000. The note
has a term of twelve months and accrues interest at 18% per annum. At any time
upon 10 days written notice to the holder, the Company may prepay the principal
amount of the note and any accrued and unpaid interest in an amount equal to the
sum of the outstanding principal amount and interest multiplied by 120%. At any
time during the term, the holder may convert the outstanding balance at a
conversion price equal to 60% of the lowest daily Volume Weighted Average Price
(VWAP) of the 20 trading days prior to conversion (and as defined in the note)
of the Companys common stock.
Promissory Notes Original
Issue Discount
During September 2015, the Company
issued original issue discount notes (OID Notes) to various individuals for an
aggregate principal amount of $192,500 along with 218,750,000 shares of the
Companys common stock. The OID Notes mature in 12 months and were issued at an
original issue discount of $175,000. No regularly scheduled interest payments
shall be made on the OID Notes.
F-16
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
During October 2015, the Company
issued an original issue discount note to an entity in the principal amount of
$55,000 along with 62,500,000 shares of the Companys common stock. The OID Note
matures in 12 months and was issued at an original issue discount of $50,000. No
regularly scheduled interest payments shall be made on the OID Note.
During November 2015, the Company
issued an original issue discount note to an individual in the principal amount
of $66,000 along with 75,000,000 shares of the Companys common stock. The OID
Note matures in 12 months and was issued at an original issue discount of
$60,000. No regularly scheduled interest payments shall be made on the OID Note.
During December 2015, the Company
issued an original issue discount note to an individual in the principal amount
of $11,000 along with 12,500,000 shares of the Companys common stock. The OID
Note matures in 12 months and was issued at an original issue discount of
$10,000. No regularly scheduled interest payments shall be made on the OID Note.
During December 2015, the Company
issued original issue discount notes (OID Notes) to various individuals and
entities for an aggregate principal amount of $44,000 along with 50,000,000
shares of the Companys common stock. The OID Notes mature in 36 months and were
issued at an original issue discount of $40,000. No regularly scheduled interest
payments shall be made on the OID Notes.
Promissory Notes Original
Issue Discount Convertible
During 2014, the Company issued
original issue discount convertible notes (the OID Notes) with an aggregate
principal amount of $1,235,218 with warrants to acquire up to 823,530 shares of
Common Stock at $1.00 per share as described below. The OID Notes mature in 13
months and were issued at an original issue discount of $185,283. No regularly
scheduled interest payments shall be made on the OID Notes. The OID Notes may be
converted by the investors into the Companys common stock at the lower of (i)
$0.75 or (ii) 80% of the per share price of the Companys equity securities sold
in a future public offering. The warrants give each investor, for five years
from the date of issuance, the right to purchase the Companys common stock at
(i) $1.00 or (ii) 80% of the lowest per share price of the Companys common
stock sold by the Company in any future public offering, during the period that
the investors OID Note is outstanding. The OID Notes and related warrants
contain anti-dilution provisions. In addition, the Company agreed to pay to the
placement agent a fee of 10% of the gross proceeds received by the Company and a
warrant equal to 10% of the aggregate number of shares issuable upon conversion
of the Notes at an exercise price equal to 110% of the warrant exercise price.
The Company paid fees of $104,935 in cash and 164,706 warrants to the placement agent during 2014. The
Company is currently in negotiations with the holders and a third party to have
the notes purchased and assigned.
F-17
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
On June 26, 2015, the Company sold 18%
Convertible Promissory Notes in the principal amount of $560,000 (Notes)
pursuant to a Securities Purchase Agreement (the SPA) for an aggregate of
$500,000. The purchase was to occur in three tranches with only the first
tranche of $200,000 reflecting a $24,000 note discount funded at closing.
The Note matures in 12 months and
accrues interest at a rate of 18% per annum. No regularly scheduled interest
payments shall be made on the Note. At any time upon 10 days written notice to
the Holder, the Company may prepay the principal amount of the Note and any
accrued and unpaid interest in an amount equal to the sum of the outstanding
principal amount and interest multiplied by 120%. The Note may be converted by
the Holder into the Companys common stock at a conversion price equal to $0.02
or 60% of the lowest daily VWAP (as defined in the SPA) of the Companys common
stock.
During July 2015, the Holder converted
$200,000 of the $224,000 note into 38,711,548 shares of the Companys common
stock. No subsequent tranches have closed or have been funded and no subsequent
conversions have been requested or made by the Holder.
Additionally, during July 2015, the
Holder acquired certain promissory notes previously issued by the Company from
other note holders in the aggregate principal amount of $350,000 and exchanged
these notes for certain 18% Convertible Promissory Notes (Exchange Notes) of
the Company pursuant to certain Exchange Agreements (Exchange Agreements).
The Exchange Notes mature in 12 months
and accrue interest at a rate of 18% per annum. No regularly scheduled interest
payments shall be made on the Exchange Notes. At any time upon 10 days written
notice to the Holder, the Company may prepay the principal amount of the
Exchange Note and any accrued and unpaid interest in amount equal to the sum of
the outstanding principal amount and interest multiplied by 120%. The Exchange
Notes may be converted by the investors into the Companys common stock at a
conversion price equal $0.02 or 60% of the lowest daily VWAP (as defined in the
Exchange Agreement) of the Companys common stock.
During July 2015, certain portions of
the Exchange Note have been assigned under similar terms by the Holder. During
2015, the Exchange Note assignees have collectively converted $183,896 of the
$300,000 combined assigned exchange notes into shares of the Companys common
stock. No subsequent exchanges have closed or have been funded by the Holder.
F-18
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Promissory Notes Senior
Secured Original Issue Discount Convertible
During October 2015, as part of the
packaging and assignment of defaulted convertible notes, the Company issued a
$1,300,000 senior secured convertible promissory note to an unrelated entity.
The note has an Original Issue Discount of $100,000, bears interest at 15% per
annum and matures July 8, 2016. At any time during the term, the holder may
convert the outstanding balance at a conversion price equal to the lower of (i)
50% discount of the lowest intra-day trading price of the 30 trading days prior
to conversion or (ii) 50% discount of the lowest intra-day trading price of the
20 trading days immediately prior to note execution (and as further defined in
the note) into the Companys common stock. Any default on the note (as defined
by the note) will increase the conversion discount to 55%. The obligations under
the note are secured by an unconditional first priority security interest in and
to any and all property (as defined by the note) of the Company.
During November 2015, the holder
converted $6,902 of principal and interest into 34,813,000 shares of the
Companys common stock and recorded as a liability for stock to be issued.
Preferred Stock
The Company has amended its
certificate of designation to authorize the issuance of 6 separate series of
preferred stock.
The Series A Preferred Stock shares
are non-convertible, and have super voting rights of 200 to 1 versus the Common
Stock. In June 2011, 100,000 shares of Series A Preferred Stock were issued to
the principal owners of Millennium Healthcare Solutions Inc. upon the
acquisition of the net assets of that company. In January 2012, the Company
issued 100,000 shares, in December 2013, the Company issued 300,000 shares, in
July 2014 the Company issued 100,000 shares and in March 2015 the Company issued
400,000 shares of Series A Preferred Stock to senior management of the Company.
Each share of this preferred has 200 votes in matters where shareholder votes
are required. These shares are not convertible and are not transferable and,
accordingly, management has attributed a nominal value to these shares (see Note 11).
In March 2015, the Company filed an
amendment to its Designation, Number, Voting Powers, Preferences and Rights of
Series A Preferred Stock. With this amendment, the holders of Series A Preferred
Stock vote together as a single class with common stock holders and any other
class or series of shares entitled to vote with the common stock, with the
holders of the Series A Preferred Stock being entitled to fifty-one percent
(51%) of the total votes on all such matters regardless of the actual number of
shares of Series A Preferred Stock then outstanding, and the holders of common stock and any other shares entitled to
vote being entitled to their proportional share of the remaining 49% of the
total votes based on their respective voting power.
F-19
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The Series B Preferred Stock is
convertible into shares of common stock for each preferred share at a conversion
price of $1.50 at any time on or after January 1, 2012, as well as providing for
a quarterly dividend of 8% per annum commencing July 1, 2012.
Series B Preferred Stock shall rank:
(i) junior to the Companys Series A Preferred Stock and any class or series of
capital stock hereafter created specifically ranking by its terms senior to the
Series B Preferred Stock (collectively, Senior Securities); (ii) senior to all
the Companys Common Stock (Common Stock); (iii) senior to any class or series
of capital stock of the Company hereafter created not specifically ranking by
its terms senior to or on parity with the Series B Preferred Stock
(collectively, with the Common Stock, Junior Securities); and (iv) on parity
with any class or series of capital stock of the Company specifically ranking by
its terms on parity with the Series B Preferred Stock (Parity Securities) in
each case as to distributions of assets upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (all such distributions
being referred to collectively as Distributions).
There are no Series B Preferred shares
issued or outstanding nor any dividends accrued or payable.
The Series E Preferred Stock is
convertible into 65 shares of common stock for each preferred share at any time
after June 1, 2014 and convert automatically on May 31, 2018, as well as
providing for an annual dividend of $0.80 per share per year. Concurrent with
the designation of the Series E Preferred Stock, the Company exchanged the
126,280 shares of Series D Preferred Stock into Series E Preferred Stock. The
Company issued 3,384 additional shares of Series E Preferred Stock to holders as
payment of $33,843 in accrued dividends during the year. Accrued dividends
through December 31, 2013 were $25,936. In February 2014, the Company issued
2,594 shares of Series E Preferred Stock to holders as payment of the $25,936 in
accrued dividends through December 31, 2013. Accrued dividends for the Series E
Preferred Stock through September 30, 2014 were $26,452.
During November 2014, the Company
entered into a series of settlement agreements with all holders of the Series E
Preferred Stock. As a result, a final dividend payment of $75,000 was made,
8,596,770 common shares were issued in conversion and 5,000,000 common shares
were issued in settlement. There are no Series E Preferred shares issued or
outstanding nor any dividends accrued or payable.
F-20
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The Series F Preferred Stock (Series
F) provides for a quarterly dividend of 10% of the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") and is payable on a
quarterly basis, beginning after two quarters following the issue date. Holders
are not entitled to receive any dividend from the Company after they have
received an aggregate of $1.20 per share. Once holders receive an aggregate of
$1.20 for each share held, all Series F shall expire and/or be redeemable for
$1.
Series F is: (i) junior to any class
or series of capital stock of the Company specifically ranking by its terms
senior to any Series F Preferred Stock of whatever subdivision; (ii) prior to
any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with any Series F of
whatever subdivision; and (iii) on parity with any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the Series F Preferred Stock in each case as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
The Company sold 1,950,000 units and
raised $1,950,000 under a private placement during 2013. The Company sold
1,050,000 units and raised $1,050,000 through March 31, 2014 for a total of
3,000,000 units sold and $3,000,000 raised for this private placement. Each unit
consisted of one share of common stock and one share of Series F. As a result,
3,000,000 shares of Series F were to be issued, in which 550,000 shares were
issued during 2013 and 2,450,000 shares valued at $1,356,500 were recorded as a
liability for stock to be issued. Due to the redeemable nature of the Series F,
the unit price was allocated between the Common stock and Series F and the
Series F is recorded as a preferred stock liability in the accompanying
consolidated financial statements for the Series F shares that have been issued.
This private placement is closed and will have no future participation.
During 2015, the Company entered into
Satisfaction Agreements and Releases with various Series F holders in which
700,000 shares in the aggregate of Series F preferred stock were surrendered and
exchanged for 2,840,000 shares in the aggregate of the Companys common stock.
Further, 240,000 of these common shares were issued and 2,600,000 shares valued
at $390,000 were recorded as a liability for common stock to be issued.
See Note 5 for various settlements.
In March 2014, the Company amended the
certificate of designation to authorize a Series G Preferred Stock. During the
six months ended June 30, 2014, the Company sold 1,175 units for $1,000 per
unit. Each unit consisted of 1,000 shares of common stock and 1 share of Series
G preferred stock. Holders of Series G Preferred Stock shall be entitled to
receive, along with the Series F Holders, an aggregate quarterly dividend of 10%
of the Corporations earnings before interest, taxes depreciation and
amortization (EBITDA) computed under the generally accepted accounting
principles (GAAP). For purposes of allocating the 10% dividend proportionally
to the Series F and G Preferred Holders, G Preferred Shares will be weighted and
valued at 1,000 times that of Series F. Dividends on Series G Preferred Stock
shall be payable on a quarterly basis, beginning after two quarters following
the original issue date (Issuance Date). Holders Series G Preferred Stock
shall not be entitled to receive any dividend from the Corporation once they
have received an aggregate of $1,200 for every share of Series G Preferred Stock
they hold.
F-21
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Series G Preferred Stock shall rank:
(i) junior to any class or series of capital stock of the Corporation
specifically ranking by its terms senior to any Series G Preferred Stock of
whatever subdivision (collectively, Senior Securities); (ii) prior to any
class or series of capital stock of the Corporation hereafter created not
specifically ranking by its terms senior to or on parity with any Series G
Preferred Stock of whatever subdivision (collectively, Junior Securities); and
(iii) on parity with any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms on parity with the Series G
Preferred Stock (Parity Securities) in each case as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (all such distributions being referred to collectively
as Distributions).
The Company sold 4,920 units and
raised $4,920,000 under a private placement through December 31, 2014. Each unit
for this private placement consisted of one thousand shares of common stock and
one share of Series G. As a result, 4,920 shares of Series G were to be issued,
were valued at $1,747,300 and recorded as a liability for stock to be issued.
The Company sold 418 units and raised
$418,000 under a private placement through December 31, 2015. Each unit for this
private placement consisted of one thousand shares of common stock and one share
of Series G. As a result, 418 shares of Series G were to be issued, were valued
at $397,580 and recorded as a liability for stock to be issued.
See Note 5 for various settlements.
Common Stock
In April 2015, the Company filed a
certificate of amendment with the Secretary of State of Delaware to increase the
authorized common shares to 350,000,000 shares.
F-22
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
In July, 2015, the Company filed a
certificate of amendment to its Certificate of Incorporation to increase the
number of authorized shares of common stock of the Company from 350,000,000
shares to 950,000,000 shares.
In November, 2015, the Company filed a
certificate of amendment to its Certificate of Incorporation to increase the
number of authorized shares of common stock of the Company from 950,000,000
shares to 10,950,000,000 shares.
The Companys Board has approved up to
a 5,000 to 1 reverse stock split.
The Company issued 56,500,000 shares
of common stock for consulting and other services during the year ended December
31, 2015.
The Company entered into satisfaction,
exchange and release agreements with certain Preferred Stock holders, in which
the holders exchanged respective shares held of the Companys Preferred Stock
for shares of the Companys common stock totaling 2,840,000 shares during the
twelve months ended December 31, 2015.
The Company entered into satisfaction
and release agreements with certain warrant holders, in which the holders
exchanged respective warrants held for shares of the Companys common stock
totaling 176,100,299 shares during the twelve months ended December 31, 2015.
The Company entered into satisfaction
and release agreements with certain note holders, in which the holders exchanged
respective promissory notes held for shares of the Companys common stock
totaling 224,500,000 shares during the twelve months ended December 31, 2015.
The Company entered into various
settlement and release agreements with certain placement agents and others in
which the agents and other parties received 5,986,752 shares of the Companys
common stock as full settlement for any disputes during the twelve months ended
December 31, 2015.
The Company authorized and approved
the return and cancellation of an aggregate of 24,000,000 shares of common stock
held by certain officers and directors of the Company and the issuance of
three-year warrants to purchase 30,000,000 shares of common stock. The warrants
may be exercised on a cashless basis and contain other customary terms (see Note 11).
The Company issued in the aggregate
148,064,384 shares of common stock as a result of certain note holders
converting certain convertible promissory notes into the Companys common stock
in accordance to the terms of the respective notes.
F-23
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The Company issued in the aggregate
8,720,000 shares of common stock as a result of certain private placement
agreements during the twelve months ended December 31, 2015.
The Company considered the settlements and conversions of debt referred to in Note 5 and above as extinguishments of debt in accordance with ASC 405. The Company recorded the difference between the reacquisition price and the net carrying amount of the debt being extinguished as a loss on extinguishment of debt on the accompanying statement of operations.
Warrants
During the year ended December 31,
2014, the Company settled and cancelled 8,300,000 warrants at exercise prices
ranging from $.50 to $1.00 per share. During the twelve months ending December
31, 2014, the Company issued 17,688,236 warrants at exercise prices ranging from
$.13 to $3.00 per share. All of the warrants are vested and remain outstanding.
The warrants have a weighted average price of $.12.
Consultant warrants provided for
services to be rendered for one year. The Company issued 1,700,000 consultant
warrants and cancelled 500,000 consultant warrants during 2014. Such warrants
vested over one year.
The Company issued 823,530 warrants at
an exercise price of $1.00 per share to certain convertible note holders. The
Company agreed to pay the placement agent a commission of warrants equal to 10%
of the aggregate number of shares issuable upon conversion of these convertible
notes at an exercise price equal to 110% of the warrant exercise price. The
Company issued 164,706 warrants to the placement agent during 2014.
The Company authorized and approved
12,000,000 warrants, with an exercise price of $0.25, for its executive officers
during 2014.
The Company entered into a warrant
settlement and exchange agreement with an existing warrant holder. As a result,
the Company issued 3,000,000 warrants with an exercise price of $.16 and
cancelled 2,000,000 warrants with exercise prices ranging from $.50 to $1.00
during 2014.
The Company entered into release
agreements with two note and warrant holders. As a result, the Company cancelled
2,500,000 warrants with exercise prices ranging from $.50 to $1.00 during 2014.
The Company entered into a settlement
agreement with a warrant holder. As a result, the Company cancelled 3,300,000
warrants with exercise price of $.50 during 2014.
The Company agreed to pay the
placement agent of a private placement a fee of warrants equal to 10% of the
aggregate number of shares issued in the offering. As a result, the Company
issued 14,200 five-year warrants at an exercise price of $0.08 to the placement
agent during 2015.
F-24
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The Company authorized and approved
60,000,000 warrants at an exercise price of $0.025 for its executive officers
and employees during 2015.
The Company authorized and approved
the return and cancellation of an aggregate of 24,000,000 shares of common stock
held by certain officers and directors of the Company and the issuance of
three-year warrants to purchase in the aggregate 30,000,000 shares of common
stock to these certain officers and directors. The warrants may be exercised on
a cashless basis and contain other customary terms.
The Company entered into a series of
satisfaction agreements and releases with various holders of the Companys
warrants during 2015, pursuant to which holders exchanged warrants to purchase
an aggregate of 1,560,000 shares of the Companys common stock with exercise
prices ranging from $.50 to $3.00 for an aggregate of 222,450,000 shares of the
Companys common stock.
As a result of the Company entering
into certain promissory note assignment agreements, during July 2015 the Company
entered into various amendment agreements with these former note holders for
their existing warrants. As a result, the Company amended 607,843 warrants in
the aggregate to an exercise price of $.10 along with certain other restated
terms and amendments to the original agreements.
As of December 31, 2015 there were
17,602,436 warrants outstanding.
The Company used the black-scholes
method to value the warrants, with the following inputs: volatility 464.80%;
quarterly dividend percentage 0%; and discount rate of 0.95% .
The reconciliation of income tax
benefit at the U.S. statutory rate of 34% for the years ended December 31, 2015
and 2014 to the Companys effective tax rate is as follows:
|
|
Years
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
U.S. federal statutory
rate
|
|
-34.0%
|
|
|
-34.0%
|
|
State income tax, net of federal
benefit
|
|
-6.0%
|
|
|
-6.0%
|
|
Permanent differences
|
|
-0.8%
|
|
|
-0.8%
|
|
Change in valuation allowance
|
|
40.8%
|
|
|
40.8%
|
|
Income Tax provision
(benefit)
|
|
0.0%
|
|
|
0.0%
|
|
F-25
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
The benefit for income tax is
summarized as follows:
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
Current
|
$
|
-
|
|
$
|
-
|
|
Deferred
|
|
(11,993,000
|
)
|
|
(9,023,000
|
)
|
State:
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Deferred
|
|
(2,116,000
|
)
|
|
|
|
Change in valuation
allowance
|
|
14,109,000
|
|
|
9,023,000
|
|
Income Tax provision (benefit)
|
$
|
-
|
|
$
|
-
|
|
The tax effects of temporary
differences that give rise to the Companys net deferred tax liability as of
December 31, 2015 and December 31, 2014 are as follows:
|
|
December
|
|
|
December
|
|
|
|
31, 2015
|
|
|
31, 2014
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
Net operating losses
|
$
|
45,142,000
|
|
$
|
15,599,000
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
Impairment
|
$
|
-
|
|
$
|
1,618,000
|
|
Allowance for doubtful accounts
|
|
2,978,000
|
|
|
1,200,000
|
|
|
|
2,206,000
|
|
|
2,818,000
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
42,164,000
|
|
|
12,781,000
|
|
Less: Valuation allowance
|
|
(42,164,000
|
)
|
|
(12,781,000
|
)
|
|
$
|
-
|
|
$
|
-
|
|
F-26
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
As of December 31, 2015, the
Company had approximately $71,000,000 of federal and state net operating loss
carryovers (NOLs) which begin to expire in 2030. Utilization of the NOLs may
be subject to limitation under the Internal Revenue Code Section 382 should
there be a greater than 50% ownership change as determined under regulations.
In assessing the realization of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based on the assessment, management has established a
full valuation allowance against the entire deferred tax asset relating to NOLs
for every period because it is more likely than not that all of the deferred tax
asset will not be realized.
The Company files U.S. federal and
state of New York tax returns that are subject to audit by tax authorities
beginning with the year ended December 31, 2011. The Companys policy is to
classify assessments, if any, for tax and related interest and penalties as tax
expense.
NOTE 8-
|
FAIR VALUE MEASUREMENTS
|
The Company adopted certain provisions
of ASC Topic 820. ASC 820 defines fair value, provides a consistent framework
for measuring fair value under generally accepted accounting principles and
expands fair value financial statement disclosure requirements. ASC 820s
valuation techniques are based on observable and unobservable inputs. Observable
inputs reflect readily obtainable data from independent sources, while
unobservable inputs reflect our market assumptions. ASC 820 classifies these
inputs into the following hierarchy:
Level 1 inputs: Quoted prices for
identical instruments in active markets.
Level 2 inputs: Quoted prices for
similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations whose
inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with
primarily unobservable value drivers.
The following table represents the
fair value hierarchy for those financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2015:
F-27
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
$
|
16,850
|
|
$
|
-
|
|
$
|
-
|
|
$
|
16,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
16,850
|
|
$
|
-
|
|
$
|
-
|
|
$
|
16,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net of debt
discount and OID
|
$
|
-
|
|
$
|
-
|
|
$
|
3,577,915
|
|
$
|
3,577,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion feature
and derivative liability
|
$
|
-
|
|
$
|
-
|
|
$
|
1,609
|
|
$
|
1,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
3,579,524
|
|
$
|
3,579,524
|
|
The following table represents the
fair value hierarchy for those financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2014:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
$
|
112,725
|
|
$
|
-
|
|
$
|
-
|
|
$
|
112,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
112,725
|
|
$
|
-
|
|
$
|
-
|
|
$
|
112,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net of debt
discount and OID
|
$
|
-
|
|
$
|
-
|
|
$
|
3,212,836
|
|
$
|
3,212,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion feature
and derivative liability
|
$
|
-
|
|
$
|
-
|
|
$
|
1,061,476
|
|
$
|
1,061,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
-
|
|
$
|
-
|
|
$
|
4,274,312
|
|
$
|
4,274,312
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Total gain/(loss) from
revaluation of derivatives included in earnings:
|
$
|
846,294
|
|
$
|
3,030,743
|
|
The carrying amounts of our short and
long term credit obligations approximate fair value because the effective yields on these obligations,
which include contractual interest rates taken together with other features such
as concurrent issuances of warrants and/or embedded conversion options, are
comparable to rates of returns for instruments of similar credit risk.
F-28
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
We calculated the fair value of the
embedded conversion feature and derivative liability using the Black-Scholes
option-pricing model with the following assumptions: Fair value of stock
$0.0004; exercise price $0.10 to $1.00; risk free interest rate 0.95%, term of 5
years; volatility rate of 464.80%; dividend yield of 0%.
The following tables provide
reconciliations of beginning and ending balances at December 31, 2015 and
December 31, 2014:
|
|
Fair Value Measurements Using
Significant Unobservable Inputs (Level 3)
|
|
|
|
Notes
|
|
|
Embedded conversion
feature
|
|
|
|
|
|
|
Payable
|
|
|
and derivative liability
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
3,212,836
|
|
|
1,061,476
|
|
|
4,274,312
|
|
Transfers into Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
Transfers out of
Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
Total gains or losses
|
|
-
|
|
|
-
|
|
|
-
|
|
included
in earnings (or changes in net assets)
|
|
-
|
|
|
(846,294
|
)
|
|
(846,294
|
)
|
included
in other comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchases,
issuances, sales, and settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchases
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuances
|
|
3,209,310
|
|
|
-
|
|
|
3,209,310
|
|
Sales
|
|
-
|
|
|
-
|
|
|
-
|
|
Settlements
|
|
(2,844,231
|
)
|
|
(213,573
|
)
|
|
(3,057,804
|
)
|
Ending balance
|
|
3,577,915
|
|
|
1,609
|
|
|
3,579,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
2,227,735
|
|
|
1,877,547
|
|
|
4,105,282
|
|
Transfers into Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
Transfers out of
Level 3
|
|
-
|
|
|
-
|
|
|
-
|
|
Total gains or losses
|
|
-
|
|
|
-
|
|
|
-
|
|
included
in earnings (or changes in net assets)
|
|
718,937
|
|
|
(3,030,743
|
)
|
|
(2,311,806
|
)
|
included
in other comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchases, issuances, sales, and
settlements
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchases
|
|
-
|
|
|
-
|
|
|
-
|
|
Issuances
|
|
3,617,584
|
|
|
2,214,672
|
|
|
5,832,256
|
|
Sales
|
|
-
|
|
|
-
|
|
|
-
|
|
Settlements
|
|
(3,351,420
|
)
|
|
-
|
|
|
(3,351,420
|
)
|
Ending balance
|
|
3,212,836
|
|
|
1,061,476
|
|
|
4,274,312
|
|
F-29
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
During 2015, the Company abandoned all
its leased premises. As a result, the Company accrued the future minimum amounts
of $3,481,591 in the aggregate, which would be payable under the leases.
Rental expense charged to operations
aggregated $513,426 and $672,565 for the twelve months ended December 31, 2015
and 2014, respectively.
In November 2015, the Company entered
into a consulting agreement with a specialty global advisory company to perform
certain business development, marketing, imaging and related services for the
Company. The Company is to issue 100,000,000 shares of its common stock and
$2,500 per quarter in arears to the consultant as compensation. As a result,
100,000,000 shares of common stock were valued at $60,000 and recorded as a
liability for stock to be issued with 50,000,000 shares subsequently issued.
In December 2015, the Company entered
into a joint marketing agreement, and as further amended February 2016, with an
investor relations, financial media, and research firm for microcap, small-cap,
and mid-cap stocks to perform certain investor relations and related programs
for the Company. Compensation is stated, as amended, at $6,000 with execution
for first month, the issuance of 150,000,000 shares of common stock for months 2
through 7, and then $6,000 per month starting with month 8 and going forward.
Employment Agreements
The Company has entered into
employment agreements and has amended employment agreements with additional and
existing key management individuals in 2014. The Company has issued stock
bonuses which vest over a one to three-year period to certain individuals. The
unvested portion is reflected as deferred compensation, with the vested portion
expensed as stock based compensation.
The Company has entered into
employment agreements with additional and existing key management individuals in
2015. The agreement terms range from three years to five years and the Company
is to issue certain cash bonuses for certain objectives being met and certain
stock bonuses which vest over a six month to five year period to certain individuals. The unvested
portion is reflected as deferred compensation, with the vested portion expensed
as stock based compensation. During 2015, certain of these key management
individuals were no longer employed by the Company and any deferred compensation
has been fully amortized.
F-30
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 10-
|
CREDIT RISK AND OTHER
CONCENTRATIONS
|
Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents and trade receivables. The Company places
its cash with high credit quality financial institutions. At times, such cash
and cash equivalents may exceed the FDIC insured limit of $250,000.
Accounts receivable, net of allowance,
from two customers were $4,775,507, which accounted for approximately 92% of the
total receivables at December 31, 2014.
Revenue from one customer was
$450,000, which accounted for approximately 60% of the total revenues for the
twelve months ended December 31, 2015 and revenue from one customer was
$5,794,212 and from another was $1,800,000, which accounted for approximately
69% and 22% of the total revenues, respectively for the twelve months ended
December 31, 2014.
NOTE 11-
|
RELATED PARTY TRANSACTIONS
|
In 2013 the Company retained an entity
wholly owned by the spouse of the Chief Executive Officer of the Company, to
furnish support and administrative consulting services and an entity wholly
owned by the spouse of the Chief Financial Officer of the Company, to furnish
bookkeeping/accounting support and administrative consulting services. For the
year ending December 31, 2015 consulting expenses accrued but unpaid related to
these services were $60,000 and $20,000, respectively, and for the year ending
December 31, 2014 consulting expenses related to these services were $150,000
and $37,500, respectively. The services provided by either consultant did not
consist of any executive, officer or directorship responsibilities and as of
June 2015, both consultants have been disengaged by the Company and are no
longer providing services to the Company.
In February 2015, the Company sold a
$170,000 Promissory Note to a relative of the Chief Executive Officer of the
Company. The note has a maturity of one year and interest on the note is fixed
at 10% per annum and is currently in default. See Note 6 for further transaction
details.
In March 2015 the Company issued 400,000 shares of Series A Preferred Stock to senior management of the company in exchange for 23,500,000 shares of common stock held by them (See Note 6).
F-31
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
On August 11, 2014, LMARK Holding LLC
(LMARK) and Cypress Drive Partners LLC (Cypress) (Cypress and LMARK are
collectively referred to as the Members) filed a summonss and complaint in
the United States District Court Eastern District of New York against the
Company (the Federal Action). The complaint (among other allegations) alleges
that the Members sought to convert their respective Series E Preferred Shares
and the Company refused to honor their requests. The complaint asks that the
court order the Company to issue 1,950,000 unrestricted shares of its common
stock to the Members. The Complaint asserts claims for breach of contract and
alleges that the Members were injured in an amount to be determined at trial but
not less than $1,000,000. The Company denies these allegations.
On November 13, 2014, the Company,
Cypress and LMARK entered into a Settlement Agreement. Pursuant to the
Settlement Agreement, on or before November 20, 2014, the Company shall issue:
812,500 shares of unrestricted common stock to Cypress in full conversion of
their 12,500 Series E Preferred Shares, (ii) 1,137,500 unrestricted shares of
common stock to LMARK in full conversion of their 17,500 Series E Preferred
Shares, (iii) 416,000 restricted shares of common stock to LMARK and (iv)
584,000 restricted shares of common stock to Cypress. The parties agreed to
promptly file a Stipulation of Voluntary Dismissal with Prejudice of the Federal
Action. The Company received a release (subject to the terms of the Settlement
Agreement) from Cypress and LMARK including with respect to the claims in the
Federal Action and the Company gave Cypress and LMARK a release (subject to the
terms of the Settlement Agreement).
On August 12, 2014, Aquafina Design
LLC whose purported members are Cypress and LMARK, filed a summons and complaint
with the Supreme Court of the State of New York, county of Nassau (the Aquafina
Action) asserting that it provided the Company with certain loans, and was
issued (among other securities) 110,000 detachable warrants, with each warrant
giving it the right to purchase 30 common shares, for a total of 3,300,000
common shares. The complaint further asserts that Aquafina exercised all of its
warrants on a cashless basis on March 5, 2014 and was entitled to receive
1,312,048 unrestricted common shares and that the Company has not issued such
shares. The complaint seeks compensatory damages for breach of contract in favor
of Aquafina in an amount to be determined at trial, but not less than
$1,088,990. The Company denies these allegations.
On November 13, 2014, the Company and
Aquafina entered into a Settlement Agreement. Pursuant to the Settlement
Agreement, the Company agreed to issue 2,000,000 restricted shares of common
stock on or before November 20, 2014, in full satisfaction of any and all issues
set forth in the Settlement Agreement, including but not limited to any claims for cashless warrants
or a preferred offering. The Company also received a release from Aquafina
pursuant to which Aquafina released all claims set forth in the Aquafina Action
(subject to the terms of the Settlement Agreement) and the parties agreed to
promptly file a Stipulation of Discontinuance with Prejudice of the Aquafina
Action. Pursuant to the Settlement Agreement the Company also gave Aquafina a
release (subject to the terms of the Settlement Agreement).
F-32
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
In March 2015, a notice of petition to
confirm an arbitration award was filed against one of the Companys subsidiaries
(the Subsidiary) in the Supreme Court of the State of New York, County of
Nassau (the Petition). The Petition (among other stipulations) included an
application to confirm and enforcement of a prior arbitration award. In June,
2015 a notice of judgement for the Petition was filed against the Subsidiary
ordering and granting the arbitration award of $89,720. During February 2016, a
stipulation of settlement and further satisfaction of judgement was filed for
$10,000 fully settling and satisfying the Petition.
In April 2015, a complaint under the
Fair Labor Standards Act was filed against one of the Companys subsidiaries
(the Subsidiary) and certain current and former executives of the Company in
the United States District Court Southern District of Florida (the Complaint).
The Complaint (among other allegations) included seeking recovery for unpaid
wages disputes and other relief by certain former employees of the Subsidiary.
In September, 2015 the court approved a settlement and dismissed the case with
prejudice for $150,000. The settlement remained unpaid at December 31, 2015 and
as such the Company accrued $150,000 for the settlement. In March, 2016 a motion
for consent judgement was filed and granted against the Subsidiary and certain
current and former executives of the Company.
In October 2015, a summons and notice
of motion for summary judgement in lieu of complaint in the Supreme Court of the
State of New York, County of New York was filed against the Company (the
Motion). The Motion (among other allegations) requests an order granting the
plaintiffs summary judgements under various alleged notes aggregating $1,007,482
plus all additional accruing interest and costs of collection. The Motion
asserts claims and alleges that the Company is in default under various
promissory notes held by the plaintiffs. The Company denies these allegations
and has filed an answer in response to the motion.
In October 2015, the Company received
a notice of default from a holder of certain promissory notes. The notice
demanded the timely satisfaction of a required quarterly interest payment under
the terms of the notes. In December 2015, a summons and notice of motion for
summary judgement in lieu of complaint in the Supreme Court of the State of New
York, County of New York was filed against the Company (the Motion). The
Motion (among other allegations) requests an order granting the plaintiff summary
judgement under various notes aggregating $650,000 plus all additional accruing
interest and costs of collection. The Motion asserts claims and alleges that the
Company is in default under various promissory notes held by the plaintiff. In
April 2016, a decision and order on motion was filed granting judgement against
the Company.
The Company is currently in ongoing
negotiations to settle certain claims regarding compensation with certain former
employees.
The Company is currently in ongoing
litigation to settle certain claims regarding compensation with one of its
suppliers. The Company is currently in ongoing negotiations to settle such legal
actions.
The Company is currently in ongoing
legal proceedings to settle various claims regarding compensation with various
vendors. The Company is currently in ongoing negotiations to settle such legal
actions.
F-33
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
NOTE 13-
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SUBSEQUENT EVENTS
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Common Stock
During January through August 2016, the Company issued in the aggregate 300,000,000 shares of common stock and is to issue 3,400,000,000 shares of common stock as a result of satisfaction and release agreements with certain holders in accordance to the terms of their respective agreements.
In March 2016, the Company issued 63,304,100 shares of common stock to a note holder pursuant to a notice of conversion.
During April 2015, the Company filed a certificate of amendment with the Secretary of State of Delaware to designate the par value of common shares at $0.00001 and to effectuate a 1,500 to 1 reverse stock split for the outstanding common shares.
F-34
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Promissory Notes
During January through March 2016, the Company negotiated and completed settlements and amended settlements, full satisfactions and releases of certain promissory notes. The notes and any accrued interest and penalties were settled with the holders for 4,588,300,000 shares of common stock and $170,000 cash in the aggregate.
During April through June 2016, the Company issued promissory notes of $340,000 in the aggregate. In addition, 280,000 shares in the aggregate of post-split Common Stock are to be issued. The notes mature from 15 to 18 months and bear interest at 10% to 20% per annum. The notes also contain make whole provisions which guarantee holders 110% to 120% of the principal amount.
In July 2016, the Company issued a promissory note of $50,000 with an unrelated entity. The note matures in 6 months and bears interest at 10% per annum and post-split Common Stock equal to $150,000. The note also contains a make whole provision which guarantees the holder 110% of the principal amount.
Commitments
In February 2016, the Company entered into an amended joint marketing agreement with its’s existing investor relations firm. Compensation, as amended, at $6,000 with amendment execution for first month, the issuance of 150,000,000 shares of common stock for months 2 through 7, and then $6,000 per month starting with month 8 and going forward.
In March 2016 the Company entered into a five year employment agreement with a key executive, pursuant to which, the executive will earn an annual base salary of $264,000, plus a minimum annual bonus and other benefits.
During first quarter 2016, the Company negotiated and entered into an asset purchase and sale agreement for certain assets of one of its subsidiaries. The selling price consisted of cash, debt forgiveness and certain limited services for an aggregate value of $245,000.
F-35
MILLENNIUM HEALTHCARE INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2015 AND 2014
Contingencies
During February 2016, certain promissory note holders (“Petitioning Creditors”) filed a Notice of Involuntary Bankruptcy Case in the United States Bankruptcy Court Eastern District of New York against the Company seeking relief under Chapter 7 of the United States Bankruptcy Code with respect to the Company’s indebtedness to the Petitioning Creditors. The Company believes the Notice of Involuntary Bankruptcy is grossly incorrect and wrongfully filed and is seeking negotiated settlement and dismissal.
During July 2016, the Company entered into a settlement agreement with the Petitioning Creditors in which such Notice of Involuntary Bankruptcy Case in the United States Bankruptcy Court Eastern District of New York has been dismissed. The settlement provides for an initial cash payment with additional monthly payments made with escrow deposits of shares of the Company’s common stock.
F-36
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Millennium Healthcare Inc.
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Date: December 5, 2016
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By:
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/s/
Dominick Sartorio
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Dominick Sartorio
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Executive Chairman of the Board
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Date: December 5, 2016
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By:
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/s/
Anthony Urbano
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Anthony Urbano
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Chief Financial Officer
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In accordance with the Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name
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Title
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Date
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/s/
Dominick
Sartorio
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Executive Chairman of the Board
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December 5, 2016
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Dominick Sartorio
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/s/
Chris
Amandola
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President
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December 5, 2016
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Christopher Amandola
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/s/
Anthony
Urbano
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Chief Financial Officer
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December 5, 2016
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Anthony Urbano
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/s/
Louis
Resweber
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Chief Executive Officer
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December 5, 2016
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Louis Resweber
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42